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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 20-F

          [ ] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g)
                   OF THE SECURITIES EXCHANGE ACT OF 1934; OR

              [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                      THE SECURITIES EXCHANGE ACT OF 1934
                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999

            [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                      THE SECURITIES EXCHANGE ACT OF 1934
          FOR THE TRANSITION PERIOD                TO

                          COMMISSION FILE NO. 0-26052

                               BAAN COMPANY N.V.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

                                THE NETHERLANDS
                (JURISDICTION OF INCORPORATION OR ORGANIZATION)

                           BARON VAN NAGELLSTRAAT 89
                               3770 LK BARNEVELD
                                THE NETHERLANDS
                                      AND
                         2191 FOX MILL ROAD, SUITE 500
                          HERNDON, VIRGINIA 20171 USA
                   (ADDRESSES OF PRINCIPAL EXECUTIVE OFFICES)

SECURITIES REGISTERED OR TO BE REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

                                      NONE

SECURITIES REGISTERED OR TO BE REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
                        COMMON STOCK, NLG 0.06 PAR VALUE

 SECURITIES FOR WHICH THERE IS A REPORTING OBLIGATION PURSUANT TO SECTION 15(d)
                                  OF THE ACT:

                                      NONE

   AS OF DECEMBER 31, 1999, THE REGISTRANT HAD OUTSTANDING 220,671,146 COMMON
                                    SHARES,

                               NLG 0.06 PAR VALUE

     INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS.

                                YES [X]  NO [ ]

     INDICATE BY CHECK MARK WHICH FINANCIAL STATEMENT ITEM THE REGISTRANT HAS
ELECTED TO FOLLOW:

                            ITEM 17 [ ]  ITEM 18 [X]

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ITEM 1.  DESCRIPTION OF BUSINESS

OVERVIEW

     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 2.85 Euro per share. Details of the
offer are set forth in the Offer to Purchase and associated materials as filed
by Invensys with the U.S. Securities and Exchange Commission on June 14, 2000 in
connection with the offer. The Company's response to the offer was filed with
the SEC as a Statement on Schedule 14D-9 on June 14, 2000. 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 is
subject to certain closing conditions. 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.

     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 that
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 the 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. 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

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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 15,000 customer sites around the
world. For the year ended December 31, 1999, the Company's revenue and loss
before income taxes were approximately $619.1 million and ($309.6 million),
respectively, as compared with $735.6 million and ($335.2 million),
respectively, for the year ended December 31, 1998.

     Baan Company N.V. is a Netherlands holding company with its statutory seat
in Barneveld, The Netherlands, and conducts business through its domestic and
international subsidiaries. Baan Holding B.V., the predecessor of Baan Company
N.V., was incorporated in 1983. References in this Form 20-F to "Baan" or "the
Company," unless the context otherwise requires, relate to Baan Company N.V.,
its predecessor, Baan Holding B.V., and its subsidiaries. The Company maintains
dual headquarters at Baron van Nagellstraat 89, 3770 LK Barneveld, the
Netherlands, telephone number +31 (0) 342-428888, and at 2191 Fox Mill Road,
Herndon, Virginia, 20171, telephone number (703) 234-6000.

INDUSTRY BACKGROUND

     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 (CSM) and Supply Chain
Management (SCM).

     Like many enterprise application vendors, Baan Company's roots are in ERP.
During the late-1990s, several factors drove ERP industry growth rates in excess
of 50% per year. Some of the key drivers included:

     - Requirement to continually drive down costs in a competitive global
       economic environment,

     - Conversion of legacy systems to a new generation of products to support
       the Year 2000 (Y2K),

     - The requirement to support multi-currency reporting due to adoption of
       the Euro.

     In early 1998, market analysts expected growth rates to moderate somewhat
but continue in excess of 35% per year through the year 2001. In reality, based
on publicly available information or analysts' estimates, the leading vendors in
the ERP space saw growth rates drop unexpectedly from around 40% in the first
quarter 1998 (compared to first quarter 1997) to less than 5% growth in the
fourth quarter of 1998 (compared to the fourth quarter 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.

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     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 also 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.

     The Company believes market growth opportunities for enterprise application
vendors remain in four distinct areas:

     - 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 to integrate the
       Internet into Customer Relationship Management, Inbound Supply Chain
       Management business processes, and eventually into core manufacturing
       processes.

     - 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.

     - 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.

     - 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, operations
       management 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.

BAAN COMPANY STRATEGY

     Baan Company believes that 1999 was a transition year for the enterprise
applications market. In addition to the external and economic factors that
shaped the market in 1999, Baan Company believes that the emergence of the
Internet as a viable platform for Business-to-Business E-Commerce is driving a
tremendous technology shift in the way applications are developed, implemented,
deployed, and used. This technology shift will have a dramatic impact in the
enterprise applications market and is a key driver in shaping Baan's go-forward
strategy.

     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 for Baan in this new market scenario. Revenues, previously stated
only by geography and revenue type, were analysed 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/SCS/CRM solution
and to and 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 Q4 1999, the reorganization 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.

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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 its strong commitment to
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 positioned the Company well for what
analysts suggested would be improved market conditions for the enterprise
applications market in 2000.

DELIVERING e-FULFILLMENT TO ENGINEERING AND MANUFACTURING INDUSTRIES

     Baan believes its re-stated strategic focus positions it technologically
for a future leadership role in the emerging Business to Business (B2B)
engineering and industrial/manufacturing market. Baan believes it currently has
more engineering and manufacturing customers than its top three competitors
combined. Analysts predict that the e-commerce marketplace will grow to $2.3
billion by 2003, with more than 85% of the e-commerce revenue generated in
engineering and manufacturing vertical markets. Baan's belief in its
e-Fulfillment strategy is derived from at least the following factors:

     - Baan has the ability to deliver all the major components of
       e-Fulfillment: Logistics and Supply Chain Management, Sourcing, Inventory
       Planning, Demand Management, Master Scheduling, Production Planning,
       Procurement, Transportation, Order Management, Warehousing, Marketing,
       Sales, Configuration etc.

     - 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.

     - Open Integration with partners through Extensible Mark-Up Language (XML)
       technology, the integration standard for the internet: Baan, provides the
       ability to integrate best of breed or niche applications provided by
       other e-business partners to be effective in this collaborative
       environment. Baan's integration spans data integration; application
       integration; business process integration and business community or
       collaborative integration.

     - The ability to reflect on-going business change with the Baan Dynamic
       Enterprise Modeling tool (DEM): the effect of the internet has
       significantly changed the way businesses will operate now and in the
       future. As more innovative and agile business models evolve, the systems
       and processes must change rapidly in order to maintain the ability to
       fulfill customers' orders. Baan has invested heavily in tools that
       quickly implement according to business need and allow rapid change to
       systems to support this evolving model.
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     - E-enabled supply chain via Baan's collaborative application framework:
       Baan's collaboration technology allows companies to move from a
       linear/sequential supply chain model to one where multiple activities
       occur concurrently, within a commerce network. e.g. order-by-order basis
       interrogating the capabilities of all the supplying partners to deliver
       their component as part of fulfilling a customer order.

TARGET CUSTOMERS

     Baan selects target markets based on four factors. Each industry has
well-defined supply and demand chains that can take advantage of the complete
range of products offered by Baan Company. Second, these industries have a focus
on clearly-defined industry best practices that can be modeled and automated
with Baan products. Third, the competitive nature of these markets requires
continuous assessment and re-assessment of business processes and the underlying
information technology ("IT") infrastructure. Finally, the Company has deep
domain expertise that can be leveraged to create a competitive position and
reference base in these markets. Baan Company's chosen market sectors are listed
below:

     - Project Industries: includes Aerospace and Defense, Shipbuilding, Trains,
       Engineering Construction

     - Industrial: includes Industrial Machinery, Machine Tools, Components,
       Fabricated Products, Furniture, Plastic and Rubber Products

     - Electrical and Electronic: includes Computer Equipment, Telecom and Radio
       Equipment, Electrical Appliances, Instruments, Electrical and Electronic
       Components

     - Secondary Processes: includes Construction Material, Glass Products,
       Steel Production, Paper and Pulp and Card products, Steel and Non-Ferrous
       Metal Production

     The Company also targets individual product lines to other industries,
including healthcare, hospitality, insurance, professional services,
telecommunications, transportation, wholesale, utilities, and other industries.
Baan partners with resellers both to address additional market segments and to
reach a larger number of enterprises and has achieved some success in gaining
mid-market customers through these initiatives.

1999 REORGANIZATION

     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 described above. In connection with that
decision, the Company recorded write-downs of $67.0 million for certain
capitalized software, equipment and intangible assets not related to its core
strategy, and took certain other restructuring charges of $10.7 million, related
to the closing of 14 offices and a reduction of headcount by approximately 4%
(or 200 employees). As we now describe, however, continued operating losses and
other events in the first and second quarter of 2000 will require that the
Company undertake a much more extensive restructuring of operations; improve
sales productivity; create a better balance of headcount and skills against
projected demand in consulting, training and other areas; and continue to make
adjustments in our product delivery strategy.

CONSIDERATION OF STRATEGIC OPTIONS FOR THE FUTURE OF BAAN COMPANY

     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 as companies accepted and adapted to the
Internet economy, but more importantly due to internal issues affecting the
Company, Baan has experienced significant downward pressures on its license and
overall revenue. 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, as a result of the restructuring and other charges taken in the fourth
quarter of 1999, the Company was confronted with a deteriorating equity
position. The Amsterdam Exchanges (AEX, on which, in addition to the NASDAQ, the
Company is listed) requires that its listed companies maintain positive
shareholder

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equity; failure to do so can result in the listed company being placed on
"special listing conditions" that typically result 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 its value at the start 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 new business
transactions.

     The Company immediately took steps during the first quarter to fill open
management positions. That new team was faced with a series of immediate
challenges, including: (1) increased difficulty in making new sales and
retaining existing customers due to concerns about the viability of the Company;
(2) a deteriorating equity position that was 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 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 in May of 2000 with the Company's Management and Supervisory Boards
unanimously approving an Offer Agreement with Invensys plc under which Invensys
has offered to purchase 100% of the issued share capital of the Company for 2.85
Euro per share. The details of the events leading up to the Invensys offer and
the reasons for the Boards' recommendation in support of that offer are set
forth in full in the Company's Schedule 14D-9 filed with the SEC on June 14,
2000 in connection with the offer. That offer, which was originally scheduled to
close on July 13, 2000, has been extended and is currently scheduled to close on
July 25, 2000. There are several conditions to close, including without
limitation that 95% of all Baan shares be tendered in support of the offer.

PRODUCTS

PURSUE PRODUCT INNOVATION

     As a technology innovator, Baan traditionally has made substantial
investments in research and product development. Research and development
("R&D") expenses increased from $90.8 million in 1997 to $134.7 million in 1999.
Employees involved in R&D increased from 1,341 at December 31, 1997 to 1,701 at
December 31, 1999. The Company has adopted a strategy of periodically
reinventing its products in order to maintain a leading-edge solution to address
changing market needs. Each new generation of Baan software consists of
substantially rewritten code, providing higher performance and greater
functionality.

     During 1999, the Company's product strategy was driven by two principal
goals: e-enabling and extending its products to meet the shift to B2B commerce,
and delivering the first fully integrated ERP-SCM-CRM product suite.

     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. Baan has a portfolio of more
than 100 internet-enabled software products to deliver against its e-Fulfillment
strategy. These include ERP, manufacturing and supply chain applications and
customer relationship management applications (sales force automation, product
configuration, marketing and call center products). Add-on modules to support
these core products such as business reporting tools, business-modeling tools,
are also available.

     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.

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ENTERPRISE RESOURCE PLANNING

     Baan ERP offers an open integration, e-enabled transaction backbone that
operates on a broad number of platforms.

     - BaanERP's standard products, which are Year 2000 and Euro compliant,
       include integrated software modules for seven broad areas: manufacturing
       execution, constraint-based planning and scheduling, distribution and
       transportation, finance, service management, project management, and
       process manufacturing.

     - Baan Tools is a fourth-generation language (4GL) software development
       toolset used by Baan, its implementation providers, and end-user
       customers to develop and modify Baan Applications.

SUPPLY CHAIN MANAGEMENT

     With its acquisitions of Berclain (1996) and CAPS Logistics (1998), Baan
increased its capabilities in the area of supply chain management, allowing
enterprises to link their operations easily and efficiently with those of their
suppliers. Specifically, Baan offers a constraint-based scheduling and execution
management system that enables coordination of plant-level production decisions
with market demand. In addition, Baan offers World Wide Web-based solutions that
provide the enterprise with connectivity tools enabling the supply and demand
chain to work as a single unit. For example, it allows the automatic generation
of key supply chain transaction reports -- such as stock levels and shipment
status -- that can be transmitted via the Internet when predefined thresholds
are met.

CUSTOMER RELATIONSHIP MANAGEMENT

     Baan added to its customer management product suite in 1997 with the
acquisition of Aurum Software, Inc. and the acquisition of other complementary
products and technologies. Baan acquired Antalys, Inc. (1996), Beologic A/S
(1997), and Matrix Holding B.V. (1997), providing complementary sales
configuration and sales automation capabilities. BaanFrontOffice comprises the
following core applications:

     - BaanConfiguration: offers a comprehensive collaborative buying and
       selling environment for presenting, tailoring, and configuring products
       to match customer needs.

     - BaanSales: the first completely browser-based opportunity management and
       sales force automation application. Offers sales management, contact
       management, sales forecasting and reporting and more for global sales
       teams.

     - BaanEnterprise Integration: enables the integration of
       customer-interaction information for the entire Front Office product line
       with back-office processes such as order processing, manufacturing, and
       distribution. Offers integration with all leading back office systems
       including Baan, Oracle, and SAP.

     - BaanService: offers full field service capabilities for organizations to
       service a variety of manufactured products at customer or end-user sites.

     - BaanMarketing: allows planning, execution and measurement of marketing
       campaigns.

PROCESS MODELING AND RAPID IMPLEMENTATION

     - Dynamic Enterprise Modeling (DEM) is a set of tools and templates for
       business modeling and rapid software implementation, facilitating
       implementation, adaptation and re-implementation of the system as
       business conditions change.

PRODUCT DEVELOPMENT

     The Company's research and development is comprised of a research group of
1,701 at December 31, 1999 (and that number has not materially changed during
the first half of 2000). The research group evaluates new and emerging
technologies and methodologies. The organization develops prototypes to test the
practical use of new concepts and helps determine how these concepts might be
introduced into the Company's

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products. Research areas include intelligent resource planning, object-oriented
technologies and functionality, money requirements planning, logistics tools,
performance tools, and extensions to BaanDEM to more closely integrate software
to the customer's organization.

     The development group's activity is structured around multiple small teams.
The Company employs concurrent engineering principles to ensure various product
elements are kept in line with the whole product strategy and architecture.
Development activities occur 24 hours-a-day among the Company's development
sites across 11 countries. This distributed approach to development allows Baan
to leverage the best software development talent and expertise around the world.
Based on industrial production principles, each team focuses on the development
of independent software components within a disciplined set of protocols that
enable the components to work together as a final product. This enables the
Company to manage the overall process in incremental elements and to track
performance, identify problem areas, and add additional resources where
necessary.

     The Company also maintains detailed release planning procedures to ensure
integration, testing, and version control among different teams developing a
single release. This team approach also allows development activity to be
decentralized in order to take advantage of skill sets available in different
parts of the world and to enable local requirements to be addressed near the
markets where they are best understood. Development activities are performed
primarily in The Netherlands, India, Denmark, United Kingdom, and the United
States, with additional teams in six other countries around the world.

     The Company's development organization is focusing on enhancements and
customary error corrections to existing product versions, and development of
future versions of the Company's software. Development activities are currently
focused principally on the Company's next generation product line, which
utilizes a new, adaptable component architecture designed to ease integration of
disparate application components, from Baan and other vendors, and to make it
easier for customers to gradually migrate to new release versions rather than
having to migrate a full application suite across the entire company.

SALES AND MARKETING

     The Company sells and supports its products through direct and indirect
sales and support organizations in 80 countries. In addition to its corporate
headquarters in Barneveld, The Netherlands, and Herndon, Virginia, United States
of America, the Company maintains regional offices throughout the Americas,
Europe and Asia. The Company has direct sales offices in approximately 30
countries and also maintains independent distributors that market the Company's
products and provide first-line support in over 50 countries.

     The Company's indirect channel has increased from 15 channel partners in
1996 covering two countries, The Netherlands and Germany, to over 200 channel
partners covering over 15 countries, including the United States, Canada, much
of Europe, and countries in the Asia Pacific region.

CUSTOMERS

     As of December 31, 1999, the Company had licensed approximately 15,000
system installations to more than 7,000 customers worldwide. Customers range
from four users to more than 25,000 users, which the Company believes
demonstrates Baan's capability to deliver a solution for both small and medium
enterprises and large companies, particularly with its core manufacturing and
engineering customers. In addition, Baan's customer base represents the full
range of platform support, including database, hardware, and operating system
platforms.

                                        9
<PAGE>   10

     Customer names include:

     AUTOMOTIVE
       Donnelly Corporation
       Honda of America Mfg., Inc.
       International (Navistar)
       Mercedes-Benz U.S. International
       Volkswagen AG
       Flexfab

     AEROSPACE AND DEFENSE
       BAE Systems
       Boeing
       GKN Westland Aerostructures
       Fokker
       Litton Industries
       Snecma

     HIGH-TECH/ELECTRONICS
       Bang & Olufsen
       Flextronics International
       Nortel Networks
       Microchip Technology Inc.
       Solectron

     INDUSTRIAL EQUIPMENT & MACHINERY
       Carrier Incorporated
       Diebold Incorporated
       Komatsu
       Komatsu Mining Systems
       Liebherr
       Okuma Europe GmbH
       National Machinery
       Otis GmbH & Co. OHG

     Other industries include:

     PRIMARY METALS
       BICC General
       Corus Group (British Steel)
       Maksteel

     TELECOMMUNICATIONS
       AT&T
       KPN Dutch Telecom

     FURNITURE
       Aspa Assenburg
       Herman Miller
       Teknion Furniture Systems
       SMED International, Inc.

     UTILITIES AND ENERGY
       Cogas
       Remu

                                       10
<PAGE>   11

     TRANSPORTATION AND LOGISTICS
       Consolidated Freightways
       Excel-MSAS Global Logistics
       TNT Logistics North America

     PETRO-CHEMICALS
       Air Products & Chemicals, Inc.
       DuPont

     RETAIL/WHOLESALE
       Sears Roebuck & Co

     PROCESS INDUSTRIES
       Boise Cascade
       No customer accounted for 10% or more of total revenues in 1997, 1998, or
     1999.

GLOBAL SERVICES AND SUPPORT

     The Company believes that it is essential to customer satisfaction and the
Company's long-term success to facilitate the full and satisfactory
implementation of the Company's products at customer sites. Accordingly, the
Company provides a full range of value-added consulting, education and support
services directly to end-user customers, including project management to promote
rapid and efficient software implementation, product consultancy, and technical
support. The Company integrates these activities utilizing relationships with
leading third-party providers of business process consulting and implementation
and customization services for enterprise application systems. As of December
31, 1999, the Company had 1,892 employees in its customer support and services
organization.

     Customer Support:  The Company's Baan Support Centers provide technical
maintenance and support to Baan's customers. Maintenance and support includes
24-hour customer support. The Baan Global Support organization consists of three
main centers, located in Ede, The Netherlands; Grand Rapids, Michigan, USA; and
Bombay, India, with auxiliary operations throughout the world including Canada,
Brazil, Germany, UK, and Japan. This presence helps the Company support
customers and partners in different regions, language areas and time zones
worldwide. The support centers are closely integrated with the Company's
development organization. The Company provides maintenance and support services
for an annual fee that entitles customers to receive maintenance and support
services as well as enhancements and updates to their licensed version of
software.

     Consulting Services:  The Company provides a full range of fee-based
consulting services, including enterprise modeling, project/program management,
application consulting, and technical consulting to its customers. Baan's
strategy is to focus on those services that are believed to provide significant
value with respect to the quality of implementation projects, while relying upon
a broad third party network to provide generic implementation services and
customization services to customers. At year-end Baan had more than 250 third
party consulting partners with more than 14,000 trained consultants on staff
supplementing Baan's own consulting experts.

     In addition, the Company has implemented a 24 hours-per-day World Wide
Web-based support service, called Baan CyberConsult, that allows customers and
partners to obtain a significant amount of support electronically. Customers can
enter requests and questions, check on the status of service calls, use a
knowledge base with frequently-asked questions and obtain technical
documentation.

     Education and Training:  The Company offers fee-based education and
training to its customers and to the Company's third-party implementation
providers. It has educational services and products available in 20 countries
and several languages. Its curriculum and instructional approach focuses on
providing solutions that address two key areas of customer need: (a) decreasing
the time to competency for those who will implement and maintain the system, and
(b) increasing the performance of employees who will use the new applications.

                                       11
<PAGE>   12

     Classes are offered through in-house facilities at Company offices in
various locations, as well as on-site at customer locations. The Company's
training approach is based on standardized components that can be configured for
customer-specific training programs. The Company has also assisted
implementation providers and customers in developing internal competency centers
to support their Baan business activity.

COMPETITION

     The enterprise business application software market is highly competitive.
The market is rapidly changing, and is significantly affected by new product
introductions, geographical regional market growth, integration of supply chain
networks and issues related to policy such as the anticipated requirements of
the European Monetary Unit and the Year 2000 date change. Baan's products span
an organization's entire value chain, including E-Business and Web Commerce,
Customer Relationship Management, Enterprise Resource Planning, Supply Chain
Management, and Corporate Knowledge Management, and are available on the leading
internet/intranet, client/server, and database platforms. Baan's current and
prospective competitors offer a variety of products and solutions to address
these markets. Baan's primary competition comes from a number of large
independent software vendors including SAP AG ("SAP"), Oracle Corporation
("Oracle"), J.D. Edwards & Company ("JDE"), Siebel Systems, i2 Technologies, and
PeopleSoft, Inc. ("PeopleSoft"). In addition, Baan faces indirect competition
from suppliers of custom-developed business application software that have
focused mainly on proprietary mainframe and minicomputer-based systems with
highly customized software, such as the systems consulting groups of major
accounting firms and systems integrators.

     Since the latter part of 1997, Baan has been seeking to improve its
penetration in the Small to Medium Size Enterprises ("SME") market and to expand
into enterprise applications beyond the traditional ERP solutions. As Baan
pursues these strategies, Baan expects to face additional competition from a
number of companies that offer such applications for the SME market, as well as
established ERP vendors such as SAP, Oracle and PeopleSoft. For our products
outside the ERP market segment, Baan competes with a number of companies, with
particular strength in these markets, such as Siebel Systems in the customer
interaction software ("CIS") or front-office productivity market, along with i2
Technologies, Inc. and Manugistics Group, Inc. in the supply chain management
software market.

     Many of Baan's competitors have significant competitive advantages over
Baan, including longer operating histories, significantly greater financial,
technical, marketing and other resources, greater name recognition, and a larger
installed base of customers. In addition, certain competitors, such as SAP,
Oracle and PeopleSoft, have well-established relationships with present and
potential customers of Baan. Furthermore, companies with significantly greater
resources than Baan could attempt to increase their presence in the market by
acquiring or forming strategic alliances with competitors of Baan, and such
companies may be in a better position to withstand the current slowdown in the
ERP market. There can be no assurance that Baan will be able to compete
successfully with existing or new competitors.

     Baan relies on a number of systems consulting and systems integration firms
for implementation and other customer support services. Baan also relies on
these firms to recommend Baan's products to potential customers as the potential
customers are evaluating different competitive offerings. Although Baan seeks to
maintain close relationships with these third-party implementation providers,
many of these firms have similar, and often more established, relationships with
Baan's principal competitors. If Baan is unable to develop and retain effective,
long-term relationships with these third parties, it would adversely affect
Baan's competitive position.

INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS

     The Company relies on a combination of the protections provided by
applicable copyright, trademark and trade secret laws, as well as
confidentiality procedures, licensing arrangements, and software-based license
management, to establish and protect its rights in its software. Despite the
Company's efforts, it may be possible for third parties to copy certain portions
of the Company's products or reverse engineer or obtain and use information that
the Company regards as proprietary. In addition, the laws of certain countries
do not protect the Company's proprietary rights to the same extent as do the
laws of the United States or The

                                       12
<PAGE>   13

Netherlands. Accordingly, there can be no assurance that the Company will be
able to protect its proprietary software against unauthorized third party
copying or use, which could adversely affect the Company's competitive position.

     The Company licenses Baan products to end-users under license agreements
which generally allow the end-user to use the Baan products solely for the
end-user's internal purposes, and the end-user is generally prohibited from
sublicensing or transferring the Baan products. The agreements generally provide
that the Company's warranty for Baan products is applicable for a limited period
of time and is limited to correction or replacement of the affected product.
Generally, the end-user may terminate the license agreement at any time,
although typically the end-user remains responsible for any accrued and unpaid
license fee.

     Baan products are not only licensed to end-users by the Company, but also
by independent third-party distributors. Although the Company seeks to establish
the conditions under which Baan products are licensed by such distributors to
end-users, the Company cannot assure that such distributors do not use other
conditions.

     The Company from time to time receives notices from third parties claiming
that the Company's products infringe third-party proprietary rights. Such claims
could result in litigation against the Company claiming patent or other
intellectual property infringement by the Company. Such litigation involves
complex technical issues and inherent uncertainties and the Company may not
prevail in any such litigation. Any such claim, with or without merit, could be
time-consuming, could result in costly litigation and could require the Company
to enter into costly royalty and licensing agreements. Such royalty or licensing
agreements, if required, may not be available on terms acceptable to the
Company, or at all. If such claim against the Company is successful and the
Company is not able to develop or license a substitute technology, the Company
would be required to cease sale of the infringing product or products, which
could materially and adversely affect the Company's business and operating
results.

EMPLOYEES

     As of December 31, 1999, the Company had 4,835 full-time employees, of
which 1,701 were engaged 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. Full-time employees in 1998 and 1997 were
5,101 and 4,254, respectively. In The Netherlands, certain of the Company's
employees are represented by statutory Works Councils. A Works Council, required
under Netherlands law to be established by a company with more than a specified
number of employees, is an independent body elected by the employees of a
business. In general, the employer is required to seek the approval and/or
advice of the Works Council before proceeding with making certain significant
decisions affecting the employees and the business. None of the Company's
employees is represented by any collective bargaining agreements and the Company
has never experienced a work stoppage.

     Through attrition and the reorganization announced in the fourth quarter of
1999, the total number of full-time employees within the Company has decreased
since year-end to approximately 3,900 at the end of June. That number is
expected to be further reduced as a result of the restructuring the Company must
pursue.

ITEM 2.  PROPERTIES

     The Company's executive offices are located in Barneveld, The Netherlands
and in Herndon, Virginia with its statutory seat at Barneveld, The Netherlands.
The Company also has direct sales offices in approximately 30 countries. The
Company leases its office and research and development facilities with leases
                                       13
<PAGE>   14

of various duration. Certain of these properties are leased from parties who, at
the time of leasing were related parties of the Company. The Company believes
that its existing and currently planned domestic and international facilities
will be sufficient to meet its needs for at least the next twelve months.

ITEM 3.  LEGAL PROCEEDINGS

     The Company is party to legal proceedings from time to time, which might
include claims by customers, suppliers, other vendors, resellers, and former
employees. 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 litigation costs. There can be no assurances, therefore, that any
litigation that is now pending or which may arise in the future will not have a
material adverse effect.

     In October of 1998, the Company and certain of its current or former
officers and directors were named as defendants in a purported shareholder class
action lawsuit entitled Salerno v. Baan Company N.V. et al., which was brought
in the United States District Court for the District of Columbia. Six additional
purported shareholder class action lawsuits were subsequently brought, each in
the same court with substantially similar allegations: that the Company
allegedly violated certain of the U.S. securities laws by making purportedly
false and misleading statements about the Company's operations during the period
from in or around the end of January 1997 through mid-October 1998. The several
actions have been consolidated and lead plaintiffs and counsel have been named.
On August 4, 1999, the Company moved: (i) to dismiss the claims of shareholders
who purchased Baan securities on foreign (non-U.S.) exchanges -- and such
plaintiffs are believed to comprise as much as 80% of the purported class -- on
the ground that the U.S. courts lack subject matter jurisdiction over such
claims; and (ii) to dismiss the entire complaint for failure to adequately plead
alleged claims for securities violations. On June 21, 2000, the court granted
that part of the motion seeking to dismiss for lack of subject matter
jurisdiction the claims of those plaintiffs who neither reside in the United
States nor made their stock purchases in the United States. The litigation will
now proceed with respect to the remaining claims.

     In September of 1999, the Company and certain of its current or former
officers and directors were named as defendants in a separate lawsuit entitled
Ratliff v. Baan Company N.V. et al., which was brought in the United States
District Court for the District of Georgia. The complaint asserts purported
claims for breach of contract, violation of certain of the U.S. securities laws,
violation of the Georgia Securities Act, and intentional and negligent
misrepresentation -- , all in connection with the Company's acquisition in
September 1998 of CAPS Logistics, Inc. ("CAPS"). The plaintiffs -- who are three
of the four selling shareholders -- allege that certain of the Company's public
financial reports allegedly relied upon by the plaintiffs in connection with the
transaction were materially false and misleading, that certain of the Company's
officers made materially false and misleading statements to one or more of the
plaintiffs during the negotiations leading to the acquisition, and that the
Company did not comply with certain representations and warranties in the merger
agreement. Plaintiffs seek rescission of the Company's purchase of CAPS and
return of CAPS to the plaintiffs, and unspecified economic damages. In or around
November 1999 the Company moved to dismiss the action on grounds, inter alia,
that the complaint fails to adequately plead alleged claims for securities
violations. The motion has been fully briefed and awaits oral argument and/or
decision from the court. All discovery in the case has been stayed pending
resolution of the Company's motion.

     The Company has retained outside counsel in both purported shareholder
actions described above and, as also described, is vigorously defending. See
Note 12 of Notes to Consolidated Financial Statements.

ITEM 4.  CONTROL OF REGISTRANT

     To the Company's knowledge, it is not owned or controlled by another
corporation or by any foreign government. The table below sets forth certain
information with respect to the beneficial ownership of Common Shares as of May
31, 2000 by (i) any person known to the Company to be the owner of more than

                                       14
<PAGE>   15

ten percent of the Common Shares, and (ii) the total amount of Common Shares
owned by all officers and directors as a group:

<TABLE>
<CAPTION>
                                                          SHARES       APPROXIMATE
                                                       BENEFICIALLY      PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER                   OWNED(1),(2)       OWNED
------------------------------------                   ------------    -----------
<S>                                                    <C>             <C>
All directors and Executive officers (10 persons) as
  a group(3).........................................   1,496,503         0.68%
</TABLE>

---------------
(1) On May 31, 2000, Vanenburg Group B.V. sold their remaining 5.54% interest in
    the Company to Invensys plc. As of July 13, 2000, Invensys plc had acquired
    24.8% of the Company's total outstanding common shares.

(2) Applicable percentage of ownership is based on the approximate number of
    Common Shares outstanding as of May 31, 2000, together with the applicable
    options for each shareholder. Beneficial ownership is determined in
    accordance with the rules of the U.S. Securities and Exchange Commission,
    and includes voting and investment power with respect to shares. Shares
    subject to options currently exercisable within 60 days after May 31, 2000,
    are deemed outstanding for computing the percentage ownership of the person
    holding such options, but are not deemed outstanding for computing the
    percentage of any other person.

(3) Includes 857,321 shares issuable upon exercise of options to purchase Common
    Shares granted to executive officers and directors of the Company which are
    exercisable within 60 days after May 31, 2000.

ITEM 5.  NATURE OF TRADING MARKET

     The Company's Common Shares are quoted on the NASDAQ National Market under
the symbol "BAANF" and on the Official Market of the Amsterdam Stock Exchange
under the symbol "Baan". The following table lists the high and low closing
prices during 1998 and 1999. The Company's Common Shares began trading on the
NASDAQ National Market on May 19, 1995 and began trading on the Official Market
of the Amsterdam Stock Exchange on May 23, 1995, after giving effect for
two-for-one stock splits that were effective May 1996 and December 1997.

<TABLE>
<CAPTION>
                                                      NASDAQ NATIONAL     AMSTERDAM STOCK
                                                        MARKET (US$)      EXCHANGE (EURO)
                                                      ----------------    ----------------
                                                       HIGH      LOW       HIGH      LOW
                                                      ------    ------    ------    ------
<S>                                                   <C>       <C>       <C>       <C>
Fiscal 1998:
  First Quarter.....................................  50.25     28.75     47.15     28.41
  Second Quarter....................................  55.50     35.50     49.33     33.17
  Third Quarter.....................................  43.63     25.13     40.66     21.74
  Fourth Quarter....................................  24.75      9.50     21.78      7.85
Fiscal 1999:
  First Quarter.....................................  14.13      7.13     12.75      6.15
  Second Quarter....................................  17.63      7.19     16.75      6.40
  Third Quarter.....................................  15.88     12.25     15.56     10.85
  Fourth Quarter....................................  14.88     11.75     15.20     10.90
</TABLE>

     On December 31,1999 and 1998, the exchange rate of Dutch Guilders into the
"Euro" currency unit was NLG 2.20371/Euro.

     On May 31, 2000, the closing price of the Company's Common Shares was $2.75
and 2.97 Euro per share as reported by the NASDAQ National Market and the
Amsterdam Stock Exchange, respectively. As described above, on May 31 Invensys
plc offered to purchase all issued shares of the Company for 2.85 Euro per
share. That offer is currently pending. Since announcement of the offer, the
shares have traded at or around the offer price.

                                       15
<PAGE>   16

     On May 31, 2000, the exchange rate of Dutch guilders into U.S. dollars (the
New York foreign exchange selling rate) was NLG 2.350/$1.

ITEM 6.  EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITIES HOLDERS

     There are currently no limitations either under the laws of The Netherlands
or in the Company's Articles of Association, to the rights of shareholders from
outside The Netherlands to hold or vote Common Shares. Cash distributions, if
any, payable in Dutch guilders may be officially transferred from The
Netherlands and converted into any other currency without Netherlands legal
restrictions, except that for recording purposes such payments and transactions
must be reported by the Company to the Netherlands Central Bank.

ITEM 7.  TAXATION

     The following is a summary of certain Netherlands and U.S. Federal income
tax consequences relating to an investment in the Company's Common Shares. This
summary does not deal with all possible tax consequences relating to holding the
Company's Common Shares. In particular, the discussion does not address the tax
consequences under state, local and other (e.g., non-U.S. or non-Netherlands)
tax laws, nor does it address special circumstances that may apply to any
individual investor. Accordingly, each prospective investor should consult its
tax advisor regarding the tax consequences to it of an investment in the Common
Shares. The following discussion is based upon analysis of the statutory law and
regulations, case law, and published rulings, of the U.S. and The Netherlands.

     The anticipated tax consequences are subject to change, and such change may
be retroactively effective. If so, the following summary may be affected and may
not be relied upon. Further, any variation or differences from the facts or
representations recited herein, for any reason, might affect the following
discussion, perhaps in an adverse manner, and make them inapplicable. In
addition, the Company has undertaken no obligation to update this discussion for
changes in facts or laws occurring subsequently to the date thereof.

     The summary represents solely the views of the Company as to the
interpretation of existing law and, accordingly, no assurance can be given that
the tax authorities or courts in the U.S. or the Netherlands will agree with the
summary hereafter.

NETHERLANDS TAXATION

     The following is a summary of the Netherlands tax consequences to an owner
of Common Shares who is not, and is not deemed to be, a resident of The
Netherlands for purposes of the relevant tax codes (a "non-resident
Shareholder"). The summary does not address taxes imposed by the Netherlands and
its political subdivision other than the dividend withholding tax, individual
income tax, corporate income tax, net wealth tax, and gift and inheritance tax.

NETHERLANDS' DIVIDEND WITHHOLDING TAX

     The Company does not expect to pay dividends in the foreseeable future. If
dividends were distributed by the Company, such dividends would be subject under
Netherlands' tax law to withholding tax at a rate of 25%. Dividends include
dividends in cash or in kind, constructive dividends and liquidation proceeds in
excess of recognized paid-in capital. Stock dividends are also subject to
withholding tax unless distributed out of the Company's paid-in share premium as
recognized for Netherlands tax purposes.

     A non-resident Shareholder can be eligible for a reduction or refund of the
Netherlands dividend withholding tax under a tax convention which is in effect
between the country of residence of the non-resident Shareholder and the
Netherlands. The Netherlands has concluded such conventions with, among others,
the United States and all members of the European Union except Portugal. Under
most of these conventions, the Netherlands dividend withholding tax is reduced
to a rate of 15% or less unless the recipient shareholder has a permanent
establishment in the Netherlands to which the Common Shares are attributable.

     No withholding tax applies on the sale or disposition of Common Shares to
persons other than the Company and affiliates of the Company.

                                       16
<PAGE>   17

INCOME TAX AND CAPITAL GAINS

     A Shareholder will not be subject to the Netherlands' income tax with
respect to dividends distributed by the Company on the Common Shares or with
respect to capital gains derived from the sale or disposal or Common Shares in
the Company, provided that:

       (i) such holder is neither resident nor deemed to be resident in the
           Netherlands;

      (ii) such holder does not have an enterprise or an interest in an
           enterprise that is, in whole or in part, carried on through a
           permanent establishment or a permanent representative in the
           Netherlands and to which enterprise, as the case may be, the Common
           Shares are attributable; and

     (iii) such holder does not have a substantial interest or a deemed
           substantial interest in the share capital of the Company or, if such
           holder does have such an interest, it forms part of the assets of an
           enterprise.

     Generally, a holder of Common Shares will not have a substantial interest
if he, his spouse, certain other relatives (including foster children), or
certain persons sharing his household, do not hold, alone or together, directly
representing five per cent or more of the total issued and outstanding capital
(or the issued and outstanding capital of any class of shares) of the Company. A
deemed substantial interest is present if (part of) a substantial interest has
been disposed of, or is deemed to have been disposed of, on a non-recognition
basis.

NET WEALTH TAX

     A Shareholder will not be subject to the Netherlands net wealth tax in
respect of the Common Shares provided that such Shareholder is not an individual
or, if he is an individual, the conditions described in clauses (i) and (ii) of
the provision under "Income Tax and Capital Gains" are satisfied.

GIFT, ESTATE OR INHERITANCE TAXES

     No gift, estate or inheritance taxes will arise in the Netherlands with
respect to an acquisition of Common Shares by way of a gift by, or the death of,
a Shareholder who is neither resident nor deemed to be resident in the
Netherlands, unless (i) such Shareholder at the time of the gift has or at the
time of his death had an enterprise or an interest in an enterprise that is or
was, in whole or in part, carried on through a permanent establishment or a
permanent representative in the Netherlands and to which enterprise or part of
an enterprise, as the case may be, the Common Shares are or were attributable,
or (ii) in the case of a gift of Common Shares by an individual who at the date
of the gift of Common Shares by an individual who at the date of the gift was
neither resident nor deemed to be resident in the Netherlands, such individual
dies within 180 days after the date of the gift while being resident or deemed
to be resident in the Netherlands.

U.S. FEDERAL INCOME TAXATION

     For purpose of this summary, a "U.S. Shareholder" is any Shareholder that
is (i) a citizen or resident of the United States, (ii) a corporation,
partnership or other entity created or organized in or under the laws of the
United States (or any State thereof, including the District of Columbia), or
(iii) an estate or trust the income of which is subject to United States federal
income taxation regardless of its source. A "Non-U.S. Shareholder" is any
Shareholder that is not a U.S. Shareholder.

TAXATION OF DIVIDENDS

     The gross amount (before reduction for withholding taxes) of a distribution
with respect to the Common Shares will be a dividend to a U.S. Shareholder,
taxable as ordinary income, to the extent of the Company's current or
accumulated earnings or profits (as determined under U.S. federal income tax
principles). Distributions paid by the Company in excess of current or
accumulated earnings and profits will be treated as a tax-free return of capital
to the extent of the U.S. Shareholder's adjusted tax basis in his or her Common
Shares, and thereafter as a gain from the sale or exchange of a capital asset.
These dividends are generally not

                                       17
<PAGE>   18

eligible for the dividends-received deduction otherwise allows to U.S. corporate
shareholders on dividends from U.S. domestic corporations. The amount of any
distribution paid in guilders will be equal to the U.S. dollar value of the
guilders on the date of receipt, regardless of whether the U.S. Shareholder
converts the payment into U.S. dollars. Gain or loss, if any, recognized by a
U.S. Shareholder on the sale or disposition of guilders would be U.S. source
ordinary income or loss.

     A U.S. Shareholder may elect annually either to deduct the Netherlands
withholding tax (see "Netherlands Taxation") against its income or take the
withholding taxes as a credit against its U.S. tax liability, subject to U.S.
foreign tax credit limitation rules. Dividend income will be income from sources
outside the United States for foreign tax credit limitation purposes. Dividend
income generally will be either "passive" income or "financial services" income,
depending on the particular U.S. Shareholder's circumstances.

     Payments of dividends on the Common Shares to a non-U.S. Shareholder
generally will not be subject to U.S. federal income tax unless such income is
effectively connected with the conduct by such Non-U.S. Shareholder of a trade
or business in the United States.

DISPOSITIONS OF COMMON SHARES

     A U.S. Shareholder will recognize gain or loss for U.S. federal income tax
purposes upon the sale or other disposition of Common Shares in an amount equal
to the difference between the amount realized and the U.S. Shareholder's tax
basis in the Common Shares. Such gain or loss will be capital gain or loss and
will be long-term capital gain or loss provided that the Common Shares have been
held (or deemed held) for more than 12 months.

     Gain realized by a non-U.S. Shareholder upon the sale or other disposition
of Common Shares generally will not be subject to U.S. federal income tax unless
(i) the gain is effectively connected with the conduct by such Non-U.S.
Shareholder of a trade or business in the United States or (ii) the Shareholder
is an individual who was present in the United States for at least 183 days in
the taxable year of such sale, exchange or retirement and provided that certain
other conditions are met.

PASSIVE FOREIGN INVESTMENT COMPANIES

     The Company may be classified as a "passive foreign investment company"
("PFIC") for United States federal income tax purposes if certain tests are met.
The Company will be a PFIC with respect to a U.S. Shareholder if for any taxable
year in which the U.S. Shareholder held the Company's Shares, either (i) 75% or
more of the gross income of the Company for the taxable year is passive income;
or (ii) the average value during the taxable year of its passive assets (i.e.,
assets that product passive income or which are held for the production of
passive income) is at least 50% of the average fair market value of all of the
Company's assets for such year. Passive income generally includes dividends,
interest, royalties, rents (other than rents and royalties derived in the active
conduct or a trade or business and not derived from a related person),
annuities, and gains from assets which would produce such income other than
sales of inventory.

     For the purpose of the PFIC tests, if a foreign corporation owns directly
or indirectly at least 25% by value of the stock of another corporation, the
foreign corporation is treated as owning its proportionate share of the assets
of the other corporation, and as if it had received directly its proportionate
share of the income of such other corporation. The effect of this special
provision with respect to the Company and its direct and indirect ownership of
its subsidiaries is that the Company, for purposes of the income and assets
tests described above, will be treated as owning directly its proportionate
share of the assets of the subsidiaries and of receiving directly its
proportionate share of each of those companies' income, if any, so long as the
Company owns, directly or indirectly, at least 25% by value of the particular
company's stock. Active business income of the Company's subsidiaries will be
treated as active business income of the Company, rather than as passive income.

     If the Company were to be classified as a PFIC, a U.S. Shareholder would be
subject to various adverse U.S. tax consequences. Such adverse consequences
include an interest charge on taxes deemed deferred by

                                       18
<PAGE>   19

them on receipt of certain "excess" dividend distributions by the Company to the
U.S. Shareholder and on realization of gain upon disposition of any of the U.S.
Shareholder's Company stock (all of which distributions and gains would be
taxable as ordinary income at the highest marginal rate). However, the foregoing
interest charge could be avoided if a U.S. Shareholder were to make a qualified
electing fund ("QEF") election and the Company were to agree to comply with
certain reporting requirements. If a QEF election were made, the U.S.
Shareholder would be currently taxable on the U.S. Shareholder's pro rata share
of the Company's ordinary earnings and profits and long-term capital gains for
each year (at ordinary income or capital gains rates, respectively), even if no
dividend distributions were received. Based on the nature of the Company's
expected income and assets, management does not expect that the Company will be
classified as a PFIC in the foreseeable future.

FOREIGN PERSONAL HOLDING COMPANIES

     The Company or any of its non-U.S. subsidiaries may be classified as a
"foreign personal holding company" ("FPHC") if in any taxable year five or fewer
persons who are U.S. citizens or residents own (directly or constructively
through certain attribution rules) more than 50% of the Company's stock (a "U.S.
group") and at least 60% of the gross income of the Company or the subsidiary
consists of passive income for purpose of the FPHC rules, it is likely to meet
the income test. Similarly, if more than 60% of the gross income of a non-U.S.
subsidiary of the Company were to consist of dividends, interest, royalties
(other than active business computer software royalties) or other types of
passive income, the subsidiary would meet the FPHC income test.

     If the Company or any of its subsidiaries is or becomes a FPHC, each U.S.
Shareholder of the Company (including a U.S. corporation) who held stock in the
Company on the last day of the taxable year of the Company, or, if earlier, the
last day of its taxable year on which a U.S. group existed with respect to the
Company, would be required to include in gross income as a dividend such
shareholder's pro rata portion of the undistributed FPHC income of the Company
or the subsidiary, even if no cash dividend were actually paid. In such case, a
U.S. Shareholder would be entitled to increase its tax basis in the shares of
the Company by the amount of the deemed dividend. If a subsidiary of the Company
were the FPHC, a U.S. Shareholder in the Company should be afforded similar
relief, although the law is unclear as to the form of the relief.

     Although the Company believes that at the present time no U.S. group
exists, the Company can give no assurances regarding future ownership of Company
shares, which could result in the creation of a U.S. group and thus cause the
Company to be treated as a FPHC. Moreover, the Company can give no assurance
that it will have timely knowledge of the formation of a U.S. group. In this
regard, the Company does not assume any obligation to make timely disclosure
with respect to such status.

     If the Company becomes a FPHC, a U.S. person who acquires shares from a
decedent would obtain a tax basis equal to the lesser of the fair market value
of the shares at the date of the decedent's death or the basis in the hands of
the decedent.

     As noted above, certain U.S. tax consequences depend on the composition of
the income of the Company and its subsidiaries. The tax law is not entirely
clear as to the proper classification of all relevant types of income that the
Company and its subsidiaries may realize. Accordingly, there can be no assurance
that management's expectations described in the preceding section will be
fulfilled.

STATE AND LOCAL TAXES

     State and local tax treatment may differ from federal income tax treatment.
Each U.S. Shareholder should seek tax advice with respect to applicable state
and local taxes.

ITEM 8.  SELECTED FINANCIAL DATA

     The following selected consolidated financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," the Consolidated Financial Statements and Notes
thereto and other financial information included elsewhere in this Form 20-F.
The

                                       19
<PAGE>   20

statement of operations data set forth below for the years ended December 31,
1997, 1998, and 1999, respectively, and the balance sheet data as of December
31, 1998 and 1999 have been derived from the audited Consolidated Financial
Statements of the Company included elsewhere in this Form 20-F. The statement of
operations data for the years ended December 31, 1995 and 1996 and the balance
sheet data at December 31, 1995, 1996 and 1997 have been derived from audited
financial statements not included herein. The operating results for any period
are not necessarily indicative of results for any future period. All
accompanying consolidated financial statements have been restated to reflect the
pooling of interests of the Company and Aurum Software, Inc., which was acquired
in August 1997. Certain prior period amounts have been reclassified to conform
to the current year presentation. The accompanying consolidated financial
statements have not been restated to reflect the pooling of interests of the
Company and CODA Group plc. ("CODA") as CODA's historical financial statements
are not material to the consolidated historical financial statements of the
Company.

<TABLE>
<CAPTION>
                                                       YEAR ENDED DECEMBER 31,
                                        ------------------------------------------------------
                                          1995       1996       1997       1998        1999
                                        --------   --------   --------   ---------   ---------
                                                (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                     <C>        <C>        <C>        <C>         <C>
Statement of Operations Data:
Net revenues(1):
  License revenue.....................  $118,894   $226,135   $367,101   $ 285,778   $ 190,884
  License revenue from related
     parties..........................        --     14,532     66,325      50,600       2,000
                                        --------   --------   --------   ---------   ---------
     Total license revenues...........   118,894    240,667    433,426     336,378     192,884
  Maintenance and service revenue.....   107,791    174,875    246,170     399,271     426,259
                                        --------   --------   --------   ---------   ---------
     Total net revenues...............   226,685    415,542    679,596     735,649     619,143
                                        --------   --------   --------   ---------   ---------
Cost of revenues:
  Cost of license revenue.............     6,678     14,442     31,212      30,741      59,787
  Write-down of capitalized costs.....        --         --         --       9,600      43,105
  Cost of maintenance and service
     revenue..........................    86,888    143,746    189,871     302,063     332,091
                                        --------   --------   --------   ---------   ---------
     Total cost of revenues...........    93,566    158,188    221,083     342,404     434,983
                                        --------   --------   --------   ---------   ---------
Gross profit..........................   133,119    257,354    458,513     393,245     184,160
                                        --------   --------   --------   ---------   ---------
Operating and non-recurring expenses:
  Sales and marketing.................    62,901    102,191    171,572     272,497     172,412
  Research and development............    21,004     45,843     90,849     151,369     134,733
  General and administrative..........    30,091     49,136     72,489     156,148     143,791
  Asset write-downs...................        --         --      3,393      27,299      23,906
  Loss on disposal of assets..........        --         --         --      58,030          --
  Restructuring and other charges.....        --         --      8,675      59,972      10,722
                                        --------   --------   --------   ---------   ---------
     Total operating expenses.........   113,996    197,170    346,978     725,315     485,564
                                        --------   --------   --------   ---------   ---------
Income (loss) from operations.........    19,123     60,184    111,535    (332,070)   (301,404)
Net interest and other income
  (expense)...........................     1,593       (317)     1,975      (3,122)     (8,175)
                                        --------   --------   --------   ---------   ---------
Income (loss) before income taxes and
  minority interest...................    20,716     59,867    113,510    (335,192)   (309,579)
Provision (benefit) for income
  taxes...............................     9,817     23,255     36,354     (20,000)         --
Minority interest in earnings of
  consolidated subsidiaries...........       (72)        --         --          --          --
                                        --------   --------   --------   ---------   ---------
Net income (loss).....................  $ 10,827   $ 36,612   $ 77,156   $(315,192)  $(309,579)
                                        ========   ========   ========   =========   =========
</TABLE>

                                       20
<PAGE>   21

<TABLE>
<CAPTION>
                                                       YEAR ENDED DECEMBER 31,
                                        ------------------------------------------------------
                                          1995       1996       1997       1998        1999
                                        --------   --------   --------   ---------   ---------
                                                (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                     <C>        <C>        <C>        <C>         <C>
Net income (loss) per share
  Basic...............................  $   0.07   $   0.20   $   0.40   $   (1.59)  $   (1.43)
  Diluted.............................  $   0.06   $   0.19   $   0.37   $   (1.59)  $   (1.43)
Shares used in per share calculation
  Basic...............................   164,929    179,512    190,842     198,519     215,760
  Diluted.............................   182,866    196,496    206,071     198,519     215,760
</TABLE>

<TABLE>
<CAPTION>
                                                              DECEMBER 31,
                                          ----------------------------------------------------
                                            1995       1996       1997       1998       1999
                                          --------   --------   --------   --------   --------
                                                             (IN THOUSANDS)
<S>                                       <C>        <C>        <C>        <C>        <C>
Balance Sheet Data:
Cash, cash equivalents and marketable
  securities............................  $ 38,522   $240,853   $216,264   $206,831   $196,665
Working capital.........................    73,945    304,863    309,441    123,871     45,306
Total assets............................   196,416    496,973    722,409    823,151    602,738
Long-term debt, less current portion....     1,835    176,260    200,718    191,013    189,041
Shareholders' equity (deficit)..........   117,948    203,016    290,465    156,760     (7,760)
Dividends paid..........................        --         --         --         --         --
</TABLE>

---------------
(1) See Note 10 of Notes to Consolidated Financial Statements for information
    concerning transactions with related parties.

ITEM 9. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

     The following discussion in the section "Management's Discussion and
Analysis of Financial Condition and Results of Operations" contains trend
analysis and other forward-looking statements that are subject to risks and
uncertainties. The Company's actual results could differ materially from those
projected in the forward-looking statements discussed herein. Factors that could
cause or contribute to such differences include but are not limited to, those
set forth under "Risk Factors" and elsewhere in this Form 20-F.

ANNUAL RESULTS OF OPERATIONS

     The following table sets forth for the periods indicated the percentage of
total net revenues represented by certain items reflected in the Company's
statements of operations:

<TABLE>
<CAPTION>
                                                      YEAR ENDED DECEMBER 31,
                                                      ------------------------
                                                      1997      1998      1999
                                                      ----      ----      ----
<S>                                                   <C>       <C>       <C>
Net revenues........................................  100%      100%      100%
Cost of revenues....................................   33        46        70
                                                      ---       ---       ---
Gross profit........................................   67        54        30
                                                      ---       ---       ---
Operating expenses:
  Sales and marketing...............................   25        37        28
  Research and development..........................   13        21        22
  General and administrative........................   11        21        23
  Non-recurring expenses............................    2        20         6
                                                      ---       ---       ---
     Total operating expenses.......................   51        99        79
                                                      ---       ---       ---
  Income (loss) from operations.....................   16       (45)      (49)
  Other income (expense)............................   --        --        (1)
  Provision (benefit) for income taxes..............    5        (3)       --
                                                      ---       ---       ---
  Net income (loss).................................   11%      (42)%     (50)%
                                                      ===       ===       ===
</TABLE>

                                       21
<PAGE>   22

     NET REVENUES.  The following table sets forth, for the periods indicated,
revenues by category and the percentage of total net revenues represented by
each category:

<TABLE>
<CAPTION>
                                                       YEAR ENDED DECEMBER 31,
                                        -----------------------------------------------------
                                             1997               1998               1999
                                        ---------------    ---------------    ---------------
                                                          ($ IN THOUSANDS)
<S>                                     <C>         <C>    <C>         <C>    <C>         <C>
Net revenues:
  Total license revenue...............  $433,426     64%   $336,378     46%   $192,884     31%
  Maintenance and service revenue.....   246,170     36%    399,271     54%    426,259     69%
                                        --------    ---    --------    ---    --------    ---
          Total net revenues..........  $679,596    100%   $735,649    100%   $619,143    100%
                                        ========    ===    ========    ===    ========    ===
</TABLE>

     Total net revenues decreased 16% ($116.5 million) to $619.1 million in 1999
from $735.6 million in 1998. License revenue decreased 43% ($143.5 million) to
$192.9 million in 1999 from $336.4 million in 1998, and maintenance and service
revenues increased 7% ($27.0 million) to $426.2 million in 1999 from $399.3
million in 1998. As a percentage of total revenue, license revenue decreased to
31% in 1999 from 46% in 1998; service and maintenance revenue increased to 69%
in 1999 from 54% in 1998. No customer accounted for 10% or more of total net
revenues in 1997, 1998 and 1999.

     LICENSE REVENUE.  License revenues decreased 43% ($143.5 million) to $192.9
million in 1999 from $336.4 million in 1998, and decreased 22% ($97.0 million)
in 1998 from $433.4 million in 1997. As a percentage of total net revenues,
license revenues were 31% in 1999, as compared to 46% in 1998 and 64% in 1997.

     The Company believes the reduction in 1999 total license revenues, as
compared to 1998, was attributable principally to 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 because, as it entered the year as compared
to certain of its competitors, license fees continued to comprise a greater
percentage of the Company's total net revenue, compared to non-license revenues
such as maintenance, service and consulting. These 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 of capital expenditures to fix Year 2000 problems of existing
systems and increased and new competition. Certain of these same factors (Year
2000 and increased competition), giving rise to similar market trends (of longer
sales cycles, etc.), also contributed to the decline of license revenues in 1998
as compared to 1997.

     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.

                                       22
<PAGE>   23

     Business reorganization

     Commencing in 1997 and with the effect 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 (the details of which are still being defined) 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 among 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 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.

     MAINTENANCE AND SERVICES REVENUES.  Maintenance and service revenues
increased 7% ($27.0 million) to $426.3 million in 1999 from $399.3 million in
1998, and increased 62% ($153.1 million) in 1998 from $246.2 million in 1997.
These increases were primarily attributable to increased maintenance fees and
services to a larger installed base of customers, which in turn was a result of
the growth in product licenses. As a percentage of total net revenues,
maintenance and service revenues were 69% in 1999, as compared to 54% in 1998,
and 36% in 1997.

                                       23
<PAGE>   24

     REVENUE BY GEOGRAPHY.  The Company operates its business in three principal
geographic regions, namely, EMEA (Europe, Middle East and Africa), North America
(United States and Canada), and Rest of World (Asia Pacific and Latin America).
Total net revenues in the EMEA region decreased 8% ($26.9 million) to $310.3
million in 1999 from $337.2 million in 1998 and increased 33% ($83.8 million) in
1998 from $253.4 million in 1997, representing 50%, 46% and 37% of total net
revenues, respectively. Total net revenues in the North America region decreased
13% ($36.2 million) to $250.0 million in 1999 from $286.2 million in 1998 and
increased 3% ($8.8 million) in 1998 from $277.4 million in 1997, representing
40%, 39% and 41% of total net revenues, respectively. Total net revenues in the
Rest of World region remained relatively flat at $58.9 million versus $61.6
million in 1998, and decreased 25% ($20.8 million) in 1998 from $82.4 million in
1997, representing 10%, 8% and 12% of total net revenues, respectively.

     Within the EMEA region, a large proportion of the Company's total net
revenues is derived from the Netherlands and Germany. In 1999, 1998 and 1997,
net revenues from the Company's operations in the Netherlands, net of related
party revenues, were $74.9 million, $79.5 million and $78.7 million,
respectively, and represented 12%, 11% and 12% of total net revenues,
respectively, with export sales of less than 10% of total net revenues from
unaffiliated customers for those years. For the Company's German operations,
total net revenues decreased to $72.3 million in 1999 from $95.2 million in 1998
and $90.1 million in 1997, representing 12%, 13% and 13% of total net revenues,
respectively. The Company's operations are subject to risks inherent in
international business activities, including risks related to currency
fluctuations. See "Risk Factors -- There are Obstacles in Managing International
Operations", Item 9A -- "Quantitative and Qualitative Disclosures About Market
Risks", and Note 13 of Notes to Consolidated Financial Statements.

     GROSS PROFIT.  The following table sets forth, for the periods indicated,
gross profit for each revenue category:

<TABLE>
<CAPTION>
                                                     YEAR ENDED DECEMBER 31,
                               --------------------------------------------------------------------
                                       1997                    1998                    1999
                               --------------------    --------------------    --------------------
                                             % OF                    % OF                    % OF
                                           REVENUE                 REVENUE                 REVENUE
                                  $        CATEGORY       $        CATEGORY       $        CATEGORY
                               --------    --------    --------    --------    --------    --------
                                                         ($ IN THOUSANDS)
<S>                            <C>         <C>         <C>         <C>         <C>         <C>
Gross profit:
  License....................  $402,214       93%      $305,637       91%      $133,097       69%
  Maintenance and service....    56,299       23%        97,208       24%        94,168       22%
  Write-down of capitalized
     software................        --       --         (9,600)      --        (43,105)      --
                               --------       --       --------       --       --------       --
          Total gross
            profit...........  $458,513       67%      $393,245       53%      $184,160       30%
                               ========       ==       ========       ==       ========       ==
</TABLE>

     The Company's gross profit as a percentage of total net revenues was 30% in
1999, as compared to 53% in 1998 and 67% in 1997. The decrease in gross profit
in 1999 compared to 1998 and 1997 is primarily a result of a shift from
higher-margin license revenue to lower-margin service revenue. 1999 and 1998
gross profit includes charges of $43.1 million and $9.6 million for write-downs
of capitalized software costs, respectively. These charges were taken to reflect
a reduced net realizable value of certain software products resulting from the
Company's change in product strategy. The Company believes the adjusted carrying
value is reasonable based on projections of future cash flows, which are based
partially on the condition that the Invensys transaction is completed. In the
event the Invensys transaction is not completed, substantial additional charges
for impairment may be necessary.

     Gross profit on license revenue decreased to 69% in 1999, as compared to
91% in 1998 and 93% in 1997. Cost of license revenues consists primarily of
amortization of capitalized software, the cost of third party software, and the
cost of media and freight. Amortization of capitalized software, included in
cost of license revenue, amounted to $34.2 million, $14.8 million and $5.9
million in 1999, 1998 and 1997 respectively. The increase in amortization of
capitalized software during 1999, and 1998 was due primarily to the CAPS
Logistics Inc. acquisition in the third quarter of 1998, and the Proloq and BAIN
acquisitions in the third quarter of 1999.

                                       24
<PAGE>   25

     Gross profit on maintenance and service revenues remained relatively
constant in 1999, 1998 and 1997 at 22%, 24%, and 23%, respectively. Cost of
maintenance and service revenues consists primarily of cost of product support,
consulting and training, including associated software engineering services.

     SALES AND MARKETING.  The following table sets forth, for the periods
indicated, sales and marketing expenses and such expenses as a percentage of
total net revenues:

<TABLE>
<CAPTION>
                                                          YEAR ENDED DECEMBER 31,
                                           -----------------------------------------------------
                                                1997               1998               1999
                                           ---------------    ---------------    ---------------
                                              $         %        $         %        $         %
                                           --------    ---    --------    ---    --------    ---
                                                             ($ IN THOUSANDS)
<S>                                        <C>         <C>    <C>         <C>    <C>         <C>
Sales and marketing expenses.............  $171,572     25%   $272,497     37%   $172,412     28%
</TABLE>

     The Company's sales and marketing expenses decreased 38% ($100.0 million)
to $172.4 million in 1999 from $272.5 million in 1998, and increased 59% ($100.9
million) in 1998 from $171.6 million in 1997, representing 28%, 37% and 25% of
net revenues in 1999, 1998 and 1997, respectively. The decrease in 1999 sales
and marketing expenses was primarily a result of the Company's restructuring
effort during the fourth quarter of 1998. The increase from 1997 to 1998
reflects the growth of the Company over that period of time and an increased
commitment to brand promotion. Sales and marketing expenses also include net
foreign currency transaction gains of $27.7 million and $6.5 million in 1999 and
1997, respectively, and a net foreign currency loss of $17.1 million in 1998.

     RESEARCH AND DEVELOPMENT.  The following table sets forth, for the periods
indicated, research and development expenses and such expenses as a percentage
of total net revenues:

<TABLE>
<CAPTION>
                                                          YEAR ENDED DECEMBER 31,
                                            ----------------------------------------------------
                                                 1997              1998               1999
                                            --------------    ---------------    ---------------
                                               $        %        $         %        $         %
                                            -------    ---    --------    ---    --------    ---
                                                              ($ IN THOUSANDS)
<S>                                         <C>        <C>    <C>         <C>    <C>         <C>
Research and development expenses.........  $90,849     13%   $151,369     21%   $134,733     22%
</TABLE>

     Research and development expenses decreased 11% ($16.7 million) to $134.7
million in 1999 from $151.4 million in 1998, and increased 67% ($60.6 million)
in 1998 from $90.8 million in 1997. Research and development personnel totaled
1,701 people at December 31, 1999, as compared to 1,671 people at December 31,
1998 and 1,341 people at December 31, 1997. This staff is located primarily in
the Netherlands, with a smaller number of research and development personnel in
India, the United States and various other locations. Research and development
personnel represented 35% of the Company's total employees at December 31, 1999,
as compared to 33% and 32% at December 31, 1998 and 1997, respectively. In 1999,
1998 and 1997, the Company capitalized 13%, 11% and 17%, respectively, of
aggregate research and development expenditures. Aggregate research and
development expenditures in such years, including both research and development
expenses and capitalized software costs, were $153.7 million, $170.6 million and
$110.1 million, respectively.

     During 1999, the Company held steady the Research and Development expenses
reflecting the need to continue with a high level of investment in its products.
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. The increase in Research and Development expenses from
1997 to 1998 reflects the Company's continuing investment in the development of
new and enhanced products and new technologies, and consist primarily of
additional Research and Development personnel.

     GENERAL AND ADMINISTRATIVE.  The following table sets forth, for the
periods indicated, general and administrative expenses and such expenses as a
percentage of total net revenues:

<TABLE>
<CAPTION>
                                                          YEAR ENDED DECEMBER 31,
                                            ----------------------------------------------------
                                                 1997              1998               1999
                                            --------------    ---------------    ---------------
                                               $        %        $         %        $         %
                                            -------    ---    --------    ---    --------    ---
                                                              ($ IN THOUSANDS)
<S>                                         <C>        <C>    <C>         <C>    <C>         <C>
General and administrative expenses.......  $72,489     11%   $156,148     21%   $143,791     23%
</TABLE>

                                       25
<PAGE>   26

     General and administrative expenses decreased 12% ($12.4 million) to $143.8
million in 1999 from $156.1 million in 1998, and increased 115% ($83.6 million)
in 1998 from $72.5 million in 1997. As a percentage of total net revenues, such
expenses were 23%, 21% and 11% in 1999, 1998 and 1997, respectively. The
decreases in general and administrative expenses in absolute dollars are the
result of the Company's reorganization during the fourth quarter 1998. General
and administrative expenses include charges of $37.4 million, $55.3 million and
$12.4 million to bad debt expense for 1999, 1998 and 1997, respectively;
additional charges for legal claims of $27.0 million and $7.0 million in 1999
and 1998 respectively; and amortization of intangible assets of $20.4 million,
$8.8 million and $6.1 million in 1999, 1998 and 1997, respectively. The increase
in 1999 to bad debt expense and charges for legal claims primarily relates to
the Company's operating difficulties and marketplace concerns regarding the
Company's viability. Amortization of intangible assets is primarily the result
of certain of the Company's acquisitions. See Notes 3 and 11 of Notes to
Consolidated Financial Statements.

     NON-RECURRING EXPENSES.  The following table set forth, for the periods
indicated, restructuring and other expenses and such expenses as a percentage of
total net revenues:

<TABLE>
<CAPTION>
                                                            YEAR ENDED DECEMBER 31,
                                              ---------------------------------------------------
                                                   1997              1998               1999
                                              --------------    ---------------    --------------
                                                 $        %        $         %        $        %
                                              -------    ---    --------    ---    -------    ---
                                                               ($ IN THOUSANDS)
<S>                                           <C>        <C>    <C>         <C>    <C>        <C>
Asset write-downs...........................  $ 3,393     --    $ 27,299      4%   $23,906      4%
Loss on disposal of assets..................       --     --      58,030      8%        --     --
Restructuring and other non-recurring
  expenses..................................    8,675      2%     59,972      8%    10,722      2%
                                              -------    ---    --------    ---    -------    ---
          Total non-recurring expenses......  $12,068      2%   $145,301     20%   $34,628      6%
                                              =======    ===    ========    ===    =======    ===
</TABLE>

     The reorganization the Company undertook in the fourth quarter of 1999 was
principally a strategic reorganization (related to implementation of its shift
to an integrated products and e-Fulfillment strategy) as opposed to the
significant operational restructuring which took place in the fourth quarter of
1998. Included in the 1999 loss were $34.6 million of non-recurring charges
related to the Company's fourth quarter strategic reorganization. $23.9 million
of these charges were for write-downs of goodwill and other tangible and
intangible assets. These charges reflect the Company's reduced estimate of each
asset's net realizable value based on current and forecasted cash flow losses.
The Company believes the adjusted carrying value to be reasonable based on
current cash flow projections, which are based partially on the condition that
the Invensys transaction is completed. In the event the Invensys transaction is
not completed, substantial additional charges for impairment may be necessary.
The remaining $10.7 million charge relates to other non-recurring costs
including a 4% (approximately 200 employees) worldwide headcount reduction and
the closing of 14 branch offices. Approximately $10.1 million of these
non-recurring charges are accrued as of December 31, 1999 as part of accrued
liabilities on the consolidated balance sheet.

     During the fourth quarter of 1998, the Company completed key elements of
its restructuring program to reduce costs and gain efficiencies across all
aspects of the organization. In connection with these efforts, the Company
recorded non-recurring charges of $140.5 million related to restructuring,
losses on the disposal of certain under-performing business entities and other
assets, and other asset write-downs. Approximately $31.3 million of these
non-recurring charges were accrued as of December 31, 1998. None of these
non-recurring charges remain accrued as of December 31, 1999. Also in 1998 the
Company recognized non-recurring charges of $14.4 million in connection with the
acquisition of CODA in May 1998. For the year ended December 31, 1997,
non-recurring expenses were $12.1 million. These charges related to direct
transaction and integration costs as a result of the combinations with Aurum and
Beologic. See Notes 11 and 14 to Consolidated Notes to Financial Statements.

     NET INTEREST AND OTHER INCOME.  Interest income in 1999, 1998 and 1997 of
$3.3 million, $8.7 million, and $14.4 million, respectively, was primarily a
result of interest earned on investments in cash, cash equivalents, and
marketable securities. The decrease in interest income relates to a decline in
the Company's balance of cash, cash equivalents and marketable securities.
Interest expense of $9.5 million, $11.8 million and

                                       26
<PAGE>   27

$12.3 million in 1999, 1998 and 1997, respectively, related primarily to
interest on working capital lines of credit and long-term debt, interest expense
on the convertible notes and the amortization of debt issuance costs. See Note 5
of Notes to Consolidated Financial Statements.

     INCOME TAXES.  At December 31, 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 German 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 on investments (Article
13ca). This amount needs to be reversed in future years and added to Dutch
taxable income. The net operating losses generated in the United States expire
in 2008 or later. For financial accounting purposes the benefit of the net
operating losses generated through 1996 and 1997 has been recorded as a
reduction of the provision for Dutch income taxes in 1997. As of December 31,
1999 and 1998, the Company has established a full valuation allowance due to
operating losses incurred and uncertainty of realization of the net deferred tax
assets. Primarily as a result of establishing the valuation allowance, the
Company's 1998 effective tax benefit is 6%. When it becomes more likely than not
that the Company will be profitable in future periods, the Company will draw
down the valuation allowance to compensate future tax provisions. The Company's
1998 income tax benefit of $20,000 relates to income taxes previously paid by
the Company that will be or have been collected in cash.

     In July 1997, the Company was notified by the Dutch tax authorities that it
qualified for a reduced tax rate for the next ten years effective January 1997
on certain income as defined in the agreement. Based on this ruling and other
initiatives, the Company's effective tax in 1997 was 32%.

QUARTERLY VARIABILITY

     The Company's revenues in general, and in particular its license revenues,
are relatively difficult to forecast and will continue to exhibit
period-to-period fluctuations due to a number of reasons, including (i) the
relatively long sales cycles for the Company's products, (ii) the size and
timing of individual license transactions, (iii) the timing of the introduction
of new products or product enhancements by the Company or its competitors, (iv)
the potential for delay or deferral of customer implementations of the Company's
software, (v) changes in customer budgets, and (vi) seasonality of technology
purchases and other general economic conditions. Accordingly, the Company
believes that period-to-period comparisons of its results of operations are not
necessarily meaningful and should not be relied upon as indications of future
performance. See "Risk Factors -- The Company is Subject Variability of
Quarterly Operating Results".

LIQUIDITY AND CAPITAL RESOURCES

     As of December 31, 1999, the Company had cash, cash equivalents and
short-term marketable securities of $196.7 million and working capital of $45.3
million. In 1999, the Company's operating activities used cash of $140.0
million, primarily as a result of the net loss for the year less certain
non-cash items such as depreciation and amortization and asset write-downs in
connection with the Company's reorganization and paydown of certain current
liabilities. Accounts receivable net of allowance for doubtful accounts was
$159.4 million at December 31, 1999 compared to $252.1 million at December 31,
1998. Accounts receivable days sales outstanding ("DSO," the ratio of the
year-end accounts receivable balance to annual revenues, multiplied by 365) was
94 days as of December 31, 1999, compared with 125 days as of December 31, 1998.
Accounts receivable do not include, and the prior computation of DSO does not
reflect, Value Added Tax ("VAT") and sales taxes applicable to accounts
receivable in certain countries. These amounts are required to be collected from
the customer by the Company and to be paid to appropriate authorities. If such
taxes were included in accounts receivable, accounts receivable at December 31,
1999 and 1998 would have been $180.1 million and $277.7 million, respectively,
and DSO at such dates would have been 106 days and 138 days, respectively. The
amount of VAT reclassified and included in other current assets as of December
31, 1999 and 1998, was $20.7 million and $25.6 million, respectively. As of
December 31, 1999, the Company also had tax receivables of $4.6 million
(representing income tax refunds from various jurisdictions in which it does
business). The Company expects to collect substantially all of this amount in
2000.
                                       27
<PAGE>   28

     Investing activities consumed $88.3 million of cash in 1999. Purchases of
property and equipment of $10.3 million, an increase of $36.3 million in
capitalized software costs, purchases of marketable securities of $38.3 million
and payments for acquisitions and investments of $15.1 million were partially
offset by proceeds from the sale of property and equipment of $5.6 million. The
Company expects capital expenditures will remain relatively flat from 1999 to
2000. With the exception of the semi-annual interest payments on the convertible
debt of $4.3 million per payment, the Company had no significant capital
commitments in 2000.

     Financing activities in 1999 provided cash of $159.7 million, primarily due
to proceeds from the issuance of common shares of $25.7 million upon exercise of
stock options and for the Employee Stock Option Program and a $135.0 million
equity investment from Fletcher International Limited ("Fletcher").

     During 1999 and 1998, Fletcher paid to the Company $135 million and $75
million, respectively, in exchange for a subscription to purchase common shares
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. The terms of these purchases are set
forth in the Share Rights Agreement as amended, between the Company and Fletcher
dated as of December 31, 1998 on file with the SEC.

     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 common shares it had purchased under the Share Rights
Agreement, at the U.S. dollar equivalent 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 under the Share Rights Agreement (totaling approximately
$215 million in such unexercised rights) and (b) $16,623,392 (plus interest at
8.5% per year after May 29, 2000) in repayment of monies already advanced to the
Company but not yet converted into common shares (total of approximately $15
million). These 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 of control by
December 31, 2000, these payments would not be owed and those rights revert to
Fletcher.

     As of December 31, 1999, the Company had outstanding long-term debt of
$189.0 million, consisting primarily of the Company's convertible subordinated
notes due December 15, 2001. These notes bear interest at a rate of 4.5% per
annum and are payable on December 15, 2001 to the extent not converted into
common shares at the election of the holder prior to such maturity date.
Interest under the notes amounts to $8.6 million per year, payable
semi-annually, and there is no sinking fund requirement. The notes are
convertible into common shares at the option of each holder at a conversion
price of $22.00 per share. Accordingly, if the trading price of the Company's
common shares at the maturity date exceeds such conversion price, the notes will
generally be converted into common shares prior to repayment. During March 2000,
the Company reached agreements with certain holders of its 4.5% Convertible
Subordinated Notes due 2001 (the "Convertible Notes") under which some of the
Convertible Notes were exchanged for shares at a price that was lower than the
conversion price provided in the Convertible Notes. The Company also temporarily
lowered the conversion price (originally $22.00 per share) to $6.25 per share
for its remaining Convertible 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
Convertible 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. In connection with this inducement offer,
the Company recognized a non-cash expense equal to the fair value of the shares
issued at the special conversion rate in excess of the fair value of the shares
had they been converted at the original conversion price. The non-cash expense
recognized during the second quarter 2000 related to the induced conversion was
approximately $29 million. If in the future the price of the common shares does
not exceed the $22.00 per share conversion price, the Company will be required
to repay the notes at maturity using existing cash balances and other financing
arrangements. There can be no assurances that the state of the financial markets
or the condition of the Company's business at the time of any such repayment
requirement will permit any such refinancing on acceptable terms.

                                       28
<PAGE>   29

     With respect to the year 2000, the Company's financing needs and
alternatives will be dependent in large part on whether the pending cash tender
offer of Invensys is closed. If the Invensys offer does not close, the Company
must pursue an immediate and fundamental restructuring and obtain necessary
financing. 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, including for the
fundamental restructuring of the Company that will be required to continue as an
independent going concern, is uncertain.

     Also uncertain would be the Company's ability to access equity capital
under the Bear Stearns Agreement. That Agreement provides Bear Stearns with the
right to reject, in its discretion, any put by the Company if, during the put
period, the Company's share price falls below 3.00 Euro. If the Invensys offer
fails, there is a substantial possibility that the Company's shares will trade
below that threshold for some meaningful period of time. In that regard, it is
noted that the Company's shares were principally trading in the $1-$2 per share
range in the several weeks prior to the Invensys offer, and the absence of
shareholder equity at the close of the second quarter means special listing
status for the Company's shares on the AEX is likely.

     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:

     - The Company has incurred net losses of $309.6 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.

     - 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.

     - 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
       Company has indicated that it will end the second quarter of 2000 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.

     - 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.

     - 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.

     - 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.

                                       29
<PAGE>   30

     - 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 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 3.00
during any put period), and finding alternative financing will likely be
extremely difficult; the Company's negotiating position with other prospective
strategic 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 revenue and executing on the needed restructuring.

     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 is subject to
certain closing conditions. Among them is that 95% of Baan's issued and
outstanding shares must be tendered in support of the offer. 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 here 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.

YEAR 2000

     Background.  Some computer hardware, software and other date-dependent
equipment were designed with programming code in which calendar year data is
abbreviated to only two digits (e.g., 1998 is abbreviated to 98). As a result of
this design decision, some of these systems could fail to operate or fail to
produce correct results if "00" is interpreted to mean 1900, rather than 2000.
These problems are commonly referred to as the "Year 2000 Problem."

     The Company has not experienced any material internal Year 2000 problems to
date. In addition, the Company has not been advised of any material Year 2000
problems by our customers to date. However, although January 1, 2000 is past, it
is possible that problems have gone undetected, or that other dates in the year
2000 may further affect computer software and systems. The Company expects to
continue to respond to customer questions about year 2000 compliance or any Baan
software solutions. Despite extensive testing by the Company and its customers,
and assurances from suppliers of products and partners, working in conjunction
with the Baan solution, errors or defects could result in the delay or loss of
revenues, diversion of development resources, damage to the Company's
reputation, increased service or warranty costs, or liability from its
customers, any of which could seriously harm the Company's business.

     Through December 31, 1999, the Company incurred approximately $1.5 million
to upgrade its internal systems (both in terms of actual upgrade expenses and
personnel costs). Costs for year 2000 matters were expensed as incurred.

INTRODUCTION OF EURO CURRENCY

     Background.  In January 1999, a new currency called the "Euro" was
introduced in certain European Economic and Monetary Union ("EMU") countries. By
June 30, 2002 at the latest, all participating EMU countries are expected to be
operating with the Euro as their single currency. As a result, computer software
used by many companies headquartered or maintaining a subsidiary in a
participating EMU country is
                                       30
<PAGE>   31

expected to be Euro-enabled, and in less than two years all companies
headquartered or maintaining a subsidiary in a participating EMU country will
need to be Euro-enabled. The transition to the Euro will involve changing
budgetary, accounting and fiscal systems in companies and public administration,
as well as the simultaneous handling of parallel currencies and conversion of
legacy data.

     Customer Products.  Current versions of the Company's standard ERP software
products are designed to, or with currently available updates will, accommodate
the implementation of the Euro in compliance with current legislation. In
addition, the Company offers two "backported" versions, Triton 3.1b.7 and Baan
IVb5, that will also support the implementation of the Euro. The Company's ERP
product also provides for "multi-base currency conversion", which allows users
to adopt the Euro in a phased approach alongside running existing home currency.
The Company believes that current versions of other products to which the
Company has recently acquired ownership are also now Euro compliant.

     The Company offers products from third-party vendors that contain Euro
functionality and are sold in conjunction with or incorporated into the
Company's software products. However, the Company has limited or no control over
the actions of these third-party suppliers. Any failure of these third parties
to comply with the Euro guidelines or to resolve Euro problems with their
products in a timely manner could have a material adverse effect on the
Company's business, financial condition, and results of operation.

     The Company has made available on its Web site, at www.baan.com, complete
information on the Euro compliance of the Company's products for the benefit of
customers, potential customers, and other interested parties. However,
management believes that it is not possible to determine with complete certainty
that all Euro problems affecting the Company's software products have been
identified or corrected, due to the complexity of these products, the fact that
the Company's products operate on computer systems and networks from other
vendors not under the Company's control, and the fact that the Company's
products interact with software from other vendors not under the Company's
control.

     Internal Accounting and Invoicing Systems.  The Company is not aware of any
material operational issues or costs associated with preparing its own internal
systems for the Euro. As noted above, certain of the Company's back office
systems are operating with recent versions of the Company's ERP software,
thereby limiting to some extent the breadth of any Euro compliance issues with
respect to the Company's internal systems. The Company does utilize third-party
vendor equipment and software products that may or may not be Euro compliant.
Although the Company is currently taking steps to address the impact, if any, of
Euro compliance for such third-party products, the failure of any critical
components to operate properly in a Euro environment may have an adverse effect
on the business or results of operations of the Company or require the Company
to incur expenses to remedy such problems.

FORWARD-LOOKING STATEMENTS

     This Management's Discussion and Analysis of Financial Condition and
Results of Operations and other sections of this Form 20-F contain
forward-looking statements that are based on current expectations, estimates and
projections about the industries in which the Company operates, management's
beliefs and assumptions made by management. Words such as "expects",
"anticipates", "intends", "plans", "believes", "seeks", "estimates", variations
of such words, and similar expressions are intended to identify such forward-
looking statements. These statements are not guarantees of future performances
and involve certain risks and uncertainties which are difficult to predict.
Therefore, actual outcomes and results may differ materially from what is
expressed or forecasted in such forward-looking statements. The Company
undertakes no obligation to update publicly any forward-looking statements in
this Form 20-F report.

     A number of risks that could cause or contribute to such differences have
been set forth above. Additional factors include but are not limited to those
set forth under "Risk Factors" below. In addition, such statements could be
affected by general industry and market conditions and growth rates, and general
domestic and international economic conditions, including interest rate and
currency exchange rate fluctuations.

                                       31
<PAGE>   32

                                  RISK FACTORS

     In addition to the other information contained and incorporated by
reference in this Form 20-F, the following factors, which are not intended to be
all inclusive, should be carefully considered in evaluating Baan and our
business:

INVENSYS TENDER OFFER/BAAN AS GOING CONCERN.

     As announced on May 31, 2000, Invensys plc has offered to purchase all the
outstanding issued share capital of the Company for 2.85 Euro per share. Details
of the offer are set forth in the Offer to Purchase and associated documents as
filed by Invensys with the U.S. Securities and Exchange Commission. The
Company's response to the offer was filed with the SEC on June 14, 2000 as a
Statement on Schedule 14D-9. The offer is currently 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.
With the assistance of its investment banker, Lazard Freres, the Company
commenced in the first quarter of 2000 a comprehensive assessment of its
financial and strategic position. Since retaining Lazard in January, the Company
has engaged in dozens of communications with potential financial investors,
customers, partners and even potential buyers. Most of those discussions
throughout the first quarter centered on alternatives that would allow us to
remain as an independent business, which had been our preference as we started
the year. But as market conditions continued to deteriorate with the first
quarter earnings announcement of April 20, 2000, and customers continuing to
adopt a "wait and see" attitude (as described in Management's Discussion and
Analysis of license revenue), the idea of pursuing a potential merger or sale of
all of the Company's assets began to gain more traction.

     Several facts about the strategic discussions that were had with potential
partners or investors over the first half of 2000 must be underscored (all as
set forth in more detail 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):

     - The Company received only one formal offer to acquire all the shares or
       assets of the Company in addition to the Invensys offer (and that offer
       had significantly less favorable economic terms).

     - Any and all informal offers the Company received or discussions the
       Company had with potential investors or acquirers involved economic terms
       significantly less favorable than those offered by Invensys.

     - The Company has received no offers of any kind since the May 31 Invensys
       announcement.

     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:

     - The Company will be operating in an environment of growing customer
       concerns about the continued viability of the Company.

     - 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. Accordingly, the Company may be unable to realize its assets and
       discharge its liabilities in the normal course of business.

     - Additionally, the Company has indicated publicly that it will close the
       second quarter in a negative equity position. The AEX on June 6, 2000
       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.

     - 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

                                       32
<PAGE>   33

       that it 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 could include onerous terms and
       (in the case of equity financing) come with substantial dilution for
       shareholders.

     - 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.

VANENBURG GROUP B.V. CONTROLS APPROXIMATELY ONE-THIRD OF SALES FROM BAAN'S
INDIRECT CHANNEL.

     Approximately 15 of the Company's approximately 230 VARs (value added
resellers) are subsidiaries of Vanenburg Group B.V. (a related party to the
Company from 1997 through 1999) known as the "Vanenburg Business Systems"
network (or "VBS"). In 1999, sales from VBS comprise approximately one-third of
total sales in Baan's indirect channel. While down from approximately half of
all indirect sales in 1996 and much of 1997, VBS remains a large percentage of
Baan's indirect channel. Consequently, any sale of, or operating pressures on,
VBS could have a material impact on Baan's indirect channel performance. The
parent company, Vanenburg Group B.V., announced in the Fall of 1998 its
intention to reorganize and/or sell certain of its assets due in part to
pressure from lenders; and the company has reported significant losses for that
year. In its audited financial accounts for 1999, VG reported a net profit for
the year but continued to show a loss from operations.

BAAN'S SHARE PRICE HAS BEEN HIGHLY VOLATILE.

     The market price of Baan's Common Shares has experienced significant
volatility. The price of Baan's Common Shares (split adjusted) has increased
from $4.00 per share in Baan's initial public offering in May 1995 to $54.125 in
April 1998, and has decreased to a trading price at May 31, 2000 of $2.75 per
share. The market price of Baan's Common Shares may be significantly affected by
a number of factors, including quarterly variations in operating results,
changes in earnings estimates by market analysts, the announcement of new
products by Baan or our competitors, and general market conditions. In addition,
the stock prices for many companies in the technology and emerging growth sector
have experienced wide fluctuations that have often been unrelated to the
operating performance of such companies. Such fluctuations may adversely affect
the market price of Baan's Common Shares.

BAAN FACES INTENSE COMPETITION.

     The enterprise business application software market is highly competitive.
The market is rapidly changing, and is significantly affected by new product
introductions, geographical regional market growth, integration of supply chain
networks and issues related to policy such as the anticipated requirements of
the European Monetary Unit and the Year 2000 date change. Baan's products span
an organization's entire value chain, including E-Business and Web Commerce,
Customer Relationship Management, Enterprise Resource Planning, Supply Chain
Management, and Corporate Knowledge Management, and are available on the leading
internet/intranet, client/server, and database platforms. Baan's current and
prospective competitors offer a variety of products and solutions to address
these markets. Baan's primary competition comes from a number of large
independent software vendors including SAP AG ("SAP"), Oracle Corporation
("Oracle"), J.D. Edwards & Company ("JDE"), Siebel Systems, i2 Technologies, and
PeopleSoft, Inc. ("PeopleSoft"). In addition, Baan faces indirect competition
from suppliers of custom-developed business application software that have
focused mainly on proprietary mainframe and minicomputer-based systems with
highly customized software, such as the systems consulting groups of major
accounting firms and systems integrators.

     Since the latter part of 1997, Baan has been seeking to improve its
penetration in the Small to Medium Size Enterprises ("SME") market and to expand
into enterprise applications beyond the traditional ERP solutions. As Baan
pursues these strategies, Baan expects to face additional competition from a
number of companies that offer such applications for the SME market, as well as
established ERP vendors such as SAP, Oracle and PeopleSoft. For our products
outside the ERP market segment, Baan competes with a number of companies, with
particular strength in these markets, such as Siebel Systems in the customer
interaction

                                       33
<PAGE>   34

software ("CIS") or front-office productivity market, along with i2
Technologies, Inc. and Manugistics Group, Inc. in the supply chain management
software market.

     Many of Baan's competitors have significant competitive advantages over
Baan, including longer operating histories, significantly greater financial,
technical, marketing and other resources, greater name recognition, and a larger
installed base of customers. In addition, certain competitors, such as SAP,
Oracle and PeopleSoft, have well-established relationships with present and
potential customers of Baan. Furthermore, companies with significantly greater
resources than Baan could attempt to increase their presence in the market by
acquiring or forming strategic alliances with competitors of Baan, and such
companies may be in a better position to withstand the current slowdown in the
ERP market. There can be no assurance that Baan will be able to compete
successfully with existing or new competitors.

     Baan relies on a number of systems consulting and systems integration firms
for implementation and other customer support services. Baan also relies on
these firms to recommend Baan's products to potential customers as the potential
customers are evaluating different competitive offerings. Although Baan seeks to
maintain close relationships with these third-party implementation providers,
many of these firms have similar, and often more established, relationships with
Baan's principal competitors. If Baan is unable to develop and retain effective,
long-term relationships with these third parties, it would adversely affect
Baan's competitive position.

INDUSTRY-WIDE CONDITIONS HAVE RESULTED IN REDUCED LICENSE REVENUES.

     Baan believes that the enterprise applications software market was
negatively impacted in 1999 by a number of generic issues including: re-focusing
of capital expenditures by large customers; increasing competition; increased
customer focus on addressing Year 2000 problems; and changing market conditions
driven by the shift to B2B and Internet commerce. In addition, Baan faced a
number of internal issues in integrating acquisitions, transitioning the sales
force from ERP to a broader product suite and restructuring the Company. These
factors, in turn, gave rise to a number of market trends that negatively
impacted license revenues including:

     - longer sales cycles;

     - increased uncertainty of customers in making purchasing decisions;

     - reallocation of reduced capital expenditures to fix Year 2000 problems of
       existing systems; and

     - increased price competition and price reductions for licensed software.

     Baan expects that certain of these factors (internal restructuring;
impending acquisition; increased competition; longer sales cycles; and increased
price competition) will continue to adversely affect our license revenues during
2000. Because of the high degree of uncertainty these factors and trends have
created in the marketplace, Baan is currently unable to predict whether our
license revenues will stabilize at current levels, or when Baan will return to
profitability.

BAAN HAS A LIMITED INTERNATIONAL OPERATING HISTORY, AND HAS RECENTLY
RESTRUCTURED ITS OPERATIONS.

     The Company's profitability has varied widely on a quarterly and annual
basis. Baan experienced losses and limited profitability prior to 1996. In 1998
and 1999, Baan's license revenues declined significantly and the Company
incurred large losses from operations. If Baan is unable to stabilize and
ultimately increase license revenues, Baan's business, operating results and
financial condition would be materially adversely affected. In response to these
operational losses, Baan announced a restructuring in the fourth quarter of 1998
that resulted in a reduction of approximately 20% in the workforce by mid-1999;
Baan announced a further but much smaller restructuring at the end of 1999
(resulting in an approximate 4% or just under 200 workforce reductions and
approximately 14 office closures); and it has announced during the first half of
2000 that it must embark on a third and potentially significant restructuring
that could reduce its cost structure by as much as one-half. To the extent that
Baan's streamlining, restructuring and cost reductions efforts are not
successful, Baan's operating results will be materially adversely affected.

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<PAGE>   35

BAAN IS SUBJECT TO VARIABILITY OF QUARTERLY OPERATING RESULTS.

     Baan's net revenues and operating results can vary, sometimes
substantially, from quarter to quarter. Baan's revenues in general, and in
particular our license revenues, are relatively difficult to forecast due to a
number of reasons. These include:

     - the relatively long sales cycles for Baan's products, which make it
       difficult to predict the timing of customer purchase decisions;

     - the size and timing of individual license transactions;

     - the timing of the introduction of new products or product enhancements by
       Baan or our competitors, which can affect customer purchase decisions;

     - the potential for delay or deferral of customer implementations of Baan's
       software or changes in customer budgets;

     - seasonality of technology purchases and other general economic
       conditions.

     Baan's software products generally are shipped as orders are received. As a
result, license revenues in any quarter are substantially dependent on orders
booked and shipped in that quarter. Because Baan's operating expenses are based
on anticipated revenue levels and because a high percentage of Baan's expenses
are relatively fixed, a delay in the recognition of revenue from a limited
number of license transactions could cause significant variations in operating
results from quarter to quarter and could result in losses.

BAAN HAS DEBT OBLIGATIONS UNDER OUTSTANDING CONVERTIBLE SUBORDINATED NOTES.

     In December 1996, Baan incurred $175 million of indebtedness through the
sale of 4.5% convertible subordinated notes payable in the year 2001. That
amount increased by an additional $25 million in January of 1997 (for a total of
$200 million convertible notes) when an over-allotment option was exercised. As
a result of this indebtedness, Baan has substantial principal and interest
obligations. As of December 31, 1999 $189 million in convertible notes was
outstanding. In March 2000, Baan announced that it had entered into agreements
with certain holders of the 4.5% notes under which they would exchange these
notes for common shares in the Company. We also announced that we would provide
all remaining bondholders the opportunity to convert their bonds on the same
economic terms for a 60-day period concluding at the end of May 2000. As of May
31, 2000, approximately $50 million of the outstanding notes were exchanged for
common shares in the Company. Consequently, there remains approximately $139
million in outstanding convertible notes. Baan's current debt obligations could
make it much more difficult for Baan to obtain additional financing in the
future, if such financing is needed for working capital, acquisitions or other
purposes. This debt burden could also make Baan more vulnerable to industry
downturns and competitive pressures. Baan's ability to meet our debt service
obligations will be dependent upon Baan's future performance, which will be
subject to financial, business and other factors affecting our operations, many
of which are beyond our control. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."

BAAN IS EXPERIENCING DECLINING WORKING CAPITAL.

     Baan's working capital declined from $123.9 million at December 31, 1998 to
$45.3 million at December 31, 1999. At June 30, 2000, the Company was in a
negative working capital position of approximately $30.0 million). If this trend
continues, Baan may lose the ability to discharge liabilities and satisfy our
short-term obligations with current assets. This could force us to seek
financing to meet our short term liabilities (and, as described above, securing
financing in the current environment could prove challenging).

BAAN MUST ATTRACT AND RETAIN KEY EMPLOYEES.

     Baan is largely dependent on a limited number of members of our senior
management and other key employees. Baan does not maintain key man life
insurance on any personnel. In addition, Baan believes that
                                       35
<PAGE>   36

we must be able to attract and retain highly skilled technical, management,
sales, and marketing personnel in order to continue to compete successfully.

     There is high demand 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,
and the Company expects to continue to see a certain level of instability in its
workforce as the "dot-com economy" and more established companies continue to
recruit its employees and the Company executes on its cost cutting and
containment program for 2000.

     To the extent Baan is unable to attract and retain key personnel, this
could have a material adverse effect on Baan's business.

BAAN FACES RAPID TECHNOLOGICAL CHANGE AND MUST CONTINUE TO DEVELOP NEW PRODUCTS
TO REMAIN COMPETITIVE.

     The market for Baan's software products is characterized by rapid
technological advances, evolving industry standards in computer hardware and
software technology, changes in customer requirements, and frequent new product
introductions and enhancements. In order to remain competitive, Baan must
continue to enhance our current product line and to develop and introduce new
products that keep pace with technological developments, evolving market needs
and increasingly sophisticated customer requirements. Baan believes it must
continue to expand product functionality to meet customer needs across broader
horizontal markets and in targeted vertical market segments. In addition, Baan
must continue to anticipate and respond adequately to advances in RDBMS
software, desktop computer operating systems such as Microsoft Windows and
successor operating systems, and the highly dynamic and evolving world of
e-commerce and use of the Internet. Baan may not be successful in developing and
marketing, on a timely and cost-effective basis, fully functional product
enhancements or new products that respond to technological advances by others,
or in achieving market acceptance for new products.

     Baan has on occasion experienced delays in the scheduled introduction of
new and enhanced products. In addition, software programs as complex as those
offered by Baan may contain undetected errors or "bugs" when first introduced or
as new versions are released. Despite our testing, these bugs sometimes are only
discovered after a product has been installed and used by customers. Baan's most
recent software releases and future software releases may contain software
errors. Any such errors could impair the market acceptance of these products and
adversely affect operating results. Problems encountered by customers installing
and implementing new releases or with the performance of Baan's products could
also have a material adverse effect on Baan's business and operating results. If
Baan were to experience delays in the introduction of new and enhanced products,
or if customers were to experience significant problems with the implementation
and installation of new releases or were to be dissatisfied with product
functionality or performance, it could materially adversely affect Baan's
business and operating results.

THERE ARE OBSTACLES IN MANAGING INTERNATIONAL OPERATIONS.

     Baan's products are currently marketed in the United States, Germany, The
Netherlands, Japan, and over 80 countries worldwide. Accordingly, Baan's
operations are subject to the risks inherent in international business
activities. These risks include:

     - general economic conditions in each country;

     - overlap of different tax structures and potential high tax levels;

     - the complexity of managing an organization spread over various countries;

     - unexpected changes in regulatory requirements;

     - costs and delays associated with compliance with a variety of foreign
       laws and regulations; and

     - longer accounts receivable payment cycles in certain countries.

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<PAGE>   37

     Other risks associated with international operations include import and
export licensing requirements, trade restrictions and changes in tariff and
freight rates.

THIRD PARTY AGREEMENTS.

     Baan has contracted with a number of third parties and VG entities from
whom we license software for resale (through various OEM, reseller, and
distribution agreements) and/or who provide support or service to Baan or its
customers. Consequently, any sale of, or operating pressures on, these third
parties could have a material impact on Baan's business.

UNITED STATES JUDGMENTS AGAINST NETHERLANDS CORPORATIONS, DIRECTORS AND OFFICERS
ARE NOT DIRECTLY ENFORCEABLE IN THE NETHERLANDS.

     Judgments of United States courts, including judgments against Baan, our
directors or our officers predicated on the civil liability provisions of the
federal securities laws of the United States, are not directly enforceable in
the Netherlands.

OTHER MATTERS RELATED TO DUTCH COMPANIES.

     As a Netherlands "naamloze vennootschap" (N.V.), Baan is subject to certain
requirements not generally applicable to corporations organized in United States
jurisdictions. Among other things, the issuance of shares by Baan must be
submitted for resolution of the general meeting of shareholders, except to the
extent such authority to issue shares has been delegated by the general meeting
of shareholders to another corporate body. The issuance of shares by Baan is
generally subject to shareholder preemptive rights, except to the extent that
such preemptive rights have been excluded or limited by the general meeting of
shareholders (subject to a qualified majority of two-thirds of the votes if less
than 50% of the outstanding share capital is present or represented) or, in case
the authority to issue shares has been delegated to another corporate body that
has also been empowered by the general meeting of shareholders to exclude or
limit such preemptive rights, by such corporate body. In this regard, the
general meeting of shareholders has authorized the Management Board of Baan,
upon approval by the Supervisory Board, to issue any authorized and unissued
shares of Baan at any time up to and including April 30, 2002, and has
authorized the Management Board, upon approval by the Supervisory Board, to
exclude or limit shareholder preemptive rights with respect to any issuance of
such shares up to and including such date. Such authorizations may be renewed by
the general meeting of shareholders from time to time, or by Baan's Articles of
Association pursuant to an amendment to that effect, for up to five years at a
time. This authorization would also permit the issuance of shares in an
acquisition, provided that shareholder approval is required in connection with a
statutory merger (except that, in certain limited circumstances, the board of
management of a surviving company may resolve to legally merge Baan).
Shareholders do not have preemptive rights with respect to shares which are
issued against payment other than in cash, shares which are issued to employees
of Baan or of a group company or shares which are issued to someone exercising a
previously acquired right to subscribe for shares. In addition, certain major
corporate decisions are subject to prior approval or advice by the Works Council
established at Baan Development B.V. and Baan Nederland B.V. two Dutch
subsidiaries of Baan.

     In April 1999, a new law became effective in the Netherlands that could
significantly restrict a company's ability to grant stock options in or from the
Netherlands. The new law also imposes certain additional disclosure obligations
on Baan and certain of its employees in connection with their involvement in
securities transactions in or from the Netherlands. Compensation plans in many
technology companies depend in some significant measure on the ability and
flexibility to grant employees stock options. To the extent the new law impedes
that ability and flexibility, it could place Baan at a competitive disadvantage
with its competitors, who are not subject to the best of our knowledge to any
similar law restricting their ability to grant stock options. Baan has taken a
number of steps internally to, we believe, ensure compliance with the new law
while at the same time retaining a level of flexibility on the granting of
options that we believe must be maintained to remain competitive. Baan has
communicated these steps to the Dutch authorities responsible for administering
the new law, and Baan believes it is in full compliance with the new law. To the
extent the new law impairs our ability or flexibility to grant stock options on
similar terms and conditions to those offered employees by
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<PAGE>   38

our competitors, the new Dutch securities laws could have a material negative
impact on Baan's ability to recruit and retain directors and employees.

ITEM 9A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

     Foreign Exchange.  The Company is subject to risks typical of a global
business, including, but not limited to: differing economic conditions, changes
in political climate, differing tax structures, other regulations and
restrictions, and foreign exchange volatility.

     The Company's exposure to foreign exchange rate fluctuations arises mainly
from intracompany transactions relating to financing activities, royalty charges
and other cost allocations which flow through intracompany accounts with its
subsidiaries. These intracompany accounts are typically denominated in the
functional currency of the subsidiary in order to centralize the foreign
exchange risk with the parent company in the Netherlands.

     The Company conducts a significant portion of its business in currencies
other than the U.S. dollar (the currency in which its financial statements are
stated), primarily the Euro. While the Company has historically recorded a
majority of its expenses in Dutch guilders, especially research and development
expenses, the Company realizes a large portion of its revenues in U.S. dollars
in addition to guilders. As a result, fluctuation in the value of the Euro
relative to the value of the U.S. dollar could adversely affect operating
results. Foreign currency transaction gains and losses arising from normal
business operations are credited to or charged against earnings in the period
incurred. As a result, fluctuations in the value of the currencies in which the
Company conducts its business relative to the U.S. dollar have caused and will
continue to cause foreign currency transaction gains and losses. The Company
continues to evaluate its currency management policies. Notwithstanding the
measures the Company has adopted, there are a number of currencies involved,
currency exposures are constantly changing and currency exchange rates continue
to have significant volatility. The Company may experience currency losses in
the future, and the Company cannot predict the effect of exchange rate
fluctuations upon future operating results.

     Interest Rates.  The Company invests its surplus cash in a variety of
financial instruments, consisting principally of bank time deposits and
short-term marketable securities with maturities of less than one year. Cash
balances held by subsidiaries are invested in short-term time deposits with the
local operating banks.

     The Company accounts for its investment instruments in accordance with
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" ("SFAS 115"). All of the cash
equivalent and marketable securities investments are treated as "available for
sale" under SFAS 115.

     Investments in both fixed rate and floating rate interest earning
instruments carry a degree of interest rate risk. Fixed rate securities may have
their fair market value adversely impacted due to a rise in interest rates,
while floating rate securities may produce less income than expected if interest
rates fall. Due in part to these factors, the Company's future investment income
may fall short of expectations due to changes in interest rates or the Company
may suffer losses in principal if forced to sell securities which have seen a
decline in market value due to changes in interest rates. The Company's
investment securities are held for purposes other than trading and have
maturities of less than one year.

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<PAGE>   39

ITEM 10.  DIRECTORS AND CORPORATE EXECUTIVE OFFICERS OF REGISTRANT

     The Managing Directors, corporate executive officers and Supervisory
Directors of the Company, and their ages, are as follows:

<TABLE>
<CAPTION>
NAME                                     AGE                    POSITION(S)
----                                     ---                    -----------
<S>                                      <C>    <C>
Pierre J. Everaert(1)..................  60     Interim Chief Executive Officer;
                                                Supervisory Director
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 Director
William O. Grabe(3)....................  62     Supervisory Director
David C. Hodgson(4)....................  43     Supervisory Director
J.C. (Hans) Wortmann(4)(5)(6)..........  49     Interim Chairman, Supervisory Board
</TABLE>

---------------
(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 of this
    year.

(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 on March 29
    of this year, Mr. Wortmann assumed the role as Interim Chairman.

(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, and Mr. van den Breemen resigned from the
    Board for health reasons.

(7) Member of the Management Board.

     Pierre J. Everaert became a member of the Supervisory Board 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; Ahold USA Inc. as CEO; and
Koninklijke Ahold N.V. (Zaandam, The Netherlands) as President and CEO. In 1992,
Mr. Everaert joined the board of management of Philips Electronics N.V. in the
Netherlands, and also served as Chairman of the Board of Philips North America
Corporation. In 1996, he formed his own company, E C Consult B.V., which
provides advice to companies on corporate governance, advanced marketing, and
e-commerce. Mr. Everaert is also currently professor at the University of Gent,
Belgium, is a director of Interbrew (Louvain, Belgium) and KPNQwest (The Hague,
The Netherlands) and is a member of the board of several privately held
companies.

     Robert A. Ruijter joined the Company in February 2000 as Chief Financial
Officer. Prior to joining Baan, Mr. Ruijter held various financial management
positions at Royal Philips Electronics N.V. Most recently, Mr. Ruijter served as
Chief Financial Officer and Executive Vice President for Philips Lighting
division. Previous to his work at Philips, Mr. Ruijter held several financial
management positions at British Petroleum Company in the Netherlands, Great
Britain, Belgium, and Sweden. Mr. Ruijter began his career at the

                                       39
<PAGE>   40

international accounting firm of Ernst & Young where he was a Register
Accountant in the Netherlands and a Certified Public Accountant in the United
States.

     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 current capacity, Mr.
van der Tang is responsible for the management and strategy of the Company's
product research and development groups.

     Peter Aird joined the Company in January 1998 and as Executive Vice
President, Global Support. Mr. Aird oversees Baan Customer Initiatives, Baan
Global Support, Professional Support Services, System Optimization Services,
Migration Services and Product Engineering. Aird has more than 25 years of
experience in managing customer service functions in all regions and globally.
Prior to joining the Company, he was vice president of worldwide sales and
marketing for Customer Support for IBM/Lotus Development and vice president of
International Customer Support. He has also held executive and senior service
roles at Burroughs, National Advanced Systems, and Unisys.

     Robert E. Goudie, Jr. joined the Company in April 1998 as Senior Vice
President, General Counsel and Secretary to the Board. Mr. Goudie has global
responsibility for all legal operations of the Company. Prior to joining the
Company, Mr. Goudie was Vice President, Assistant General Counsel at Simon &
Schuster, Inc. Prior to that, Mr. Goudie was in the Litigation Department and
Intellectual Property Group at the law firm of Paul, Weiss, Rifkind, Wharton &
Garrison, and he also clerked for two years on the Federal Court for the
Southern District of New York.

     Gerrit J. van Munster joined the Company in May 1986 as a Project Manager
and was promoted to Manager of Personnel and Organization in January 1990. In
January 1994, Mr. van Munster became Human Resource Manager of the Company's
operations in Europe. Mr. van Munster was promoted to Director, Human Resources
in June 1994, Vice President, Human Resources in January 1996, and Senior Vice
President, Human Resources in November 1998. Mr. van Munster is responsible for
overseeing the Company's personnel resources. He holds a bachelor degree from
the Higher Nautical School in Delfzijl.

     William O. Grabe became a Supervisory Director of the Company in May 1995
and served as Chairman of the Board of Supervisory Directors until April 1996.
Mr. Grabe has been a Managing Member of General Atlantic Partners LLP or a
general partner of its predecessor partnership since April 1992. From 1984 until
March 1992, Mr. Grabe was a Corporate Vice President at IBM. Mr. Grabe is also a
director of Gartner Group, Inc., a provider of information technology research
and analysis; LHS Group Inc., a billing and customer care software for wireless
communication providers; Compuware Corporation, a software and services company;
TDS GmbH, an IT consulting and services company; and several other companies in
the computer software and services industry, including companies in which
General Atlantic Partners LLP or one of its affiliates is an investor.

     David C. Hodgson became a Supervisory Director of the Company in May 1995
and served as Chairman of the Supervisory Board during 1998. Mr. Hodgson has
been a Managing Member of General Atlantic Partners LLP, or a general partner of
its predecessor partnership, since its formation in 1989. Mr. Hodgson also
serves as a director of Exact Holdings B.V., a provider of financial accounting
software applications; ProBusiness Services, Inc., a provider of payroll
processing and employee administrative services for large employers; and several
other companies in the computer software and services industry, including
companies in which General Atlantic Partners LLP or one of its affiliates is an
investor.

     Joop P.M. Janssen was elected to the Supervisory Board in March 1999. His
experience includes positions with KPMG Accountants, Lathouwers Beheer B.V., and
ING Bank. He currently serves as chairman of the Board of Managing Directors of
the AEX listed construction company, Heijmans N.V., where he is responsible for
strategic planning, finance and control, and heads several divisions of
Heijmans. Mr. Janssen is a supervisory board member of Lathouwers Beheer B.V.
and several other privately held

                                       40
<PAGE>   41

companies in the Netherlands. He also serves as a member of the Amsterdam
Exchanges' (AEX) advisory body.

     J.C. (Hans) Wortmann became a Supervisory Director of the Company in May
1995. Since 1989, Mr. Wortmann has been a Professor at the School of Technology
Management of the Technical University of Eindhoven in The Netherlands. He also
provides consulting services to Baan Development B.V. in the area of overall
product architecture.

ITEM 11.  COMPENSATION OF DIRECTORS AND OFFICERS

     The aggregate amount of cash compensation of all Managing Directors,
Supervisory Directors and corporate executive officers of the Company who served
during 1999 (16 persons) paid or accrued for the year ended December 31, 1999
was approximately $5.3 million.

ITEM 12.  OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES

     1993 Stock Plan. The 1993 Stock Plan was initially adopted by the
Management Board and approved by the shareholders in December 1993, and
subsequent amendments increased the aggregate number of shares reserved for
issuance thereunder from 28,000,000 in 1993 to 47,000,000 in 1999. The 1993
Stock Plan will terminate in December 2003 unless terminated earlier by the
Management Board upon the authority of the Supervisory Board. The 1993 Stock
Plan provides for grants of options to employees and consultants (including
officers and directors) of the Company and its affiliates. The 1993 Stock Plan
may be administered by the Management Board or Supervisory Board of the Company,
or both, or by a committee appointed by either or both such Boards in a manner
that satisfies the legal requirements relating to the administration of stock
plans under all applicable laws (the "Administrator"). The 1993 Stock Plan is
currently administered by the Baan Option Committee.

     The 1993 Stock Plan includes appendices setting forth specific provisions
providing for the grant of options to employees in certain countries to address
certain securities and tax laws in such respective countries, including
provisions governing options intended to qualify as incentive stock options
within the meaning of Section 422 of the U.S. Internal Revenue Code of 1986, as
amended (the "Code").

     The exercise price of options granted under the 1993 Stock Plan is
determined by the Administrator. With respect to incentive stock options granted
under the 1993 Stock Plan, the exercise price must be at least equal to the fair
market value per share of the Common Shares on the date of grant, and the
exercise price of any incentive stock option granted to a participant who owns
more than 10% of the voting power of all classes of the Company's outstanding
share capital must be equal to at least 110% of fair market value of the Common
Stock on the date of grant.

     The maximum term of an option granted under the 1993 Stock Plan may not
exceed ten years from the date of grant (five years in the case of a participant
who owns more than 10% of the voting power of all classes of the Company's
outstanding share capital). In the event of termination of an optionee's
employment or consulting arrangement, options may only be exercised, to the
extent vested as of the date of termination, for a period not to exceed 90 days
(12 months, in the case of termination as a result of death or disability)
following the date of termination, but in no event later than the expiration
date of each option as set forth in the optionee's option agreement. Options may
not be sold or transferred other than by will or the laws of descent and
distribution, and may be exercised during the life of the optionee only by the
optionee.

     Options outstanding under the 1993 Stock Plan generally vest and become
exercisable, assuming continued service as an employee or consultant, for
non-Dutch employees at the rate of 25% of the shares subject to an option on the
first anniversary of the grant date with an additional 1/48th of the shares
vesting each month thereafter, and for Dutch employees at a rate of 1/8th of the
shares after six months following the grant date and 3/48 of the shares vesting
each quarter thereafter, such that in each case all shares under an option vest
in full four years from the grant date assuming continued service as an employee
or consultant. Options outstanding under the 1993 Stock Plan generally have a
term of five years.

                                       41
<PAGE>   42

     In the event of a merger of the Company with or into another corporation,
all outstanding options may be assumed or equivalent options substituted by the
successor corporation or its parent or subsidiary, unless the Administrator
determines, in the exercise of its sole discretion, that each Optionee shall
have the right to exercise his or her Right, including Shares as to which the
Right would not otherwise be exercisable. In the absence of such assumption or
substitution, to the extent not exercised, all options shall terminate as of the
closing of the merger.

     As of December 31, 1999, the Company's directors and executive officers (11
persons) had outstanding options to purchase an aggregate of approximately
1,485,314 Common Shares. As of December 31, 1999, under both the 1995 Director
Option Plan and the 1993 Stock Plan, options to purchase an aggregate 17,278,327
Common Shares were outstanding and 9,537,320 shares remained available for
future grants. See Note 6 of Notes to Consolidated Financial Statements.

     Berclain Plan.  As a result of the Company's acquisition of Berclain Group,
Inc. ("Berclain") in May 1996, the Company assumed the outstanding options under
The Berclain Stock Option Plan (the "Berclain Plan"). The Berclain Plan provided
for grants of non-qualified stock options to employees and eligible participants
of Berclain. The term of each option was not to exceed a period of five years
from the grant date and each option generally vested over one year. At December
31, 1999, the Company had reserved 6,926 of its common shares for issuance under
the Berclain Plan. No additional grants will be made under the Berclain Plan.

     Aurum Plans.  As a result of the Company's acquisition of Aurum Software,
Inc., the Company assumed the outstanding options under Aurum's Stock Option
Plans (the "Aurum Plans"). The Aurum Plans provided for grants of incentive
stock options and repurchasable stock options to employees and non-statutory
options to employees and consultants of Aurum. The terms of options granted
under the Aurum Plans generally did not exceed ten years. Generally, options
granted under the Aurum Plans vest over four years. The exercise price of
incentive stock options granted under the Aurum Plans was at least equal to the
fair market value of the shares on the date of grant. At December 31, 1999, the
Company had reserved 1,567,952 of its common shares for issuance under the Aurum
Plans. No additional grants will be made under the Aurum Plans.

     Beologic Plan.  As a result of the Company's acquisition of Beologic A/S
("Beologic") in November 1997, the Company assumed the outstanding options under
The Beologic Warrant Scheme (the "Beologic Plan"). The Beologic Plan provided
for grants of non-qualified stock options to employees and eligible participants
of Beologic. The term of each option was not to exceed a period of 32 months and
31 days from the grant date and each option generally vested over 2.6 years. At
December 31, 1999, the Company had reserved 122,796 of its common shares for
issuance under the Beologic Plan. No additional grants will be made under the
Beologic Plan.

     Coda Plans.  As a result of the Company's acquisition of CODA ("Coda") in
May 1998, the Company assumed the outstanding options under Coda's three stock
options plans: the Coda Worldwide Scheme (W.W.), Coda Incorporated Scheme
(U.S.), and Coda Executive Scheme (U.K.) (the "Coda Plans"). The Coda Plans
provided for grants of incentive stock options to employees and non-qualified
options to eligible participants of Coda. The term of each option was not to
exceed a period of ten years from the grant date and each option generally
vested over three years. At December 31, 1999, the Company had reserved 97,207
of its common shares for issuance under the Coda Plans. No additional grants
will be made under the Coda Plans.

     1995 Director Option Plan.  The Company has reserved an aggregate of
1,600,000 Common Shares for issuance under its 1995 Director Option Plan (the
"Director Plan"). The Director Plan was adopted by the Managing Directors and
approved by the shareholders of Baan Company N.V. in March 1995. The Director
Plan (as amended) provides for automatic and non-discretionary grants of
non-statutory stock options to Supervisory Directors of the Company in the
following amounts: (i) an initial grant of 50,000 for Supervisory Directors and
65,000 for the Chairman, vesting at the rate of one-fourth of the total on the
anniversary date of the grant (i.e., a four-year vesting schedule); and (ii) a
subsequent grant equal to one-fourth of the initial grant for each year of
service on the Supervisory Board, granted on the anniversary date of appointment
and vesting four years thereafter. In all events, the exercise price of options
granted to Supervisory Directors will
                                       42
<PAGE>   43

be 100% of the fair market value of the Common Shares on the date of grant as
measured by the closing trading price on NASDAQ for the day. In the event of any
merger, sale of assets or other transaction involving a change in control of the
Company, all options outstanding under the Director Plan will become exercisable
in full, and the option will be assumed or an equivalent option substituted by
the successor corporation or its parent or subsidiary. Options for a total of
733,500 shares have been granted as of March 31, 2000 under the Director Plan.
The Director Plan will expire in the year 2005.

     1995 Employee Stock Purchase Plans.  The Company had reserved an aggregate
of 4,000,000 Common Shares for issuance under its 1995 Employee Stock Purchase
Plan for U.S. Employees (the "U.S. ESPP") and 1995 Employee Stock Purchase Plan
for non-U.S. Employees (the "Non-U.S. ESPP"). The U.S. ESPP and the Non-U.S.
ESPP were adopted by the directors and approved by the shareholders in February
1995. The U.S. ESPP was intended to qualify under Section 423 of the Code and
permits eligible U.S. employees of the Company to purchase Common Shares through
payroll deductions of up to 10% of their compensation provided that no more than
an aggregate of 800,000 shares may be issued in any offering period and no
employee may purchase more than $25,000 worth of stock in any calendar year. The
U.S. ESPP had been implemented with six-month offering periods, provided that
the first such period commenced on May 19, 1995, the date of the Company's
initial public offering, and ended on October 31, 1995. The price of Common
Shares purchased under the U.S. ESPP was 85% of the lower of the fair market
value of the Common Shares on the first or last day of each offering period. The
number of shares available for the ESPP is fixed by vote of the shareholders.
The significant drop in the Baan share price over the first and second quarters
of 2000 created the unusual and unanticipated situation that the remaining
number of shares authorized for use in the ESPP would be exhausted during the
November 1999 -- April 2000 offer period and that there would be no shares
available for the offering period scheduled to commence May 2000. Consequently,
and consistent with the rules of the ESPP, the Plan Administrator terminated the
ESPP prior to start of the May offering period. The Company has indicated to its
employees that, if Baan is to continue as an independent company, it will
propose to shareholders creation of a new ESPP in form substantially similar to
the terminated 1995 program.

     As of March 31, 2000, the Company has issued an aggregate of 3,386,871
Common Shares under the U.S. ESPP and the Non-U.S. ESPP and has 613,129 shares
remaining for issuance under these plans.

ITEM 13.  INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS

     Jan Baan, formerly Chief Executive Officer and a Managing Director of the
Company, and J.G. Paul Baan, formerly a Supervisory Director of the Company, and
the Company's founders, effectively control a Netherlands limited liability
company called Vanenburg Group B.V. ("VG," formerly Baan Investment B.V. and
Vanenburg Ventures B.V.). As reported in the Company's Form 20-F for 1997, VG
owned approximately 39% of the Company's outstanding shares as of April 1998. In
October 1998, however, VG publicly disclosed that it had secured $500 million in
loans to help fund certain of its operations and investments, with VG's shares
in the Company serving as collateral on those loans. When the publicly traded
share price in the Company's stock declined over the summer and into the fall of
1998, VG reported that its lenders began selling the VG collateral shares to pay
down the VG debt obligations. As a consequence of these actions, as reported in
Form 20-F for 1998, VG had advised that it owned approximately 20% of the
Company's outstanding Common Shares as of April 9, 1999. On May 31, 2000, 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.

     VG was created in 1994 as a venture capital company that invests in the
form of corporations, joint ventures, or partnerships in various new
technologies, educational programs, research projects and sales, consulting, and
support activities principally in the ERP and other technology markets. As
described further below, the Company has entered into various agreements with
entities owned or controlled by 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
                                       43
<PAGE>   44

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 1997, 1998 and 1999, were $66.3 million, $50.6
million and $2.0 million, respectively. As of December 31, 1998 and 1999, the
outstanding balances with VG (reflected in amounts (due to) and due from related
parties) consisted of the following (in thousands):

<TABLE>
<CAPTION>
                                                             DECEMBER 31,
                                                          -------------------
                                                           1998        1999
                                                          -------    --------
<S>                                                       <C>        <C>
Baan Mid-market Solutions (BMS).........................  $ 2,648    $     --
Vanenburg Business Systems (VBS)........................    1,142       4,011
Vanenburg Ventures......................................   (1,463)    (43,375)
Other...................................................    3,970        (822)
                                                          -------    --------
                                                          $ 6,297    $(40,186)
                                                          =======    ========
</TABLE>

     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. As indicated above, the
Company began building an indirect channel in 1996 as part of its strategy to
penetrate the SME market (or so-called midmarket). Because the go-to-market
strategy and demands of the midmarket differ significantly from those of the
high-end ERP sector, the Company believed then (and continues to believe) that
the midmarket could likely best be served through creation of an indirect
channel. Commencing in 1996, therefore, the Company embarked on a strategy of
signing resellers as part of this midmarket strategy.

     1. The VBS relationship.  Consistent with its venture capital philosophy,
and in an effort to participate in the indirect channel 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 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
world-wide indirect channel for the Company, currently consisting of over 200
companies.

     Commencing in 1996 and continuing through 1997, the Company entered into a
reseller relationship with VBS. Prior to 1997, VBS, like each of the Company's
resellers, paid a fee to the Company for licenses resold based on a percentage
of the resale price. In 1997, when the Company amended its reseller license fee
terms to provide for a straight per-seat license fee, VBS negotiated a volume
discount fee structure reflecting the greater volume of its purchases (at that
time VBS comprised greater than 50% of sales of the Company's products in the
indirect channel; that number today is approximately 30% of channel sales) as
well as its willingness to pay for the seats up front in cash in exchange for
the lower rate. In all other respects, VBS's terms have been materially the same
as those provided other resellers; it has not been given special payment,
return, or exchange terms.

     The Company recognized revenues of approximately $32.3 million from VBS
during 1997 from sales of licenses pursuant to the VBS reseller agreement. In
addition, during 1997, the Company assigned to VBS a number of customer
contracts that the Company believed could best be served by VBS. In connection
with assigning those contracts: (i) the Company assigned the related outstanding
accounts receivable balances in the aggregate amount of $4.6 million and $0.3
million, respectively, and VBS paid for such outstanding receivables; and (ii)
VBS paid the Company for these contracts $18.0 million and $2.9 million in 1997
and 1998, respectively, representing the value of certain potential future
license revenue forgone by the Company as a result of pricing differences
between customary terms in direct sales versus indirect channel, third-party
contracts. Finally, during 1997 the Company recognized $8.7 million from the VBS
holding company for the non-recourse assignment of the remaining rights and
obligations under a license agreement with an unrelated third-party. All revenue
recognized from VBS is included in "License revenue from related parties" in the
accompanying Consolidated Statements of Operations.

                                       44
<PAGE>   45

     The Company recorded no license revenues from VBS in 1998 because it and
the Company's other resellers began buying directly from a newly formed company,
Baan Midmarket Solutions B.V. ("BMS"), a joint venture between the Company and
VG created in late 1997 as wholesaler and manager of the indirect channel.

     2. Creation of BMS.  Over the course of 1997, the Company's indirect
channel grew to approximately 110 resellers, including approximately 15 VBS
companies. Given that growth, and the potential for future growth of the
channel, the Company determined that a stronger infrastructure to manage and
support the channel was needed. To provide that "backbone," the Company and 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 ceased to sell
directly to VBS and its other resellers (with the exception of minor direct
sales to independent third-party resellers in the first quarter of 1998 in the
amount of $5.3 million, $1.3 million of which was recorded as deferred revenue).

     In connection with creating BMS in 1997, the Company entered into a
software distribution agreement under which it: (i) provided BMS with
distribution rights to the Company's products; and (ii) assigned a majority of
the Company's existing VAR (value added reseller) agreements to BMS. In
consideration for that assignment, BMS paid the Company $13 million,
representing the value of certain potential future license revenues forgone by
the Company as a result of pricing differences between customary terms in direct
sales versus indirect channel, third-party contracts. In addition, the Company
recognized revenues of approximately $3.0 million and $47.7 million during 1997
and 1998, respectively, from sales of licenses to BMS pursuant to the
distribution agreement. All revenue recognized from BMS is included in "License
revenue from related parties" in the accompanying Consolidated Statements of
Operations.

     In addition, the Company outsourced to BMS certain of its (the Company's)
employees and provided to BMS certain billing, collection, and other back office
services pursuant to a separate services agreement. Under that agreement, BMS
reimbursed the Company for the actual costs of the personnel assigned as well as
other direct expenditures made by the Company on BMS's behalf. It also paid an
additional 15% of these reimbursed costs as a surcharge for the administrative
and back office services the Company provided. That amount was approximately
$7.5 million in 1998. Such amounts are recognized as a reduction in "General and
administrative expenses" in the accompanying Consolidated Statements of
Operations.

     The Company's distribution agreement with BMS at no time permitted stock
balancing, returns, or exchanges (since there were no extended payment or return
provisions in that contract), and there has never been any stock balancing,
returns, or exchanges from BMS to the Company. The Company likewise is not aware
that BMS had any such arrangements with any of the VARs or distributors it
managed. In January 1999, BMS sold its remaining stock of inventory at a
discount to an independent third-party distributor. In connection with the
Company's purchase of BMS's core assets in January 1999 (described in detail
below), the Company paid VG $2 million on execution of that purchase agreement,
representing approximately one-half the discount negotiated by the independent
third-party purchaser of BMS's inventory.

     Prior to 1998, with the indirect channel still ramping up and providing
modest contribution to the Company's overall revenue generation, the Company
recognized revenue on a sell-in model into the channel. Consistent with industry
practice, the Company adopted the sell-in model of placing inventory in the
channel to ensure the VARs were investing in the business plan to resell the
Company's products.

     Over the course of 1998, however, BMS better than doubled the number of
channel partners selling the Company's products into the midmarket -- ending
1998 with approximately 215 independent, third-party VARs and approximately 15
VBS resellers. With a related party acting as the sole distributor for indirect
sales, and with indirect sales in early 1998 showing the potential to grow
significantly as a percentage of the Company's total sales, the Company
announced in the second quarter of 1998 that it would change to the sell-
through model for channel revenue recognition. With this change, sales to BMS
were made based on BMS's reports of the VAR's sell-through to end-users.

                                       45
<PAGE>   46

     With the exception of the limited sales the Company made directly to
resellers in the first quarter of 1998, all of the 230 or so VARs bought
licenses from BMS. As a result, virtually all of the Company's indirect channel
revenue in 1998 was reported under the "License revenue from related parties"
item in the accompanying Consolidated Statement of Operations. During the course
of 1998, sales to BMS, recognized by the Company as related party revenue, were
$15.3 million in the first quarter, $32.6 million in the second quarter, and
$23.2 million in the third quarter. With respect to the fourth quarter of that
year, BMS advised the Company that $17 million in licenses had been sold through
to end-users during that quarter. As described in the next subsection, however,
the Company did not sell new licenses to BMS in the fourth quarter as part of a
strategy to address inventory levels in the channel in light of declining ERP
demand. In January 1999, as described below, the Company acquired all of the
principal assets of BMS and, as a result, recorded no revenue from BMS in 1999.

     3. Channel inventory.  BMS's records provided to the Company indicate there
was approximately $56 million in total inventory in the indirect channel at the
start of 1998. The Company reported in its 1997 Form 20-F that, based on
estimates BMS confirmed, the Company understood that $11 million of this total
channel inventory was with related parties ($3 million with BMS, and
approximately $8 million with VBS). Subsequent review of VBS's records in late
1998 indicate that apparently approximately $23 million of the $56 million in
total channel inventory at the start of 1998 was actually in related party hands
(the $12 million difference being attributable to additional inventory that
apparently was with VBS at the commencement of 1998). Thus, according to VBS's
and BMS's records, the Company began 1998 with $56 million in total channel
inventory, of which $23 million was with related parties and the remainder was
with independent, third-party VARs.

     The BMS records also reflect that total channel inventory did not increase
during 1998; inventory as of September 30, 1998 was at the same $56 million
total. The mix of related party and third-party inventory levels did change,
however, consistent with BMS's role as channel manager. At the end of the third
quarter of 1998, total BMS inventory had increased to $40 million of the $56
million total, as channel inventory was aggregated over the year within BMS.
According to BMS's figures, BMS inventory levels were approximately $13 million
at end of the first quarter of 1998; $30 million at end of the second quarter;
and $40 million at end of the third quarter. Again, total inventory in the
channel had not grown during this time, meaning that third-party inventory
levels had been reduced to approximately $16 million over the course of the
year.

     The Company entered 1998 in what appeared to be an expanding ERP market.
Based on a review of the public filings and analyst estimates of 20 leading
enterprise application vendors, the data suggests that license revenues for
these companies grew overall 58% in 1997. That growth rate continued strong at
47% in the first quarter of 1998 (year over year), and softened some to 35% in
the second quarter; but in the third quarter the license revenue growth rate for
these companies had declined to 20%, and it dropped even further to just 4% in
the fourth quarter.

     As it became clear following the third quarter of 1998 that license revenue
growth rates industry-wide were declining, and in connection with the Company's
determination to undertake a comprehensive reorganization plan in the fourth
quarter, the Company acted to address the issue of indirect channel inventory.
To eliminate the approximate $56 million in indirect channel inventory existing
at the end of the third quarter: (i) approximately $17 million in inventory was
sold by the Company's indirect channel to end-users during the fourth quarter,
thus reducing the inventory number by that amount; and (ii) as to the remaining
channel inventory of approximately $39 million, the Company reversed that amount
from fourth quarter revenue and recorded it as deferred revenue in the quarter.
The Company undertook this latter reversal even though product had been
delivered, approximately $34 million for such licenses had been paid, and there
were no cancellation or return provisions. The practical effect of these actions
was to eliminate inventory from the channel, since remaining levels that were
now recorded as deferred revenue will only be recognized as revenue as it is
sold through to end-users.

     The $23 million in BMS inventory that existed at the end of the fourth
quarter (which comprised all remaining related party inventory) was purchased at
a discount by an independent third-party distributor pursuant to an agreement
between it and BMS in January 1999. As a result of that transaction, there was
no

                                       46
<PAGE>   47

related party channel inventory as of January 1999. All channel inventory
(approximately $39 million) is in the hands of independent distributors and
VARs, and the Company will recognize revenue from the sale of such inventory
only as it is sold to end-users.

     4. The Company's acquisition of core BMS assets.  In connection with its
October 1998 announcement that VG's lenders were selling the Company shares VG
owned and had pledged as collateral to pay down VG's 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.

     The purchase price was comprised of the following: (i) $2 million paid in
cash upon execution, representing one-half the total discount negotiated by the
third-party distributor that purchased the BMS inventory existing at the end of
1998; and (ii) a three-year, 15% royalty on the Company's net revenues from its
indirect channel that includes a minimum payment and maximum potential earn out.
The minimum guaranteed payment is approximately $41 million. To the extent this
minimum is not earned in full via the royalty the Company would be obligated to
pay 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.

     The surviving entity of what had been BMS is now owned 100% by VG. The
principal remaining assets of that entity are outstanding accounts receivables;
it is expected the surviving entity will be liquidated once those accounts
receivables are collected. The Company was advised on the transaction by outside
U.S. and Dutch legal counsel. Credit Suisse First Boston issued a fairness
opinion as to the fairness from a financial point of view to the Company of the
consideration being paid for BMS.

     As a result of this transaction, management of the Company's approximately
230 channel partners is now under the Company's direct control. Included in that
number are the approximately 15 VBS resellers, but the current VBS agreement
(assumed by the Company as part of the acquisition) requires VBS to purchase
licenses of the Company's products for resale from an independent third-party
distributor. The net result is that, commencing in the first quarter of 1999, it
is the Company's intention that it will no longer have related party license
software revenue associated with the indirect channel.

     In addition, as part of the BMS agreement, VG has agreed to eliminate the
"Baan" name from any and all of its operations, and VG has recognized the
Company's ownership of all right, title, and interest in and to the "Baan" name
for commercial purposes. Any use of the "Baan" name by VG going forward must be
based on written agreement with the Company; but it is the intention of the
Company, except in isolated cases to aid in a particular VG entity's transition
to another name, that it will not grant permission to such use by VG.

     Other Company-VG Relationships During 1997-1999.  During 1997-1999, the
Company entered into the following additional agreements with 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 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 fee
       are being recognized ratably over the 2-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

                                       47
<PAGE>   48

       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
       BaanERP; (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. The net present value of the short-term and
       long-term portions of the amount due to is $20.3 million and is reflected
       in due to related parties in the accompanying financial statements.

     - During 1998, pursuant to a decision to eliminate its two then-existing
       joint investments with VG (other than BMS), the Company sold its minority
       interests in two software companies (Top Tier and B.A. Intelligence
       Networks, in which VG also had an interest) to VG for approximately $9.7
       million. The proceeds approximated the Company's carrying value in such
       investments; therefore, the Company did not realize a gain or loss on
       these transactions.

     - Having concluded that certain of its Latin American subsidiaries were
       operating in countries in which the midmarket presented the most
       attractive market opportunity, and thus should more appropriately be part
       of the Company's indirect channel, the Company sold in 1998 those
       subsidiaries to VG for approximately $5.2 million. The Company recognized
       in 1998 a loss of approximately $7.2 million from the sale of such
       subsidiaries. Such loss is included in "Loss on disposals of assets" in
       the accompanying Consolidated Statements of Operations.

     - During 1998, the Company also acquired ownership in certain work flow
       engine technology from LEY GmBH ("LEY"), a company in which VG had a 58%
       equity interest at that time. The Company paid $5.5 million to acquire
       this technology, based on an independent valuation, which is recorded in
       "Software development costs" on the accompanying Balance Sheet. The
       agreement also provides LEY with the right to sell the product on a
       stand-alone, royalty basis (the Company has need to sell this engine only
       as a bundled product). LEY did not have stand-alone sales in 1998 or 1999
       according to its reports to the Company, so no royalties were recorded.

     - During 1997 and 1998, the Company also charged VG $3.6 million and $5.3
       million, respectively, for marketing costs (including without limitation
       for its use of the "Baan" name). Due to VG's election in late 1998 to
       close or sell a substantial number of its investments, and its agreement
       to cease use of the "Baan" name (described above), the Company did not
       charge VG any such marketing costs in 1999. Such amounts have been
       reflected as reductions in operating expenses in the accompanying
       Consolidated Statements of Operations.

     - During 1997, 1998 and the first six months of 1999, the Company charged
       VG $5.0 million, $16.5 million and $6.2 million, respectively, 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. Such amounts have been reflected
       as reductions in operating expenses in the accompanying Condensed
       Consolidated Financial Statements.

     - During 1998 and 1999, the Company entered into several agreements with VG
       entities under which the Company paid VG certain product, marketing,
       services, or lease fees. These agreements include royalty and OEM
       agreements under which the Company is authorized to resell software,
       instructional or other materials created by certain companies owned or
       controlled by VG; subcontracting agreements whereby the Company retains
       the services of certain VG entities to assist in fulfilling customer
       commitments; and lease agreements for certain of the Company's
       Netherlands facilities that were properties owned by VG entities. The
       total costs and expenses incurred by the Company during 1998 and 1999
       associated with these agreements were not material.
                                       48
<PAGE>   49

                                    PART II

ITEM 14.  DESCRIPTION OF SECURITIES TO BE REGISTERED

     Not applicable.

                                    PART III

ITEM 15.  DEFAULTS UPON SENIOR SECURITIES

     Not applicable.

ITEM 16.  CHANGES IN SECURITIES AND CHANGES IN SECURITY FOR REGISTERED
SECURITIES

     Not applicable.

                                    PART IV

ITEM 17.  FINANCIAL STATEMENTS

     Not applicable.

ITEM 18.  FINANCIAL STATEMENTS

     See pages 50-85.

ITEM 19.  FINANCIAL STATEMENTS AND EXHIBITS

     (A) FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                              PAGE
                                                              ----
<S>                                                           <C>
Audited Annual Financial Statements:
  Report of PricewaterhouseCoopers N.V., Independent
     Accountants............................................   50
  Report of Moret Ernst & Young Accountants, Independent
     Auditors...............................................   51
  Consolidated Balance Sheets...............................   52
  Consolidated Statements of Operations.....................   53
  Consolidated Statements of Comprehensive Income (Loss)....   54
  Consolidated Statements of Shareholders' Equity
     (Deficit)..............................................   55
  Consolidated Statements of Cash Flows.....................   56
  Notes to Consolidated Financial Statements................   57
</TABLE>

     (B) EXHIBITS

<TABLE>
<S>   <C>
1.1   English translation of Articles of Association of the
      Company lodged with the Chamber of Commerce and Industry for
      Arnhem, The Netherlands*
2.1   Indenture, dated as of December 15, 1996, between the
      Company and Marine Midland Bank, as Trustee, relating to the
      4.5% Convertible Subordinated Notes***
2.2   Form of Notes included in Exhibit 2.1.***
2.3   Agreement and Plan of Reorganization, dated as of May 13,
      1997, among Baan Company N.V., Green Software Acquisition
      Corporation and Aurum Software, Inc.****
2.4   Share Rights Agreement, dated December 31, 1998, between
      Baan Company N.V. and Fletcher International Limited*****
</TABLE>

                                       49
<PAGE>   50

<TABLE>
<S>        <C>
2.5        Amendment and Waiver to Share Rights Agreement, dated November 24, 1999, between Baan Company N.V. and
           Fletcher International Limited.
3.1        Form of Indemnification Agreement between the Company and directors and officers*
3.2        1993 Stock Plan, as amended on May 1, 1995, and form of Option Agreement thereunder*
3.3        1995 Director Option Plan*
3.4        1995 Employee Stock Purchase Plan for U.S. Employees*
3.5        1995 Employee Stock Purchase Plan for Non-U.S. Employees*
3.6        Management Agreement between the Company and Jan Baan B.V., together with form of Agreement among the
           Company, Jan Baan B.V. and Jan Baan*
3.7        Management Agreement between the Company and Paul Baan B.V., together with form of Agreement among the
           Company, Paul Baan B.V. and J.G. Paul Baan*
3.9        Agreement dated as of August 3, 1994 between the Company and Boeing*+
3.13       Agreement dated May 15, 1995 between the Company and Baan Deutschland GmbH regarding the Company's
           acquisition of Baan Deutschland GmbH*
3.14       Employment Agreement between the Company and Tom Tinsley**
3.19       Employment Agreement dated as of September 29, 1994 between the Company and Amal Johnson*
3.20       Recommended Offer by Goldman Sachs International on behalf of Baan Company N.V. for The CODA Group plc.
           dated March 13, 1998*****
3.21       Agreement and Plan of Reorganization, Escrow Agreement, and Shareholder Agreement, each dated as of
           September 23, 1998 regarding acquisition of CAPS Logistics, Inc.*****
3.22       Baan Mid-market Solutions B.V. Share Purchase and Asset Purchase Agreements among Baan Company N.V.,
           Vanenburg Ventures B.V. and Baan Mid-market Solutions B.V. dated January 20, 1999*****
A.1        Subsidiaries of the Company
A.2        Consent of PricewaterhouseCoopers N.V., Independent Accountants
A.3        Consent of Ernst & Young Accountants, Independent Auditors
</TABLE>

---------------
     * Incorporated by reference to the Registration Statement (Registration
       Statement No. 33-91598) on Form F-1 effective on May 19, 1995

   ** Incorporated by reference to the Registration Statement (Registration
      Statement No. 333-00800) on Form F-1 effective on March 1, 1996

  *** Incorporated by reference to the Registration Statement (Registration
      Statement No. 333-24201) on Form F-3 filed on March 31, 1997

 **** Incorporated by reference to the Registration Statement (Registration
      Statement No. 333-31999) on Form F-4 effective on July 24, 1997

***** Incorporated by reference to the Annual Report on Form 20-F for the year
      ended December 31, 1998 filed on June 2, 1999.

     + Confidential treatment granted.

                                       50
<PAGE>   51

                       REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholders
Baan Company N.V:

     In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, comprehensive income (loss),
shareholders' equity (deficit) and cash flows present fairly, in all material
respects, the financial position of Baan Company N.V. and its subsidiaries (the
"Company") at December 31, 1999 and 1998, and the results of their operations
and their cash flows for the years then ended in conformity with accounting
principles generally accepted in the United States. These financial statements
are the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.

     The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in Note
1 to the consolidated financial statements, the Company has suffered recurring
losses from operations and requires additional financing which raises
substantial doubt about its ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note 1. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.

PricewaterhouseCoopers N.V.
Amsterdam, the Netherlands

July 17, 2000

                                       51
<PAGE>   52

                       REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholders
Baan Company N.V.

     We have audited the accompanying consolidated statements of operations,
shareholders' equity and cash flows of Baan Company N.V. and subsidiaries for
the year ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

     We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.

     In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated results of operations and cash flows
of Baan Company N.V. and subsidiaries for the year ended December 31, 1997 in
conformity with accounting principles generally accepted in the United States.

                                          MORET ERNST & YOUNG ACCOUNTANTS

Utrecht, The Netherlands
May 4, 1998

                                       52
<PAGE>   53

                               BAAN COMPANY N.V.

                          CONSOLIDATED BALANCE SHEETS
                      (IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                   DECEMBER 31,
                                                              ----------------------
                                                                1998         1999
                                                              ---------    ---------
<S>                                                           <C>          <C>
ASSETS
Current assets:
  Cash and cash equivalents.................................  $ 205,751    $ 135,744
  Marketable securities.....................................      1,080       60,921
  Accounts receivable, net of allowance for doubtful
    accounts of $46,595 in 1998 and $49,854 in 1999.........    252,129      159,386
  Income tax receivables....................................     45,045        4,569
  Due from related parties..................................      6,297        4,011
  Other current assets......................................     67,032       58,108
                                                              ---------    ---------
    Total current assets....................................    577,334      422,739
Property and equipment, at cost.............................    129,267      123,447
Less accumulated depreciation and amortization..............    (66,569)     (86,102)
                                                              ---------    ---------
Net property and equipment..................................     62,698       37,345
Capitalized software costs, net of accumulated amortization
  of $22,620 in 1998 and $75,275 in 1999....................     78,319       67,221
Intangible assets, net of accumulated amortization of
  $32,336 in 1998 and $32,074 in 1999.......................     52,644       64,563
Other non-current assets....................................     52,156       10,870
                                                              ---------    ---------
  Total assets..............................................  $ 823,151    $ 602,738
                                                              =========    =========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
  Short-term borrowings from banks and current portion of
    long-term debt..........................................  $     503    $     599
  Accounts payable..........................................     74,528       66,049
  Accrued liabilities.......................................    155,771       84,101
  Accrued legal costs and claims............................      7,000       34,000
  Due to related parties....................................         --       18,323
  Payroll taxes payable.....................................     16,758       10,390
  Income taxes payable......................................     43,441       24,925
  Other current liabilities.................................      7,529        3,512
  Deferred revenue..........................................    147,933      135,534
                                                              ---------    ---------
    Total current liabilities...............................    453,463      377,433
Long-term debt..............................................    191,013      189,041
Due to related parties......................................         --       25,874
Other long-term liabilities.................................      4,084        3,081
Long-term deferred revenue..................................     17,831       15,069
                                                              ---------    ---------
  Total liabilities.........................................    666,391      610,498
Commitments and contingencies (Note 12)
Shareholders' equity (deficit):
  Preferred shares, par value -- NLG 0.06 per share, no
    shares and 66,201,344 authorized at December 31, 1998
    and 1999, respectively; no shares issued and
    outstanding.............................................         --           --
  Common shares, par value -- NLG 0.06 per share,
    700,000,000 shares authorized; 204,886,317 and
    220,671,146 issued and outstanding in 1998 and 1999,
    respectively............................................      6,193        6,657
  Subscribed capital........................................     74,900      109,900
  Additional paid-in capital................................    312,506      450,726
  Accumulated deficit.......................................   (235,261)    (544,840)
  Accumulated other comprehensive loss......................     (1,578)     (30,203)
                                                              ---------    ---------
    Total shareholders' equity (deficit)....................    156,760       (7,760)
                                                              ---------    ---------
Total liabilities and shareholders' equity (deficit)........  $ 823,151    $ 602,738
                                                              =========    =========
</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.
                                       53
<PAGE>   54

                               BAAN COMPANY N.V.

                     CONSOLIDATED STATEMENTS OF OPERATIONS
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                YEAR ENDED DECEMBER 31,
                                                           ----------------------------------
                                                             1997        1998         1999
                                                           --------    ---------    ---------
<S>                                                        <C>         <C>          <C>
Net revenues:
  License revenue........................................  $367,101    $ 285,778    $ 190,884
  License revenue from related parties...................    66,325       50,600        2,000
                                                           --------    ---------    ---------
     Total license revenue...............................   433,426      336,378      192,884
  Maintenance and service revenue........................   246,170      399,271      426,259
                                                           --------    ---------    ---------
     Total net revenues..................................   679,596      735,649      619,143
Cost of revenues:
  Cost of license revenue................................    31,212       30,741       59,787
  Write-down of capitalized software.....................        --        9,600       43,105
  Cost of maintenance and service revenue................   189,871      302,063      332,091
                                                           --------    ---------    ---------
     Total cost of revenues..............................   221,083      342,404      434,983
                                                           --------    ---------    ---------
Gross profit.............................................   458,513      393,245      184,160
                                                           --------    ---------    ---------
Operating and non-recurring expenses:
  Sales and marketing....................................   171,572      272,497      172,412
  Research and development...............................    90,849      151,369      134,733
  General and administrative.............................    72,489      156,148      143,791
  Asset write-downs......................................     3,393       27,299       23,906
  Loss on disposal of assets.............................        --       58,030           --
  Restructuring and other non-recurring expenses.........     8,675       59,972       10,722
                                                           --------    ---------    ---------
     Total operating and non-recurring expenses..........   346,978      725,315      485,564
                                                           --------    ---------    ---------
Income (loss) from operations............................   111,535     (332,070)    (301,404)
Interest income..........................................    14,408        8,668        3,261
Interest expense.........................................   (12,338)     (11,750)      (9,456)
Other expense, net.......................................       (95)         (40)      (1,980)
                                                           --------    ---------    ---------
Income (loss) before income taxes........................   113,510     (335,192)    (309,579)
Provision (benefit) for income taxes.....................    36,354      (20,000)          --
                                                           --------    ---------    ---------
Net income (loss)........................................  $ 77,156    $(315,192)   $(309,579)
                                                           ========    =========    =========
Net income (loss) per share
  Basic..................................................  $   0.40    $   (1.59)       (1.43)
  Diluted................................................  $   0.37    $   (1.59)       (1.43)
Shares used in computing per share amounts
  Basic..................................................   190,842      198,519      215,760
  Diluted................................................   206,071      198,519      215,760
</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.
                                       54
<PAGE>   55

                               BAAN COMPANY N.V.

             CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                 YEAR ENDED DECEMBER 31,
                                                            ---------------------------------
                                                             1997        1998         1999
                                                            -------    ---------    ---------
<S>                                                         <C>        <C>          <C>
Net income (loss).........................................  $77,156    $(315,192)   $(309,579)
Other comprehensive income (loss):
  Currency translation adjustment.........................   (5,956)       5,114      (26,817)
  Unrealized loss on marketable securities................       --           --       (1,808)
                                                            -------    ---------    ---------
Comprehensive income (loss)...............................  $71,200    $(310,078)   $(338,204)
                                                            =======    =========    =========
</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.
                                       55
<PAGE>   56

                               BAAN COMPANY N.V.

           CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
                      (IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                                                  ACCUMULATED
                                                                                    RETAINED         OTHER
                               COMMON SHARES                                        EARNINGS     COMPREHENSIVE        TOTAL
                            --------------------   SUBSCRIBED     ADDITIONAL      (ACCUMULATED      INCOME        SHAREHOLDERS'
                              SHARES      AMOUNT    CAPITAL     PAID-IN-CAPITAL     DEFICIT)        (LOSS)       EQUITY (DEFICIT)
                            -----------   ------   ----------   ---------------   ------------   -------------   ----------------
<S>                         <C>           <C>      <C>          <C>               <C>            <C>             <C>
Balance at December 31,
  1996....................  187,817,546   $5,759   $      --       $152,782        $  45,211       $   (736)         $203,016
Issuance of common shares
  for business
  acquisitions............    1,300,198       40          --          4,044           (6,143)            --            (2,059)
Issuance of common shares
  Under stock purchase
    plan, and upon
    exercise of stock
    options...............    4,581,040      140          --         18,168               --             --            18,308
Currency translation
  adjustment..............           --       --          --             --               --         (5,956)           (5,956)
Net income................           --       --          --             --           77,156             --            77,156
                            -----------   ------   ---------       --------        ---------       --------          --------
Balance at December 31,
  1997....................  193,698,784   $5,939   $      --       $174,994        $ 116,224       $ (6,692)         $290,465
Issuance of common shares
  For business
    acquisitions..........    4,473,684      138          --         88,266          (36,293)            --            52,111
Issuance of common shares
  Under stock purchase
    plan, and upon
    exercise of stock
    options...............    6,300,813      103          --         39,363               --             --            39,466
Common shares subscribed,
  Net of issuance costs...           --       --      74,900             --               --             --            74,900
Conversion of convertible
  Notes to common
  shares..................      413,036       13          --          9,883               --             --             9,896
Currency translation
  adjustment..............           --       --          --             --               --          5,114             5,114
Net loss..................           --       --          --             --         (315,192)            --          (315,192)
                            -----------   ------   ---------       --------        ---------       --------          --------
Balance at December 31,
  1998....................  204,886,317   $6,193   $  74,900       $312,506        $(235,261)      $ (1,578)         $156,760
Issuance of common shares
  for stock purchase plan
  and upon exercise of
  stock options...........    5,243,212      148          --         25,632               --             --            25,780
Issuance of common shares
  for business
  acquisition.............      886,363       26          --         11,608               --             --            11,634
Common shares
  subscribed..............           --       --     135,000             --               --             --           135,000
Issuance of common shares
  in connection with the
  Fletcher International
  Limited stock
  subscription............    9,527,939      286    (100,000)        99,714               --             --                --
Conversion of convertible
  notes to common
  shares..................      127,315        4          --          1,266               --             --             1,270
Currency translation
  adjustment..............           --       --          --             --               --        (26,817)          (26,817)
Unrealized loss from
  investment in marketable
  securities..............           --       --          --             --               --         (1,808)           (1,808)
Net loss..................           --       --          --             --         (309,579)            --          (309,579)
                            -----------   ------   ---------       --------        ---------       --------          --------
Balance at December 31,
  1999....................  220,671,146   $6,657   $ 109,900       $450,726        $(544,840)      $(30,203)         $ (7,760)
                            ===========   ======   =========       ========        =========       ========          ========
</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.
                                       56
<PAGE>   57

                               BAAN COMPANY N.V.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                    YEAR ENDED DECEMBER 31,
                                                              -----------------------------------
                                                                1997         1998         1999
                                                              ---------    ---------    ---------
<S>                                                           <C>          <C>          <C>
Operating activities:
Net income (loss)...........................................  $  77,156    $(315,192)   $(309,579)
  Adjustments to reconcile net income (loss) to net cash
    provided by (used in) operating activities:
    Depreciation and amortization...........................     29,104       51,511       80,501
    Provision for doubtful accounts.........................     12,415       55,304       37,406
    Provision (benefit) for deferred income taxes...........    (10,592)      10,788           --
    Asset write-downs.......................................      3,393       36,899       67,011
    Loss on disposal of assets..............................         --       45,988        4,546
    Restructuring and other expenses........................         --       14,693           --
    Foreign currency transaction (gains) losses.............     (6,452)       3,648      (27,710)
    Changes in operating assets and liabilities, net of
      acquisitions:
      Accounts receivable...................................    (97,592)     (59,289)      38,494
      Due to/from related parties...........................    (42,765)      36,817       (1,826)
      Other current assets..................................    (39,356)     (78,709)      46,368
      Accounts payable......................................     19,599      (12,408)      (4,266)
      Accrued liabilities...................................     42,727       49,685      (37,660)
      Payroll taxes payable.................................      5,125        1,533       (6,368)
      Income taxes payable..................................     33,909       (7,923)     (12,834)
      Other current liabilities.............................     (3,256)       2,198          778
      Deferred revenue......................................     17,924      123,465      (14,841)
                                                              ---------    ---------    ---------
Net cash provided by (used in) operating activities.........     41,339      (40,992)    (139,980)
                                                              ---------    ---------    ---------
Investing activities:
Property and equipment purchased............................    (42,457)     (38,674)     (10,343)
Property and equipment sold.................................      7,604        8,377        5,611
Increase in capitalized software costs......................    (29,518)     (29,581)     (36,284)
Payment for acquisitions and investments, net of cash
  acquired..................................................    (59,922)     (23,240)     (15,093)
Proceeds from sale of investments and subsidiaries..........         --       18,689           --
Purchases of marketable securities..........................   (539,233)    (209,451)     (38,253)
Proceeds from the sale of marketable securities.............    438,253      313,218        1,526
Other.......................................................     (2,231)     (11,856)       4,559
                                                              ---------    ---------    ---------
Net cash (used in) provided by investing activities.........   (227,504)      27,482      (88,277)
Financing activities:
Payments under short-term credit facilities.................       (742)        (917)        (234)
Payments of long-term borrowings............................     (1,108)        (266)        (744)
Issuance costs of convertible subordinated notes............       (875)          --           --
Proceeds from sale of accounts receivable...................     17,500           --           --
Proceeds from issuance of convertible subordinated notes....     25,000           --           --
Proceeds from issuance of common shares.....................     18,002       39,566       25,656
Proceeds from subscription of common shares.................         --       74,900      135,000
                                                              ---------    ---------    ---------
Net cash provided by financing activities...................     57,777      113,283      159,678
Effect of foreign currency exchange rates on cash and cash
  equivalents...............................................      2,819       (5,439)      (1,428)
                                                              ---------    ---------    ---------
Increase (decrease) in cash and cash equivalents............   (125,569)      94,334      (70,007)
Cash and cash equivalents at beginning of year..............    236,986      111,417      205,751
                                                              ---------    ---------    ---------
Cash and cash equivalents at end of year....................  $ 111,417    $ 205,751    $ 135,744
                                                              =========    =========    =========
Supplemental non-cash investing and financing information:
Cash paid during the period for:
  Interest..................................................  $  10,924    $  11,732    $  11,294
  Taxes.....................................................  $   6,561    $  17,204    $   7,611
Non-cash financing and investing activities:
Conversion of convertible notes to common shares............  $      --    $   9,896    $   1,270
Issuance of common shares for business acquisitions.........  $   2,059    $  52,111    $  11,634
</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.
                                       57
<PAGE>   58

                               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 in conformity with generally accepted accounting principles in
the United States of America. These consolidated financial statements do not
represent the Dutch statutory financial statements.

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:

     - The Company has incurred net losses of $309.6 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.

     - 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.

     - 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
       Company has indicated that it will end the second quarter of 2000 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.

     - 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.

     - 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.

     - 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.

     - 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 challenging environment, management believes
the Invensys offer (See Note 15) is the best way to secure Baan's future.
Failure of the Invensys offer to successfully close could have

                                       58
<PAGE>   59

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 (See Note 15) 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 difficult; the Company's
negotiating position with other prospective strategic 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 revenue and
executing on the needed restructuring.

     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 is subject to
certain closing conditions. Among them is that 95% of Baan's issued and
outstanding shares must be tendered in support of the offer. 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 here 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.

BUSINESS

     Baan Company N.V. (the "Company" or "Baan") is incorporated in The
Netherlands. The Company provides enterprise business management software for an
open systems, client/server computing environment. The Company's products
address an organization's entire value chain, from front office functions (such
as interaction with customers and sales) to the more traditional back-office
operations (such as order management and inventory control) associated with
Enterprise Resource Planning ("ERP"). The Company sells and supports its
products through corporate headquarters in Barneveld, The Netherlands and
Herndon, Virginia, USA; Business Support Centers in three main locations located
in The Netherlands, the United States and India; and direct and indirect
distribution channels.

PRINCIPLES OF CONSOLIDATION

     The accompanying financial statements consolidate the accounts of the
Company and its wholly and majority owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated. Investments in
companies in which the Company has significant influence are accounted for under
the equity method. Investments in companies in which the Company does not have
significant influence are carried at cost or estimated realizable value, if
less.

FOREIGN EXCHANGE

     Assets and liabilities of the Company's foreign subsidiaries are translated
from their respective functional currencies to United States dollars at year-end
exchange rates. Income and expense items are translated on a quarterly basis at
the average rates of exchange prevailing during the quarter. The adjustment
resulting from translating the financial statements of the Company's foreign
subsidiaries is reflected as an accumulated translation adjustment in
shareholders' equity. Also, included in shareholders' equity are the effects of
exchange rate changes on intercompany transactions of a long-term nature.
Foreign currency transaction gains and losses are included in sales and
marketing expenses in the accompanying statements of operations.

                                       59
<PAGE>   60

DERIVATIVE FINANCIAL INSTRUMENTS

     Derivative financial instruments are used by the Company in the management
of its foreign currency exposures. Realized and unrealized gains and losses on
foreign currency forward contracts are marked to market and recognized in
results of operations. Any realized and unrealized gains and losses on contracts
used to hedge intracompany transactions of a long-term nature are included in
the accumulated translation adjustment in shareholders' equity.

REVENUE RECOGNITION

     License revenue is derived from software licensing fees. Maintenance and
service revenue is derived from maintenance support services, training and
consulting. The Company's revenue recognition policies are in accordance with
Statement of Position ("SOP") 97-2 "Software Revenue Recognition". License
revenue is recognized upon delivery of the software license if the Company has
persuasive evidence of 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
upon product shipment from the partner to the end-user subject to the conditions
noted above. Delivery is further defined in certain contracts as delivery of the
product master or first copy for noncancelable product licensing arrangements
under which the customer has certain software reproduction rights. Fees for
software upgrades and enhancements, maintenance, consulting and training that
are bundled with the license fee, are unbundled using the Company's verifiable
objective evidence of the fair value of the individual elements, represented by
the Company's customary pricing for each element in separate transactions. If
such evidence of fair value for each element of the arrangement does not exist,
all revenue from the arrangement is deferred until such time that evidence of
fair value exists for undelivered elements or until all elements of the
arrangement are delivered, subject to the provisions set forth in SOP 97-2 and
SOP 98-9, "Modifications of SOP 97-2, Software Revenue Recognition with Respect
to Certain Transactions". Fees from software license arrangements which obligate
the Company to deliver unspecified future products are recognized on the
subscription basis, ratably over the term of the contract. Service revenue from
customer maintenance fees for ongoing customer support and product updates is
recognized ratably over the term of the maintenance period, which is typically
twelve months. Payments for maintenance fees are generally made in advance and
are nonrefundable. Service revenue from consulting and training is billed
separately and is recognized as the services are performed. Revenues from
software arrangements, which require significant production, modification, or
customization of software, or service contracts containing fixed-price
arrangements, are recorded by applying the percentage-of-completion method of
contract accounting, following the guidance of SOP 81-1 "Accounting for
Performance of Construction-Type and Certain Production-Type Contracts", as
required by SOP 97-2.

     Deferred revenue represents amounts collected and amounts contractually
billed and billable prior to satisfying the above revenue recognition criteria.

     Cost of product license revenue consists of the costs to distribute the
product, including the costs of the media on which it is delivered and royalty
payments to third party vendors, as well as amortization of software development
costs. Cost of product support and other services revenue consists primarily of
consulting and support personnel salaries and related costs. Research and
development costs are excluded from the cost of revenue.

     In December 1998, the American Institute of Certified Public Accountants
issued SOP 98-9 which is effective for all transactions entered into by the
Company in fiscal year 2000. The adoption of this statement is not expected to
have a material impact on the Company's operating results, financial position or
cash flows.

SOFTWARE DEVELOPMENT COSTS

     In accordance with Statement of Financial Accounting Standards ("SFAS") No.
86 "Accounting for the Costs of Computer Software to be Sold, Leased or
Otherwise Marketed," costs related to research, design and development of
computer software are expensed as incurred until technological feasibility has
been established. 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
                                       60
<PAGE>   61

program design, up until the product is available for general release to
customers. Capitalized amounts are reported at the lower of unamortized cost or
net realizable value. Software development costs capitalized include direct
labor costs and fringe labor overhead costs attributed to programmers, software
engineers, quality control and field certifiers working on products after they
reach technological feasibility, but before they are generally available to
customers for sale. These costs are amortized on a product-by-product basis. The
annual amortization expense is the amount computed using the straight line
method over the estimated life of the product (generally three years), starting
when the product is available for general release to customers. Estimated lives
are revised when new projects or product enhancements which affect product lives
are completed. The establishment of technological feasibility and the ongoing
assessment of the recoverability of capitalized amounts require a significant
amount of judgment by management in assessing such factors as future revenues,
product lives and economic changes in the Company's marketplace. Amortization of
software development costs was approximately $5,947,000, $14,828,000 and
$34,206,000, excluding write-downs to net realizable value of capitalized
software costs, for the years ended December 31, 1997, 1998 and 1999,
respectively. Such amortization is included in cost of license revenue.

     The Company evaluates the net realizable value of its capitalized software
at each balance sheet date. During 1999 and 1998, the Company recorded a charge
of $43,105,000 and $9,600,000 to reduce the capitalized software costs to its
net realizable value based on future net cash flows expected from each product
line. These charges resulted from the Company's change in product strategy. The
Company believes the adjusted carrying value is reasonable based on its
projection of future cash flows, which includes the assumption that the Invensys
transaction is completed. If the Invensys transaction is not completed,
substantial additional write-downs of capitalized software costs may occur.

PROPERTY AND EQUIPMENT AND INTANGIBLE ASSETS

     Property, equipment and intangible assets are stated at cost. Intangible
assets consisting of goodwill, customer lists and assembled workforce represents
the excess of purchase price and related costs over the value assigned to the
net tangible assets of businesses acquired.

     Depreciation and amortization of such assets is provided on the
straight-line method over the following estimated useful lives:

<TABLE>
<S>                                    <C>
-- Computer equipment................  3-5 years
-- Furniture and fixtures............  5-7 years
-- Leasehold improvements............  lesser of lease term or estimated useful life
-- Goodwill..........................  5-8 years
-- Customer lists....................  5 years
-- Assembled workforce...............  7 years
</TABLE>

     Upon the disposition of assets, the costs and related accumulated
depreciation are removed from the accounts and any resulting gain or loss is
included in the statements of operations.

PER SHARE INFORMATION

     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 including subscribed, but unissued,
shares for which cash has been received. 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.

                                       61
<PAGE>   62

     The following table sets forth the computation of basic and diluted net
income (loss) per share for the years ended December 31, (in thousands):

<TABLE>
<CAPTION>
                                             1997        1998         1999
                                           --------    ---------    ---------
<S>                                        <C>         <C>          <C>
Numerator:
  Net income (loss)......................  $ 77,156    $(315,192)   $(309,579)
                                           ========    =========    =========
Denominator:
  Denominator for basic income (loss) per
     share --
     Weighted average shares.............   190,842      198,519      215,760
     Common equivalent shares............    15,229           --           --
                                           --------    ---------    ---------
  Denominator for diluted income (loss)
     per share --
       Adjusted weighted average shares
          and assumed conversions........   206,071      198,519      215,760
                                           ========    =========    =========
</TABLE>

     For the years ended December 31, 1997, 1998 and 1999, respectively,
9,091,000, 8,641,000 and 8,583,000 shares issuable upon conversion of the
Company's convertible subordinated notes were excluded from the computation of
diluted earnings per share because the effect was anti-dilutive. For the years
ended December 31, 1998 and 1999, all common equivalent shares related to
employee stock options were excluded from the computation of diluted earnings
per share because the effect was anti-dilutive. See Note 6 to Notes to
Consolidated Financial Statements.

CASH AND CASH EQUIVALENTS

     The Company considers investments in highly liquid debt instruments with
original maturities of 90 days or less at the date of purchase to be cash
equivalents. The carrying amount reported in the balance sheets for cash and
cash equivalents approximates their fair value based on quoted market prices.

     Cash equivalents consist principally of investments in certificates of
deposit with financial institutions, commercial paper and other specific money
market instruments of similar liquidity and credit quality. To date, the Company
has not experienced any significant losses related to these investments.

MARKETABLE SECURITIES

     Marketable securities are comprised of readily marketable equity securities
and debt securities with original maturities of more than three months when
purchased. Marketable debt securities are classified in one of three categories:
trading, available-for-sale, or held-to-maturity. Marketable equity securities
are classified as either trading or available-for-sale. Trading securities are
bought and held principally for the purpose of selling them in the near term.
Held-to-maturity securities are those debt securities, which the Company has the
ability and intent to hold until maturity. All other marketable securities not
included in trading and held-to-maturity are classified as available-for-sale.
Management determines the appropriate classification of marketable securities at
the time of purchase and re-evaluates such designation as of each balance sheet
date. The Company's marketable securities are primarily in short-term notes,
with the exception of its investment in Meta4 which was subsequently sold in
March 2000. See Note 15.

LONG-LIVED ASSETS

     The Company accounts for long-lived assets under Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of" which requires the Company
to review for impairment its long-lived assets, including certain identifiable
intangibles, and goodwill related to those assets, whenever events or changes in
circumstances indicate that the carrying amount of an asset might not be fully
recoverable, or that the useful lives of these assets are no longer appropriate.
When such an event occurs, the Company estimates the undiscounted future cash
flows expected

                                       62
<PAGE>   63

to result from the use of the asset and its eventual disposition. If the
undiscounted expected future cash flows are less than the carrying amount of the
asset, an impairment loss is recognized based on the difference between the
carrying value of the assets and fair values. The fair value is estimated based
on discounted cash flows absent an available market price.

     During 1999, 1998 and 1997, respectively, the Company recorded charges of
$23.9 million, $27.3 million, and $3.4 million for impairment of its long-lived
assets, excluding software development costs. The charges recorded in 1999, 1998
and 1997 reflect the Company's reduced estimate of each asset's carrying value
based on projections of future cash flows. The projection of future cash flows
includes the assumption that the Invensys transaction is completed. If the
Invensys transaction is not completed, substantial additional write-downs of
long-lived assets may be necessary.

RECLASSIFICATIONS

     Certain prior period amounts have been reclassified to conform to the
current period presentation.

USE OF ESTIMATES

     The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

STOCK-BASED COMPENSATION

     The Company accounts for stock-based compensation under SFAS No. 123,
"Accounting for Stock-Based Compensation." As permitted by SFAS No. 123, the
Company has elected to continue following the provisions of Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and
to adopt only the disclosure provisions of SFAS No. 123.

COMPREHENSIVE INCOME (LOSS)

     The Company adopted SFAS No. 130, "Reporting Comprehensive Income,"
effective January 1, 1998. This standard requires the Company to report the
total changes in stockholders' equity that do not result directly from
transactions with stockholders, including those which do not affect retained
earnings. Other comprehensive income (loss) recorded by the Company is solely
comprised of accumulated currency translation adjustments and unrealized gains
and losses on available-for-sale marketable securities, net of related tax
effects.

CONCENTRATION OF CREDIT RISK

     Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of cash, cash equivalents,
short-term investments and accounts receivable. The Company places its cash
equivalents and short-term investments with high credit-quality financial
institutions and invests its excess cash primarily in money market instruments.
The Company has established guidelines relative to credit ratings and maturities
that seek to maintain safety and liquidity. The Company sells products and
services to various companies across several industries throughout the world in
the ordinary course of business. The Company routinely assesses the financial
strength of its customers and maintains allowances for anticipated losses. For
the years ended December 31, 1999 and 1998, no one customer accounted for 10% or
more of net accounts receivable.

RECENT ACCOUNTING PRONOUNCEMENTS

     In December 1999, the Securities and Exchange Commission ("SEC") released
Staff Accounting Bulleting ("SAB") No. 101, "Revenue Recognition in Financial
Statements," which provides guidance on the recognition, presentation and
disclosure of revenue in financial statements filed with the SEC. Subsequently,
the SEC released SAB 101A, which delayed the implementation date of SAB 101 for
registrants with fiscal

                                       63
<PAGE>   64

years that begin between December 16, 1999 and March 15, 2000. The Company is
required to be in conformity with the provisions of SAB 101, as amended by SAB
101A. In June, 2000, the SEC issued SAB No. 101 B, further delaying the required
implementation of SAB 101 by the Company until the fiscal fourth quarter of year
2000.

     In June 1999, the Financial Accounting Standards Board issued SFAS No. 137,
which delays the effective date of SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which will be effective for the Company's
fiscal year 2001. SFAS No. 133 establishes accounting and reporting standards
requiring that every derivative instrument, including certain derivative
instruments embedded in other contracts, be recorded in the balance sheet as
either an asset or liability measured at its fair value. The statement also
requires that changes in the derivative's fair value be recognized in earnings
unless specific hedge accounting criteria are met. The Company is currently
evaluating the impact of these pronouncements.

2. PROPERTY AND EQUIPMENT

     Property and equipment consists of the following (in thousands):

<TABLE>
<CAPTION>
                                                             DECEMBER 31,
                                                         --------------------
                                                           1998        1999
                                                         --------    --------
<S>                                                      <C>         <C>
Computer equipment.....................................  $ 73,803    $ 75,891
Furniture and other....................................    43,392      35,906
Leasehold improvements.................................    12,072      11,650
                                                         --------    --------
Property and equipment at cost.........................   129,267     123,447
Accumulated depreciation and amortization..............   (66,569)    (86,102)
                                                         --------    --------
Net property and equipment.............................  $ 62,698    $ 37,345
                                                         ========    ========
</TABLE>

     Depreciation and amortization expense related to property and equipment was
$17,665,000, $27,799,000 and $24,460,000 for the years ended December 31, 1997,
1998, and 1999, respectively.

3. INTANGIBLE ASSETS

     Intangible assets, net of accumulated amortization, consist of the
following (in thousands):

<TABLE>
<CAPTION>
                                               GOODWILL    CUSTOMER LIST    WORK FORCE     TOTAL
                                               --------    -------------    ----------    --------
<S>                                            <C>         <C>              <C>           <C>
Balance at December, 31 1997.................  $ 25,213       $ 9,226        $ 6,646      $ 41,085
Purchases and additions......................    42,999         3,249          7,065        53,313
Write-downs and disposals....................   (17,988)       (6,732)        (7,331)      (32,051)
Amortization.................................    (4,718)       (2,743)        (1,298)       (8,759)
Foreign exchange difference..................      (575)          (77)          (292)         (944)
                                               --------       -------        -------      --------
Balance at December, 31 1998.................  $ 44,931       $ 2,923        $ 4,790      $ 52,644
Purchases and additions......................    47,796             0          7,700        55,496
Write-downs and disposals....................   (21,362)            0         (1,202)      (22,564)
Amortization.................................   (15,027)       (2,537)        (2,922)      (20,486)
Foreign exchange difference..................      (126)         (157)          (244)         (527)
                                               --------       -------        -------      --------
Balance at December, 31 1999.................  $ 56,212       $   229        $ 8,122      $ 64,563
                                               ========       =======        =======      ========
Total accumulated amortization...............  $ 29,487       $   751        $ 1,836      $ 32,074
                                               ========       =======        =======      ========
</TABLE>

     Amortization expense related to intangible assets was $6,054,000,
$8,759,000 and $20,486,000 for the years ended December 31, 1997, 1998, and
1999, respectively. Amortization expense in 1999 excludes charges incurred to
write-down intangible assets to their estimated fair value. Write-downs during
1999 reflect the Company's reduced estimate of each asset's carrying value based
on projections of future cash flows. The Company believes the adjusted carrying
values are reasonable based on projections of future cash flows, which

                                       64
<PAGE>   65

includes the assumption that the Invensys transaction is completed. If the
Invensys transaction is not completed, additional substantial write-downs of
intangible assets may be necessary. See Note 14 for discussion of write-downs
and disposals of intangible assets.

4. MARKETABLE SECURITIES

     The following is a summary of available-for-sale debt and equity securities
(in thousands):

<TABLE>
<CAPTION>
                                                              DECEMBER 31,
                                                            -----------------
                                                             1998      1999
                                                            ------    -------
<S>                                                         <C>       <C>
Certificates of deposit...................................  $   --    $41,832
Equity securities.........................................   1,080     19,089
                                                            ------    -------
                                                            $1,080    $60,921
                                                            ======    =======
</TABLE>

     All debt securities held as of December 31, 1999 are due within one year.
As of December 31, 1998 and 1999, all securities held were designated as
available for sale. Accordingly, these securities are carried at fair value. At
December 31, 1999, the Company recognized an unrealized loss on its investment
in Meta4, an equity security, of $1,808. This amount has been recorded as a
separate component of shareholders' equity at December 31, 1999. The cost of
securities sold is based on specific identification. At December 31, 1999, Meta4
was the only equity security held by the Company.

5. BORROWING ARRANGEMENTS

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, 1998 and 1999, the local
subsidiary had borrowings of $101,000 and $411,000, respectively, on its line of
credit. $589,000 was available to borrow under the line of credit at December
31, 1999.

     The weighted average interest rates on the short-term borrowings were 6.87%
and 5.95% as of December 31, 1998 and 1999, respectively.

     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. The credit facility was subsequently cancelled in February 2000.

LONG-TERM DEBT

     The Company's long-term debt obligations consist of the following (in
thousands):

<TABLE>
<CAPTION>
                                                             DECEMBER 31,
                                                         --------------------
                                                           1998        1999
                                                         --------    --------
<S>                                                      <C>         <C>
Convertible subordinated notes, 4.50%, due December 15,
  2001.................................................  $190,103    $188,833
Other..................................................     1,312         396
                                                         --------    --------
                                                          191,415     189,229
Less current portion...................................       402         188
                                                         --------    --------
                                                         $191,013    $189,041
                                                         ========    ========
</TABLE>

     In December 1996, the Company issued $175,000,000 of 4.5% unsecured
convertible subordinated notes ("Notes") pursuant to an indenture dated as of
December 15, 1996 ("Indenture"). The Notes are convertible into the Company's
common shares at any time after the 90th day following the last original issue
date of the Notes at a conversion price of $22.00 per share. The Notes are
redeemable by the Company under certain conditions after December 16, 1998 and
at any time after December 16, 1999. Until the Notes are converted or redeemed,
the Company will pay interest semi-annually, commencing June 15, 1997. In
January 1997, the

                                       65
<PAGE>   66

Company issued another $25,000,000 of Notes under the same terms and conditions.
The Notes are subordinated in right of payment to all existing and future Senior
Indebtedness (as defined in the Indenture) of the Company. As of December 31,
1999, $11.2 million of notes had been converted to common shares.

     In March 2000, the Company entered into agreements with certain of the note
holders under which the holders agreed to convert or exchange their notes for
equity in the Company at the conversion price of $6.25 per share. Consistent
with the terms of the Indenture, the Company then temporarily lowered the
conversion price (originally $22.00 per share) to $6.25 per share for its
remaining Convertible Notes for a 61-day period, which ended on May 29, 2000. As
a result of these actions, a total of $50.3 million aggregate principal amount
of Convertible Notes were either converted into or exchanged for shares,
resulting in the issuance of approximately 8 million shares. Consequently, there
remains approximately $139 million in outstanding convertible notes as of May
31, 2000. In connection with this inducement offer, the Company recognized a
non-cash expense equal to the fair value of the shares issued at the special
conversion rate in excess of the fair value of the shares had they been
converted at the original conversion price. The non-cash expense recognized
during the first six months of 2000 related to the induced conversion was
approximately $29 million.

     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. A total of $1,000,000, $1,262,000 and $1,131,000
were amortized in the years ended December 31, 1997, 1998 and 1999,
respectively. Approximately $2,238,000 of remaining unamortized costs are
included in other current assets and other non-current assets in the
accompanying Consolidated Balance Sheets.

     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):

<TABLE>
<S>                                                 <C>
2000..............................................  $    188
2001..............................................   189,041
                                                    --------
                                                    $189,229
                                                    ========
</TABLE>

6. SHAREHOLDERS' EQUITY

COMMON SHARES

     The Company is able to declare or pay dividends in any currency or multiple
currencies as deemed appropriate by management, although the Company has no
present intent to declare any dividend. Each holder of common shares is entitled
to one vote per share on all matters presented to a vote of the Company's
shareholders.

     In December 1998, the Company received a $75 million equity investment from
Fletcher International Limited ("Fletcher"). Fletcher paid $75 million to the
Company in exchange for a subscription to common shares, which will be purchased
during the period August 1, 1999 through December 31, 2001. The number of common
shares and the price per share will be based on future stock price movement and
will be calculated when the shares are purchased. In no event may the exercise
price exceed $16.00 per share, which results in the minimum issuance of
approximately 5 million common shares. Subject to certain terms, the agreement
also provides for an additional investment of up to $150 million in the Company
over the next three years (again based on a formula based on the market price of
the Company shares at or around the time of exercise). For nine months
commencing October 1, 1999, the Company had the right to require Fletcher to
purchase up to $75 million worth of additional common shares. To the extent that
the Company has not fully exercised its right, Fletcher has the right to
purchase any unexercised portion during the remaining term of the agreement.
Also, for 27 months commencing October 1, 1999, Fletcher has the additional
right to purchase another $75 million in common shares.

     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 common shares it had purchased under the Share Rights
Agreement, at the U.S. dollar equivalent 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

                                       66
<PAGE>   67

(a) $10,000,000 in exchange for extinguishing its unexercised rights under the
Share Rights Agreement (totaling approximately $215 million in such unexercised
rights) which the Company will record as an expense during 2000, and (b)
$16,623,392 (plus interest at 8.5% per year after May 29, 2000) in repayment of
monies already advanced to the Company but not yet converted into common shares
(total of approximately $15 million) which will be reflected as an increase to
shareholders' deficit when paid. These 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 of control by December 31, those payments would not be owed and those
rights revert to Fletcher.

     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.

PREFERRED SHARES

     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 were liquidated. The 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.

COMPANY STOCK PLAN

     In December 1993, shareholders approved the 1993 Stock Plan (the "Company
Plan"). Through this Plan and subsequent amendments, the Company has reserved a
total of 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, 1998 and 1999, 3,071,000
and 8,544,320 common shares, respectively, remain available for grant.

     Should granted options expire or become unexercisable for any reason, the
unpurchased shares which were subject thereto shall become available for future
grant under the Plan. The term of each option shall not exceed a period of five
years from the grant date and each option generally vests over five years. The
Plan expires in 2003. The exercise price is determined by the Plan's
administrator.

ASSUMED STOCK PLANS

     As a result of the Company's acquisition of Berclain Group, Inc.
("Berclain") in May 1996, the Company assumed the outstanding options under The
Berclain Stock Option Plan (the "Berclain Plan"). The Berclain Plan provided for
grants of non-qualified stock options to employees and eligible participants of
Berclain. The term of each option was not to exceed a period of five years from
the grant date and each option generally vested over one year. At December 31,
1999, the Company had reserved 6,926 of its common shares for issuance under the
Berclain Plan. No additional grants will be made under the Berclain Plan.

     As a result of the Company's acquisition of Aurum Software, Inc. ("Aurum")
in 1997, the Company assumed the outstanding options under Aurum's Stock Option
Plans (the "Aurum Plans"). The Aurum Plans provided for grants of incentive and
repurchasable stock options to employees and non-qualified options to eligible
participants of Aurum. The term of each option was not to exceed a period of ten
years from the grant date and each option generally vested over four years. At
December 31, 1999, the Company had reserved
                                       67
<PAGE>   68

1,567,952 of its common shares for issuance under the Aurum Plans. No additional
grants will be made under the Aurum Plans.

     As a result of the Company's acquisition of Beologic A/S ("Beologic") in
November 1997, the Company assumed the outstanding options under The Beologic
Warrant Scheme (the "Beologic Plan"). The Beologic Plan provided for grants of
non-qualified stock options to employees and eligible participants of Beologic.
The term of each option was not to exceed a period of 32 months and 31 days from
the grant date and each option generally vested over 2.6 years. At December 31,
1999, the Company had reserved 122,796 of its common shares for issuance under
the Beologic Plan. No additional grants will be made under the Beologic Plan.

     As a result of the Company's acquisition of CODA ("Coda") in May 1998, the
Company assumed the outstanding options under Coda's three stock options plans:
the Coda Worldwide Scheme (W.W.), Coda Incorporated Scheme (U.S.), and Coda
Executive Scheme (U.K.) (the "Coda Plans"). The Coda Plans provided for grants
of incentive stock options to employees and non-qualified options to eligible
participants of Coda. The term of each option was not to exceed a period of ten
years from the grant date and each option generally vested over three years. At
December 31, 1999, the Company had reserved 97,207 of its common shares for
issuance under the Coda Plans. No additional grants will be made under the Coda
Plans.

EMPLOYEE STOCK PURCHASE PLANS

     In February 1995, the Company adopted the 1995 Employee Stock Purchase
Plans (U.S. ESPP and Non-U.S. ESPP). The U.S. ESPP permits eligible employees of
Baan USA to purchase common shares through payroll deductions of up to the
lesser of 10% of their compensation, or $25,000 in any year. The price of common
shares purchased under the U.S. ESPP will be 85% of the lower of the fair market
value of the Company's common shares on the first or last day of each offering
period. The Non-U.S. ESPP terms are modified for local rules governing such
plans. A total of 4,000,000 common shares are available for grant under the two
Employee Stock Purchase Plans. Approximately 3,386,871 common shares were issued
under these plans through December 31, 1999. All remaining shares available for
use in the ESPP (a total of 613,129 shares) were issued during 2000 prior to the
ESPP's termination on or about April 28, 2000.

DIRECTOR STOCK OPTION PLAN

     In March 1995, the Company adopted the 1995 Director Stock Option Plan
("Director Plan"). Under the terms of the Director Plan, each person who becomes
a Supervisory Director 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
("Initial Options") on the date on which the person first becomes a Supervisory
Director; provided, however, that no Option shall be granted to a Supervisory
Director who, immediately prior to becoming a Supervisory Director, was a
Managing Director. Initial Option grants vest in four equal annual installments
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.

                                       68
<PAGE>   69

     Option activity under the Company Plans, excluding employee stock purchase
plans and the director stock option plan, was as follows:

<TABLE>
<CAPTION>
                                                             OUTSTANDING      WEIGHTED
                                                              NUMBER OF     AVERAGE PRICE
                                                               OPTIONS       PER OPTION
                                                             -----------    -------------
<S>                                                          <C>            <C>
Balance at December 31, 1996...............................  18,944,000        $ 7.74
Granted....................................................   7,901,000        $31.66
Canceled or expired........................................    (616,000)       $15.39
Exercised..................................................  (4,185,000)       $ 4.69
                                                             ----------        ------
Balance at December 31, 1997...............................  22,044,000        $18.62
Granted....................................................  11,706,000        $16.18
Canceled or expired........................................  (8,629,000)       $23.86
Exercised..................................................  (5,575,000)       $ 4.68
                                                             ----------        ------
Balance at December 31, 1998...............................  19,546,000        $11.42
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
                                                             ==========        ======
</TABLE>

     As of December 31, 1998 and 1999, stock options were exercisable for
7,425,000 and 8,170,602 common shares, respectively.

     In November 1998, the Company's Supervisory Board of Directors approved an
option repricing program. Under the repricing program, current employees (other
than designated members of senior management) holding outstanding options with
exercise prices at or above $11.13 per share could elect to amend such options
to change the exercise price to $11.13 per share, the average of the fair market
value on three consecutive trading days. All other terms of such options
remained unchanged, except that the repriced options are not exercisable for a
period of six months after the effective date of the repricing. If an employee
voluntarily terminated his or her employment prior to the end of the six-month
non-exercise period, the amended options were forfeited and the unexercised
shares were returned to the 1993 Stock Plan.

     The following table summarizes information about stock options outstanding
at December 31, 1999:

<TABLE>
<CAPTION>
                       OPTIONS OUTSTANDING                             OPTIONS EXERCISABLE
                  ------------------------------                   ---------------------------
                  WEIGHTED AVERAGE                   WEIGHTED                      WEIGHTED
    RANGE OF         REMAINING         NUMBER      AVERAGE PRICE     NUMBER      AVERAGE PRICE
EXERCISE PRICES   CONTRACTUAL LIFE   OUTSTANDING    PER OPTION     EXERCISABLE    PER OPTION
----------------  ----------------   -----------   -------------   -----------   -------------
<S>               <C>                <C>           <C>             <C>           <C>
$ 0.01 - $ 5.68        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>

     Pro forma information regarding net income (loss) per share is required by
SFAS No. 123 for awards granted as if the Company had accounted for its
stock-based awards to employees under the fair value method of SFAS No. 123. The
fair value of the Company's stock-based awards to employees was estimated as of
the

                                       69
<PAGE>   70

date of grant using a Black-Scholes option pricing model. The Black-Scholes
option valuation model was developed for use in estimating the fair value of
traded options, which have no vesting restrictions and are fully transferable.
In addition, the Black-Scholes model requires the input of highly subjective
assumptions including the expected stock price volatility. Because the Company's
stock-based awards to employees have characteristics significantly different
from those of traded options, and because changes in the subjective input
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its stock-based awards to employees. The fair value
of the Company's stock-based awards to employees was estimated assuming no
expected dividends and the following weighted-average assumptions:

<TABLE>
<CAPTION>
                                                  OPTIONS                   ESPP
                                            --------------------    --------------------
                                            1997    1998    1999    1997    1998    1999
                                            ----    ----    ----    ----    ----    ----
<S>                                         <C>     <C>     <C>     <C>     <C>     <C>
Expected life (months)....................   56      59      59       6       6       6
Expected volatility.......................   50%     75%     75%     50%     75%     75%
Risk-free interest rate...................  5.7%    5.1%    5.1%    5.4%    5.1%    5.1%
</TABLE>

     For pro forma purposes, the estimated fair value of the Company's
stock-based awards to employees is amortized over the options' vesting period
(for options) and the six-month purchase period (for stock purchases under the
ESPP). The Company's pro forma net income and net income per share for 1997,
1998, and 1999 is as follows (in thousands except for net income per share):

<TABLE>
<CAPTION>
                                                     1997        1998         1999
                                                    -------    ---------    ---------
<S>                                                 <C>        <C>          <C>
Net income (loss):
  As reported.....................................  $77,156    $(315,192)   $(309,579)
  Pro forma.......................................  $50,479    $(383,920)   $(353,233)
Basic income (loss) per share
  As reported.....................................  $  0.40    $   (1.59)   $   (1.43)
  Pro forma.......................................  $  0.26    $   (1.93)   $   (1.64)
Diluted income (loss) per share
  As reported.....................................  $  0.37    $   (1.59)   $   (1.43)
  Pro forma.......................................  $  0.25    $   (1.93)   $   (1.64)
</TABLE>

The weighted-average fair value of options granted during 1997, 1998, and 1999
was $11.25, $14.73 and $11.28, respectively. The weighted average fair value of
employee stock purchase rights granted under the U.S. ESPP and Non-U.S. ESPP
during 1997, 1998, and 1999 was $6.28, $11.57 and $8.11, respectively.

7. INCOME TAXES

     The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109. Deferred income taxes are provided, using the
liability method, for all temporary differences between tax and financial
reporting.

     Income (loss) before taxes consists of the following (in thousands):

<TABLE>
<CAPTION>
                                                        YEAR ENDED DECEMBER 31,
                                                   ----------------------------------
                                                     1997        1998         1999
                                                   --------    ---------    ---------
<S>                                                <C>         <C>          <C>
The Netherlands..................................  $ 81,629    $(119,744)   $(164,172)
Rest of the world................................    31,881     (215,448)    (145,407)
                                                   --------    ---------    ---------
Income (loss) before income taxes................  $113,510    $(335,192)   $(309,579)
                                                   ========    =========    =========
</TABLE>

                                       70
<PAGE>   71

     The components of the provision for income taxes are as follows (in
thousands):

<TABLE>
<CAPTION>
                                                            YEAR ENDED DECEMBER 31,
                                                          ---------------------------
                                                           1997        1998      1999
                                                          -------    --------    ----
<S>                                                       <C>        <C>         <C>
Current:
  The Netherlands.......................................  $31,316    $(31,088)   $ --
  Germany...............................................    4,536      (6,000)     --
  United States.........................................    7,579       1,300      --
  Other countries.......................................    3,515       5,000      --
                                                          -------    --------    ----
          Total current.................................   46,946     (30,788)     --
Deferred:
  The Netherlands.......................................  (11,741)     13,708      --
  Germany...............................................      415      (4,629)     --
  United States.........................................      734       1,709      --
                                                          -------    --------    ----
          Total deferred................................  (10,592)     10,788      --
                                                          -------    --------    ----
  Provision (benefit) for income taxes..................  $36,354    $(20,000)   $ --
                                                          =======    ========    ====
</TABLE>

     The Company's effective income tax rate differs from The Netherlands'
standard rate of 35% due to the following (in thousands):

<TABLE>
<CAPTION>
                                                         YEAR ENDED DECEMBER 31,
                                                    ---------------------------------
                                                     1997        1998         1999
                                                    -------    ---------    ---------
<S>                                                 <C>        <C>          <C>
Expected tax at standard rate.....................  $39,729    $(117,317)   $(108,353)
Amortization of goodwill..........................    2,106        8,341        5,013
Foreign earnings taxed at higher rates............      239           --           --
Dutch qualifying income tax reduction.............   (4,382)          --           --
Increase in valuation allowance...................       --      116,404       82,427
Rate differential on subsidiary write-downs.......       --      (50,600)          --
Foreign rate differential and other, net..........   (1,338)      23,172       20,913
                                                    -------    ---------    ---------
Provision (benefit) for income taxes..............  $36,354    $ (20,000)   $      --
                                                    =======    =========    =========
Effective tax rate................................       32%          (6)%         --%
                                                    =======    =========    =========
</TABLE>

     The components of the deferred tax assets and liabilities are as follows
(in thousands):

<TABLE>
<CAPTION>
                                                                   DECEMBER 31,
                                                              ----------------------
                                                                1998         1999
                                                              ---------    ---------
<S>                                                           <C>          <C>
Deferred tax assets:
  Expenses not currently deductible.........................  $  13,210    $  17,581
  Net operating losses......................................    137,349      221,690
  Deferred revenue..........................................      7,760          565
  Credits...................................................      3,348        2,595
                                                              ---------    ---------
     Total deferred tax assets..............................    161,667      242,431
     Less valuation allowance...............................   (116,404)    (198,831)
                                                              ---------    ---------
     Total deferred tax assets..............................     45,263       43,600
                                                              ---------    ---------
Deferred tax liabilities:
  Software development costs................................      2,663        1,000
  Reduction in value of subsidiaries........................     42,600       42,600
                                                              ---------    ---------
     Total deferred tax liabilities.........................     45,263       43,600
Total net deferred tax assets...............................  $      --    $      --
                                                              =========    =========
</TABLE>

                                       71
<PAGE>   72

     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 German 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 on investments (Article 13.c.a). This amount
needs to be reversed in future years and added to Dutch taxable income. The net
operating losses generated in the United States expire in 2008 or later.
Approximately $36 million of the net operating losses generated in the United
States relate to disqualifying dispositions of qualified incentive stock options
and will be recorded directly to shareholders' equity and will not result in a
tax rate benefit when these losses are utilized. The benefit of the net
operating losses generated in 1997 was recorded as a reduction of the provision
for Dutch income taxes as of 1997. As of December 31, 1999 and 1998, the Company
has established a full valuation allowance due to operating losses incurred and
uncertainty of realization of the net deferred tax assets.

     No deferred income taxes have been provided for the income tax liability
which may be incurred on repatriation of the undistributed earnings of the
Company's consolidated foreign subsidiaries because the Company intends to
reinvest such benefits indefinitely.

     During 1997, the Company was notified by the Dutch authorities that it
qualified for a reduced tax rate on certain part of its qualifying income which
included net interest income from intercompany loans, and for money held on the
convertible debt, and on royalties from the direct license revenue. The reduced
tax rate on certain qualifying income may be subject to review by the European
commission.

8. FINANCIAL INSTRUMENTS

DERIVATIVE FINANCIAL INSTRUMENTS

     The Company's use of derivative financial instruments is limited to
short-term foreign currency forward contracts. The Company uses these contracts
primarily to offset the effects of exchange rate changes on intercompany cash
flow exposures denominated in foreign currencies. These exposures include trade
accounts receivable, intercompany royalties, intercompany service fees and
intercompany loans. The primary exposures are denominated in European and Asian
currencies. The Company does not hold these derivative financial instruments for
trading purposes.

     The counterparties to the agreements relating to the Company's foreign
exchange instruments consist of a number of major high credit-quality
international financial institutions. While the notional amounts of financial
instruments are often used to express the volume of these transactions, the
potential accounting loss on these transactions if all counterparties failed to
perform is limited to the amounts, if any, by which the counterparties'
obligations under the contracts exceed the obligations of the Company to the
counterparties.

     The Company's foreign currency forward contracts all have maturities of
less than one year. During 1999, the Company incurred unrealized losses on its
foreign currency forward contracts of approximately $2.9 million. These forward
contracts are summarized below at contract value (in thousands):

<TABLE>
<CAPTION>
                                              DECEMBER 31,
                                           ------------------
                                            1998       1999
                                           ------    --------
<S>                                        <C>       <C>
European currencies......................  $2,811    $100,000
                                           ------    --------
Total....................................  $2,811    $100,000
                                           ======    ========
</TABLE>

     The amounts represent the U.S. dollar equivalent of commitments to trade
foreign currencies.

     While the contract amounts provide a measure of the volume of these
transactions, they do not represent the amount of the Company's exposure to
credit risk. The Company controls credit risk through credit approvals, limits
and subsequent monitoring procedures.

                                       72
<PAGE>   73

FAIR VALUES OF FINANCIAL INSTRUMENTS

     The carrying amounts and estimated fair values of the Company's financial
instruments were as follows (in thousands):

<TABLE>
<CAPTION>
                                                  1998                    1999
                                          --------------------    --------------------
                                          CARRYING      FAIR      CARRYING      FAIR
                                           AMOUNT      VALUE       AMOUNT      VALUE
                                          --------    --------    --------    --------
<S>                                       <C>         <C>         <C>         <C>
Financial assets
  Cash and cash equivalents.............  $205,751    $205,751    $135,744    $135,744
  Marketable securities.................     1,080       1,080      60,921      60,921
Financial liabilities
  Short-term borrowings.................       121         121         411         411
Convertible subordinated notes..........   190,103     143,053     188,833     177,975
  Other long-term borrowings (including
     current portion)...................     1,312       1,312         396         396
Off-balance sheet instruments
  Foreign currency forward contracts....        --         161          --       2,900
</TABLE>

     The estimated fair value amounts have been determined using available
market information and appropriate valuation methodologies as discussed below.
However, considerable judgment is required in interpreting market data to
develop the fair value estimates. Accordingly, the estimates presented above are
not necessarily indicative of the amounts that the Company could realize in a
current market exchange.

     Cash equivalents and marketable securities -- The carrying amount
approximates fair value because of the short maturity of these instruments.

     Short-term borrowings -- The carrying amount approximates fair value
because of the short maturity of these instruments.

     Convertible subordinated notes -- The fair value of the Notes was based on
quoted market prices and reflects the decrease in share price of the Company's
common stock since the Notes were issued.

     Other long-term borrowings -- The fair value of these financial instruments
is estimated using discounted cash flow analyses, based on the Company's current
incremental borrowing rates for similar types of borrowing arrangements.

     Foreign currency forward contracts -- The fair value of the contracts is
based on the estimated amount at which they could be settled based on quoted
exchange rates. Foreign currency contracts are usually three months in duration
and typically are due at the end of each quarter.

9. CONCENTRATION OF CREDIT RISK

     Credit risk associated with accounts receivable is limited due to the large
number of customers comprising the Company's customer base and their dispersion
among many different industries and geographical regions. The Company does not
require collateral to support customer receivables. For the year ended December
31, 1997, the Company charged $12.4 million to bad debt expense and recorded bad
debt write-offs of $3.0 million. For the year ended December 31, 1998, the
Company charged $55.3 million to bad debt expense and recorded bad debt
write-offs of $23.8 million. For the year ended December 31, 1999, the Company
charged $37.4 million to bad debt expense and recorded bad debt write-offs of
$34.1 million.

10. TRANSACTIONS WITH RELATED PARTIES

     Jan Baan, formerly Chief Executive Officer and a Managing Director of the
Company, and J.G. Paul Baan, formerly a Supervisory Director of the Company, and
the Company's founders, effectively control a Netherlands limited liability
company called Vanenburg Group B.V. ("VG," formerly Baan Investment B.V. and
Vanenburg Ventures B.V.). As reported in Form 20-F for 1998, VG had advised that
it owned

                                       73
<PAGE>   74

approximately 20% of the Company's outstanding Common Shares as of April 9,
1999. On May 31, 2000, 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 does not own any shares in the
Company.

     VG was created in 1994 as a venture capital company that invests in the
form of corporations, joint ventures, or partnerships in various new
technologies, educational programs, research projects and sales, consulting, and
support activities principally in the ERP and other technology markets. As
described further below, the Company has entered into various agreements with
entities owned or controlled by 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.

     As reported in the Company's Form 20-F for 1997, VG owned approximately 39%
of the Company's outstanding shares as of April 1998. In October 1998, however,
VG publicly disclosed that it had secured $500 million in loans to help fund
certain of its operations and investments, with VG's shares in the Company
serving as collateral on those loans. When the publicly traded share price in
the Company's stock declined over the summer and into the fall of 1998, VG
reported that its lenders began selling the VG collateral shares to pay down the
VG debt obligations. As a consequence, VG's holdings of the Company's shares
continued to decline throughout 1999 and 2000. VG also indicated that it would
undertake a review of its operations/investments, with an eye toward
reorganizing and/or selling certain of its assets.

     Revenues from VG during 1997, 1998 and 1999, were $66.3 million, $50.6
million and $2.0 million, respectively. As of December 31, 1998 and 1999, the
outstanding balances with VG (reflected in amounts (due to) and due from related
parties) consisted of the following (in thousands):

<TABLE>
<CAPTION>
                                                             DECEMBER 31,
                                                          -------------------
                                                           1998        1999
                                                          -------    --------
<S>                                                       <C>        <C>
Baan Mid-market Solutions (BMS).........................  $ 2,648    $     --
Vanenburg Business Systems (VBS)........................    1,142       4,011
Vanenburg Ventures......................................   (1,463)    (43,375)
Other...................................................    3,970        (822)
                                                          -------    --------
                                                          $ 6,297    $(40,186)
                                                          =======    ========
</TABLE>

     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. As indicated above, the
Company began building an indirect channel in 1996 as part of its strategy to
penetrate the SME market (or so-called midmarket). Because the go-to-market
strategy and demands of the midmarket differ significantly from those of the
high-end ERP sector, the Company believed then (and continues to believe) that
the midmarket could likely best be served through creation of an indirect
channel. Commencing in 1996, therefore, the Company embarked on a strategy of
signing resellers as part of this midmarket strategy.

     1. The VBS relationship.  Consistent with its venture capital philosophy,
and in an effort to participate in the indirect channel 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.

                                       74
<PAGE>   75

     Commencing in 1996 and continuing through 1997, the Company entered into a
reseller relationship with VBS. Prior to 1997, VBS, like each of the Company's
resellers, paid a fee to the Company for licenses resold based on a percentage
of the resale price. In 1997, when the Company amended its reseller license fee
terms to provide for a straight per-seat license fee, VBS negotiated a volume
discount fee structure reflecting the greater volume of its purchases (at that
time VBS comprised greater than 50% of sales of the Company's products in the
indirect channel; that number today is approximately 30% of channel sales) as
well as its willingness to pay for the seats up front in cash in exchange for
the lower rate. In all other respects, VBS's terms have been materially the same
as those provided other resellers; it has not been given special payment,
return, or exchange terms.

     The Company recognized revenues of approximately $32.3 million from VBS
during 1997 from sales of licenses pursuant to the VBS reseller agreement. In
addition, during 1997, the Company assigned to VBS a number of customer
contracts that the Company believed could best be served by VBS. In connection
with assigning those contracts: (i) the Company assigned the related outstanding
accounts receivable balances in the aggregate amount of $4.6 million and $0.3
million, respectively, and VBS paid for such outstanding receivables; and (ii)
VBS paid the Company for these contracts $18.0 million and $2.9 million in 1997
and 1998, respectively, representing the value of certain potential future
license revenue forgone by the Company as a result of pricing differences
between customary terms in direct sales versus indirect channel, third-party
contracts. Finally, during 1997 the Company recognized $8.7 million from the VBS
holding company for the non-recourse assignment of the remaining rights and
obligations under a license agreement with an unrelated third-party. All revenue
recognized from VBS is included in "License revenue from related parties" in the
accompanying Consolidated Statements of Operations.

     The Company recorded no license revenues from VBS in 1998 because it and
the Company's other resellers began buying directly from a newly formed company,
Baan Midmarket Solutions B.V. ("BMS"), a joint venture between the Company and
VG created in late 1997 as wholesaler and manager of the indirect channel.

     2. Creation of BMS.  Over the course of 1997, the Company's indirect
channel grew to approximately 110 resellers, including approximately 15 VBS
companies. Given that growth, and the potential for future growth of the
channel, the Company determined that a stronger infrastructure to manage and
support the channel was needed. To provide that "backbone," the Company and 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 ceased to sell
directly to VBS and its other resellers (with the exception of minor direct
sales to independent third-party resellers in the first quarter of 1998 in the
amount of $5.3 million, $1.3 million of which was recorded as deferred revenue).

     In connection with creating BMS in 1997, the Company entered into a
software distribution agreement under which it: (i) provided BMS with
distribution rights to the Company's products; and (ii) assigned a majority of
the Company's existing VAR (value added reseller) agreements to BMS. In
consideration for that assignment, BMS paid the Company $13 million,
representing the value of certain potential future license revenues forgone by
the Company as a result of pricing differences between customary terms in direct
sales versus indirect channel, third-party contracts. In addition, the Company
recognized revenues of approximately $3.0 million and $47.7 million during 1997
and 1998, respectively, from sales of licenses to BMS pursuant to the
distribution agreement. All revenue recognized from BMS is included in "License
revenue from related parties" in the accompanying Consolidated Statements of
Operations.

     In addition, the Company outsourced to BMS certain of its (the Company's)
employees and provided to BMS certain billing, collection, and other back office
services pursuant to a separate services agreement. Under that agreement, BMS
reimbursed the Company for the actual costs of the personnel assigned as well as
other direct expenditures made by the Company on BMS's behalf. It also paid an
additional 15% of these reimbursed costs as a surcharge for the administrative
and back office services the Company provided. That

                                       75
<PAGE>   76

amount was approximately $7.5 million in 1998. Such amounts are recognized as a
reduction in "General and administrative expenses" in the accompanying
Consolidated Statements of Operations.

     The Company's distribution agreement with BMS at no time permitted stock
balancing, returns, or exchanges (since there were no extended payment or return
provisions in that contract), and there has never been any stock balancing,
returns, or exchanges from BMS to the Company. The Company likewise is not aware
that BMS had any such arrangements with any of the VARs or distributors it
managed. In January 1999, BMS sold its remaining stock of inventory at a
discount to an independent third-party distributor. In connection with the
Company's purchase of BMS's core assets in January 1999 (described in detail
below), the Company paid VG $2 million on execution of that purchase agreement,
representing approximately one-half the discount negotiated by the independent
third-party purchaser of BMS's inventory.

     Prior to 1998, with the indirect channel still ramping up and providing
modest contribution to the Company's overall revenue generation, the Company
recognized revenue on a sell-in model into the channel. Consistent with industry
practice, the Company adopted the sell-in model of placing inventory in the
channel to ensure the VARs were investing in the business plan to resell the
Company's products.

     Over the course of 1998, however, BMS better than doubled the number of
channel partners selling the Company's products into the midmarket -- ending
1998 with approximately 215 independent, third-party VARs and approximately 15
VBS resellers. With a related party acting as the sole distributor for indirect
sales, and with indirect sales in early 1998 showing the potential to grow
significantly as a percentage of the Company's total sales, the Company
announced in the second quarter of 1998 that it would change to the sell-
through model for channel revenue recognition. With this change, sales to BMS
were made based on BMS's reports of the VAR's sell-through to end-users.

     With the exception of the limited sales the Company made directly to
resellers in the first quarter of 1998, all of the 230 or so VARs bought
licenses from BMS. As a result, virtually all of the Company's indirect channel
revenue in 1998 was reported under the "License revenue from related parties"
item in the accompanying Consolidated Statement of Operations. During the course
of 1998, sales to BMS, recognized by the Company as related party revenue, were
$15.3 million in the first quarter, $32.6 million in the second quarter, and
$23.2 million in the third quarter. With respect to the fourth quarter of that
year, BMS advised the Company that $17 million in licenses had been sold through
to end-users during that quarter. As described in the next subsection, however,
the Company did not sell new licenses to BMS in the fourth quarter as part of a
strategy to address inventory levels in the channel in light of declining ERP
demand. In January 1999, as described below, the Company acquired all of the
principal assets of BMS and, as a result, recorded no revenue from BMS in 1999.

     3. Channel inventory.  BMS's records provided to the Company indicate there
was approximately $56 million in total inventory in the indirect channel at the
start of 1998. The Company reported in its 1997 Form 20-F that, based on
estimates BMS confirmed, the Company understood that $11 million of this total
channel inventory was with related parties ($3 million with BMS, and
approximately $8 million with VBS). Subsequent review of VBS's records in late
1998 indicate that apparently approximately $23 million of the $56 million in
total channel inventory at the start of 1998 was actually in related party hands
(the $12 million difference being attributable to additional inventory that
apparently was with VBS at the commencement of 1998). Thus, according to VBS's
and BMS's records, the Company began 1998 with $56 million in total channel
inventory, of which $23 million was with related parties and the remainder was
with independent, third-party VARs.

     The BMS records also reflect that total channel inventory did not increase
during 1998; inventory as of September 30, 1998 was at the same $56 million
total. The mix of related party and third-party inventory levels did change,
however, consistent with BMS's role as channel manager. At the end of the third
quarter of 1998, total BMS inventory had increased to $40 million of the $56
million total, as channel inventory was aggregated over the year within BMS.
According to BMS's figures, BMS inventory levels were approximately $13 million
at end of the first quarter of 1998; $30 million at end of the second quarter;
and $40 million at end of the third quarter. Again, total inventory in the
channel had not grown during this time, meaning that third-party inventory
levels had been reduced to approximately $16 million over the course of the
year.
                                       76
<PAGE>   77

     The Company entered 1998 in what appeared to be an expanding ERP market.
Based on a review of the public filings and analyst estimates of 20 leading
enterprise application vendors, the data suggests that license revenues for
these companies grew overall 58% in 1997. That growth rate continued strong at
47% in the first quarter of 1998 (year over year), and softened some to 35% in
the second quarter; but in the third quarter the license revenue growth rate for
these companies had declined to 20%, and it dropped even further to just 4% in
the fourth quarter.

     As it became clear following the third quarter of 1998 that license revenue
growth rates industry-wide were declining, and in connection with the Company's
determination to undertake a comprehensive reorganization plan in the fourth
quarter, the Company acted to address the issue of indirect channel inventory.
To eliminate the approximate $56 million in indirect channel inventory existing
at the end of the third quarter: (i) approximately $17 million in inventory was
sold by the Company's indirect channel to end-users during the fourth quarter,
thus reducing the inventory number by that amount; and (ii) as to the remaining
channel inventory of approximately $39 million, the Company reversed that amount
from fourth quarter revenue and recorded it as deferred revenue in the quarter.
The Company undertook this latter reversal even though product had been
delivered, approximately $34 million for such licenses had been paid, and there
were no cancellation or return provisions. The practical effect of these actions
was to eliminate inventory from the channel, since remaining levels that were
now recorded as deferred revenue will only be recognized as revenue as it is
sold through to end-users.

     The $23 million in BMS inventory that existed at the end of the fourth
quarter (which comprised all remaining related party inventory) was purchased at
a discount by an independent third-party distributor pursuant to an agreement
between it and BMS in January 1999. As a result of that transaction, there was
no related party channel inventory as of January 1999. All channel inventory
(approximately $39 million) is in the hands of independent distributors and
VARs, and the Company will recognize revenue from the sale of such inventory
only as it is sold to end-users.

     4. The Company's acquisition of core BMS assets.  In connection with its
October 1998 announcement that VG's lenders were selling the Company shares VG
owned and had pledged as collateral to pay down VG's 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.

     The purchase price was comprised of the following: (i) $2 million paid in
cash upon execution, representing one-half the total discount negotiated by the
third-party distributor that purchased the BMS inventory existing at the end of
1998; and (ii) a three-year, 15% royalty on the Company's net revenues from its
indirect channel that includes a minimum payment and maximum potential earn out.
The minimum guaranteed payment is approximately $41 million. To the extent this
minimum is not earned in full via the royalty the Company would be obligated to
pay 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.

     The surviving entity of what had been BMS is now owned 100% by VG. The
principal remaining assets of that entity are outstanding accounts receivables;
it is expected the surviving entity will be liquidated once those accounts
receivables are collected. The Company was advised on the transaction by outside
U.S. and Dutch legal counsel. Credit Suisse First Boston issued a fairness
opinion as to the fairness from a financial point of view to the Company of the
consideration being paid for BMS.

     As a result of this transaction, management of the Company's approximately
230 channel partners is now under the Company's direct control. Included in that
number are the approximately 15 VBS resellers, but the

                                       77
<PAGE>   78

current VBS agreement (assumed by the Company as part of the acquisition)
requires VBS to purchase licenses of the Company's products for resale from an
independent third-party distributor. The net result is that, commencing in the
first quarter of 1999, it is the Company's intention that it will no longer have
related party license software revenue associated with the indirect channel.

     In addition, as part of the BMS agreement, VG has agreed to eliminate the
"Baan" name from any and all of its operations, and VG has recognized the
Company's ownership of all right, title, and interest in and to the "Baan" name
for commercial purposes. Any use of the "Baan" name by VG going forward must be
based on written agreement with the Company; but it is the intention of the
Company, except in isolated cases to aid in a particular VG entity's transition
to another name, that it will not grant permission to such use by VG.

     Other Company-VG Relationships During 1997-1999.  During 1997-1999, the
Company entered into the following additional agreements with 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 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. The $5 million development fee and $1 million upgrade fee 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 BaanERP; (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.
       The net present value of the short-term and long-term portions of the
       amount due is $20.3 million and is reflected in due to related parties in
       the accompanying financial statements.

     - During 1998, pursuant to a decision to eliminate its two then-existing
       joint investments with VG (other than BMS), the Company sold its minority
       interests in two software companies (Top Tier and B.A. Intelligence
       Networks, in which VG also had an interest) to VG for approximately $9.7
       million. The proceeds approximated the Company's carrying value in such
       investments; therefore, the Company did not realize a gain or loss on
       these transactions.

     - Having concluded that certain of its Latin American subsidiaries were
       operating in countries in which the midmarket presented the most
       attractive market opportunity, and thus should more appropriately be part
       of the Company's indirect channel, the Company sold in 1998 those
       subsidiaries to VG for approximately $5.2 million. The Company recognized
       in 1998 a loss of approximately $7.2 million from the sale of such
       subsidiaries. Such loss is included in "Loss on disposals of assets" in
       the accompanying Consolidated Statements of Operations.

     - During 1998, the Company also acquired ownership in certain work flow
       engine technology from LEY GmBH ("LEY"), a company in which VG had a 58%
       equity interest at that time. The Company paid $5.5 million to acquire
       this technology, based on an independent valuation, which is recorded in
       "Software development costs" on the accompanying Balance Sheet. The
       agreement also provides LEY with the right to sell the product on a
       stand-alone, royalty basis (the Company has need to sell this engine only
       as a bundled product). LEY did not have stand-alone sales in 1998 or 1999
       according to its reports to the Company, so no royalties were recorded.

     - During 1997 and 1998, the Company also charged VG $3.6 million and $5.3
       million, respectively, for marketing costs (including without limitation
       for its use of the "Baan" name). Due to VG's election in
                                       78
<PAGE>   79

late 1998 to close or sell a substantial number of its investments, and its
agreement to cease use of the "Baan" name (described above), the Company did not
charge VG any such marketing costs in 1999. Such amounts have been reflected as
      reductions in operating expenses in the accompanying Consolidated
      Statements of Operations.

     - During 1997, 1998 and the first six months of 1999, the Company charged
       VG $5.0 million, $16.5 million and $6.2 million, respectively, 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. Such amounts have been reflected
       as reductions in operating expenses in the accompanying Consolidated
       Financial Statements.

     - During 1998 and 1999, the Company entered into several agreements with VG
       entities under which the Company paid VG certain product, marketing,
       services, or lease fees. These agreements include royalty and OEM
       agreements under which the Company is authorized to resell software,
       instructional or other materials created by certain companies owned or
       controlled by VG; subcontracting agreements whereby the Company retains
       the services of certain VG entities to assist in fulfilling customer
       commitments; and lease agreements for certain of the Company's
       Netherlands facilities that were properties owned by VG entities. The
       total costs and expenses incurred by the Company during 1998 and 1999
       associated with these agreements were not material.

11. ACQUISITIONS

     In August 1997, the Company acquired all of the outstanding shares of Aurum
Software Inc. ("Aurum") for approximately 8.3 million of the Company's common
shares. Aurum is a provider of enterprise-wide sales-force automation software.
The business combination was accounted for as a pooling of interests. Since the
combination was material to the Company, the accompanying consolidated financial
statements are presented on a combined basis for all periods presented. There
were no significant intercompany transactions between the two companies and no
significant conforming accounting adjustments.

     Combined and separate results of the Company and Aurum for the periods
prior to the acquisition were as follows (in thousands):

<TABLE>
<CAPTION>
                                                             EIGHT MONTHS ENDED
                                                              AUGUST 31, 1997
                                                             ------------------
                                                                (UNAUDITED)
<S>                                                          <C>
Net Revenues:
  Aurum Software, Inc. ....................................       $ 24,232
  Baan Company.............................................        319,098
                                                                  --------
                                                                  $343,330
                                                                  ========
Net Income (Loss):
  Aurum Software, Inc. ....................................       $ (3,538)
  Baan Company.............................................          2,537
                                                                  --------
                                                                  $ (1,001)
                                                                  ========
</TABLE>

     In November 1997, the Company acquired all of the outstanding shares of
Beologic A/S ("Beologic") for approximately 1.3 million shares of the Company's
common shares. Beologic is a sales configurator company. The business
combination was accounted for as a pooling of interests. Because Beologic's
financial statements were not material to the consolidated financial statements
of the Company, the Company did not restate any of its consolidated financial
statements prior to the combination. Consolidation of Beologic reduced the
Company's retained earnings by approximately $6.1 million.

                                       79
<PAGE>   80

     During the year ended December 31, 1997, the Company recognized $12.1
million of non-recurring charges related to direct transaction and integration
costs as a result of the combinations with Aurum and Beologic. Such costs
included asset write-downs of $3.4 million for capitalized software, goodwill
and other intangible assets, professional fees of $4.6 million, and
restructuring charges of $4.1 million. The restructuring charges consisted of
$2.3 million of software discontinuation costs and migration costs related to
the Antalys product, and $1.8 million for contractual software upgrades and
commitments, and for other miscellaneous charges related to the mergers. The
Company completed the actions associated with the restructuring as of December
31, 1998.

     In 1997, the Company acquired the assets and liabilities of several small
companies for approximately $27.1 million in cash, which included the
acquisition of Matrix Holding B.V. ("Matrix"), a related party. Matrix was a
wholly owned subsidiary of Baan Investment B.V. and was acquired for $8.0
million in cash based on an independent appraisal and assumed net liabilities of
approximately $5.2 million. All of these acquisitions were accounted for under
the purchase method and the assets and liabilities were recorded at their fair
values on the acquisition dates. After allocating a portion of the purchase
price for these acquisitions to tangible assets and liabilities, $1.5 million
was allocated to customer lists, $7.2 million to assembled workforce and $21.3
million to goodwill.

     In May 1998, the Company completed the acquisition of the outstanding
shares of CODA Group plc. ("CODA"). CODA is a provider of financial software.
Under the terms of the share exchange, the Company issued approximately 0.0695
Baan common shares for each outstanding share of CODA, representing an aggregate
of approximately 1.9 million Baan common shares. Outstanding options to purchase
CODA stock were assumed and converted into Baan options at the same exchange
ratio. The business combination was accounted for as a pooling of interests.
CODA's historical financial statements are not material to the consolidated
historical financial statements of the Company. The Company did not restate any
of its consolidated financial statements prior to the combination. In connection
with the acquisition of CODA, the Company recognized a $9.6 million write-down
of duplicative capitalized software development costs, a $3.0 million
non-recurring charge for related professional fees, and a $1.8 million
restructuring charge, primarily severance related costs and other costs
associated with the consolidation of operations. None of the $1.8 million
restructuring charge remains unpaid as of December 31, 1998. On March 31, 2000,
the Company sold its CODA business to a third party for approximately $49.3
million in cash, resulting in a gain of approximately $31 million.

     In September 1998, the Company acquired all of the outstanding shares of
CAPS Logistics, Inc. ("CAPS"), a provider of optimization software for logistics
planning and scheduling. The Company issued 2.5 million of the Company's common
shares, with an aggregate fair value on the acquisition date of approximately
$68 million and incurred other acquisition costs of approximately $3 million,
resulting in a total purchase price of approximately $71 million. The purchase
price was allocated as follows: capitalized software of $31 million, goodwill of
$37 million, assembled workforce of $2 million, and net tangible assets of $1
million. During the fourth quarter of 1999, the Company recorded write-downs of
$14.8 million and $17.0 million related to capitalized software and goodwill,
respectively, based on the projected future cash flows to be realized from these
assets. The projection of future cash flows include the assumption that the
Invensys transaction is completed. If the Invensys transaction is not completed,
substantial write-downs of long-lived assets may be necessary.

     In January 1999, the Company entered into an agreement with VG pursuant to
which the Company purchased and was assigned all VAR agreements that had
previously been assigned to BMS and/or that BMS had entered into since its
creation. Approximately 130 BMS employees also transferred to the Company as
part of the transaction. The purchase price 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 1999,
the Company made payments to VG of $11.1 million, and offset approximately $16.2
million that was
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<PAGE>   81

due from VG for IT and marketing services provided by the Company, leaving a
remaining balance due to VG for the purchase of BMS of $17.4 million at December
31, 1999. $9.5 million of the remaining balance is reflected in due to related
parties and $7.9 million is reflected in long-term due to related parties.

     During the third quarter of 1999, the Company acquired companies providing
solutions built in the Baan environment: Proloq, which provides extensions to
Baan ERP for process industries like primary metals, pulp and paper and others;
and BAIN which developed Product Data Management (PDM) extensions to Baan ERP.
Baan also acquired ownership of Dynamic Enterprise Models (DEM) from Triarch,
DEM allows organizations to model their business processes and speed
configuration and customizations of Baan products. BAIN and Triarch were members
of the Vanenburg Group. See note 10 for Related Party Transactions.

     In connection with the acquisition of Proloq during the third quarter of
1999, the Company issued 886,000 of the Company's common shares, with an
aggregate fair value on the acquisition date of approximately $11.6 million, and
incurred other acquisition costs of approximately $2.0 million, resulting in a
total purchase price of approximately $13.6 million. The purchase price was
allocated as follows: capitalized software of $9.3 million, assembled workforce
of $3.5 million, and goodwill of $0.8 million.

     The following unaudited pro forma information for the years ended December
31, 1999, 1998 and 1997 includes the effects of the CAPS and Proloq acquisitions
on the net revenues, net income (loss) and earnings (loss) per share of the
Company. The effects of each acquisition are reflected in the actual year that
each transaction occurred plus the immediately preceding year, and assumes the
acquisitions had occurred at the beginning of each respective year.

<TABLE>
<CAPTION>
                                             1999         1998         1997
                                           ---------    ---------    --------
                                                      (UNAUDITED)
<S>                                        <C>          <C>          <C>
Net sales................................  $ 621,415    $ 751,273    $691,105
Net income (loss)........................  $(310,356)   $(319,407)   $ 73,192
Net income (loss) per share:
  Basic..................................  $   (1.44)   $   (1.61)   $   0.38
  Diluted................................  $   (1.44)   $   (1.61)   $   0.36
</TABLE>

     The pro forma results are not necessarily indicative of what actually would
have occurred if the transactions had been in effect for the periods presented
and are not intended to be a projection of future results.

     During the third quarter of 1999, the Company acquired BAIN, which develops
Product Data Management (PDM) extensions to Baan ERP, and Dynamic Enterprise
Models (DEM) from Triarch. DEM allows organizations to model their business
processes and speed configuration and customizations of Baan products. BAIN and
Triarch were members of the Vanenburg Group. The total consideration was
approximately $25.0 million which is payable over sixteen quarters beginning
with the fourth quarter of 1999. The purchase price was allocated as follows:
capitalized software of $20.8 million and goodwill of $4.2 million.

12. COMMITMENTS AND CONTINGENCIES

LEASES

     The Company has operating leases for substantially all of its offices
globally, certain data-processing equipment, telephone equipment, and other
office equipment. Rental expense for operating leases for the years ended
December 31, 1997, 1998, and 1999 was approximately $14,701,000, $24,827,000 and
$22,494,000, respectively.

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<PAGE>   82

     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):

<TABLE>
<S>                                                           <C>
2000........................................................  $20,050
2001........................................................   11,217
2002........................................................    6,433
2003........................................................    4,098
2004........................................................    1,790
Thereafter..................................................      381
                                                              -------
Total minimum rental commitments............................  $43,969
                                                              =======
</TABLE>

LITIGATION

     The Company is party to legal proceedings from time to time which might
include claims by customers, suppliers, other vendors, resellers and former
employees. 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 litigation costs. As of December 31, 1999 and 1998, the Company has
recorded a provision of $34 million and $7 million, respectively with respect to
pending legal claims involving the Company. There can be no assurances,
therefore, that any litigation that is now pending or which may arise in the
future will not have a material adverse effect.

     In October of 1998, the Company and certain of its current or former
officers and directors were named as defendants in a purported shareholder class
action lawsuit entitled Salerno v. Baan Company N.V. et al., which was brought
in the United States District Court for the District of Columbia. Six additional
purported shareholder class action lawsuits were subsequently brought, each in
the same court with substantially similar allegations: that the Company
allegedly violated certain of the U.S. securities laws by making purportedly
false and misleading statements about the Company's operations during the period
from in or around the end of January 1997 through mid-October 1998. The several
actions have been consolidated and lead plaintiffs and counsel have been named.
On August 4, 1999, the Company moved: (i) to dismiss the claims of shareholders
who purchased Baan securities on foreign (non-U.S.) exchanges -- and such
plaintiffs are believed to comprise as much as 80% of the purported class -- on
the ground that the U.S. courts lack subject matter jurisdiction over such
claims; and (ii) to dismiss the entire complaint for failure to adequately plead
alleged claims for securities violations. On June 21, 2000, the court granted
that part of the motion seeking to dismiss for lack of subject matter
jurisdiction the claims of those plaintiffs who neither reside in the United
States nor made their stock purchases in the United States. The litigation will
now proceed with respect to the remaining claims.

     In September of 1999, the Company and certain of its current or former
officers and directors were named as defendants in a separate lawsuit entitled
Ratliff v. Baan Company N.V. et al., which was brought in the United States
District Court for the District of Georgia. The complaint asserts purported
claims for breach of contract, violation of certain of the U.S. securities laws,
violation of the Georgia Securities Act, and intentional and negligent
misrepresentation -- , all in connection with the Company's acquisition in
September 1998 of CAPS Logistics, Inc. ("CAPS"). The plaintiffs -- who are three
of the four selling shareholders -- allege that certain of the Company's public
financial reports allegedly relied upon by the plaintiffs in connection with the
transaction were materially false and misleading, that certain of the Company's
officers made materially false and misleading statements to one or more of the
plaintiffs during the negotiations leading to the acquisition, and that the
Company did not comply with certain representations and warranties in the merger
agreement. Plaintiffs seek rescission of the Company's purchase of CAPS and
return of CAPS to the plaintiffs, and unspecified economic damages. In or around
November 1999 the Company moved to dismiss the action on grounds, inter alia,
that the complaint fails to adequately plead alleged claims for securities
violations. The motion has been fully briefed and awaits oral argument and/or
decision from the court. All discovery in the case has been stayed pending
resolution of the Company's motion.

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<PAGE>   83

13. INDUSTRY SEGMENT, GEOGRAPHIC AND OTHER INFORMATION

     The Company adopted Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information" ("SFAS
131") in the fiscal year ended December 31, 1998. SFAS No. 131 establishes
standards for reporting information about operating segments and related
disclosures products and services, geographic areas, and major customers.
Operating segments are components of an enterprise about which separate
financial information is available that is evaluated regularly by the chief
operating decision-maker in deciding how to allocate resources and in assessing
performance. The Company designs, manufactures, and markets applications
software for business processes and operates in a single industry segment. As
such, the financial information disclosed herein, materially represents all of
the financial information related to the Company's principal operating segment
and line of business.

     The following table presents revenues and certain long-lived assets by
geographic region for the years ended December 31, (in thousands):

<TABLE>
<CAPTION>
                                                         YEAR ENDED DECEMBER 31,
                                                     --------------------------------
                                                       1997        1998        1999
                                                     --------    --------    --------
<S>                                                  <C>         <C>         <C>
Net revenues from unaffiliated customers:
  The Netherlands..................................  $ 78,695    $ 79,475    $ 74,935
  Germany..........................................    90,122      95,167      72,258
  United States....................................   250,343     256,804     229,197
  Other international..............................   194,111     253,603     240,753
                                                     --------    --------    --------
          Total net revenues from unaffiliated
            customers..............................   613,271     685,049     617,143
  Related-party revenue............................    66,325      50,600       2,000
                                                     --------    --------    --------
          Total net revenues.......................  $679,596    $735,649    $619,143
                                                     ========    ========    ========
Long-lived assets:
  The Netherlands..................................  $103,965    $173,789    $134,176
  Other international..............................    74,149      72,028      45,823
                                                     --------    --------    --------
          Total long-lived assets..................  $178,114    $245,817    $179,999
                                                     ========    ========    ========
Statements of Operations analysis:
  License revenues.................................  $433,426    $336,378    $192,884
  License gross profit.............................   402,214     305,637     133,097
  Consulting revenues..............................   163,417     237,247     234,604
  Consulting gross profit..........................    13,153      26,723       9,785
  Education revenues...............................    27,413      47,106      36,512
  Education gross profit...........................    19,224      12,285      (3,997)
  Support revenues.................................    55,340     114,918     155,143
  Support gross profit.............................    23,922      58,200      88,380
  Total revenues...................................   679,596     735,649     619,143
  Total gross profit...............................   458,513     402,845     227,265
  Less: write-down of capitalized software.........        --      (9,600)    (43,105)
                                                     --------    --------    --------
  Adjusted gross profit............................  $458,513    $393,245    $184,160
                                                     ========    ========    ========
</TABLE>

     No customer accounted for 10% or more of consolidated net revenues in 1997,
1998 or 1999. Related party revenue for all such parties as a group accounted
for 10%, 7% and 1% of the Company's total net revenue for 1997, 1998 and 1999,
respectively.

14. NON-RECURRING ACTIVITIES

     During the fourth quarter of 1999, the Company undertook a strategic
reorganization and was the result of the Company's shift from the traditional
stand-alone ERP product offering to new initiatives in developing

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<PAGE>   84

Business to Business e-commerce products and the integration of e-enabled
enterprise solutions. As a result of the reorganization, the Company reassessed
its estimate of future cash flows and determined those cash flows were not
sufficient to recover the carrying value of the assets and adjusted them to
their net realizable value. Furthermore, the Company reviewed the utilization of
its current resources, including headcount and facilities, when assessing the
needs under the new product strategy. Consequently, the Company has 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. Additionally, in connection with this reorganization, in the
fourth quarter of 1999, the Company increased its allowance for uncollectible
accounts receivable and legal claims accrual by approximately $58 million.

     The following table, expressed in thousands, summarizes the Company's
non-recurring expenses and activity for the year ended December 31, 1999:

<TABLE>
<CAPTION>
                                                                             INCLUDED IN
                                        TOTAL     CASH      ASSET       ACCRUED LIABILITIES AT
                                        COSTS     PAID    WRITE-OFFS      DECEMBER 31, 1999
                                       -------    ----    ----------    ----------------------
<S>                                    <C>        <C>     <C>           <C>
1999 Reorganization:
  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
  Lease termination costs............    6,403      --          --               6,403
                                       -------    ----     -------             -------
Total non-recurring expenses.........  $77,733    $654     $67,011             $10,068
                                       =======    ====     =======             =======
</TABLE>

     In October 1998, the Company announced a comprehensive reorganization plan
to reduce the Company's expense levels and to streamline operations. In
connection with the reorganization, the Company recognized a non-recurring
charge of approximately $140.5 million during the fourth quarter of 1998.
Approximately $58.0 million of the non-recurring charge related to the disposal
of certain non-strategic business entities and recognized losses on disposal of
those assets. Approximately $27.3 million is related to the write-down of
certain long-lived assets in connection with the reorganization.

     Restructuring costs in 1998 were approximately $55.2 million and consisted
of (i) severance-related costs for over 1,000 employees affected by the
reduction-in-force, (ii) costs related to the consolidation and closure of
approximately 50 offices where the Company had redundant operations as a result
of acquisitions, and (iii) costs associated with the cancellation of certain
marketing and sales programs, including Expo 2000 and Baan World 1999. The
reduction-in-force affected employees in sales and marketing, services and
support, research and development, and general and administrative departments.

     In connection with the 1998 reorganization, the Company evaluated the net
carrying value of certain intangible assets and determined that the net carrying
values had been impaired. Accordingly, the Company recognized a charge of
approximately $27.3 million to write-down these assets to their fair value.

     In connection with the acquisition of CODA in May 1998, the Company
recognized a restructuring charge of approximately $1.8 million related to the
closing of certain offices. None of the $1.8 million restructuring charge
remains unpaid as of December 31, 1998.

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<PAGE>   85

     The following table, expressed in thousands, summarizes the Company's
non-recurring expenses and activity for the year ended December 31, 1998:

<TABLE>
<CAPTION>
                                                              ASSET     ACCRUAL BALANCE AT
                                       TOTAL       CASH      WRITE-        DECEMBER 31,
                                       COSTS       PAID       OFFS             1999
                                      --------    -------    -------    ------------------
<S>                                   <C>         <C>        <C>        <C>
1998 Reorganization:
  Asset write-downs.................  $ 27,299    $    --    $27,299            $--
  Loss on disposal of assets........    58,030     12,042     45,988            --
  Severance-related costs...........    22,204     22,204         --            --
  Sales and marketing programs......    21,694      7,001     14,693            --
  Lease termination costs...........     9,849      9,849         --            --
  Other non-recurring charges.......     1,425      1,425         --            --
                                      --------    -------    -------            --
                                       140,501     52,521     87,980            --
                                      --------    -------    -------            --
Coda acquisition:
  Closure of offices................     1,800      1,800         --            --
  Professional fees.................     3,000      3,000         --            --
                                      --------    -------    -------            --
                                         4,800      4,800         --            --
                                      --------    -------    -------            --
Total non-recurring expenses........  $145,301    $57,321    $87,980            $--
                                      ========    =======    =======            ==
</TABLE>

     Cash paid during 1998 and 1999 related to the 1998 non-recurring activities
costs $26.0 million and $31.3 million, respectively.

15. 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 "Convertible Notes") under which some of the Convertible Notes were
exchanged for Shares at a price that was lower than the conversion price
provided in the Convertible Notes. Consistent with the terms of the Indenture,
the Company then temporarily lowered the conversion price (originally $22.00 per
share) to $6.25 per share for its remaining Convertible 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 Convertible 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. In connection with
this inducement offer, the Company recognized a non-cash expense equal to the
fair value of the shares issued at the special conversion rate in excess of the
fair value of the shares had they been converted at the original conversion
price. The non-cash expense recognized during the second quarter 2000 related to
the induced conversion was approximately $29 million.

     On March 12, 2000, the Company sold its 11% interest in Meta4, which was
recorded as a marketable security at December 31, 1999, to generate additional
cash of approximately $40 million and a gain on the sale 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 (the "Bear Stearns 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 equity infusion during the second quarter of 2000.

     Also uncertain would be the Company's ability to access equity capital
under the Bear Stearns Agreement. That Agreement provides Bear Stearns with the
right to reject, in its discretion, any put by the
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<PAGE>   86

Company if, during the put period, the Company's share price falls below 3.00
Euro. If the Invensys offer fails, there is a substantial possibility that the
Company's shares will trade below that threshold for some meaningful period of
time. In that regard, it is noted that the Company's shares were principally
trading in the $1-$2 per share range in the several weeks prior to the Invensys
offer, and the absence of shareholder equity at the close of the second quarter
means special listing status for the Company's shares on the AEX is likely.

     On March 31, 2000, the Company sold its CODA business to a third party for
approximately $49.3 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 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. The Boards unanimously recommended that the shareholders
accept the offer and tender their shares in the offer. On June 14, 2000, the
Company received positive advice from the Works Councils with regard to the
offer. The offer is currently scheduled to close on July 25, 2000 but is subject
to certain closing conditions. Among them is that 95% of all issued and
outstanding shares must be tendered in support of the offer.

     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 common shares it had purchased under the Share Rights
Agreement, at the U.S. dollar equivalent 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 under the Share Rights Agreement (totaling approximately
$215 million in such unexercised rights) which the Company will record as an
expense during 2000, and (b) $16,623,392 (plus interest at 8.5% per year after
May 29, 2000) in repayment of monies already advanced to the Company but not yet
converted into common shares (total of approximately $15 million) which will be
reflected as an increase to shareholders' deficit. These 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 of control by December 31, those payments would not be
owed and those rights revert to Fletcher.

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<PAGE>   87

                                   SIGNATURES

     Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the Registrant certifies that it meets all the requirements for filing
on Form 20-F and has duly caused this annual report to be signed on its behalf
by the undersigned, thereunto duly authorized.

                                          BAAN COMPANY N.V.

                                          By: /s/ PIERRE J. EVERAERT
                                            ------------------------------------
                                            Pierre J. Everaert
                                            Interim Chief Executive Officer

                                          By: /s/ ROBERT A. RUIJTER
                                            ------------------------------------
                                            Robert A. Ruijter
                                            Chief Financial Officer

Date: July 17, 2000

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