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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 20-F

           [ ] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g)

                   OF THE SECURITIES EXCHANGE ACT OF 1934; or

              [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF

                       THE SECURITIES EXCHANGE ACT OF 1934
                   For the fiscal year ended December 31, 1998

            [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934
                 For the transition period ________ to ________

                           Commission File No. 0-26052

                                BAAN COMPANY N.V.
             (Exact name of registrant as specified in its charter)

                                 THE NETHERLANDS
                 (Jurisdiction of incorporation or organization)

                            Baron van Nagellstraat 89
                                3770 LK Barneveld
                                 The Netherlands
                                       and
                         11911 Freedom Drive, Suite 300
                          Reston, Virginia, 20190 USA
                   (Addresses of principal executive offices)

 Securities registered or to be registered pursuant to Section 12(b) of the Act:

                                      None

 Securities registered or to be registered pursuant to Section 12(g) of the Act:
                        Common Stock, NLG 0.06 Par Value

        Securities for which there is a reporting obligation pursuant to
                           Section 15(d) of the Act:

                                      None

       As of December 31, 1998, the registrant had outstanding 204,886,317
                                 Common Shares,

                               NLG 0.06 par value

        Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

                                 Yes [X] No [ ]

         Indicate by check mark which financial statement item the Registrant
has elected to follow:
                                Item  17  Item 18  X
                                     ----         ----


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                                     PART I



ITEM 1.  DESCRIPTION OF BUSINESS

GENERAL

     Founded in the Netherlands in 1978, Baan Company is a leading global
provider of enterprise business software. Baan Company offers a comprehensive
portfolio of best-in-class, component-based applications that are in use by more
than 6,300 customers at over 12,000 sites worldwide. Applications and related
services offered by the Company help customers gain competitive advantage
through improvements to their corporate management, customer management, and
operations management processes. Baan Company products reduce complexity,
improve core business processes, and are flexible in adapting to business
changes to optimize the management of information throughout the entire value
chain.

     Today, the Company offers products that address an organization's entire
value chain. Specific business functions and processes supported by the Baan
Company suite of enterprise applications include automation and control of:

     -      Corporate Management: accounting/financials, order management,

     -      Customer Management: sales, product configuration, field service,
            call center activities,

     -      Operations Management: ERP, supply chain management, inventory
            procurement, planning and scheduling, manufacturing, finished-goods
            delivery, transportation, and logistics.

     With roots in the Enterprise Resource Planning (ERP) market, Baan Company
shipped its first products in 1982. Through its acquisition of various software
companies including supply chain vendor Berclain and product configuration
vendor Antalys in 1996, sales force automation vendor Aurum Software and
configuration vendor Beologic in 1997, and CODA Group plc., a provider of
financial software, and CAPS Logistics, Inc., a provider of optimization
software for logistics planning and scheduling in 1998, Baan Company started a
trend where traditional ERP/operations management vendors rounded out their
portfolio to include customer management, corporate management and operations
management products.

     Baan Company software is targeted at organizations of all sizes needing to
increase their market advantage and global competitiveness by continually
improving business processes.

     Baan Company focuses its sales, marketing and development resources on
manufacturing industries that can utilize the entire range of the Company's
products and services including:

     -    aerospace,

     -    automotive,

     -    component manufacturing,

     -    electronics,

     -    furniture,

     -    industrial equipment,

     -    paper and pulp, and

     -    primary metals.

     Baan selects target markets based on four factors. Each industry has
well-defined supply and demand chains that can take advantage of the complete
range of products offered by Baan Company. Second, these industries have a focus
on clearly-defined industry best practices that can be modeled and automated
with Baan products. Third, the competitive nature of these




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markets requires continuous assessment and re-assessment of business processes
and the underlying information technology ("IT") infrastructure. Finally, Baan
has established a strong understanding, competitive position and reference base
in these markets.

     The Company also targets individual product lines to other industries
including financial services, healthcare, hospitality, insurance,
telecommunications, transportation, wholesale, utilities, and other industries.
Baan partners with its reseller community to actively pursue additional markets
and is rapidly gaining mid-market customers through these initiatives.

     The cornerstone of Baan Company product strategy is delivery of scalable,
flexible component-based solutions that can be implemented rapidly in
heterogeneous computing environments and rapidly reconfigured as business
conditions and needs change. To do this, the Company focuses on both intuitive,
graphical business modeling as a starting point for software implementation, as
well as robust out-of the-box functionality. As a result, Baan Company's
standard software typically can be configured and implemented in as short as one
to twelve months, which the Company believes provides it with a competitive
advantage. Ongoing adjustments can be made easily to the system in response to
changing market demands and changes in production and operational processes.

     According to leading market analysts from organizations such as Aberdeen
Group, AMR Research, META Group, and Gartner Group, rapid implementation and
easy reconfiguration are critical differentiators for the enterprise
applications market space. These groups typically rank Baan Company operations
and customer management products among the top of all competitive products.

     In addition to offering flexible and easy to implement software application
solutions, the Company believes it has gained a competitive market advantage by
offering a complete best-of-breed product portfolio of related products and
services. This includes traditional consulting services and unique consulting
offerings such as Baan CyberConsult that provide customers Internet access to
product-specialist consultants around the world, training programs including
traditional face-to-face instructor lead and train-the-trainer programs, as well
as Internet-based self-paced learning programs and Internet-based virtual
classrooms.

     Baan Company views the next major areas of enterprise application growth to
be operations management for mid-market (i.e., small to medium size) companies,
and customer management and supply chain applications across all major vertical
markets, including the mid-market. The Company's extensive efforts to penetrate
the mid-market, as well as the ability to offer customer management and
corporate management solutions enabled Baan Company to achieve a market position
where it believes that it has certain advantages over competitors.

     The Company has direct and indirect sales, service and support channels
operating in 80 countries throughout Europe, North America, Latin America and
certain Asian, African and Middle Eastern markets. To date, its enterprise
systems have been implemented at approximately 6,300 customer sites around the
world. The Company's net revenues increased from $227 million in 1995 to $736
million in 1998. The Company's number of employees has more than tripled from
approximately 1,600 employees at December 31, 1995 to approximately 5,100 at
December 31, 1998.

     Baan Company N.V. is a Netherlands holding company with its statutory seat
in Barneveld, The Netherlands, and conducts business through its domestic and
international subsidiaries. Baan Holding B.V., the predecessor of Baan Company
N.V., was incorporated in 1983. References in



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this Form 20-F to "Baan" or "the Company," unless the context otherwise
requires, relate to Baan Company N.V., its predecessor, Baan Holding B.V. and
its subsidiaries. The Company maintains dual headquarters at Baron van
Nagellstraat 89, 3770 LK Barneveld, the Netherlands, telephone number +31 (0)
342-428888, and at 11911 Freedom Drive, Suite 300, Reston, Virginia, United
States of America 20190, telephone number +(1) 703-471-8785.

INDUSTRY BACKGROUND

     The enterprise applications market as defined today by industry analysts
has come together through the consolidation of three primary markets - corporate
management, customer management and operations management.

     Operations management is the most established of the three markets with its
roots in the control automation market of the 1960s and 1970s and the
manufacturing planning software market of the 1980s. This evolved into the
Enterprise Resource Planning (ERP) of the 1990s and today includes primarily ERP
and supply chain areas.

     The corporate management market evolved from accounting and contract
management systems in the early 1980s. Human resource and more comprehensive
financial planning and control systems were added to this segment in the 1990s.

     The final market, customer management, developed in the 1990s out of the
sales force automation (SFA), product configuration, customer support, and call
center markets.

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

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

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

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

     In early 1998, market analysts expected growth rates to moderate somewhat
but continue in excess of 35% per year through the year 2001. In fact, based on
publicly available information or analysts' estimates, the leading vendors in
the operations management space saw growth rates drop unexpectedly from around
40% in the first quarter 1998 (compared to first quarter 1997) to less than 5%
growth in the fourth quarter 1998 (vs. fourth quarter 1997). Expectations today
among industry analysts are that the operations management segment will continue
to remain difficult and challenging through 1999 and that the market is not
expected to significantly improve until the year 2000. At that point, when
customers have solved the Y2K issues, analysts expect that customers will begin
looking for new ways to improve operational efficiencies.

     In the meantime, market growth opportunities for enterprise application
vendors remain in three distinct areas:

     -    Customer Management - Industry analysts expect growth levels in excess
          of 50% per year for this area, driven by new Internet technology that
          is opening new distribution channels and increasing revenue.




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     -    Supply chain area of operations management - Industry analysts suggest
          that this area appears to be growing in excess of 50% per year, driven
          by dramatic cost reductions in transportation and inventory holding
          costs,

     -    Mid-market ERP - The cost and complexity of traditional ERP and
          operations management products historically limited adoption in this
          segment. As vendors like Baan Company delivered solutions on industry
          standard platforms and reduced deployment times from years to months,
          operations management solutions became cost effective for the
          mid-market. Industry analysts continue to believe that the mid-market
          represents higher growth opportunities for the ERP vendors.

BAAN COMPANY STRATEGY

     Entering 1998, growth rates for the ERP sector appeared healthy, but by the
third quarter 1998 market dynamics had changed and growth rates deteriorated
much more rapidly than expected. As reported above, market growth rates among
leading enterprise application vendors fell from 40% per year in the first
quarter to less than 5% per year in the fourth quarter.

     In the final weeks of the third quarter, the slowdown in market growth
became apparent. ERP customers delayed or drastically downsized purchases in the
final days of the quarter as they reallocated funds away from Y2K replacement
business to fixing existing legacy systems. Global economic uncertainty also
contributed to this slowing of orders across other product areas. In mid-1998, a
significant portion of Baan Company revenue came from new license revenue. Other
enterprise application vendors have business models that rely more than 50% on
services and maintenance revenue. This difference contributed, the Company
believes, to the Company being one of the first to be impacted by these market
changes. The Company incurred a $39.7 million loss for the third quarter.
Subsequently, other vendors have reported drops in revenue growth.

     The Company determined that these market changes were systemic to the
enterprise applications market and unlikely to reverse for at least a year. Baan
Company responded to this change immediately and decisively. During the fourth
quarter 1998, the Company looked for ways to reduce costs by 20%, to gain
efficiencies across all aspects of the organization, and to reinforce and
refocus its existing strategies. To accomplish this goal the Company instituted
a number of actions and strict cost controls:

     -    Announced a plan to reduce headcount by approximately 20% (from a high
          of approximately 6,200 people worldwide) by eliminating programs and
          reducing duplicate management, sales, marketing, and finance
          functions.

     -    Disposed of certain non-core business entities.

     -    Closed 50 offices around the world.

     -    Cancelled certain marketing programs.

     -    Signed an equity financing agreement with Fletcher International
          Limited that provided $75 million in cash with the option to extend
          the agreement for an additional $150 million (see section "Liquidity
          and Capital Resources" below).

     -    Accelerated the absorption of Baan Midmarket Solutions B.V. ("BMS")
          into Baan Company (see section "Target Small to Medium Sized
          Enterprises ("SME") to Bring Big Company Capabilities to the
          Mid-Market" below).

     As a result of these actions, the cost structure for the company as it
exited the first quarter 1999 is approximately 20% less than the cost structure
at the end of the third quarter 1998.



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     Baan Company is focused on the following key strategies:

         -        SIMPLIFY THE COMPLEXITY TO REDUCE THE RISK OF TRADITIONAL
                  IMPLEMENTATION.

              Baan Company's core operations management product, BaanERP, is
         based on a distributed, client/server architecture that is independent
         of hardware, operating system, and database platforms. BaanFrontOffice,
         the customer management product family, was developed using Microsoft
         development tools and offers a range of browser-based customer
         management components. These foundation technologies allow users to
         scale their deployments with the changing needs of their organization.
         It allows components from Baan or other vendors to be integrated
         together as business needs grow and change. The component-based
         solution allows customers to quickly implement the solution in
         heterogeneous, multisite, multinational environments, and to easily
         modify the application components to match exact business needs and
         processes.

              The Baan Company solution employs a unique approach, called Baan
         Dynamic Enterprise Modeling ("DEM"), that enables organizations to
         model their own business practices and processes and link these
         directly with the functional modules of the software. By modeling their
         own business rather than being constrained by prescribed models that
         are typical of other enterprise application systems, implementation, as
         well as reconfiguration and re-implementation when changes occur, is
         easier because of the direct relationship between the business modeling
         capabilities and the enterprise applications. BaanDEM comprises a suite
         of software implementation tools, methodologies, best business
         practices templates, and end-user training solutions, all designed to
         speed implementation and make it less complex and easier for the
         customer.

              The Company expects to continue to provide innovative product
         enhancements, new capabilities and approaches -- directly or through
         partnerships with others -- to further simplify enterprise applications
         implementation and make it cost-effective and achievable for
         organizations of all sizes.

         -        TARGET SMALL TO MEDIUM SIZED ENTERPRISES ("SME") TO BRING BIG
                  COMPANY CAPABILITIES TO THE MID-MARKET.

              Baan is pursuing a strategy of bringing robust enterprise
         application functionality to smaller enterprises, generally those with
         annual revenues of between $50 million and $350 million.

              Baan believes this market has not been well served by traditional
         vendors for three reasons.

                - The inherent complexity of most competitive products and
                  implementations. The BaanDEM approach makes it easier to
                  implement the Company's applications in organizations of all
                  sizes. In addition, strategic bundling and licensing
                  agreements with companies such as Microsoft enable Baan to
                  offer a complete IT solution, from operating systems and
                  databases to the enterprise applications themselves, again
                  simplifying implementation for organizations with fewer
                  resources.

                - Products designed for Fortune 500 organizations often are too
                  complex for smaller organizations. Baan's products can support
                  from four users up to multiple thousands of users.

                - Direct sales and support organizations are often too expensive
                  to cost-effectively serve mid-market customers. In 1997, BMS
                  was formed by the Company and Vanenburg



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                  Ventures B.V. to build and support a more cost-effective
                  indirect sales and support channel. BMS operated independently
                  from Baan Company to establish a world-class indirect channel
                  of distribution comprising consultants, system integrators,
                  distributors, and authorized value added resellers (VARs). BMS
                  acquired product from Baan Company and resold that product to
                  its distributors and resellers, who in turn provided product
                  to end-user organizations.

              In January 1999, Baan Company acquired the core assets of BMS
         including all 230+ outstanding reseller contracts and the sales support
         channel, bringing management of the indirect channel under the
         Company's direct control. Since then, the sales support function for
         the indirect channel has been integrated into the Company's geographic
         operations to eliminate conflicts between the direct and indirect
         channels. See "Item 13 - Interest of Management In Certain
         Transactions".

         -        PURSUE PRODUCT INNOVATION.

              As a technology innovator, Baan has made substantial investments
         since its inception in research and product development. Research and
         development ("R&D") expenses increased from $90.8 million in 1997 to
         $151.4 million in 1998. Employees involved in R&D increased from 1,341
         at December 31, 1997 to 1,671 at December 31, 1998. The Company has
         adopted a strategy of periodically reinventing its products in order to
         maintain a leading-edge solution to address changing market needs. Each
         new generation of Baan software consists of substantially rewritten
         code, providing higher performance and greater functionality.

              In 1998, the Company began to deliver a new component-based
         Operations Management product architecture. This new architecture
         allows easier migration to new product releases and technologies and
         provides for easier integration with other Company applications and
         with third-party applications. The Company also introduced during 1998
         a new, 100% Microsoft-centric, browser-based architecture for its
         Customer Management product line. The Company intends to continue to
         use a combination of in-house developed and acquired technologies to
         address customer requirements.

              In April 1999, the Company launched the Baan E-Enterprise suite of
         web-enabled enterprise software applications. The suite includes Baan
         E-Collaboration, Baan E-Sales and Baan E-Procurement which facilitates
         business between the entire value chain of employees, partners,
         resellers, and suppliers.

         -        LEVERAGE THIRD-PARTY IMPLEMENTATION PROVIDERS.

               The Company offers consulting programs, resources, and tools for
         a broad range of implementation requirements, from multi-site, global
         projects to departmental activities. The success of enterprise
         applications systems is often tied to highly trained technical
         personnel providing implementation and consulting services that enable
         customers to rapidly achieve return on their investments. The Company's
         2,000 person strong consulting, training and customer services groups
         provide many of the services required.

              During late 1998, the Company renewed it emphasis on growing the
         profitability and predictability of these organizations. Deployment of
         consistent methodologies, improved financial controls, and use of
         Internet-based solutions have improved levels of quality, customer
         satisfaction and profitability. Revenue from these functions tends to
         be more predictable since customers sign contracts that often extend
         six months or longer. The



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         Company is focused on increasing the percentage of total revenue from
         these more predictable revenue sources.

              Implementation partners provide Baan with additional resources,
         allowing the Company to address its customer needs on a global basis.
         The Company currently has agreements with a number of leading
         third-party implementation providers, including the systems consulting
         groups of major public accounting firms such as KPMG Peat Marwick,
         Ernst & Young Technologies, and ICS Deloitte & Touche, and systems
         integrators such as Cap Gemini Sogeti, IBM Global Services, and Origin
         International.

         -        EXPAND GLOBAL DISTRIBUTION, SALES, SERVICES AND SUPPORT
                  CAPABILITIES.

              Baan continues to expand sales and support services throughout the
         major markets of the world primarily through partnerships with
         distributors and resellers. This global presence positions Baan both to
         address local markets and to support its multinational customers. The
         Company has expanded its direct and indirect sales and support
         organizations and currently operates in approximately 80 countries.

              For the Company as a whole, employees engaged in sales and
         marketing and in billable services (including support) at December 31,
         1997 were 944 and 1,542, respectively, compared to 978 and 2,001 at
         December 31, 1998. As part of its restructuring efforts, the Company
         reduced the size of its sales organization in the fourth quarter 1998.
         It intends to continue to aggressively monitor the size and performance
         of the sales organization and adjust according to market demand.

              The Company utilizes both direct and indirect sales channels to
         increase the accessible markets in targeted areas, such as certain
         supply chain networks. In addition, Baan delivers products and provides
         an infrastructure that makes it easy for indirect channel partners to
         represent its products and provide local market service and support for
         smaller enterprises.

     PRODUCTS

     Baan has a portfolio of more than 100 software products, including customer
management (sales automation, product configuration and call center products),
corporate management (financial and HR), and operations management (supply
chain, ERP and manufacturing) solutions. Add on modules to support these core
products such as business reporting tools, business modeling tools, and
E-Commerce versions of applications are also available.

         -        OPERATIONS MANAGEMENT / ENTERPRISE RESOURCE PLANNING SOLUTIONS

     BaanERP offers an open systems, client/server ERP solution that operates on
a broad number of platforms. It supports distributed and mirrored databases,
local and wide area networks, and multiple-user interfaces. It also supports
most major languages (including multi-byte technology to support Asian character
sets), and multiple currencies, including support for the Euro. It has been
designed to support, within single or multiple sites, multiple production and
operational processes, permitting the management of multiple production methods,
including integrated process and discrete manufacturing, as well as any
manufacturing model along the "make-to-stock/engineer-to-order" continuum.
Through both acquisitions and product and technology partnerships, Baan has been
able to add what it considers to be best-of-market capabilities to its



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         ERP solution. BaanERP itself consists of the core BaanERP application,
         Orgware, and Baan Tools.

                  -        BAANERP's standard products, which are Year 2000 and
                           Euro compliant (as described in Item 9 below),
                           include integrated software modules for seven broad
                           areas: manufacturing, constraint-based planning and
                           scheduling, distribution and transportation, finance,
                           service management, project management, and process
                           manufacturing.

                  -        ORGWARE is a set of tools, templates, and
                           methodologies for business modeling and rapid
                           software implementation. Orgware is the enabling
                           technology for Baan's delivery of BaanDEM, which
                           facilitates implementation, adaptation and
                           re-implementation of the system as business
                           conditions change.

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

         -        SUPPLY CHAIN MANAGEMENT

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

         -        CUSTOMER MANAGEMENT / FRONT OFFICE SOLUTIONS

     Baan added to its customer management product suite in 1997 with the
acquisition of Aurum Software, Inc. and the acquisition of other complementary
products and technologies. Baan has acquired Antalys, Inc. (1996), Beologic A/S
(1997), and Matrix Holding B.V. (1997), providing complementary sales
configuration and sales automation capabilities. Baan believes it now provides
the industry's most complete global front office solution for sales, marketing,
service, and interactive selling. BaanFrontOffice is comprised of the following
core applications:

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

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

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




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                  -        BAANSERVICE: (formerly part of BaanMSO or
                           maintenance, service, and overhaul) offers full field
                           service capabilities for organizations to service a
                           variety of manufactured products at customer or
                           end-user sites.

         -        CORPORATE MANAGEMENT SOLUTIONS

     Baan has expanded its corporate management offering through the acquisition
of CODA Financials and has established strategic relationships with other
software vendors to provide a comprehensive Corporate Management product suite.
This suite includes financial packages for planning, budgeting, forecasting,
consolidation, and business analysis (Hyperion Software), advanced engineering
and procurement monitoring and management (Aspect Development), and advanced
human resources and payroll management (Meta4).

PRODUCT DEVELOPMENT

     The Company's research and development comprised a research group of 70
employees and a development group of 1,601 employees at December 31, 1998. The
research group evaluates new and emerging technologies and methodologies. The
organization develops prototypes to test the practical use of new concepts and
helps determine how these concepts might be introduced into the Company's
products. Research areas include intelligent resource planning, object-oriented
technologies and functionality, money requirements planning, logistics tools,
performance tools, and extensions to Orgware to more closely integrate software
to the customer's organization.

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

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

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




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SALES AND MARKETING

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

     In 1998, the Company had net revenues from unaffiliated customers of $337.2
million in its EMEA region, consisting of Europe, the Middle East and Africa,
$286.2 million in North America, and $61.6 million in the rest of the world.
This compares to 1997 net revenues of $253.4 million in the EMEA region, $277.4
million in North America, and $82.4 million in the rest of the world.

     During 1997 and 1998, the Company made strategic decisions to increase the
proportion of its sales which are generated and managed through indirect
channels, rather than Company-funded and managed direct sales and support
activities. Accordingly, through BMS the Company built an indirect channel to
serve the SME (small to medium sized enterprises) market segment as a key
element of the Company's strategy. By supporting a network of complementary
channel partners, including consultants, system integrators and value added
resellers (VARs) dedicated to these customers, Baan's goal is to deliver and
support its products to the SME market on a more efficient and cost effective
basis and thereby increase its SME market penetration. The Company believes that
the ability to continue to minimize product complexity, improve ease-of-use,
facilitate implementation, and provide quality service and support through
qualified partners is key to success in the SME market segment.

     The Company's indirect channel has increased from 15 channel partners in
1996 covering two countries, The Netherlands and Germany, to over 230 channel
partners covering over 15 countries, including the United States, Canada, much
of Europe, and countries in the Asia Pacific region.

CUSTOMERS

     As of December 31, 1998, the Company had licensed approximately 12,000
system installations to more than 6,300 customers worldwide. Customers range
from four users to more than 25,000 users, which the Company believes
demonstrates Baan's capability to deliver a solution for both the SME and large
companies in the ERP market. In addition, Baan's customer base represents the
full range of platform support, including database, hardware, and operating
system platforms.

Customers Include:

PROCESS INDUSTRIES

BHP
Boise Cascade
General Mills
Quaker Oats


                                       10
<PAGE>   12

Usinor

MANUFACTURING

ABB
Andersen Windows
Avery Dennison
Herman Miller
Hilti

AUTOMOTIVE

Echlin
Fiat
Mercedes Benz
Paccar
Volvo

HIGH-TECH/ELECTRONICS /SEMICONDUCTOR

Flextronics International


                                       11
<PAGE>   13

Hewlett-Packard
Hitachi
Motorola
Solectron

AEROSPACE AND DEFENSE

BF Goodrich Aerospace
Boeing
Delta Airlines/Delta Technologies
Litton Electron Devices
Lockheed Martin

PROJECTS (HEAVY EQUIPMENT, HYBRID MANUFACTURING)

BW/IP International
Carrier
Caterpillar
EUCLID-HITACHI Heavy Equipment
Grief Brothers

UTILITIES AND ENERGY

Los Angeles Department of Water and Power
Ohio Edison
Osaka Gas
Pacific Gas & Electric
Western Power

TELECOMMUNICATIONS

AT&T
Cegetel
Nortel
KPN Dutch Telecom


                                       12
<PAGE>   14

Telecom Italia

FINANCIAL SERVICES/INSURANCE

American Data Processing
Barclay's Bank
Met Life
Prudential
UBS

TRANSPORTATION AND LOGISTICS

BAX Global
Consolidated Freightways
Federal Express
Ocean Group/MSAS
TNT Logistics

PETRO-CHEMICALS

Air Products
Ashland Chemicals
BOC Group
Eastman Kodak
Elf Atochem

RETAIL

IKEA
Peapod
Sears
Toys R Us
Wal-Mart Stores


                                       13
<PAGE>   15



No customer accounted for 10% or more of total revenues in 1996, 1997, or 1998.

GLOBAL SERVICES AND SUPPORT

     The Company believes that it is essential to customer satisfaction and the
Company's long-term success to facilitate the full and satisfactory
implementation of the Company's products at customer sites. Accordingly, the
Company provides a full range of value-added consulting, education and support
services directly to certain end-user customers, including project management to
promote rapid and efficient software implementation, product consultancy, and
technical support. The Company integrates these activities utilizing
relationships with leading third-party providers of business process consulting
and implementation and customization services for enterprise application
systems. As of December 31, 1998, the Company had 2,001 employees in its
customer support and services organization.

     Customer Support: The Company's Baan Support Centers provide technical
maintenance and support to Baan's customers and distributors. Maintenance and
support includes 24-hour customer support. The Baan Global Support organization
consists of three main centers, located in Ede, The Netherlands; Grand Rapids,
Michigan, USA; and Bombay, India, with auxiliary operations throughout the world
including Canada, Brazil, Germany, UK, and Japan. This presence helps the
Company support customers and partners in different regions, language areas and
time zones worldwide. The support centers are closely integrated with the
Company's development organization.

     The Company provides maintenance and support services for an annual fee
that entitles customers to receive maintenance and support services as well as
enhancements and updates to their licensed version of software.

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

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

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




                                       14
<PAGE>   16
     Classes are offered through in-house facilities at Company offices in
various locations, as well as on-site at customer locations. The Company's
training approach is based on standardized components that can be configured for
customer-specific training programs. The Company has also assisted
implementation providers and customers in developing internal competency centers
to support their Baan business activity.

COMPETITION

     The enterprise business application software market is highly competitive,
is changing rapidly, and is significantly affected by new product introductions,
geographical regional market growth, integration of supply chain networks, and
issues related to policy such as the Euro requirements and the year 2000 date
change. Baan's products are targeted at the market for open systems, client
server and enterprise business software solutions. The Company's current and
prospective competitors offer a variety of products and solutions to address
this market.

     In its traditional ERP manufacturing markets, the Company's primary
competition comes from a large number of independent software vendors and other
sources, including:

         -        (i) companies offering either standard or fully customized
                  applications that run on mainframe computer systems, such as
                  SAP Aktiengesellschaft ("SAP");

         -        (ii) companies offering applications that run on AS/400 and
                  other mid-range computers, including System Software
                  Associates, Inc., Marcam Corporation, and J.D. Edwards (each
                  of which has introduced a client/server product); and

         -        (iii) companies offering applications that run on UNIX- or
                  Windows NT-based systems in a client/server environment such
                  as SAP, Oracle Corporation ("Oracle"), and PeopleSoft, Inc.
                  ("PeopleSoft").

     For its other products, including customer management (sales automation and
configuration), supply chain, and corporate management (human resources and
financials), the Company competes with a number of companies, including Siebel
Systems, Trilogy Development Group, i2 Technologies, Manugistics, and
PeopleSoft.

     The Company also faces indirect competition from suppliers of
custom-developed business application software that have focused mainly on
proprietary mainframe and minicomputer-based systems with highly customized
software, such as the systems consulting groups of the major public accounting
firms, as well as systems integrators. Additionally, the Company faces indirect
competition from legacy systems developed by the internal MIS departments of
large organizations. In the future, the Company's competitors could introduce
products with more features and lower prices than the Company's products, and
could also seek competitive advantage by bundling existing or new products and
services with other, more established products and services.

     As the company pursues its strategy to more aggressively target the SME
market segment and to expand into enterprise applications beyond the traditional
ERP solutions, it expects to have additional competitors from both a number of
smaller companies that offer such applications for the SME market segment, as
well as established ERP vendors, such as SAP and Oracle.

     Many of the Company's competitors have longer operating histories,
significantly greater financial, technical, marketing, and other resources than
the Company, greater name recognition, and a larger installed base of customers.
In addition, certain competitors, including SAP, Oracle



                                       15
<PAGE>   17

and PeopleSoft, have well-established relationships with present or potential
customers of the Company. Furthermore, companies with significantly greater
resources than the Company could attempt to increase their presence in this
market by acquiring or forming strategic alliances with competitors of the
Company, and such companies may be in better position to withstand and respond
to the current factors impacting the ERP market.

     The principal competitive factors affecting the market for the Company's
software products are responsiveness to customer needs, product architecture,
functionality, speed of implementation, ease of use, performance and features,
quality and reliability, breadth of distribution, vendor and product reputation,
quality of customer support, and price. Based on these factors, the Company
believes it has competed effectively to date. In order to be successful in the
future, the Company must continue to respond promptly and effectively to the
challenges of technological change and its competitors' innovations by
continually enhancing its own product offerings or adding to its product
portfolio. There can be no assurance, however, that the Company's products will
continue to compete favorably or that the Company will be successful in the face
of increasing competition from new products and enhancements introduced by
existing competitors or by new companies entering this market. In addition,
because the Company often relies on third-party implementation providers for
implementation and other support of its products, there can be no assurance that
these third parties will maintain sufficiently high quality standards so that
the Company's reputation and competitive position will not be adversely
affected.

     The Company relies on a number of systems consulting and systems
integration firms for implementation and other customer support services, as
well as for recommendations of its products during the evaluation stage of the
purchase process. Although the Company seeks to maintain close relationships
with these third parties, many of them have similar, and often more established,
relationships with the Company's principal competitors. If the Company is unable
to develop and retain effective, long-term relationships with these third
parties, it would adversely affect the Company's competitive position.

INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS

     The Company relies on a combination of the protections provided by
applicable copyright, trademark and trade secret laws, as well as
confidentiality procedures, licensing arrangements, and software-based license
management, to establish and protect its rights in its software. Despite the
Company's efforts, it may be possible for third parties to copy certain portions
of the Company's products or reverse engineer or obtain and use information that
the Company regards as proprietary. In addition, the laws of certain countries
do not protect the Company's proprietary rights to the same extent as do the
laws of the United States or The Netherlands. Accordingly, there can be no
assurance that the Company will be able to protect its proprietary software
against unauthorized third party copying or use, which could adversely affect
the Company's competitive position.

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




                                       16
<PAGE>   18


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

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

EMPLOYEES

     As of December 31, 1998, the Company had 5,101 full-time employees, of
which 1,671 were engaged in research in development, 978 in sales and marketing,
2,001 in consulting, education and customer support services, and 451 in finance
and general administration. Full-time employees in 1997 and 1996 were 4,254 and
2,568, respectively. In The Netherlands, certain of the Company's employees are
represented by statutory Works Councils. A Works Council, required under
Netherlands law to be established by a company with more than a specified number
of employees, is an independent body elected by the employees of a business. In
general, the employer is required to seek the approval and/or advice of the
Works Council before proceeding with making certain significant decisions
affecting the employees and the business. None of the Company's employees is
represented by any collective bargaining agreements and the Company has never
experienced a work stoppage.


ITEM 2.  PROPERTIES

     The Company's executive offices are located in Barneveld, The Netherlands
and in Reston, Virginia with its statutory seat at Barneveld, The Netherlands.
The Company also has direct sales offices in 30 countries. The Company leases
its office and research and development facilities with leases of various
duration. Certain of these properties are leased from affiliates of the Company.
The Company believes that its existing and currently planned domestic and
international facilities will be sufficient to meet its needs for at least the
next twelve months. See Note 12 of Notes to Consolidated Financial Statements.


ITEM 3.  LEGAL PROCEEDINGS

     The Company is party to legal proceedings from time to time. There is no
such proceeding currently pending which the Company believes is likely to have a
material adverse effect upon the Company's business as a whole. Any litigation,
however, involves potential risk and potentially significant litigation costs,
and, therefore, there can be no assurances that any litigation which is now
pending or which may arise in the future will not have such a material adverse
effect.




                                       17
<PAGE>   19


     In October of 1998, the Company and certain of its current or former
officers and directors were named as defendants in a purported shareholder class
action lawsuit entitled Salerno v. Baan Company N.V. et al., which was brought
in the United States District Court for the District of Columbia. Six additional
purported shareholder class action lawsuits were subsequently brought, each in
the same court with substantially similar allegations: that the Company
allegedly violated certain of the U.S. securities laws by making purportedly
false and misleading statements about the Company's operations during the period
from, in or around the end of January 1998 through mid-October 1998.

     On February 16, 1999, the Court consolidated the actions and, as a
consequence, plaintiffs' leave to file a consolidated amended complaint has been
granted. Plaintiffs' motion for appointment of lead plaintiffs and lead counsel
remains pending. The Company has retained outside counsel and intends to
vigorously defend. See Note 12 of Notes to Consolidated Financial Statements.


ITEM 4.  CONTROL OF REGISTRANT

     To the Company's knowledge, it is not owned or controlled by another
corporation or by any foreign government. The table below sets forth certain
information with respect to the beneficial ownership of Common Shares as of
April 9, 1999 by (i) any person known to the Company to be the owner of more
than ten percent of the Common Shares, and (ii) the total amount of Common
Shares owned by all officers and directors as a group:


<TABLE>
<CAPTION>
                                                                                       SHARES                 APPROXIMATE
                                                                                    BENEFICIALLY                PERCENT
               NAME AND ADDRESS OF BENEFICIAL OWNER                                   OWNED (2)                  OWNED
               ------------------------------------                                ------------              ------------
<S>                                                                                  <C>                         <C>
               NAME AND ADDRESS OF BENEFICIAL OWNER
               Vanenburg Ventures B.V. (1) ...........................               41,312,407                  20.12%
               Vanenburgerallee 13
               PO Box 231
               3880 AE Putten
               The Netherlands

               All directors and
               Executive officers as a group (16 persons)(3) .........                4,521,388                   2.20%
</TABLE>

----------------


(1)      Shares exclude shares owned by Jan Baan and J.G. Paul Baan.

(2)      Applicable percentage of ownership is based on the approximate number
         of Common Shares outstanding as of April 9, 1999, together with the
         applicable options for each shareholder. Beneficial ownership is
         determined in accordance with the rules of the U.S. Securities and
         Exchange Commission, and includes voting and investment power with
         respect to shares. Shares subject to options currently exercisable
         within 60 days after April 9, 1999, are deemed outstanding for
         computing the percentage ownership of the person holding such options,
         but are not deemed outstanding for computing the percentage of any
         other person.

(3)      Includes 5,167,908 shares issuable upon exercise of options to purchase
         Common Shares granted to executive officers and directors of the
         Company which are exercisable within 60 days after April 9, 1999.


ITEM 5.  NATURE OF TRADING MARKET

     The Company's Common Shares are quoted on the NASDAQ National Market under
the symbol "BAANF" and on the Official Market of the Amsterdam Stock Exchange
under the symbol "Baan". The following table lists the high and low closing
prices since the Company's Common Shares began



                                       18
<PAGE>   20


trading on the NASDAQ National Market on May 19, 1995 and began trading on the
Official Market of the Amsterdam Stock Exchange on May 23, 1995, after giving
effect for two-for-one stock splits that were effective May 1996 and December
1997.



<TABLE>
<CAPTION>
                                                    NASDAQ NATIONAL                       AMSTERDAM STOCK
                                                      MARKET (US$)                         EXCHANGE (NLG)
                                              ----------------------------           --------------------------
                                                HIGH                LOW               HIGH                 LOW
                                              ---------           --------           -----                -----
<S>                                          <C>                 <C>                 <C>                 <C>
               Fiscal 1997:
                 First Quarter ............   25  11/16           17  7/16            47.70               30.50
                 Second Quarter ...........   34  7/8             21  5/16            66.85               41.00
                 Third Quarter ............   40  13/16           28  9/16            81.75               60.50
                 Fourth Quarter ...........   39                  31  9/16            78.00               64.35

               Fiscal 1998:
                 First Quarter ............   50  1/4             28  3/4            103.90               62.60
                 Second Quarter ...........   55  1/2             35  1/2            108.70               73.10
                 Third Quarter ............   43  5/8             25  1/8             89.60               47.90
                 Fourth Quarter ...........   24  3/4              9  1/2             48.00               17.30
</TABLE>


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

     On April 30, 1999, the closing price of the Company's Common Shares was
$9.38 per share as reported by the NASDAQ National Market. On April 29, 1999,
the last trading day in the month of April, the closing price as reported by the
Official Market of the Amsterdam Stock Exchange was NLG 20.16.

     On April 30, 1999, the exchange rate of Dutch guilders into U.S. dollars
(the New York foreign exchange selling rate) was NLG 2.0829/$1.


ITEM 6. EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITIES HOLDERS

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


ITEM 7. TAXATION

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




                                       19
<PAGE>   21
     The anticipated tax consequences are subject to change, and such change may
be retroactively effective. If so, the following summary may be affected and may
not be relied upon. Further, any variation or differences from the facts or
representations recited herein, for any reason, might affect the following
discussion, perhaps in an adverse manner, and make them inapplicable. In
addition, the Company has undertaken no obligation to update this discussion for
changes in facts or laws occurring subsequent to the date thereof.

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

NETHERLANDS TAXATION

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

         NETHERLANDS' DIVIDEND WITHHOLDING TAX

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

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

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

        INCOME TAX AND CAPITAL GAINS

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

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

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




                                       20
<PAGE>   22



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

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

         NET WEALTH TAX

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

         GIFT, ESTATE OR INHERITANCE TAXES

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

U.S. FEDERAL INCOME TAXATION

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

         TAXATION OF DIVIDENDS

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



                                       21
<PAGE>   23

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

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

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

         DISPOSITIONS OF COMMON SHARES

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

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

         PASSIVE FOREIGN INVESTMENT COMPANIES

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

     For the purpose of the PFIC tests, if a foreign corporation owns directly
or indirectly at least 25% by value of the stock of another corporation, the
foreign corporation is treated as owning its proportionate share of the assets
of the other corporation, and as if it had received directly its proportionate
share of the income of such other corporation. The effect of this special
provision with respect to the Company and its direct and indirect ownership of
its subsidiaries is that the Company, for purposes of the income and assets
tests described above, will be treated as owning



                                       22
<PAGE>   24


directly its proportionate share of the assets of the subsidiaries and of
receiving directly its proportionate share of each of those companies' income,
if any, so long as the Company owns, directly or indirectly, at least 25% by
value of the particular company's stock. Active business income of the Company's
subsidiaries will be treated as active business income of the Company, rather
than as passive income.

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

         FOREIGN PERSONAL HOLDING COMPANIES

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

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

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




                                       23
<PAGE>   25


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

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

        STATE AND LOCAL TAXES

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



ITEM 8. SELECTED FINANCIAL DATA

     The following selected consolidated financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," the Consolidated Financial Statements and Notes
thereto and other financial information included elsewhere in this Form 20-F.
The statement of operations data set forth below for the years ended December
31, 1996, 1997 and 1998 and the balance sheet data as of December 31, 1997 and
1998 have been derived from the audited Consolidated Financial Statements of the
Company included elsewhere in this Form 20-F. The statement of operations data
for the years ended December 31, 1994 and 1995 and the balance sheet data at
December 31, 1994, 1995 and 1996 have been derived from audited financial
statements not included herein. The operating results for any period are not
necessarily indicative of results for any future period. All accompanying
consolidated financial statements have been restated to reflect the pooling of
interests of the Company and Aurum Software, Inc., which was acquired in August
1997. Certain prior period amounts have been reclassified to conform to the
current year presentation.


<TABLE>
<CAPTION>
                                                                         YEAR ENDED DECEMBER 31,
                                                   --------------------------------------------------------------------
                                                     1994           1995           1996            1997         1998
                                                   ---------      ---------      ---------      ---------     ---------
                                                            (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                <C>            <C>            <C>            <C>           <C>
Statement of Operations Data:
Net revenues(1):
  License revenue ............................     $  63,704      $ 118,894      $ 226,135      $ 367,101     $ 285,778
  License revenue from related parties .......            --             --         14,532         66,325        50,600
                                                   ---------      ---------      ---------      ---------     ---------
    Total license revenues ...................        63,704        118,894        240,667        433,426       336,378
  Maintenance and service revenue ............        65,132        107,791        174,875        246,170       399,271
                                                   ---------      ---------      ---------      ---------     ---------
    Total net revenues .......................       128,836        226,685        415,542        679,596       735,649
                                                   ---------      ---------      ---------      ---------     ---------

Cost of revenues:
  Cost of license revenue ....................         3,397          6,678         14,442         31,212        30,741
  Cost of maintenance and service revenue ....        50,931         86,888        143,746        189,871       302,063
                                                   ---------      ---------      ---------      ---------     ---------
    Total cost of revenues ...................        54,328         93,566        158,188        221,083       332,804
                                                   ---------      ---------      ---------      ---------     ---------

Gross profit .................................        74,508        133,119        257,354        458,513       402,845
                                                   ---------      ---------      ---------      ---------     ---------

Operating and non-recurring expenses:
  Sales and marketing ........................        44,847         62,901        102,191        171,572       272,497
  Research and development ...................        10,233         21,004         45,843         90,849       151,369
  General and administrative .................        14,225         30,091         49,136         72,489       156,148
  Asset write-downs ..........................           486             --             --          3,393        36,899
  Loss on disposal of assets .................            --             --             --             --        58,030
</TABLE>




                                       24
<PAGE>   26



<TABLE>
<S>                                                <C>            <C>            <C>            <C>           <C>
  Restructuring and other charges ............         3,686             --             --          8,675        59,972
                                                   ---------      ---------      ---------      ---------     ---------
    Total operating expenses .................        73,477        113,996        197,170        346,978       734,915
                                                   ---------      ---------      ---------      ---------     ---------
Income (loss) from operations ................         1,031         19,123         60,184        111,535      (332,070)
Net interest and other income (expense) ......        (1,074)         1,593           (317)         1,975        (3,122)
                                                   ---------      ---------      ---------      ---------     ---------
Income (loss) before income taxes and minority
  Interest ...................................           (43)        20,716         59,867        113,510      (335,192)
Provision (benefit) for income taxes .........         2,171          9,817         23,255         36,354       (20,000)
Minority interest in earnings of consolidated
  Subsidiaries ...............................          (976)           (72)            --             --            --
                                                   ---------      ---------      ---------      ---------     ---------
Net income (loss) ............................     $  (3,190)     $  10,827      $  36,612      $  77,156     $(315,192)
                                                   =========      =========      =========      =========     =========

Net income (loss) per share(2)
  Basic ......................................     $   (0.02)     $    0.07      $    0.20      $    0.40     $   (1.59)
  Diluted ....................................     $   (0.02)     $    0.06      $    0.19      $    0.37     $   (1.59)

Shares used in per share calculation (2)
  Basic ......................................       158,679        164,929        179,512        190,842       198,519
  Diluted ....................................       158,679        182,866        196,496        206,071       198,519
</TABLE>


<TABLE>
<CAPTION>
                                                                                       DECEMBER 31,
                                                               ------------------------------------------------------------
                                                                 1994         1995         1996         1997         1998
                                                               --------     --------     --------     --------     --------
                                                                                      (IN THOUSANDS)
<S>                                                            <C>          <C>          <C>          <C>          <C>
Balance Sheet Data:
Cash, cash equivalents and marketable securities .........     $  9,402     $ 38,522     $240,853     $216,264     $206,831
Working capital ..........................................        6,320       73,945      304,863      309,441      123,871
Total assets .............................................       83,331      196,416      496,973      722,409      823,151
Long-term debt, less current portion .....................        2,375        1,835      176,260      200,718      191,013
Shareholders' equity .....................................       18,731      117,948      203,016      290,465      156,760
Dividends paid ...........................................           --           --           --           --           --
</TABLE>


-----------------

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

(2) See Note 1 of Notes to Consolidated Financial Statements. The weighted
average shares outstanding calculations have been restated because of the
adoption of Statement of Financial Accounting Standards No. 128,

Earnings Per Share.


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

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

ANNUAL RESULTS OF OPERATIONS

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


<TABLE>
<CAPTION>
                                                         YEAR ENDED DECEMBER 31,
                                                        ------------------------
                                                        1996      1997      1998
                                                        ----      ----      ----
<S>                                                    <C>        <C>       <C>
               Net revenues .......................      100%      100%      100%
               Cost of revenues ...................       38        33        45
                                                        ----      ----      ----
               Gross profit .......................       62        67        55
                                                        ----      ----      ----
               Operating expenses:
                 Sales and marketing ..............       25        25        37
</TABLE>






                                       25
<PAGE>   27


<TABLE>
<S>                                                     <C>       <C>       <C>
                 Research and development .........       11        13        21
                 General and administrative .......       12        11        21
                 Non-recurring expenses ...........       --         2        21
                                                        ----      ----      ----
                         Total operating expenses .       48        51       100
                                                        ----      ----      ----
               Income from operations .............       14        16       (45)
               Provision (benefit) for income taxes        6         5        (3)
                                                        ----      ----      ----
               Net income .........................        9%       11%      (42)%
                                                        ====      ====      ====
</TABLE>

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


<TABLE>
<CAPTION>
                                                                               YEAR ENDED DECEMBER 31,
                                                     ---------------------------------------------------------------------------
                                                             1996                       1997                       1998
                                                     ---------------------      ---------------------      ---------------------
                                                        $            %             $            %              $            %
                                                     --------     --------      --------     --------      --------     --------
                                                                                  ($ IN THOUSANDS)
<S>                                                  <C>          <C>          <C>           <C>          <C>           <C>
          Net revenues:
            Total license revenue ..............     $240,667           58%     $433,426           64%     $336,378           46%
            Maintenance and service revenue ....      174,875           42       246,170           36       399,271           54
                                                     --------     --------      --------     --------      --------     --------
                    Total net revenues .........     $415,542          100%     $679,596          100%     $735,649          100%
                                                     ========     ========      ========     ========      ========     ========
</TABLE>


     Total net revenues increased 8% ($56.0 million) to $735.6 million in 1998
from $679.6 million in 1997. License revenue decreased 22% ($97.0 million) to
$336.4 million in 1998 from $433.4 million in 1997, and maintenance and service
revenues increased 62% ($153.1 million) to $399.3 million in 1998 from $246.2
million in 1997. As a percentage of total revenue, license revenue decreased to
46% in 1998 from 64% in 1997; service and maintenance revenue increased to 54%
in 1998 from 36% in 1997.

     The Company believes the reduction in 1998 license revenues, as compared to
1997, was attributable principally to four factors: increased economic and
competitive pressures experienced in the global ERP industry; a one-time revenue
deferral in the first quarter of 1998 attributable principally to the
implementation of the American Institute of Certified Public Accountants issued
Statement of Position 97-2 (SOP 97-2), "Software Revenue Recognition"; a
one-time reversal of revenue to effectively eliminate inventory in the Company's
indirect channel (motivated in part by economic and other factors that have led
to reduced future demand for ERP users); and certain inefficiencies in the
Company's organizational structure that led to certain operational shortcomings.
Each are discussed in greater detail below.

     1. ECONOMIC AND INCREASED COMPETITIVE PRESSURES. The Company believes that
the ERP software market is being negatively impacted by a number of
industry-wide issues including: (i) global economic difficulties and
uncertainty; (ii) reductions in capital expenditures by large customers; (iii)
increasing competition; and (iv) increased customer focus on addressing Year
2000 problems. The Company believes the impact of these market forces was more
pronounced upon the Company because, as compared to certain of its competitors,
license fees comprise a greater percentage of the Company's total revenue, as
compared to non-license revenues such as maintenance, service and consulting.
These factors have, in turn, given rise to a number of market trends that have
slowed license revenue growth, including (a) longer sales cycles; (b) increased
uncertainty of customers in making purchasing decisions; (c) deferral or delay
of IT projects and generally reduced expenditures for software; (d) reallocation
of reduced capital expenditures to fix Year 2000 problems of existing systems;
and (e) increased price competition. The Company's license revenues were
adversely affected by these factors beginning in the third quarter of 1998, as
the Company experienced a decline in the number of license seats from both
direct sales and the indirect channel. The Company expects these factors to
continue to impact



                                       26
<PAGE>   28

license revenues and that these trends will continue into 1999 until global
economic conditions improve and Year 2000 compliance is complete.

     2. Q1 ANNOUNCED DEFERRAL OF $43 MILLION. In the first quarter of 1998, the
Company announced that it was deferring an aggregate of $42.5 million in revenue
related to license agreements entered into in such quarter, in large part due to
the adoption of SOP 97-2.

     The principal component of this deferred revenue, $24.9 million, related to
software licenses for which the Company (consistent with past practices)
assisted the customer in obtaining, and became a party to, independent
third-party financing arrangements. The Company had utilized such arrangements
in the past in order to help expedite financing for the customer, although in
all circumstances the lender had no recourse to the Company in the event of a
customer default. Although SOP 97-2 does not explicitly address these financing
arrangements, the Company elected to defer recognition of the entire amount of
revenue associated with those licenses, notwithstanding that the Company
received full payment up front. Such revenue will be recognized concurrent with
the payment terms agreed to by, and between, the customer and the lending
institution.

     In light of SOP 97-2, in early 1998 the Company undertook a review of its
business practices with respect to software licenses. In May 1998, the Company
announced that it would cease to become a party to customer license financing
arrangements, but instead would direct the customer to obtain financing
independently. As a result of this modification to the Company's business
practices on customer financing, the Company believes that SOP 97-2 should not
have any material effect on software license revenue from such independent
financing arrangements going forward.

     The second component of the first quarter deferral, $12.9 million, related
to license agreements having extended payment terms. SOP 97-2 clarified the
impact of extended payment terms on the determination of whether license fees
are fixed and determinable. As a result of SOP 97-2, the Company deferred $12.9
million of license fees under certain license agreements, and will recognize the
revenue represented by such deferred fees when collected.

     The Company has since changed its business practices so that the payment
terms of customer contracts will generally permit recognition in full under SOP
97-2. The Company believes that its current business practices are in accordance
with the requirements of SOP 97-2. To the extent future license agreements do
not conform to the Company's new business practices, revenue from those
agreements will be deferred consistent with these new practices and SOP 97-2.

     The third component of the first quarter deferral was $4.7 million, which
represented a portion of the licenses BMS purchased from Baan in the first
quarter for the indirect channel. In the interest of restraining possible growth
of inventory in the indirect channel, the Company elected to record this amount
as deferred revenue. In the second quarter of 1998, the Company moved to a
sell-through model for channel revenue recognition (described in detail below in
Item 13). In connection with that decision, the Company reviewed with BMS first
quarter sales in the indirect channel, and confirmed that the $4.7 million
deferral was approximately equal to the difference between BMS's first quarter
purchases and the actual channel sell-through to end-users that quarter.
Consequently, the Company decided to reclassify this $4.7 million as an offset
to amounts due from related parties (as reported in the Company's 1998 Report on
Form 6-K for the second quarter of 1998).

     3. ADDRESSING CHANNEL INVENTORY. During the fourth quarter of 1998, the
Company elected to effectively eliminate inventory in the indirect channel. This
decision was motivated principally



                                       27
<PAGE>   29


in light of changes in market dynamics, including reduction in the rate of
growth of the indirect license sales, and the Company's determination to
undertake a comprehensive reorganization plan in the fourth quarter of 1998. At
the end of the third quarter, there was approximately $56 million in existing
indirect channel inventory. To eliminate that inventory: (i) approximately $17
million in inventory was sold by the Company's indirect channel to end-users
during the fourth quarter, thus reducing the inventory number by that amount,
and (ii) as to the remaining inventory of approximately $39 million, the Company
reversed that amount from fourth quarter revenue and recorded it as deferred
revenue in the quarter, even though product had been delivered, approximately
$34 million for such licenses had been paid, and there were no cancellation or
return provisions. This one-time, non-recurring item is discussed at greater
length in connection with the description of the Company's indirect channel in
Item 13 below.

     4. BUSINESS REORGANIZATION. During 1997 and 1998, the Company acquired
several software companies as part of a strategy to expand its product footprint
beyond ERP. Typically, the Company operated these companies as independent
entities, in part to respect the differing cultures of these firms and retain
their entrepreneurial spirit. In the summer of 1998, in an effort to begin
integrating these various entities, the Company created a matrixed business
structure consisting of Product Business Units, whereby the Front Office
(Aurum), Supply Chain (Berclain), and Corporate Office (Coda) groups would each
retain their own dedicated sales and marketing organization; Vertical Business
Units, whereby the significant Aerospace and Defense and the Automotive units
retained their separate identity; Service Business Units, whereby consulting,
education, and customer support were treated as separate units; and Customer
Business Units, which in effect represented the country organizations across the
Company. This new organization was put in place in early July 1998. However,
this structure created a level of complexity to the organization that created
operational uncertainty and certain inefficiencies, contributing to certain
execution problems in the field. The Company moved to a more traditional
functional organization as part of its restructuring in the fourth quarter of
1998, one that presents a single face to the customer (by integrating the sales
forces) with a minimally matrixed structure and clearer lines of authority.

     1997 vs. 1996 Revenue. In 1997, total net revenues increased 64% ($264.1
million) to $679.6 million from $415.5 million in 1996, primarily due to
increased license revenues and associated maintenance and service revenues in
1997. License revenues increased 80% ($192.8 million) to $433.4 million in 1997
from $240.7 million in 1996. License revenues also increased as a percentage of
total net revenues to 64% in 1997 from 58% in 1996. These increases in total
license revenues and in total license revenue as a percentage of total net
revenues resulted from both an increase in the number of software licenses and a
higher average transaction size. For 1997, the license revenue growth also
reflects the Company's increased sales activity through indirect channels to the
SME market segment. License sales to the SME market more than doubled in 1997
from 1996 levels and significantly increased the Company's license revenues with
related party entities.

     No customer accounted for 10% or more of total net revenues in 1996 and
1998. Related party revenues from all such parties as a group accounted for 10%
of the Company's total net revenues for 1997.

     REVENUE BY GEOGRAPHY. The Company operates its business in three principal
geographic regions, namely, EMEA (Europe, Middle East and Africa), North America
(United States and Canada), and Rest of World (Asia Pacific and Latin America).
Total net revenues in the EMEA



                                       28
<PAGE>   30


region increased 33% ($83.8 million) to $337.2 million in 1998 from $253.4
million in 1997 and increased 42% ($75.4 million) in 1997 from $178.0 million in
1996, representing 46%, 37% and 43% of total net revenues, respectively. Total
net revenues in the North America region increased 3% ($8.8 million) to $286.2
million in 1998 from $277.4 million in 1997 and increased 63% ($107.5 million)
in 1997 from $169.9 million in 1996, representing 39%, 41% and 41% of total net
revenues, respectively. Total net revenues in the Rest of World region decreased
25% ($20.8 million) to $61.6 million in 1998 from $82.4 million in 1997 and
increased 55% ($29.3 million) in 1997 from $53.1 million in 1996, representing
8%, 12% and 13% of total net revenues, respectively.

     Within the EMEA region, a large proportion of the Company's total net
revenues is derived from The Netherlands and Germany. In 1998, 1997 and 1996,
net revenues from the Company's operations in The Netherlands were $79.5
million, $78.7 million and $82.6 million, respectively, and represented 11%, 12%
and 20% of total net revenues, respectively, with export sales of less than 10%
of total net revenues from sales to unaffiliated customers for those years. For
the Company's German operations, total net revenues increased to $95.2 million
in 1998 from $90.1 million in 1997 and $54.1 million in 1996, representing 13%
of total net revenues for each year. The Company's operations are subject to
risks inherent in international business activities, including risks related to
currency fluctuations. See "Risk Factors - There are Obstacles in Managing
International Operations", Item 9A - "Quantitative and Qualitative Disclosures
About Market Risks", and Note 13 of Notes to Consolidated Financial Statements.

     MAINTENANCE AND SERVICE REVENUES. These revenues increased 62% ($153.1
million) to $399.3 million in 1998 from $246.2 million in 1997, and increased
41% ($71.3 million) in 1997 from $174.9 million in 1996. These increases were
primarily attributable to increased maintenance fees and services to a larger
installed base of customers, which in turn was a result of the growth in product
licenses. As a percentage of total net revenues, maintenance and service
revenues were 54% in 1998, as compared to 36% in 1997, and 42% in 1996.

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


<TABLE>
<CAPTION>
                                                                    YEAR ENDED DECEMBER 31,
                                         --------------------------------------------------------------------------------
                                                  1996                         1997                        1998
                                         ----------------------       ----------------------       ----------------------
                                                         % OF                          % OF                        % OF
                                                        REVENUE                      REVENUE                     REVENUE
                                            $          CATEGORY           $         CATEGORY          $          CATEGORY
                                         --------      --------       --------      --------       --------      --------
                                                                      ($ IN THOUSANDS)
<S>                                     <C>           <C>            <C>           <C>            <C>           <C>
          Gross profit:
            License ...............      $226,225            94%      $402,214            93%      $305,637            91%
            Maintenance and service        31,129            18         56,299            23         97,208            24
                                         --------                     --------                     --------
               Total gross profit..      $257,354            62       $458,513            67       $402,845            55
                                         ========                     ========                     ========
</TABLE>

     The Company's gross profit as a percentage of total net revenues was 55% in
1998, as compared to 67% in 1997 and 62% in 1996. The decrease in gross margin
in 1998 compared to 1997 is primarily a result of a shift from higher-margin
license revenue to lower-margin service revenue. The increase in gross margin in
1997 compared to 1996 primarily reflects the Company's strategy to increase
license revenues as a percentage of total net revenues and improvements in
utilization rates and pricing structure for services.

     Gross margin on license revenue remained relatively constant in 1998 as
compared to 1997 and 1996. Cost of license revenues consists primarily of
amortization of capitalized software, the cost of third party software, and the
cost of media and freight. Amortization of capitalized



                                       29
<PAGE>   31

software, included in cost of license revenue, amounted to $14.8 million, $6.0
million and $2.5 million in 1998, 1997 and 1996 respectively.

     Gross margin on maintenance and service revenues remained relatively
constant in 1998 and 1997 at 24% and 23%, respectively. The increase in 1997
from 18% in 1996 was primarily due to the Company's improvements in utilization
rates and pricing structure. Cost of maintenance and service revenues consists
primarily of cost of product support, consulting and training, including
associated software engineering services.

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


<TABLE>
<CAPTION>
                                                                          YEAR ENDED DECEMBER 31,
                                           ---------------------------------------------------------------------------
                                                     1996                        1997                      1998
                                           ---------------------      ---------------------      ---------------------
                                              $                %         $               %          $               %
                                           --------           --      --------           --      --------           --
                                                                         ($ IN THOUSANDS)
<S>                                       <C>                <C>      <C>               <C>      <C>               <C>
          Sales and marketing expenses     $102,191           25%     $171,572           25%     $272,497           37%
</TABLE>

     The Company's sales and marketing expenses increased 59% ($100.9 million)
to $272.5 million in 1998 from $171.6 million in 1997, and increased 68% ($69.4
million) in 1997 from $102.2 million in 1996, representing 37%, 25% and 25% of
net revenues in 1998, 1997 and 1996, respectively. These increases in absolute
spending in sales and marketing activities reflect the continued expansion of
the Company's international sales channels through the first three quarters of
1998. Sales and marketing expenses also include net foreign currency transaction
losses of $17.1 million and $0.2 million in 1998 and 1996, respectively, and a
net foreign currency gain of $6.5 million in 1997. These foreign currency
transaction gains and losses result from the worldwide cash management
activities undertaken by the Company in support of its sales and marketing
subsidiaries. The Company's subsidiaries, which act as sales offices, supplement
their cash requirements with loans from the parent company in The Netherlands.
In addition, the loans are used to settle various intercompany transactions such
as required royalty payments. These intercompany accounts are denominated in the
functional currency of the subsidiary in order to centralize foreign exchange
risk with the parent company in The Netherlands. While the Company uses
short-term foreign currency forward contracts to hedge a significant portion of
this risk, the Company cannot eliminate the risk completely due to operational
complexities such as the number of currencies involved, the constantly changing
currency exposures and the substantial volatility of currency exchange rates.
Accordingly, the intercompany loans result in currency gains and losses, which
are recorded as sales and marketing expenses since they relate to operations of
the Company's sales subsidiaries. The Company expects that sales and marketing
expenses will grow at a lower rate than previous years as the Company
streamlined certain of its sales and distribution channels during the fourth
quarter of 1998.

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


<TABLE>
<CAPTION>
                                                                            YEAR ENDED DECEMBER 31,
                                                ----------------------------------------------------------------------------
                                                        1996                       1997                        1998
                                                ---------------------      ---------------------      ----------------------
                                                   $                %         $                %         $                %
                                                --------           --      --------           --      --------           ---
                                                                             ($ IN THOUSANDS)
<S>                                            <C>                <C>      <C>               <C>     <C>                <C>
          Research and development expenses     $ 45,843           11%     $ 90,849           13%     $151,369           21%
</TABLE>




                                       30
<PAGE>   32
     Research and development expenses increased 67% ($60.5 million) to $151.4
million in 1998 from $90.8 million in 1997, and increased 98% ($45.0 million) in
1997 from $45.8 million in 1996. The increases in research and development
expenses year over year in both absolute dollars and as a percentage of net
revenues reflects the Company's continuing investment in the development of new
and enhanced products and new technologies, primarily consisting of the hiring
of additional research and development personnel. Research and development
personnel totaled 1,671 people at December 31, 1998, as compared to 1,341 people
at December 31, 1997 and 650 people at December 31, 1996. This staff is located
primarily in The Netherlands, with a smaller number of research and development
personnel in India, the United States and various other locations. Research and
development personnel represented 33% of the Company's total employees at
December 31, 1998, as compared to 32% and 25% at December 31, 1997 and 1996,
respectively. In 1998, 1997 and 1996, the Company capitalized 11%, 17% and 16%,
respectively, of aggregate research and development expenditures. Aggregate
research and development expenditures in such years, including both research and
development expenses and capitalized software costs, were $170.6 million, $110.1
million and $54.6 million, respectively.

     The Company believes it is critical to the Company's future success to
continue to develop new and enhanced products and technologies. Accordingly, the
Company intends to continue to make significant investments in its research and
development activities.

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


<TABLE>
<CAPTION>
                                                                             YEAR ENDED DECEMBER 31,
                                                  ----------------------------------------------------------------------------
                                                           1996                       1997                       1998
                                                  ---------------------      ---------------------      ----------------------
                                                     $                %         $               %          $                %
                                                  --------           --      --------           --      --------           ---
<S>                                               <C>                <C>     <C>                <C>     <C>                <C>
                                                                               ($ IN THOUSANDS)
          General and administrative expenses     $ 49,136           12%     $ 72,489           11%     $156,148           21%
</TABLE>

     General and administrative expenses increased 115% ($83.6 million) to
$156.1 million in 1998 from $72.5 million in 1997, and increased 48% ($23.4
million) in 1997 from $49.1 million in 1996. As a percentage of total net
revenues, such expenses were 21%, 11% and 12% in 1998, 1997 and 1996,
respectively. The increases in general and administrative expenses in absolute
dollars reflect the expansion of the Company's operations with the resulting
increase of additional personnel and infrastructure costs through most of 1998.
Such costs included the hiring of certain key executives into general and
administrative positions and the payroll and facilities costs incurred in
establishing administrative and finance support personnel in multiple locations.
General and administrative expenses include charges of $55.3 million, $12.4
million and $8.3 million to bad debt expense for 1998, 1997 and 1996,
respectively. The increase in bad debt expense in 1998 is due to global economic
difficulties and uncertainty. Also included in general and administrative
expenses is the amortization of intangible assets of $8.8 million, $6.1 million
and $6.1 million in 1998, 1997 and 1996, respectively. Amortization of
intangible assets arose from certain of the Company's acquisitions. As a result
of the Company's acquisitions during 1998, the Company expects amortization of
intangible assets to increase approximately $5 million in 1999. See Notes 3 and
11 of Notes to Consolidated Financial Statements. As a result of the Company's
reorganization during the fourth quarter of 1998, the Company expects that other
general and administrative expenses will increase at a lower rate in 1999 as
compared to prior years.

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




                                       31
<PAGE>   33


<TABLE>
<CAPTION>
                                                                                    YEAR ENDED DECEMBER 31,
                                                        ----------------------------------------------------------------------
                                                              1996                     1997                        1998
                                                        ---------------      ----------------------     ----------------------
                                                         $            %         $                %          $               %
                                                                               ($ IN THOUSANDS)
<S>                                                    <C>          <C>     <C>                 <C>     <C>               <C>
          Non-recurring expenses                        --           --      $ 12,068            2%     $154,901           21%
</TABLE>

     During the fourth quarter of 1998, the Company completed key elements of
its restructuring program to reduce costs and gain efficiencies across all
aspects of the organization. In connection with these efforts, the Company
recorded non-recurring charges of $140.5 million related to restructuring,
losses on the disposal of certain under-performing business entities and other
assets, and other asset write-downs. The restructuring component of the charge
was $55.2 million and included severance-related expenses for over 1000
employees, costs associated with the cancellation of certain marketing and sales
programs, and costs related to the consolidation and closure of approximately 50
offices. The Company disposed of certain non-strategic business entities and
recognized a loss of $58.0 million in connection with the disposal of those
assets. The Company also recognized a charge of $27.3 million for the write-down
of certain long-lived assets in connection with the reorganization.
Approximately $31.3 million of these non-recurring charges are accrued as of
December 31, 1998.

     In connection with the acquisition of CODA in May 1998, the Company
recognized non- recurring charges of $14.4 million consisting of a $9.6 million
write-down of duplicative capitalized software development costs, a $3.0 million
non-recurring charge for related professional fees, and a $1.8 million
restructuring charge, primarily severance related costs and other costs
associated with the consolidation of operations. None of these non-recurring
charges remain accrued as of December 31, 1998.

     Non-recurring expenses were $12.1 million for the year ended December 31,
1997. These charges related to direct transaction and integration costs as a
result of the combinations with Aurum and Beologic. Such costs included asset
write-downs of $3.4 million for capitalized software, goodwill and other
intangible assets, professional fees of $4.6 million, and restructuring charges
of $4.1 million. The restructuring charges consisted of $2.3 million of software
discontinuation costs and migration costs related to the Antalys product (which
was discontinued as a result of the Aurum acquisition), and $1.8 million for
contractual software upgrades and commitments, and for other miscellaneous
charges related to the mergers. The Company completed the actions associated
with the restructuring during 1998. The cash outflows and asset write-offs
related to the $12.1 million charge were approximately $8.6 million and $3.5
million, respectively. There were no non-recurring expenses in 1996. See Notes
11 and 14 to Consolidated Notes to Financial Statements.

     NET INTEREST AND OTHER INCOME. Interest income in 1998, 1997 and 1996 of
$8.7 million, $14.4 million, and $1.1 million, respectively, was primarily a
result of interest earned on investments in marketable securities. Interest
expense of $11.8 million, $12.4 million and $1.4 million in 1998, 1997 and 1996,
respectively, related primarily to interest on working capital lines of credit
and long-term debt, and in 1997 and 1998, interest expense on the convertible
notes and the amortization of debt issuance costs. See Note 5 of Notes to
Consolidated Financial Statements.

     INCOME TAXES. At December 31, 1998 the Company had net operating losses
generated in various countries totaling approximately $445,449,000 of which
$333,000,000, $25,074,000 and $67,905,000 were generated in The Netherlands,
Germany and the United States, respectively. The Netherlands and Germany net
operating losses can be carried forward indefinitely to offset future taxable
income. The net operating losses generated in the United States expire in 2008
or




                                       32
<PAGE>   34


later. For financial accounting purposes the benefit of the net operating losses
generated through 1996 and 1997 has been recorded as a reduction of the
provision for Dutch income taxes in 1996 and 1997. As of December 31, 1998, the
Company established a valuation allowance for all net operating losses.
Primarily as a result of establishing the valuation allowance, the Company's
1998 effective tax benefit is 6%. When it becomes more likely than not that the
Company will be profitable in future periods, the Company will draw down the
valuation allowance to compensate future tax provisions.

     In July 1997, the Company was notified by the Dutch tax authorities that it
qualified for a reduced tax rate for the next ten years effective January 1997
on certain income as defined in the agreement. Based on this ruling and other
initiatives, the Company's effective tax in 1997 was 32%. The effective tax rate
for the year ended December 31, 1996 was 39%.

QUARTERLY VARIABILITY

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

LIQUIDITY AND CAPITAL RESOURCES

     As of December 31, 1998, the Company had cash, cash equivalents and
short-term marketable securities of $206.8 million and working capital of $123.9
million. In 1998, the Company's operating activities used cash of $41.0 million,
primarily as a result of the net loss for the year less certain non-cash items
such as depreciation and amortization and asset write-downs in connection with
the Company's reorganization. Accounts receivable net of allowance for doubtful
accounts was $252.1 million at December 31, 1998 compared to $243.3 million at
December 31, 1997. Accounts receivable days sales outstanding ("DSO," the ratio
of the quarter-end accounts receivable balance to quarterly revenues, multiplied
by 90) was 173 days as of December 31, 1998, compared with 102 days as of
December 31, 1997. Accounts receivable do not include, and the prior computation
of DSO does not reflect, Value Added Tax ("VAT") and sales taxes applicable to
accounts receivable in certain countries. These amounts are required to be
collected from the customer by the Company and to be paid to appropriate
authorities. If such taxes were included in accounts receivable, accounts
receivable at December 31, 1998 and 1997 would have been $277.8 million and
$240.4 million, respectively, and DSO at such dates would have been 191 days and
108 days, respectively. The amount of VAT reclassified and included in other
current assets as of December 31, 1998 and 1997, was $25.6 million and $13.6
million, respectively. As of December 31, 1998, the Company also had tax
receivables of $45 million (representing income tax refunds from various
jurisdictions in which it does business). The Company expects to collect
substantially all of this amount in 1999.

     The Company's allowance for doubtful accounts increased to $46.6 million at
December 31, 1998 from $15.1 million at the end of 1997 due to global economic
difficulties and uncertainty. While the Company believes that its allowance for
doubtful accounts as of December 31, 1998



                                       33
<PAGE>   35

remains adequate, a portion of the Company's accounts receivable at such date
were derived from sales of large licenses to new customers with which the
Company does not have a payment history. While the Company believes the payment
terms granted to such customers at the date of sale allows for revenue
recognition, there can be no assurance that the allowance will be adequate to
cover any receivables which are later determined to be uncollectible,
particularly if one or more large receivables becomes uncollectible.

     Investing activities provided $27.5 million of cash in 1998. Proceeds from
the sale and maturities of marketable securities and investments of $313.2
million were partially offset by the net purchase of property and equipment of
$30.3 million, an increase of $29.6 million in capitalized software development
costs, purchases of marketable securities of $209.5 million and payments for
acquisitions and investments of $23.2 million. The Company expects capital
expenditures will remain relatively flat from 1998 to 1999. With the exception
of the semi-annual interest payments on the convertible debt of $4.3 million per
payment, the Company had no significant capital commitments in 1999.

     Financing activities in 1998 provided cash of $113.3 million, primarily due
to proceeds from the issuance of common shares of $39.5 million upon exercise of
stock options and for the Employee Stock Option Program and a $75.0 million
equity investment from Fletcher International Limited ("Fletcher"). Fletcher
paid $75 million to the Company in exchange for subscription to common shares,
which will be purchased during the period August 1, 1999 through December 31,
2001. The number of common shares and the price per share will be based on
future stock price movement and will be calculated when the shares are
purchased. In no event may the exercise price exceed $16.00 per share, which
results in the minimum issuance of approximately 5 million common shares.
Subject to certain terms, the agreement also provides for an additional
investment of up to $150 million in the Company over the next three years (again
based on a formula based on the market price of the Company shares at or around
the time of exercise). For nine months commencing October 1, 1999, the Company
has the right to require Fletcher to purchase up to $75 million worth of
additional common shares. To the extent that the Company has not fully exercised
its right, Fletcher has the right to purchase any unexercised portion during the
remaining term of the agreement. Also, for 27 months commencing October 1, 1999,
Fletcher has the additional right to purchase another $75 million in common
shares.

     The Company has a credit facility with ABN AMRO Bank in The Netherlands
which allows the Company and its subsidiaries to borrow up to NLG 40 million (or
$21.2 million, based on the exchange rate at December 31, 1998). There were no
outstanding borrowings under the credit facility at December 31, 1998. As of
December 31, 1998, one of the Company's subsidiaries has a $3 million line of
credit with its local bank (reduced to $1 million in January 1999). ABN AMRO has
guaranteed repayment on the line of credit to the local bank. Accordingly, the
Company's ability to borrow on its NLG 40 million credit facility is reduced by
the amount of the guarantee at December 31, 1998.

     Under the terms of the credit facility with ABN AMRO Bank, the Company, its
Netherlands subsidiaries, and Baan USA, Inc. have pledged their accounts
receivable as collateral for the credit facility. Furthermore, these entities
may not transfer title to any of their assets outside the normal course of
business without the express written consent of the bank. There are no financial
covenants associated with this facility. See Note 5 of Notes to Consolidated
Financial Statements. The Company is also working with a consortium of
international banks to further increase its line of credit.




                                       34
<PAGE>   36
     As of December 31, 1998, the Company had outstanding long-term debt of
$191.0 million, consisting of the Company's convertible subordinated notes due
December 15, 2001. These notes bear interest at a rate of 4.5% per annum and are
payable on December 15, 2001 to the extent not converted into common shares at
the election of the holder prior to such maturity date. Interest under the notes
amounts to $8.6 million per year, payable semi-annually, and there is no sinking
fund requirement. The notes are convertible at the option of each holder at a
conversion price of $22 per share. Accordingly, if the trading price of the
Company's common shares at the maturity date exceeds such conversion price, the
notes will generally be converted into common shares prior to repayment. If the
price of the common shares does not, however, exceed the conversion price, the
Company will be required to repay the notes using existing cash balances and
other financing arrangements. There can be no assurances that the state of the
financial markets or the condition of the Company's business at the time of any
such repayment requirement will permit any such refinancing on reasonable terms.

     The Company believes that existing cash, cash equivalents and short-term
marketable securities, cash generated by operations, and existing credit
facilities, will be sufficient to meet the Company's working capital needs and
currently planned capital expenditure requirements for the next twelve months.
The Company may from time to time consider acquisitions of complementary
businesses, products or technologies, which could require additional financing.
Such acquisitions could include the acquisition of one or more distributors, but
no such contemplated acquisition, if effected, is likely to be material to the
Company's financial condition. In addition, continued growth in the Company's
business and other factors may from time to time require additional capital.
There can be no assurance that additional capital will be available to the
Company if and when required, or that such additional capital will be available
on acceptable terms.

YEAR 2000

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

     The Company believes that the demand for its products to date has been
positively impacted by the increased corporate awareness of the Year 2000
Problem and the need to upgrade and/or replace legacy applications in order to
accommodate the change in date to the year 2000. The Company's standard software
offerings introduced since 1993 have been designed to be Year 2000 compliant (as
defined in detail below). The Company and certain of its competitors have
experienced a deceleration of the rate of growth in new license sales in recent
periods, as compared to the growth rates experienced in the enterprise business
management software marketplace in immediately preceding periods, as companies
complete their preparation for the year 2000 or determine it may be too late to
complete such preparations in advance of year 2000. The Company believes that
this deceleration will continue for the foreseeable future.

     Customer Products. Since the introduction of its Triton 2.2(d) product in
1993, the Company has designed its standard Enterprise Resource Planning ("ERP")
software to be Year 2000 compliant (i.e., with the capability of processing
accurately inputted 4-digit year values so that it will be able to correctly
recognize the Year 2000 and any inputted year, and that it will also be able to
recognize the Year 2000 as a leap year). The Company believes that current
versions of



                                       35
<PAGE>   37

other standard products to which the Company has recently acquired ownership are
also now Year 2000 compliant.

     The Company has made available on its Web site, at baan.com, complete
information on the Year 2000 compliance of the Company's products, for the
benefit of customers, potential customers, and other interested parties. It also
provided a direct mailing to its current customer list expressly identifying for
customers those Company products that are Year 2000 compliant and those that are
not; that mailing also referred customers to the Company Web site for the most
current information. However, management believes that it is not possible to
determine with complete certainty that all Year 2000 problems affecting the
Company's software products have been identified or corrected. This uncertainty
is caused by a number of factors, including the complexity of these products,
the fact that the Company's products operate on computer systems and networks
from other vendors not under the Company's control, and the fact that the
Company's products interact with software from other vendors not under the
Company's control.

     The Company typically requires Year 2000 compliance warranties from
third-party vendors whose products are sold in conjunction with or incorporated
into the Company's software products. However, the Company has limited or no
control over the actions of these third-party suppliers. Any failure of these
third parties to comply with these Year 2000 warranties or to resolve Year 2000
problems with their products in a timely manner could have a material adverse
effect on the Company's business, financial condition, and results of operation.
In its mailing to customers, and on its Web site, the Company urges customers to
perform a comprehensive Year 2000 audit of its internal IT systems that operate
with the Company's products, and to contact third-party vendors to obtain Year
2000 assurances with respect to those products that interface with or are used
in combination with the Company's products.

     The question of whether a software manufacturer is liable in any way to
customers of its installed base who are operating earlier, non-Year 2000
compliant versions of its products has not yet been decided by any court, to the
best of the Company's knowledge, although some such claims or related claims are
pending. To date, the Company has not been the subject of a Year 2000 claim. To
the extent that a customer may assert any such claim against the Company in the
future, whether on some contract, tort or other theory, the Company believes it
has strong defenses to any such claim (both in contract and on other grounds).
However, it has been widely reported that a significant amount of "business
interruption" litigation will arise out of Year 2000 compliance issues. It is
uncertain whether, or to what extent, the Company may be affected by such
litigation.

     Costs - Customer Products. The total cost to the Company of completing any
required modifications, upgrades or enhancements to its software products to
ensure they are Year 2000 compliant is virtually impossible to calculate; since
the Company's standard software products are designed to be Year 2000 compliant,
any "compliance costs" are in effect a part of normal, ongoing development
costs.

     Internal Information Infrastructure. The Year 2000 Problem could affect
computers, software, and other equipment used, operated, or maintained by the
Company plus office and facilities equipment such as fax machines, photocopiers,
telephone switches, security systems, elevators, and other office
infrastructure. Accordingly, the Company has undertaken a review (which remains
ongoing) of all internal computer programs and systems material to business
operations, to ensure that the programs and systems will be Year 2000 compliant.
Based on the review to date, the Company believes that its internal computer
systems are or will be Year 2000 compliant in a timely manner. Certain of the
Company's back office systems are operating with recent



                                       36
<PAGE>   38


versions of the Company's standard ERP software (which software, as noted above,
is designed to be Year 2000 compliant), thereby limiting to some extent the
breadth of any Year 2000 compliance issues with respect to the Company's
internal systems. The Company has also sent a query letter to certain of its
significant vendors of internal information technology infrastructure seeking
representations from such vendors that their products are Year 2000 compliant.
To date the Company has received a limited number of responses to these query
letters. Although the Company is not aware of any material operational issues or
costs associated with preparing its internal systems for the Year 2000, there
can be no assurance that the Company will not experience unanticipated negative
consequences and/or material costs caused by undetected errors or defects in the
technology used in its internal systems.

     Costs - Internal Information Infrastructure. The total cost to the Company
of completing any required modifications, upgrades, or replacements of these
internal systems is difficult to estimate. As noted above, the Company's
assessment of its internal systems remains ongoing. Nonetheless, through
December 31, 1998, the Company's best estimate was that it would cost the
Company between $500,000 and $1,000,000 to upgrade its internal systems (both in
terms of actual upgrade expenses and personnel costs). Through December 31,
1998, the Company has actually incurred and expensed approximately $200,000.

     Potential Consequences of Year 2000 Issues. The Company is attempting to
identify and resolve all Year 2000 problems that could materially adversely
affect its business operations. However, management believes that it is not
possible to determine with complete certainty that all Year 2000 problems
affecting the Company have been identified or corrected. The number of devices
that could be affected and the interactions among these devices are simply too
numerous. In addition, one cannot accurately predict how many Year 2000
problem-related failures will occur or the severity, duration, or financial
consequences of these perhaps inevitable failures. As a result, management
expects that the Company could suffer a significant number of operational
inconveniences and inefficiencies for the Company and its clients that may
divert management's time and attention and financial and human resources from
its ordinary business activities. Additionally, the Company anticipates a lesser
number of serious system failures that may require significant efforts by the
Company or its clients to prevent or alleviate material business disruptions. In
this regard, the Company has not yet formulated contingency plans to deal with
any such unforeseen problems.

INTRODUCTION OF EURO

     Background. In January 1999, a new currency called the "Euro" was
introduced in certain European Economic and Monetary Union ("EMU") countries. By
June 30, 2002 at the latest, all participating EMU countries are expected to be
operating with the Euro as their single currency. As a result, in less than one
year, computer software used by many companies headquartered or maintaining a
subsidiary in a participating EMU country is expected to be Euro-enabled, and in
less than four years all companies headquartered or maintaining a subsidiary in
a participating EMU country will need to be Euro-enabled. The transition to the
Euro will involve changing budgetary, accounting and fiscal systems in companies
and public administration, as well as the simultaneous handling of parallel
currencies and conversion of legacy data.

     Customer Products. Current versions of the Company's standard ERP software
products are designed to, or with currently available updates will, accommodate
the implementation of the Euro in compliance with current legislation. In
addition, the Company offers two "backported" versions, Triton 3.1b.7 and Baan
IVb5, that will also support the implementation of the Euro. The Company's ERP
product also provides for "multi-base currency conversion", which allows



                                       37
<PAGE>   39


users to adopt the Euro in a phased approach alongside running existing home
currency. The Company believes that current versions of other products to which
the Company has recently acquired ownership are also now Euro compliant.

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

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

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


FORWARD-LOOKING STATEMENTS

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

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





                                       38
<PAGE>   40

                                  RISK FACTORS


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


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

     Baan has experienced substantial revenue growth in recent years, but our
profitability has varied widely on a quarterly and annual basis. Baan
experienced losses and limited profitability prior to 1996. In addition,
notwithstanding revenue growth and profitability increases through 1996 and
1997, in 1998 Baan's license revenues declined significantly and we incurred a
large loss from operations. If Baan is unable to stabilize and ultimately
increase license revenues, Baan's business, operating results, and financial
condition would be materially adversely affected. In the fourth quarter of 1998,
Baan began an effort to streamline and restructure our operations in order to
reduce operating costs. This effort resulted in Baan reducing our workforce by
approximately 20% and restructuring our operations through the sales of certain
operating units of Baan. To the extent that Baan's streamlining, restructuring
and cost reductions efforts are not successful, Baan's operating results will be
materially adversely affected.


INDUSTRY-WIDE CONDITIONS HAVE RESULTED IN REDUCED LICENSE REVENUES.

     Baan believes that the ERP software market is being negatively impacted by
a number of generic issues including global economic difficulties and
uncertainty; reductions in capital expenditures by large customers; increasing
competition; and increased customer focus on addressing Year 2000 problems.
These factors have, in turn, given rise to a number of market trends that have
negatively impacted license revenues including:

-    longer sales cycles;

-    increased uncertainty of customers in making purchasing decisions;

-    deferral or delay of IT projects and generally reduced expenditures for
     software;

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

-    increased price competition and price reductions for licensed software.

     These conditions and factors contributed to a decline in Baan's license
revenues in 1998 from 1997. Baan expects these factors to continue to adversely
affect our license revenues and that these trends will continue into 1999 until
global economic conditions improve and Year 2000 problems are resolved. Because
of the high degree of uncertainty these factors and trends have created in the
marketplace, Baan is currently unable to predict whether our license revenues
will stabilize at current levels, or when Baan will return to profitability.


BAAN IS SUBJECT TO VARIABILITY OF QUARTERLY OPERATING RESULTS.

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

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

-    the size and timing of individual license transactions;




                                       39
<PAGE>   41

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

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

-    seasonality of technology purchases and other general economic conditions.

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

BAAN FACES INTENSE COMPETITION.

     The enterprise business application software market is highly competitive.
The market is rapidly changing, and is significantly affected by new product
introductions, geographical regional market growth, integration of supply chain
networks, and issues related to policy such as the anticipated requirements of
the European Monetary Unit and the Year 2000 date change. For a more complete
discussion of the competitive pressures confronting Baan and a discussion of
certain strengths of Baan's competitors, see Item 1 above entitled
"Competition".

BAAN MUST ATTRACT AND RETAIN KEY EMPLOYEES.

     Baan is largely dependent on a limited number of members of our senior
management and other key employees. Baan does not maintain key-man life
insurance on any personnel. In addition, Baan believes that we must be able to
attract and retain highly skilled technical, management, sales, and marketing
personnel in order to continue to compete successfully. Competition for such
personnel in the computer software industry is intense. Baan may not be able to
attract and retain such personnel, and if we are not able to do so, this would
have a material adverse effect on Baan's business.

BAAN HAS DEBT OBLIGATIONS UNDER OUTSTANDING CONVERTIBLE SUBORDINATED NOTES.

     In December 1996, Baan incurred $175 million of indebtedness through the
sale of 4.5% convertible subordinated notes payable in the year 2001. That
amount increased by an additional $25 million in January of 1997 (for a total of
$200 million convertible notes) when an over-allotment option was exercised. As
a result of this indebtedness, Baan has substantial principal and interest
obligations. As of December 31, 1998, $190 million in convertible notes was
outstanding. Baan's current debt obligations could make it much more difficult
for Baan to obtain additional financing in the future, if such financing is
needed for working capital, acquisitions or other purposes. This debt burden
could also make Baan more vulnerable to industry downturns and competitive
pressures. Further, Baan's working capital declined from $309.4 million at
December 31, 1997 to $123.9 million at December 31, 1998. Baan's ability to meet
our debt service obligations will be dependent upon Baan's future performance,
which will be subject to financial, business and other factors affecting our
operations, many of which are beyond our control. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources."


                                       40
<PAGE>   42

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

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

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


BAAN FACES CHALLENGES CONCERNING THE INTEGRATION OF ACQUISITIONS.

     As part of our strategy to complement and expand our existing business and
product offerings, Baan has acquired a number of companies. In September 1998
Baan acquired CAPS Logistics Inc. ("CAPS Logistics"), a supplier of logistics
and transportation, planning and scheduling software; in May 1998 Baan acquired
CODA Group plc ("CODA"), a provider of financial software; and in August 1997
Baan acquired Aurum Software, Inc. ("Aurum"), a provider of enterprise-wide
sales-force automation software and distribution services. Baan may continue to
pursue acquisitions of other companies with potentially complementary product
lines, technologies and businesses.

     Acquisitions involve a number of risks and difficulties. They include:

-    uncertainty as to market acceptance of the acquired technologies and
     products;

-    risks of expansion into new geographic markets and business areas;

-    the diversion of management's attention created by the expansion of
     business breadth and integration challenges; and




                                       41
<PAGE>   43

-    difficulties associated with the assimilation of the operations and
     personnel of acquired companies and the integration of acquired companies'
     business and financial reporting systems.

     Baan may not be able to successfully integrate the operations of acquired
businesses. If any such acquisition were to be unsuccessful, Baan's results of
operations could be materially adversely affected.


THERE ARE OBSTACLES IN MANAGING INTERNATIONAL OPERATIONS.

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

-    general economic conditions in each country (for example, we note the
     volatile market conditions affecting most of the Pacific Rim region and
     Latin America);

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

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

-    unexpected changes in regulatory requirements;

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

-    longer accounts receivable payment cycles in certain countries.

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


VANNENBURG VENTURES B.V. OWNS A SIGNIFICANT EQUITY INTEREST IN BAAN.

     Vanenburg Ventures B.V. ("VV") owned approximately 20% of Baan's
outstanding Common Shares at April 9, 1999. Jan Baan and J.G. Paul Baan, by
virtue of the control they exercise over the entities that own and control the
shares of VV, effectively have the power to vote the Common Shares of Baan owned
by VV. Messrs. Jan Baan and J.G. Paul Baan therefore may be deemed to have the
effective power to significantly influence the outcome of matters submitted for
shareholder action, including the appointment of members of Baan's Management
and Supervisory Boards and the approval of any significant change in control
transactions. This significant equity interest in Baan may make certain
transactions more difficult absent the support of Jan Baan and J.G. Paul Baan,
and may have the effect of delaying or preventing any proposed change in control
of Baan.


VV CONTROLS APPROXIMATELY ONE-THIRD OF SALES FROM BAAN'S INDIRECT CHANNEL.

     Commencing in 1996, Baan began building an indirect channel as part of our
strategy to penetrate the SME market. Approximately 15 of its approximately 230
VARs (value added resellers) are VV subsidiaries known as the "Vanenburg
Business Systems" network (or "VBS"). As described in Item 13 below, VV has
recently announced its intention to reorganize and/or sell certain of its assets
due in part to pressure from lenders. Sales from VBS comprise approximately
one-third of total sales in Baan's indirect channel. While down from
approximately half of all indirect sales in 1996 and much of 1997, VBS remains a
large



                                       42
<PAGE>   44


percentage of Baan's indirect channel. Consequently, any sale of, or operating
pressures on, VBS could have a material impact on Baan's indirect channel
performance.


YEAR 2000 UNCERTAINTIES.

     Baan's ability to achieve Year 2000 compliance and the level of incremental
costs associated therewith, could be adversely impacted by, among other things,
our ability to identify all Year 2000 issues associated with Baan's products;
third-party products sold by Baan or third-party products used in Baan's
internal systems; the availability and cost of programming and testing
resources; the ability and willingness of third-party vendors to modify
proprietary software; the extent to which customers access Baan's Year 2000 Web
site in order to assess the Year 2000 exposure associated with their Baan
systems and their ability and willingness to take appropriate upgrade and
corrective measures; and unanticipated problems that may be identified in Baan's
ongoing compliance review.


BAAN'S SHARE PRICE HAS BEEN HIGHLY VOLATILE.

     The market price of Baan's Common Shares has experienced significant
volatility. The price of Baan's Common Shares (split adjusted) has increased
from $4.00 per share in Baan's initial public offering in May 1995 to $54.125 in
April 1998, and has decreased to a trading price at April 30, 1999 of $9.375 per
share. The market price of Baan's Common Shares may be significantly affected by
a number of factors, including quarterly variations in operating results,
changes in earnings estimates by market analysts, the announcement of new
products by Baan or our competitors, and general market conditions. In addition,
the stock prices for many companies in the technology and emerging growth sector
have experienced wide fluctuations which have often been unrelated to the
operating performance of such companies. Such fluctuations may adversely affect
the market price of Baan's Common Shares.


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

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


OTHER MATTERS RELATED TO DUTCH COMPANIES.

     As a Netherlands "naamloze vennootschap" (N.V.), Baan is subject to certain
requirements not generally applicable to corporations organized in United States
jurisdictions. Among other things, the issuance of shares by Baan must be
submitted for resolution of the general meeting of shareholders, except to the
extent such authority to issue shares has been delegated by the general meeting
of shareholders to another corporate body. The issuance of shares by Baan is
generally subject to shareholder preemptive rights, except to the extent that
such preemptive rights have been excluded or limited by the general meeting of
shareholders (subject to a qualified majority of two-thirds of the votes if less
than 50% of the outstanding share capital is present or represented) or, in case
the authority to issue shares has been delegated to another corporate body that
has also been empowered by the general meeting of shareholders to exclude or
limit such preemptive rights, by such corporate body. In this regard, the
general meeting of shareholders has authorized the Management Board of Baan,
upon approval by the Supervisory Board, to issue any authorized and unissued
shares of Baan at any




                                       43
<PAGE>   45

time up to and including April 30, 2000, and has authorized the Management
Board, upon approval by the Supervisory Board, to exclude or limit shareholder
preemptive rights with respect to any issuance of such shares up to and
including such date. Such authorizations may be renewed by the general meeting
of shareholders from time to time, or by Baan's Articles of Association pursuant
to an amendment to that effect, for up to five years at a time. This
authorization would also permit the issuance of shares in an acquisition,
provided that shareholder approval is required in connection with a statutory
merger (except that, in certain limited circumstances, the board of management
of a surviving company may resolve to legally merge the company). Shareholders
do not have preemptive rights with respect to shares which are issued against
payment other than in cash, shares which are issued to employees of Baan or of a
group company or shares which are issued to someone exercising a previously
acquired right to subscribe for shares. In addition, certain major corporate
decisions are subject to prior approval or advice by the Works Council
established at Baan Development B.V. and Baan Nederland B.V., two Dutch
subsidiaries of Baan.

     In April 1999, a new law became effective in The Netherlands that could
significantly restrict a company's ability to grant stock options in or from The
Netherlands. The new law also imposes certain additional disclosure obligations
on Baan and certain of its employees in connection with their involvement in
securities transactions in or from The Netherlands. Baan is currently discussing
possible alternatives with the Dutch authorities. Depending on the outcome of
those discussions, the new Dutch securities laws could have a material impact on
Baan's competitiveness in terms of impairing our ability to recruit and retain
directors and employees.







                                       44
<PAGE>   46


ITEM 9A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

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

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

     The Company conducts a significant portion of its business in currencies
other than the U.S. dollar (the currency in which its financial statements are
stated), primarily the Euro. While the Company has historically recorded a
majority of its expenses in Dutch guilders (and, since January 1999, is
recording such expenses in Euros), especially research and development expenses,
the Company realizes a large portion of its revenues in U.S. dollars in addition
to guilders (now, Euros). As a result, fluctuation in the value of the Euro
relative to the value of the U.S. dollar could adversely affect operating
results. Foreign currency transaction gains and losses arising from normal
business operations are credited to or charged against earnings in the period
incurred. As a result, fluctuations in the value of the currencies in which the
Company conducts its business relative to the U.S. dollar have caused and will
continue to cause foreign currency transaction gains and losses. The Company
continues to evaluate its currency management policies. Notwithstanding the
measures the Company has adopted, there are a number of currencies involved,
currency exposures are constantly changing and currency exchange rates continue
to have significant volatility. The Company may experience currency losses in
the future, and the Company cannot predict the effect of exchange rate
fluctuations upon future operating results.

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

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

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



                                       45
<PAGE>   47



ITEM 10.  DIRECTORS AND CORPORATE EXECUTIVE OFFICERS OF REGISTRANT

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


<TABLE>
<CAPTION>
                  NAME                 AGE                                 POSITION(S)
        -------------------------      ---          ----------------------------------------------------------------
<S>                                   <C>          <C>
        Tom C. Tinsley (1)              45          Managing Director, Chairman of
                                                    The Board of Managing Directors
        Mary Coleman                    44          Chief Executive Officer
        James F. Mooney                 44          Chief Financial Officer
        Laurens van der Tang            33          Executive Vice President, Research and Development
        N.M. (Klaas) Wagenaar           40          Executive Vice President, Operational and Strategic Initiatives
        Bob Lewis                       40          Executive Vice President, Global Field Operations
        Robert E. Goudie, Jr.           40          General Counsel and Secretary to the Board
        Gerrit J. van Munster           35          Senior Vice President, Human Resources
        Pierre J. Everaert (2)          59          Chairman Supervisory Board
        John W. Barter (2)              52          Supervisory Director
        Henk van den Breemen (3)        57          Supervisory Director
        William O. Grabe (3)            61          Supervisory Director
        David C. Hodgson (2)            42          Supervisory Director
        Joop P.M. Janssen (2)           56          Supervisory Director
        Koichi Nishimura                59          Supervisory Director
        J.C. (Hans) Wortmann            48          Supervisory Director
</TABLE>

-----------------

(1)  Tom Tinsley is currently the Chairman and sole member of the Management
     Board. On May 26, 1999, the Company announced that the following
     individuals would be nominated as members of the Management Board at the
     June 23, 1999 shareholders' meeting: Mary Coleman, Chairman; James Mooney,
     Executive Vice President, Chief Financial Officer; Laurens van der Tang,
     Executive Vice President, Research and Development; and Peter Aird,
     Executive Vice President, Global Support. As of June 1, 1999, Ms. Coleman
     succeeds Mr. Tinsley as Chief Executive Officer.

(2)  Member of the Supervisory Board Audit Committee.

(3)  Member of the Supervisory Board Nomination and Compensation Committee.


     Tom C. Tinsley joined the Company in November 1995 as Managing Director,
President and Chief Operating Officer. His appointment as Managing Director was
approved at the Annual General Meeting of Shareholders in April 1996. Mr.
Tinsley became Chairman of the Board of Managing Directors in May 1998. Mr.
Tinsley previously was a director of McKinsey & Co., a management consulting
firm, where he had been employed for eighteen years and most recently headed the
firm's global information technology practice. While with McKinsey & Co., Mr.
Tinsley served key clients in the electronics and information technology sectors
in the United States of America, Scandinavia and The Netherlands.

     Mary Coleman joined the Company as President and CEO of Aurum, Inc., a
subsidiary of Baan Company, after Baan acquired Aurum in August 1997. In October
1998, Ms. Coleman was named President of Baan Company. Ms. Coleman joined Aurum
with nearly 20 years of marketing experience in the high-tech industry, most
recently from Radius, Inc., where she served as vice president of marketing. On
June 1, 1999, Ms. Coleman was named Chief Executive Officer of the Company.

     James F. Mooney joined the Company in April 1999 as Chief Financial
Officer. Prior to joining Baan, Mr. Mooney worked for International Business
Machines Corporation (IBM), where he had been employed for nineteen years and
most recently as Vice President and Chief Financial Officer, Americas.

     Laurens van der Tang joined the Company in June 1986. After having held
various positions in Implementation and Consultancy, in October 1990 he became
responsible for Product



                                       46
<PAGE>   48


Development, and in January 1992 he was named Vice President, Product
Development. In January 1995, he was promoted to Vice President, Research of the
Company and, in March 1997, to Executive Vice President, Research and
Development. In his current capacity, Mr. van der Tang is responsible for the
management and strategy of the Company's product research and development
groups.

     N.M. (Klaas) Wagenaar joined the Company in August 1997 as Senior Vice
President Administration & Chief Financial Officer. In April 1998, Mr. Wagenaar
also assumed the responsibility of Chief Operating Officer. In March 1999, he
was appointed as Executive Vice President of Operational and Strategic
Initiatives. In this role he serves as the link between the regional and country
operations, and global functions. Mr. Wagenaar is also responsible for creating
a more centralized corporate infrastructure and, in cooperation with the
Management Board, he has the responsibility for identifying and driving key
strategic partnerships and initiatives for the Company. Prior to joining the
Company, Mr. Wagenaar was COO of Baan Investment B.V. Prior to that, Mr.
Wagenaar was with Cap Gemini, an international IT consulting firm, and held a
variety of operational and financial management positions, most recently as
deputy general manager of Division Industry Benelux.

     Bob Lewis joined the Company in July 1996 as Vice President of Indirect
Channels. In 1997, Mr. Lewis became President of Baan EMEA, responsible for the
Company's operations across Europe, Middle East and Africa. In October 1998, Mr.
Lewis was named Executive Vice President of Global Field Operations. Prior to
joining Baan, Mr. Lewis had 15 years of experience in the information technology
industry including a period as CEO of a systems integration firm and most
recently as a General Manager for System Software Associates.

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

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

     Pierre J. Everaert became a member of the Supervisory Board in March 1999
and was elected its Chairman one month later. He has 15 years of executive
experience: at Goodyear; at General Biscuits S.A. (Paris, France), where he was
Vice Chairman; Ahold USA Inc. as CEO; and Koninklijke Ahold N.V. (Zaandam, The
Netherlands) as President and CEO. In 1992, Mr. Everaert joined the board of
management of Philips Electronics N.V. in the Netherlands, and also served as
Chairman of the Board of Philips North America Corporation. In 1996, he formed
his own company, E C Consult B.V., which provides advice to companies on
corporate governance, advanced marketing, and e-commerce. Mr. Everaert is also
currently professor at the University of Gent, Belgium, is a director of
Interbrew, Louvain, Belgium, and is a member of the board of several privately
held companies.




                                       47
<PAGE>   49
     John W. Barter became a supervisory director of the Company in March 1999.
Before his recent retirement from AlliedSignal, Mr. Barter served as Executive
Vice President of AlliedSignal, Inc and President of AlliedSignal Automotive,
and prior to that as Senior Vice President and CFO. Mr. Barter is a member of
the board of directors of BMC Software, Inc., Louisiana-Pacific Corporation,
Iomega Corporation, and Kestrel Solutions, Inc. and is chairman of the Board of
Trustees of the Spring Hill College.

     General Henk van den Breemen (ret.) is the decorated former Chief of
Defense Staff of the Dutch Armed Forces. Mr. Van den Breemen climbed the ranks
from Lieutenant in the Marine Corps to his last position as Chief of the Defense
Staff - the first General of the Marine Corps to assume that role. In his career
Mr. van den Breemen has represented the Netherlands in international panels
including NATO, WEU and CSCE and was able to transform the Dutch Armed Forces
into one of the most advanced and well-equipped Armed Forces in the world, while
carrying out significant down-sizing operations and supporting peace operations
at the same time. He was elected to the Supervisory Board in March 1999.

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

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

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

     Koichi Nishimura currently directs Solectron Corporation's worldwide
operations as its Chairman of the Board, President, and CEO. He has led the
company to twice win the prestigious Malcolm Baldrige National Quality Award.
Dr. Nishimura joined Solectron after an extensive career at IBM Corporation. Dr.
Nishimura is past chairman of the board of the Silicon Valley Manufacturing
Group and continues to serve on the boards of Merix Corporation and the Sante Fe
Institute. Dr. Nishimura is a senior member of the Institute of Electrical and
Electronics



                                       48
<PAGE>   50


Engineers and the Society of Manufacturing Engineers. He was elected to the
Supervisory Board in March 1999.

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



ITEM 11. COMPENSATION OF DIRECTORS AND OFFICERS

     The aggregate amount of cash compensation of all Managing Directors,
Supervisory Directors and corporate executive officers of the Company as a group
(16 persons) paid or accrued for services in all capabilities for the year ended
December 31, 1998 was approximately $2.1 million.



ITEM 12.  OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES

     1993 Stock Plan. The 1993 Stock Plan was initially adopted by the
Management Board and approved by the shareholders in December 1993, and
subsequent amendments increased the aggregate number of shares reserved for
issuance thereunder from 7,000,000 in 1993 to 40,000,000 in 1998. The 1993 Stock
Plan will terminate in December 2003 unless terminated earlier by the Management
Board upon the authority of the Supervisory Board. The 1993 Stock Plan provides
for grants of options to employees and consultants (including officers and
directors) of the Company and its affiliates. The 1993 Stock Plan may be
administered by the Management Board or Supervisory Board of the Company, or
both, or by a committee appointed by either or both such Boards in a manner that
satisfies the legal requirements relating to the administration of stock plans
under all applicable laws (the "Administrator"). The 1993 Stock Plan is
currently administered by the Management Board of the Company.

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

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

     The maximum term of an option granted under the 1993 Stock Plan may not
exceed ten years from the date of grant (five years in the case of a participant
who owns more than 10% of the voting power of all classes of the Company's
outstanding share capital). In the event of termination of an optionee's
employment or consulting arrangement, options may only be exercised, to the
extent vested as of the date of termination, for a period not to exceed 90 days
(12 months, in the case of termination as a result of death or disability)
following the date of




                                       49
<PAGE>   51


termination, but in no event later than the expiration date of each option as
set forth in the optionee's option agreement. Options may not be sold or
transferred other than by will or the laws of descent and distribution, and may
be exercised during the life of the optionee only by the optionee.

     Options outstanding under the 1993 Stock Plan generally vest and become
exercisable, assuming continued service as an employee or consultant, for
non-Dutch employees at the rate of 20% of the shares subject to an option on the
first anniversary of the commencement of vesting date and 1/60th of the shares
each month thereafter, and for Dutch employees at a rate of 1/60th of the shares
each month following the commencement of vesting date, such that in each case
all shares under an option vest in full five years from the commencement of the
vesting date assuming continued service as an employee or consultant. Options
outstanding under the 1993 Stock Plan generally have a term of five years.

     In the event of a merger of the Company with or into another corporation,
all outstanding options may be assumed or equivalent options substituted by the
successor corporation or its parent or subsidiary. In the absence of such
assumption or substitution, to the extent not exercised, all options shall
terminate as of the closing of the merger.

     As of December 31, 1998, the Company's directors and executive officers (16
persons) had outstanding options to purchase an aggregate of approximately
4,521,000 Common Shares. As of December 31, 1998, under both the 1995 Director
Option Plan and the 1993 Stock Plan, options to purchase an aggregate 19,546,000
Common Shares were outstanding and 3,071,000 shares remained available for
future grants. See Note 6 of Notes to Consolidated Financial Statements.

     Berclain Plan. As a result of the Company's acquisition of Berclain Group,
Inc. ("Berclain") in May 1996, the Company assumed the outstanding options under
The Berclain Stock Option Plan (the "Berclain Plan"). The Berclain Plan provided
for grants of non-qualified stock options to employees and eligible participants
of Berclain. The term of each option was not to exceed a period of five years
from the grant date and each option generally vested over one year. At December
31, 1998, the Company had reserved 6,926 of its common shares for issuance under
the Berclain Plan. No additional grants will be made under the Berclain Plan.

     Aurum Plans. As a result of the Company's acquisition of Aurum Software,
Inc., the Company assumed the outstanding options under Aurum's Stock Option
Plans (the "Aurum Plans"). The Aurum Plans provided for grants of incentive
stock options and repurchaseable to employees and nonstatutory options to
employees and consultants of Aurum. The terms of options granted under the Aurum
Plans generally did not exceed ten years. Generally, options granted under the
Aurum Plans vest over four years. The exercise price of incentive stock options
granted under the Aurum Plans was at least equal to the fair market value of the
shares on the date of grant. At December 31, 1998, the Company had reserved
1,567,952 of its common shares for issuance under the Aurum Plans. No additional
grants will be made under the Aurum Plans.

     Beologic Plan. As a result of the Company's acquisition of Beologic A/S
("Beologic") in November 1997, the Company assumed the outstanding options under
The Beologic Warrant Scheme (the "Beologic Plan"). The Beologic Plan provided
for grants of non-qualified stock options to employees and eligible participants
of Beologic. The term of each option was not to exceed a period of 32 months and
31 days from the grant date and each option generally vested over 2.6 years. At
December 31, 1998, the Company had reserved 122,796 of its common shares for
issuance under the Beologic Plan. No additional grants will be made under the
Beologic Plan.




                                       50
<PAGE>   52
     Coda Plans. As a result of the Company's acquisition of CODA ("Coda") in
May 1998, the Company assumed the outstanding options under Coda's three stock
options plans: the Coda Worldwide Scheme, Coda Incorporated Scheme (U.S.), and
Coda Executive Scheme (U.K.) (the "Coda Plans"). The Coda Plans provided for
grants of incentive stock options to employees and non-qualified options to
eligible participants of Coda. The term of each option was not to exceed a
period of ten years from the grant date and each option generally vested over
three years. At December 31, 1998, the Company had reserved 97,207 of its common
shares for issuance under the Coda Plans. No additional grants will be made
under the Coda Plans.

     1995 Director Option Plan. The Company has reserved an aggregate of
1,600,000 Common Shares for issuance under its 1995 Director Option Plan (the
"Director Plan"). The Director Plan was adopted by the Managing Directors and
approved by the shareholders of Baan Company N.V. in March 1995. The Director
Plan (as amended) provides for automatic and nondiscretionary grants of
nonstatutory stock options to Supervisory Directors of the Company in the
following amounts: (i) an initial grant of 50,000 for Supervisory Directors and
65,000 for the Chairman, vesting at the rate of one-fourth of the total on the
anniversary date of the grant (i.e., a four-year vesting schedule); and (ii) a
subsequent grant equal to one-fourth of the initial grant for each year of
service on the Supervisory Board, granted on the anniversary date of appointment
and vesting four years thereafter. In all events, the exercise price of options
granted to Supervisory Directors will be 100% of the fair market value of the
Common Shares on the date of grant as measured by the closing trading price on
NASDAQ for the day. In the event of any merger, sale of assets or other
transaction involving a change in control of the Company, all options
outstanding under the Director Plan will become exercisable in full, and the
option will be assumed or an equivalent option substituted by the successor
corporation or its parent or subsidiary. Options for a total of 558,500 shares
have been granted as of March 31, 1999 under the Director Plan. The Director
Plan will expire in the year 2005.

     1995 Employee Stock Purchase Plans. The Company has reserved an aggregate
of 4,000,000 Common Shares for issuance under its 1995 Employee Stock Purchase
Plan for U.S. Employees (the "U.S. ESPP") and 1995 Employee Stock Purchase Plan
for non-U.S. Employees (the "Non-U.S. ESPP"). The U.S. ESPP and the Non-U.S.
ESPP were adopted by the directors and approved by the shareholders in February
1995. The U.S. ESPP is intended to qualify under Section 423 of the Code and
permits eligible U.S. employees of the Company to purchase Common Shares through
payroll deductions of up to 10% of their compensation provided that no more than
an aggregate of 800,000 shares may be issued in any offering period and no
employee may purchase more than $25,000 worth of stock in any calendar year. The
U.S. ESPP has been implemented with six-month offering periods, provided that
the first such period commenced on May 19, 1995, the date of the Company's
initial public offering, and ended on October 31, 1995. The price of Common
Shares purchased under the U.S. ESPP will be 85% of the lower of the fair market
value of the Common Shares on the first or last day of each offering period. The
U.S. ESPP will expire in the year 2005.

     As of March 31, 1999, the Company has issued an aggregate of 2,185,750
Common Shares under the U.S. ESPP and the Non-U.S. ESPP and has 1,814,250 shares
remaining for issuance under these plans.





                                       51
<PAGE>   53

ITEM 13.  INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS

     Jan Baan, formerly Chief Executive Officer and a Managing Director of the
Company, and J.G. Paul Baan, formerly a Supervisory Director of the Company, and
the Company's founders, effectively control a Netherlands limited liability
company called Vanenburg Ventures B.V. ("VV," formerly Baan Investment B.V.). As
of April 9, 1999, VV owns approximately 20% of the Company's outstanding Common
Shares. All of the shares of VV are in turn held by a share administration
foundation of which Messrs. Baan and Baan are directors, thereby providing them
with effective voting control of VV's shares in the Company. The economic
interest in VV's shares is held by the Oikonomos Foundation, a foundation the
Baan brothers established under Netherlands law in 1994 to carry out charitable
activities throughout the world.

     VV was created in 1994 as a venture capital company that invests in the
form of corporations, joint ventures, or partnerships in various new
technologies, educational programs, research projects and sales, consulting, and
support activities principally in the ERP and other technology markets. As
described further below, the Company has entered into various agreements with
entities owned or controlled by VV and has recognized revenue and reimbursement
of expenses from, and incurred costs for goods and services provided by, such
related parties. The Company believes that all such transactions have been
entered into in the ordinary course of business and have been on terms no less
favorable than would have been obtained from unrelated third parties. During
1998, it has been Company policy to have all material agreements with VV
approved by the independent directors of the Company's Supervisory Board, and
information on all material VV relationships has also been provided to the
Company's Audit Committee.

     As reported in the Company's Form 20-F for 1997, VV owned approximately 39%
of the Company's outstanding shares as of April 1998. In October 1998, however,
VV publicly disclosed that it had secured $500 million in loans to help fund
certain of its operations and investments, with VV's shares in the Company
serving as collateral on those loans. When the publicly traded share price in
the Company's stock declined over the summer and into the fall of 1998, VV
reported that its lenders began selling the VV collateral shares to pay down the
VV debt obligations. As a consequence of these actions, VV's holdings of the
Company's shares had declined to 20.12% as of April 9, 1999. VV also indicated
that it would undertake a review of its operations/investments, with an eye
toward reorganizing and/or selling certain of its assets.

     Revenues from VV during 1996, 1997 and 1998, were $14.5 million, $66.3
million and $50.6 million, respectively. As of December 31, 1997 and 1998, the
outstanding balances with VV (reflected in amounts (due to) and due from related
parties) consisted of the following (in thousands):



<TABLE>
<CAPTION>
                                                      DECEMBER 31,
                                                  -------------------
                                                   1997        1998
                                                  -------     -------
<S>                                               <C>         <C>
          Baan Midmarket Solutions (BMS) ....     $19,396     $ 2,648
          Vanenburg Business Systems (VBS) ..       9,935       1,142
          Vanenburg Ventures ................       9,079      (1,463)
          Other .............................       4,355       3,970
                                                  -------     -------
                                                  $42,765     $ 6,297
                                                  =======     =======
</TABLE>

     THE COMPANY'S INDIRECT CHANNEL. Since 1996, one of the principal
relationships between VV and the Company has been VV's involvement as both a
reseller and manager of the Company's indirect channel. As indicated above, the
Company began building an indirect channel in 1996 as part of its strategy to
penetrate the SME market (or so-called midmarket). Because the go-to-market
strategy and demands of the midmarket differ significantly from those of the
high-end ERP sector, the Company believed then (and continues to believe) that
the midmarket could likely best be served through creation of an indirect
channel. Commencing in 1996, therefore, the Company embarked on a strategy of
signing resellers as part of this midmarket strategy.




                                       52
<PAGE>   54
     1. The BBS relationship. Consistent with its venture capital philosophy,
and in an effort to participate in the indirect channel the Company was
creating, VV and a third party in 1996 created a joint venture known as BBS
Holding B.V. (now owned 100% by VV). That company in turn owns a series of
approximately fifteen companies operating as resellers in the midmarket space.
These companies were commonly referred to throughout 1996-1998 as the Baan
Business Systems network, or "BBS." In April 1999, BBS changed its name to the
Vanenburg Business Systems network, or "VBS."

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

     The Company recognized revenues of approximately $4.5 million and $32.3
million from VBS during 1996 and 1997, respectively, from sales of licenses
pursuant to the VBS reseller agreement. In addition, during 1996 and 1997, the
Company assigned to VBS a number of customer contracts that the Company believed
could best be served by VBS. In connection with assigning those contracts: (i)
the Company assigned the related outstanding accounts receivable balances in the
aggregate amount of $4.6 million and $0.3 million, respectively, and VBS paid
for such outstanding receivables; and (ii) VBS paid the Company for these
contracts $10.0 million, $18.0 million and $2.9 million in 1996, 1997 and 1998,
respectively, representing the value of certain potential future license revenue
forgone by the Company as a result of pricing differences between customary
terms in direct sales versus indirect channel, third-party contracts. Finally,
during 1997 the Company recognized $8.7 million from the VBS holding company for
the non-recourse assignment of the remaining rights and obligations under a
license agreement with an unrelated third-party. All revenue recognized from VBS
is included in "License revenue from related parties" in the accompanying
Consolidated Statements of Operations.

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

     2. Creation of BMS. Over the course of 1997, the Company's indirect channel
grew to approximately 110 resellers, including approximately 15 VBS companies.
Given that growth, and the potential for future growth of the channel, the
Company determined that a stronger infrastructure to manage and support the
channel was needed. To provide that "backbone," the Company and VV entered into
a joint venture agreement in the fourth quarter of 1997 under which BMS was
created (85% owned by VV, 15% by the Company). As envisioned, BMS would act as
the wholesaler to the indirect channel distributors and resellers, and would
provide training, lead generation and sales support to further develop and
sustain the channel. With the creation of BMS, the Company ceased to sell
directly to VBS and its other resellers (with the exception of minor direct
sales to independent third-party resellers in the first quarter of 1998 in the
amount of $5.3 million, $1.3 million of which was recorded as deferred revenue).




                                       53
<PAGE>   55
     In connection with creating BMS in 1997, the Company entered into a
software distribution agreement under which it: (i) provided BMS with
distribution rights to the Company's products; and (ii) assigned a majority of
the Company's existing VAR (value added reseller) agreements to BMS. In
consideration for that assignment, BMS paid the Company $13 million,
representing the value of certain potential future license revenues forgone by
the Company as a result of pricing differences between customary terms in direct
sales versus indirect channel, third-party contracts. In addition, the Company
recognized revenues of approximately $3.0 million and $47.7 million during 1997
and 1998, respectively, from sales of licenses to BMS pursuant to the
distribution agreement. All revenue recognized from BMS is included in "License
revenue from related parties" in the accompanying Consolidated Statements of
Operations.

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

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

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

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

     With the exception of the limited sales the Company made directly to
resellers in the first quarter of 1998, all of the 230 or so VARs bought
licenses from BMS. As a result, virtually all of the Company's indirect channel
revenue in 1998 was reported under the "License revenue from related parties"
item in the accompanying Consolidated Statement of Operations. During the course
of 1998, sales to BMS, recognized by the Company as related party revenue, were
$15.3 million in the first quarter, $32.6 million in the second quarter, and
$23.2 million in the third



                                       54
<PAGE>   56
quarter. With respect to the fourth quarter of that year, BMS advised the
Company that $17 million in licenses had been sold through to end-users during
that quarter. As described in the next subsection, however, the Company did not
sell new licenses to BMS in the fourth quarter as part of a strategy to address
inventory levels in the channel in light of declining ERP demand.

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

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

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

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


                                       55
<PAGE>   57
     The $23 million in BMS inventory that existed at the end of the fourth
quarter (which comprised all remaining related party inventory) was purchased at
a discount by an independent third-party distributor pursuant to an agreement
between it and BMS in January 1999. As a result of that transaction, there was
no related party channel inventory as of January 1999. All channel inventory
(approximately $39 million) is in the hands of independent distributors and
VARs, and the Company will recognize revenue from the sale of such inventory
only as it is sold to end-users.

     4. The Company's acquisition of core BMS assets. In connection with its
October 1998 announcement that VV's lenders were selling the Company shares VV
owned and had pledged as collateral to pay down VV's debt obligations, VV also
announced that it would reorganize its business, and potentially liquidate or
substantially restructure certain of its assets.

     One of the assets immediately and significantly put at risk by these events
was the BMS joint venture with the Company. Given the importance of the indirect
channel to the Company's strategy going forward, the Company decided to purchase
the core BMS assets. In January 1999, the Company entered into an agreement with
VV pursuant to which the Company purchased (or was assigned) all VAR agreements
that had previously been assigned to BMS and/or that BMS had entered into since
its creation. Approximately 130 BMS employees also transferred to the Company as
part of the transaction.

     The purchase price is comprised of the following: (i) $2 million paid in
cash upon execution, representing one-half the total discount negotiated by the
third-party distributor that purchased the BMS inventory existing at the end of
1998; and (ii) a three-year, 15% royalty on the Company's net revenues from its
indirect channel that includes a minimum payment and maximum potential earn out.
The minimum guaranteed payment is approximately $41 million. To the extent this
minimum is not earned in full via the royalty the Company would be obligated to
pay VV the difference between the earned amounts and the minimum guaranty. The
maximum potential earn out is the guaranteed minimum payment plus up to an
additional $44 million.

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

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

     In addition, as part of the BMS agreement, VV has agreed to eliminate the
"Baan" name from any and all of its operations, and VV has recognized the
Company's ownership of all right, title, and interest in and to the "Baan" name
for commercial purposes. Any use of the "Baan" name by VV going forward must be
based on written agreement with the Company; but it is the intention



                                       56
<PAGE>   58


of the Company, except in isolated cases to aid in a particular VV entity's
transition to another name, that it will not grant permission to such use by VV.

     OTHER COMPANY-VV RELATIONSHIPS DURING 1998. During early 1998, the Company
sold to or acquired from VV (or VV-related entities) the following
assets/entities:

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

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

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

         During 1997 and 1998, the Company also charged VV the following amounts
for certain IT and marketing services:

-        $5.0 million and $16.5 million, respectively, pursuant to an IT
         services agreement between the parties under which the Company provides
         VV use of the Company's IT and telephony infrastructure. Pricing was
         based on third-party information the Company obtained concerning
         outsource rates charged for similar arrangements by third parties. VV
         has indicated it expects that at some point during 1999 it will no
         longer require these services and this agreement will be terminated;
         and

-        $3.6 million and $5.3 million, respectively, for marketing costs
         (including without limitation for its use of the "Baan" name). Due to
         VV's election in late 1998 to close or sell a substantial number of its
         investments, and its agreement to cease use of the "Baan" name
         (described above), the Company will not be charging VV any such
         marketing costs in 1999.

         Such amounts have been reflected as reductions in operating expenses in
the accompanying Consolidated Statements of Operations.

     During 1998, the Company entered into OEM agreements with certain software
companies owned or controlled by VV. The Company recognized royalties and
development expenses in connection with such agreements during 1998 of
approximately $1.4 million and $2.5 million, respectively. Such royalties and
development expenses are included in "Cost of license revenue" and "Research and
development expense," respectively, in the accompanying Consolidated Statements
of Operations.

     In addition, the Company has entered into several agreements with VV
entities under which the Company paid VV certain product, services, or lease





                                       57
<PAGE>   59


fees during 1997 and 1998. These agreements include royalty agreements under
which the Company is authorized to resell instructional or other materials
created by certain companies owned or controlled by VV; subcontracting
agreements whereby the Company retains the services of certain VV entities to
assist in fulfilling customer commitments; and lease agreements for certain of
the Company's Netherlands facilities that are properties owned by VV entities.
The total costs and expenses incurred by the Company in 1997 and 1998 associated
to these agreements were not material.

     VV has indicated that it intends to continue the process of closing or
selling certain of its investments. Certain of the assets VV is prepared to sell
may fit within the Company's strategy going forward and may add value to its
product offerings or ability to better serve its customers. The Company will
evaluate any such opportunities with the advice and approval of its independent
directors and independent valuations as appropriate.








                                       58
<PAGE>   60

                                     PART II

ITEM 14.  DESCRIPTION OF SECURITIES TO BE REGISTERED

         Not applicable.

                                    PART III

ITEM 15.  DEFAULTS UPON SENIOR SECURITIES

         Not applicable.

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

         Not applicable.

                                     PART IV

ITEM 17.  FINANCIAL STATEMENTS

         Not applicable.

ITEM 18.  FINANCIAL STATEMENTS

         See pages 61-92 incorporated herein by reference.

ITEM 19.  FINANCIAL STATEMENTS AND EXHIBITS

(a) FINANCIAL STATEMENTS


<TABLE>
<CAPTION>
                                                                                PAGE
                                                                                ----
<S>                                                                            <C>
          Audited Annual Financial Statements:
            Report of PricewaterhouseCoopers N.V.,
                Independent Accountants.....................................     61
            Report of Moret Ernst & Young Accountants, Independent
                Auditors ...................................................     62
            Consolidated Balance Sheets ....................................     63
            Consolidated Statements of Operations ..........................     64
            Consolidated Statements of Comprehensive Income (Loss) .........     65
            Consolidated Statements of Shareholders' Equity ................     66
            Consolidated Statements of Cash Flows ..........................     67
            Notes to Consolidated Financial Statements .....................     68
</TABLE>

(b) EXHIBITS

<TABLE>
<S>     <C>
1.1     English translation of Articles of Association of the Company lodged
        with the Chamber of Commerce and Industry for Arnhem, The Netherlands*

2.1     Indenture, dated as of December 15, 1996, between the Company and
        Marine Midland Bank, as Trustee, relating to the 4.5% Convertible
        Subordinated Notes***

2.2     Form of Notes included in Exhibit 2.1.***

2.3     Agreement and Plan of Reorganization, dated as of May 13, 1997, among
        Baan Company N.V., Green Software Acquisition Corporation and Aurum
        Software, Inc. ****

2.4     Share Rights Agreement, dated December 31, 1998, between Baan Company
        N.V. and Fletcher International Limited
</TABLE>


                                       59
<PAGE>   61
<TABLE>
<S>     <C>
3.1     Form of Indemnification Agreement between the Company and directors and
        officers*

3.2     1993 Stock Plan, as amended on May 1, 1995, and form of Option Agreement
        thereunder*

3.3     1995 Director Option Plan*

3.4     1995 Employee Stock Purchase Plan for U.S. Employees*

3.5     1995 Employee Stock Purchase Plan for Non-U.S. Employees*

3.6     Management Agreement between the Company and Jan Baan B.V., together
        with form of Agreement among the Company, Jan Baan B.V. and Jan Baan*

3.7     Management Agreement between the Company and Paul Baan B.V., together
        with form of Agreement among the Company, Paul Baan B.V. and J.G. Paul
        Baan*

3.9     Agreement dated as of August 3, 1994 between the Company and Boeing*+

3.13    Agreement dated May 15, 1995 between the Company and Baan Deutschland
        GmbH regarding the Company's acquisition of Baan Deutschland GmbH*

3.14    Employment Agreement between the Company and Tom Tinsley**

3.19    Employment Agreement dated as of September 29, 1994 between the Company
        and Amal Johnson*

3.20    Recommended Offer by Goldman Sachs International on behalf of Baan
        Company N.V. for The CODA Group plc. dated March 13, 1998.

3.21    Agreement and Plan of Reorganization, Escrow Agreement, and Shareholder
        Agreement, each dated as of September 23, 1998 regarding acquisition of
        CAPS Logistics, Inc.

3.22    Baan Midmarket Solutions B.V. Share Purchase and Asset Purchase
        Agreements among Baan Company N.V., Vanenburg Ventures B.V. and Baan
        Midmarket Solutions B.V. dated January 20, 1999.

A.1     Subsidiaries of the Company

A.2     Consent of PricewaterhouseCoopers N.V., Independent Accountants

A.3     Consent of Ernst & Young Accountants, Independent Auditors
</TABLE>

---------------

   *  Incorporated by reference to the Registration Statement (Registration
      Statement No. 33-91598) on Form F-1 effective on May 19, 1995
  **  Incorporated by reference to the Registration Statement (Registration
      Statement No. 333-00800) on Form F-1 effective on March 1, 1996
 ***  Incorporated by reference to the Registration Statement (Registration
      Statement No. 333-24201) on Form F-3 filed on March 31, 1997
****  Incorporated by reference to the Registration Statement (Registration
      Statement No. 333-31999) on Form F-4 effective on July 24, 1997
   +  Confidential treatment granted.




                                       60
<PAGE>   62

                        REPORT OF INDEPENDENT ACCOUNTANTS



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

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


                                            PricewaterhouseCoopers N.V.


Amsterdam, The Netherlands
March 1, 1999



                                       61
<PAGE>   63


                        REPORT OF INDEPENDENT ACCOUNTANTS



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

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

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

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


                                         MORET ERNST & YOUNG ACCOUNTANTS

Utrecht, The Netherlands
May 4, 1998





                                       62
<PAGE>   64

                                BAAN COMPANY N.V.

                           CONSOLIDATED BALANCE SHEETS
                      (IN THOUSANDS, EXCEPT SHARE AMOUNTS)



<TABLE>
<CAPTION>
                                                                    DECEMBER 31,
                                                              ------------------------
                                                                1997           1998
                                                              ---------      ---------
<S>                                                           <C>            <C>
ASSETS
Current assets:
  Cash and cash equivalents .............................     $ 111,417      $ 205,751
  Marketable securities .................................       104,847          1,080
  Accounts receivable, net of allowance for doubtful
     accounts of $15,054 in 1997 and $46,595 in 1998 ....       226,798        252,129
  Income tax receivables ................................            --         45,045
  Due from related parties (includes $16,500
     of trade accounts receivable for 1997) .............        42,765          6,297
  Other current assets ..................................        47,680         67,032
                                                              ---------      ---------
          Total current assets ..........................       533,507        577,334

Property and equipment, at cost .........................        91,143        129,267
Less accumulated depreciation and amortization ..........       (39,137)       (66,569)
                                                              ---------      ---------

Net property and equipment ..............................        52,006         62,698

Software development costs, net of accumulated
  amortization of $13,396 in 1997 and $22,620 in 1998 ...        49,424         78,319
Intangible assets, net of accumulated amortization of
  $19,840 in 1997 and $32,336 in 1998 ...................        41,085         52,644
Other non-current assets ................................        35,599         52,156
Deferred tax asset ......................................        10,788             --
                                                              ---------      ---------
          Total assets ..................................     $ 722,409      $ 823,151
                                                              =========      =========

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
  Short-term borrowings from banks and current
     portion of long-term Debt ..........................     $   1,730      $     523
  Accounts payable ......................................        59,729         74,508
  Accrued liabilities ...................................        63,823        162,771
  Payroll taxes payable .................................        10,641         16,758
  Income taxes payable ..................................        52,468         43,441
  Other current liabilities .............................         5,803          7,529
  Deferred revenue ......................................        29,872        147,933
                                                              ---------      ---------
          Total current liabilities .....................       224,066        453,463

Long-term debt ..........................................       200,718        191,013
Other long-term liabilities .............................         4,305          4,084
Long-term deferred revenue ..............................         2,855         17,831

Commitments and contingencies

Shareholders' equity:
  Common shares, par value - NLG 0.06 per share,
     700,000,000 shares authorized; 193,698,784
     and 204,886,317 issued and outstanding in
     1997 and 1998, respectively ........................         5,939          6,193
  Additional paid-in capital ............................       174,994        387,406
  Retained earnings (accumulated deficit) ...............       116,224       (235,261)
  Accumulated other comprehensive income ................        (6,692)        (1,578)
                                                              ---------      ---------
          Total shareholders' equity ....................       290,465        156,760
                                                              ---------      ---------
                                                              $ 722,409      $ 823,151
                                                              =========      =========
</TABLE>


The accompanying notes are an integral part of these financial statements.





                                       63
<PAGE>   65
                                BAAN COMPANY N.V.

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



<TABLE>
<CAPTION>
                                                              YEAR ENDED DECEMBER 31,
                                                     ---------------------------------------
                                                       1996           1997            1998
                                                     ---------      ---------      ---------
<S>                                                  <C>            <C>            <C>
Net revenues:
  License revenue ..............................     $ 226,135      $ 367,101      $ 285,778
  License revenue from related parties .........        14,532         66,325         50,600
                                                     ---------      ---------      ---------
     Total license revenue .....................       240,667        433,426        336,378
  Maintenance and service revenue ..............       174,875        246,170        399,271
                                                     ---------      ---------      ---------
     Total net revenues ........................       415,542        679,596        735,649

Cost of revenues:
  Cost of license revenue ......................        14,442         31,212         30,741
  Cost of maintenance and service revenue ......       143,746        189,871        302,063
                                                     ---------      ---------      ---------
     Total cost of revenues ....................       158,188        221,083        332,804
                                                     ---------      ---------      ---------
Gross profit ...................................       257,354        458,513        402,845
                                                     ---------      ---------      ---------

Operating and non-recurring expenses:
  Sales and marketing ..........................       102,191        171,572        272,497
  Research and development .....................        45,843         90,849        151,369
  General and administrative ...................        49,136         72,489        156,148
  Asset write-downs ............................            --          3,393         36,899
  Loss on disposal of assets ...................            --             --         58,030
  Restructuring and other non-recurring expenses            --          8,675         59,972
                                                     ---------      ---------      ---------
     Total operating and non-recurring expenses        197,170        346,978        734,915
                                                     ---------      ---------      ---------

Income (loss) from operations ..................        60,184        111,535       (332,070)

Interest income ................................         1,137         14,408          8,668
Interest expense ...............................        (1,889)       (12,338)       (11,750)
Other income (expense), net ....................           435            (95)           (40)
                                                     ---------      ---------      ---------
Income (loss) before income taxes ..............        59,867        113,510       (335,192)
Provision (benefit) for income taxes ...........        23,255         36,354        (20,000)
                                                     ---------      ---------      ---------
Net income (loss) ..............................     $  36,612      $  77,156      $(315,192)
                                                     =========      =========      =========

Net income (loss) per share
  Basic ........................................     $    0.20      $    0.40      $   (1.59)
  Diluted ......................................     $    0.19      $    0.37      $   (1.59)

Shares used in computing per share amounts
  Basic ........................................       179,512        190,842        198,519
  Diluted ......................................       196,496        206,071        198,519
</TABLE>



The accompanying notes are an integral part of these financial statements.



                                       64
<PAGE>   66

                                BAAN COMPANY N.V.

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



<TABLE>
<CAPTION>
                                                YEAR ENDED DECEMBER 31,
                                        ---------------------------------------
                                           1996           1997           1998
                                        ---------      ---------      ---------
<S>                                     <C>            <C>            <C>
Net income (loss) .................     $  36,612      $  77,156      $(315,192)
Other comprehensive income (loss):
    Currency translation adjustment        (3,993)        (5,956)         5,114
                                        ---------      ---------      ---------
Comprehensive income (loss) .......     $  32,619      $  71,200      $(310,078)
                                        =========      =========      =========
</TABLE>



The accompanying notes are an integral part of the financial statements.









                                       65
<PAGE>   67

                                BAAN COMPANY N.V.

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



<TABLE>
<CAPTION>
                                                                                     RETAINED      ACCUMULATED
                                                                     ADDITIONAL      EARNINGS         OTHER           TOTAL
                                            COMMON SHARES              PAID-IN     (ACCUMULATED   COMPREHENSIVE    SHAREHOLDERS'
                                        SHARES          AMOUNT         CAPITAL       DEFICIT)         INCOME          EQUITY
                                      -----------    ------------   ------------   ------------   -------------    ------------
<S>                                   <C>            <C>            <C>            <C>             <C>             <C>
Balance at December 31, 1995 .....    174,292,236    $      5,344   $     82,612   $      9,147    $      3,257    $    100,360
Issuance of common shares
  for business acquisitions ......      2,918,000              89             --           (548)             --            (459)
Issuance of common shares
  under stock purchase plan,
  and upon exercise of stock
  options including $797 tax
  benefit ........................      5,053,622             155         10,082             --              --          10,237
Reclass due to elimination of
  mandatory redemption provisions
  related to convertible preferred
  stock and conversion to common
  stock (Aurum) ..................      3,530,028             108         18,248             --              --          18,356
Issuance of common  shares
  pursuant to initial public
  offering (Aurum) ...............      2,062,626              63         41,840             --              --          41,903
Repurchase of common stock
  (Aurum) ........................        (38,966)             --             --             --              --              --
Currency translation adjustment ..             --              --             --             --          (3,993)         (3,993)
Net income .......................             --              --             --         36,612              --          36,612
                                     ------------    ------------   ------------   ------------    ------------    ------------
Balance at December 31, 1996 .....    187,817,546           5,759        152,782         45,211            (736)        203,016
Issuance of common shares
  for business acquisitions ......      1,300,198              40          4,044         (6,143)             --          (2,059)
Issuance of common shares
  Under stock purchase plan,
  and upon exercise of stock
  options ........................      4,581,040             140         18,168             --              --          18,308
Currency translation adjustment ..             --              --             --             --          (5,956)         (5,956)
Net income .......................             --              --             --         77,156              --          77,156
                                     ------------    ------------   ------------   ------------    ------------    ------------
Balance at December 31, 1997 .....    193,698,784           5,939        174,994        116,224          (6,692)        290,465
Issuance of common shares
  for business acquisitions ......      4,473,684             138         88,266        (36,293)             --          52,111
Issuance of common shares
  under stock purchase plan,
  and upon exercise of stock
  options ........................      6,300,813             103         39,363             --              --          39,466
Common shares subscribed, net of
   issuance costs ................             --              --         74,900             --              --          74,900
Conversion of convertible notes to
  common shares ..................        413,036              13          9,883             --              --           9,896
Currency translation adjustment ..             --              --             --             --           5,114           5,114
Net loss .........................             --              --             --       (315,192)             --        (315,192)
                                     ------------    ------------   ------------   ------------    ------------    ------------
Balance at December 31, 1998 .....    204,886,317    $      6,193   $    387,406   $   (235,261)   $     (1,578)   $    156,760
                                     ============    ============   ============   ============    ============    ============
</TABLE>



The accompanying notes are an integral part of these financial statements.






                                       66
<PAGE>   68

                                BAAN COMPANY N.V.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)


<TABLE>
<CAPTION>
                                                                                       YEAR ENDED DECEMBER 31,
                                                                                 ------------------------------------
                                                                                    1996         1997        1998
                                                                                 ---------    ---------    ---------
<S>                                                                              <C>          <C>          <C>
Operating activities:
Net income (loss) ............................................................   $  36,612    $  77,156    $(315,192)
  Adjustments to reconcile net income (loss) to net cash provided by
    (used in) operating activities:
    Depreciation and amortization ............................................      19,782       29,104       51,511
    Provision for doubtful accounts ..........................................       1,635       12,415       55,304
    Provision (benefit) for deferred income taxes ............................      (7,187)     (10,592)      10,788
    Asset write-downs ........................................................          --        3,393       36,899
    Loss on disposal of assets ...............................................          --           --       45,988
    Restructuring and other expenses .........................................          --           --       14,693
    Foreign currency transaction (gains) losses ..............................         170       (6,452)       3,648
    Changes in operating assets and liabilities, net of acquisitions:
      Accounts receivable ....................................................     (91,155)     (97,592)     (59,289)
      Due to/from related parties ............................................          --      (42,765)      36,817
      Other current assets ...................................................      (6,026)     (39,356)     (78,709)
      Accounts payable .......................................................      12,312       19,599      (12,408)
      Accrued liabilities ....................................................      14,367       42,727       49,685
      Payroll taxes payable ..................................................       2,899        5,125        1,533
      Income taxes payable ...................................................      14,023       33,909       (7,923)
      Other current liabilities ..............................................         746       (3,256)       2,198
      Deferred revenue .......................................................       1,923       17,924      123,465
                                                                                 ---------    ---------    ---------
Net cash provided by (used in) operating activities ..........................         101       41,339      (40,992)
                                                                                 ---------    ---------    ---------

Investing activities:
Property and equipment purchased .............................................     (23,856)     (42,457)     (38,674)
Property and equipment sold ..................................................       3,893        7,604        8,377
Increase in capitalized software development costs ...........................     (10,705)     (29,518)     (29,581)
Payment for acquisitions and investments, net of cash acquired ...............      (3,806)     (59,922)     (23,240)
Proceeds from sale of investments and subsidiaries ...........................          --           --       18,689
Purchases of marketable securities ...........................................     (14,286)    (539,233)    (209,451)
Proceeds from maturities of marketable securities ............................      33,982      438,253      313,218
Other ........................................................................       1,095       (2,231)     (11,856)
                                                                                 ---------    ---------    ---------
Net cash (used in) provided by  investing activities .........................     (13,683)    (227,504)      27,482
                                                                                 ---------    ---------    ---------

Financing activities:
Payments under short-term credit facilities ..................................      (3,249)        (742)        (917)
Payments of long-term borrowings .............................................        (414)      (1,108)        (266)
Issuance costs of convertible subordinated notes .............................      (4,375)        (875)          --
Proceeds from sale of accounts receivable ....................................      17,000       17,500           --
Proceeds from issuance of convertible subordinated notes .....................     175,000       25,000           --
Proceeds from issuance of mandatorily redeemable convertible preferred stock .         882           --           --
Proceeds from issuance and subscription of common shares .....................      51,147       18,002      114,466
                                                                                 ---------    ---------    ---------
Net cash provided by financing activities ....................................     235,991       57,777      113,283

Effect of foreign currency exchange rates on cash and cash equivalents .......        (383)       2,819       (5,439)
                                                                                 ---------    ---------    ---------
Increase (decrease) in cash and cash equivalents .............................     222,026     (125,569)      94,334
Cash and cash equivalents at beginning of year ...............................      14,960      236,986      111,417
                                                                                 ---------    ---------    ---------
Cash and cash equivalents at end of year .....................................   $ 236,986    $ 111,417    $ 205,751
                                                                                 =========    =========    =========

Supplemental disclosures of cash flow information:
Cash paid during the period for:
  Interest ...................................................................   $     657    $  10,924    $  11,732
  Taxes ......................................................................   $  12,869    $   6,561    $  17,204

Tax benefit related to issuance of common shares .............................   $     797    $      --    $      --
Conversion of convertible notes to common shares .............................   $      --    $      --    $   9,896
Issuance of common shares for business acquisitions ..........................   $     459    $   2,059    $  52,111
</TABLE>



The accompanying notes are an integral part of these financial statements.






                                       67
<PAGE>   69

                                BAAN COMPANY N.V.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PREPARATION

     The consolidated financial statements are stated in United States dollars
and are prepared under United States generally accepted accounting principles.
These consolidated financial statements do not represent the Dutch statutory
financial statements.

BUSINESS

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

PRINCIPLES OF CONSOLIDATION

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

FOREIGN EXCHANGE

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

DERIVATIVE FINANCIAL INSTRUMENTS

     Derivative financial instruments are used by the Company in the management
of its foreign currency exposures. Realized and unrealized gains and losses on
foreign currency forward contracts are marked to market and recognized in



                                       68
<PAGE>   70
results of operations. Any realized and unrealized gains and losses on contracts
used to hedge intracompany transactions of a long-term nature are included in
the accumulated translation adjustment in shareholders' equity.

REVENUE RECOGNITION

     License revenue is derived from software licensing fees. Maintenance and
service revenue is derived from maintenance support services, training and
consulting. License and hardware revenue is recognized upon delivery if the
Company has a signed agreement in place, the license fee is fixed and
determinable, and collection of the resulting receivable is deemed probable.
Sales to third party and related party indirect channel partners are recorded
upon product shipment subject to the conditions noted above, and reported sales
by such partners to end-users. Delivery is further defined in certain contracts
as delivery of the product master or first copy for noncancelable product
licensing arrangements under which the customer has certain software
reproduction rights. Returns and allowances are estimated and provided for at
the time of sale. Service revenue from customer maintenance fees for ongoing
customer support and product updates is recognized ratably over the term of the
maintenance period, which is typically twelve months. Payments for maintenance
fees are generally made in advance and are nonrefundable. Service revenue from
consulting and training is billed separately and is recognized as the services
are performed. Revenues under software contracts requiring product customization
or service contracts containing fixed-price arrangements are recorded under
contract accounting on a percent-of-completion basis.

     In December 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-9 (SOP 98-9), "Modification of SOP 97-2,
Software Revenue Recognition with Respect to Certain Transactions". SOP 98-9 is
effective for all transactions entered into by the Company in fiscal year 2000.
The adoption of this statement is not expected to have a material impact on the
Company's operating results, financial position or cash flows.

SOFTWARE DEVELOPMENT COSTS

     Costs related to research, design and development of computer software are
expensed as incurred. Certain software development costs related to completion
of internally developed products are capitalized at the point that technological
feasibility is established, normally at the completion of a detail program
design. Capitalized amounts are reported at the lower of unamortized cost or net
realizable value. These costs are amortized on a product-by-product basis. The
annual amortization expense is the greater of the amount computed using the
ratio of current revenue to the total anticipated revenue for the product or the
straight line method over the estimated life of the product (generally three
years), starting when the product is available for general release to customers.
Estimated lives are revised when new projects or product enhancements which
affect product lives are completed. The establishment of technological
feasibility and the ongoing assessment of the recoverability of capitalized
amounts require a significant amount of judgment by management in assessing such
factors as future revenues, product lives and economic changes in the Company's
marketplace. Amortization of software development costs was approximately
$2,464,000, $5,947,000 and $14,828,000 for the years ended December 31, 1996,
1997 and 1998, respectively. Such amortization is included in cost of license
revenue.




                                       69
<PAGE>   71

PROPERTY AND EQUIPMENT AND INTANGIBLE ASSETS

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

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


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

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

PER SHARE INFORMATION

     Diluted net income per share is computed using the weighted average number
of common and dilutive common equivalent shares outstanding during the period.
Dilutive common equivalent shares consist of shares issuable upon the exercise
of stock options (using the treasury stock method) and convertible securities
when the effect is dilutive. The computation for net loss per share excludes any
anti-dilutive common equivalent shares.

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


<TABLE>
<CAPTION>
                                                                               1996       1997        1998
                                                                             --------   --------   -----------
<S>                                                                          <C>        <C>        <C>
            Numerator:
              Net income (loss) ..........................................   $ 36,612   $ 77,156   $  (315,192)
                                                                             ========   ========   ===========

            Denominator:
                Denominator for basic income (loss) per share -
                  Weighted average shares ................................    179,512    190,842       198,519
                  Common equivalent shares ...............................     16,984     15,229            --
                                                                             --------   --------   -----------
                Denominator for diluted income (loss) per share -
                  Adjusted weighted average shares and assumed conversions
                                                                              196,496    206,071       198,519
                                                                             ========   ========   ===========

            Basic income (loss) per share ................................   $   0.20   $   0.40   $     (1.59)
            Diluted income (loss) per share ..............................   $   0.19   $   0.37   $     (1.59)
</TABLE>

     At December 31, 1996, 1997 and 1998, 7,955,000, 9,091,000 and 8,641,000,
respectively, shares issuable upon conversion of the Company's convertible
subordinated notes were excluded from the computation of diluted earnings per
share because the effect was anti-dilutive. At December 31, 1998, 7,425,000
common equivalent shares were excluded from the computation of diluted earnings
per share because the effect was anti-dilutive. See Note 6 to Notes to
Consolidated Financial Statements.

COMPREHENSIVE INCOME

     The Company adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("SFAS 130") on December 31, 1998. Under SFAS
130, the Company is required to display comprehensive income and its components



                                       70
<PAGE>   72


as part of the financial statements. Comprehensive income is comprised of net
income (loss) and other comprehensive income, which includes certain changes in
equity that are excluded from net income (loss).

CASH AND CASH EQUIVALENTS

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

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

MARKETABLE SECURITIES

     Debt securities that the Company has both the positive intent and ability
to hold to maturity are carried at amortized cost. Debt securities that the
Company does not have the positive intent and ability to hold to maturity and
all marketable equity securities are classified as securities available-for-sale
and are carried at fair value.

     Management determines the proper classifications of debt and marketable
equity securities at the time of purchase and reevaluates such designations as
of each balance sheet date. By policy, the Company's investments are primarily
in short-term notes.

LONG-LIVED ASSETS

     The Company accounts for long-lived assets under Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of" which requires the Company
to review for impairment of long-lived assets, certain identifiable intangibles,
and goodwill related to those assets, whenever events or changes in
circumstances indicate that the carrying amount of an asset might not be
recoverable. When such an event occurs, the Company estimates the future cash
flows expected to result from the use of the asset and its eventual disposition.
If the undiscounted expected future cash flows is less than the carrying amount
of the asset, an impairment loss is recognized.

RECLASSIFICATIONS

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

USE OF ESTIMATES

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




                                       71
<PAGE>   73



RECENT ACCOUNTING PRONOUNCEMENTS

     In June 1998, the Financial Standards Board issued Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities." SFAS 133 is effective for fiscal years beginning after June 15,
1999 and cannot be applied retroactively. The Statement establishes accounting
and reporting standards requiring that every derivative instrument be recorded
in the balance sheet as either an asset or liability measured at its fair value.
The Statement requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. The
Company is evaluating the impact of SFAS 133.


2  PROPERTY AND EQUIPMENT

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


<TABLE>
<CAPTION>
                                                    DECEMBER 31,
                                               ---------------------
                                                 1997         1998
                                               --------     --------
<S>                                            <C>          <C>
            Computer equipment ...........     $ 60,445     $ 73,803
            Furniture and other ..........       23,561       43,392
            Leasehold improvements .......        7,137       12,072
                                               --------     --------
                                               $ 91,143     $129,267
                                               ========     ========
</TABLE>

     Depreciation and amortization expense related to property and equipment was
$11,038,000, $17,665,000 and $27,799,000 for the years ended December 31, 1996,
1997, and 1998, respectively.


3  INTANGIBLE ASSETS

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



<TABLE>
<CAPTION>
                                                    GOODWILL       CUSTOMER LIST       WORK FORCE          TOTAL
                                                    --------       -------------       ----------         --------
<S>                                                 <C>               <C>               <C>               <C>
            Book value at December, 31 1997         $ 25,213          $  9,226          $  6,646          $ 41,085

            Purchases and additions .......           42,999             3,249             7,065            53,313
            Disposals .....................          (17,988)           (6,732)           (7,331)          (32,051)
            Amortization ..................           (4,718)           (2,743)           (1,298)           (8,759)
            Foreign exchange difference ...             (575)              (77)             (292)             (944)
                                                    --------          --------          --------          --------
            Book value at December, 31 1998         $ 44,931          $  2,923          $  4,790          $ 52,644
                                                    ========          ========          ========          ========
            Total accumulated amortization          $ 15,504          $ 13,194          $  3,638          $ 32,336
                                                    ========          ========          ========          ========
</TABLE>


     Amortization expense related to intangible assets was $6,125,000,
$6,054,000, and $8,759,000 for the years ended December 31, 1996, 1997, and
1998, respectively.


4  MARKETABLE SECURITIES

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





                                       72
<PAGE>   74


<TABLE>
<CAPTION>
                                                                     DECEMBER 31,
                                                              -------------------------
                                                                1997             1998
                                                              --------         --------
<S>                                                           <C>              <C>
            Corporate notes .........................         $135,624         $     --
            US government agency notes ..............           20,951               --
            Other ...................................              337            1,080
                                                              --------         --------
                                                              $156,912         $  1,080
                                                              ========         ========

            Amounts included in cash equivalents ....         $ 52,065         $     --
            Amounts included in marketable securities          104,847            1,080
                                                              --------         --------
                                                              $156,912         $  1,080
                                                              ========         ========
</TABLE>

     All securities held as of December 31, 1998 are due within one year. As of
December 31, 1997 and 1998, all securities were designated as available for
sale. Accordingly, these securities are carried at fair value. Since the
difference between the cost and fair values at such dates was immaterial, no
adjustments have been made to the historical carrying value of the investments
and no unrealized gains or losses have been recorded as a separate component of
shareholders' equity. The cost of securities sold is based on specific
identification.


5  BORROWING ARRANGEMENTS

CREDIT AGREEMENTS

     The Company has a credit facility with a Dutch bank which allows the
Company to borrow up to NLG 40,000,000 ($21,208,800 based on the exchange rate
at December 31, 1998). Interest on borrowings under the credit facility accrues
at the Dutch Central Bank's promissory note discount rate plus 1.5% (a total of
4.75% at December 31, 1998) with a minimum interest rate of 4% and is payable
quarterly. There were no outstanding borrowings under the credit facility at
December 31, 1997 and 1998.

     The Company, its Netherlands subsidiaries, and Baan USA, Inc. have pledged
their accounts receivable as collateral for the credit facility. Furthermore,
these entities may not transfer title to any of their assets outside the normal
course of business without the express written consent of the bank.

     As of December 31, 1998, one of the Company's subsidiaries has a $3 million
line of credit with its local bank (reduced to $1 million in January 1999). The
Dutch Bank has guaranteed repayment on the line of credit to the local bank.
Accordingly, the Company's ability to borrow on its NLG 40 million credit
facility is reduced by the amount of the guarantee. At December 31, 1998, the
local subsidiary had borrowings of $101,000 on its line of credit.

     Certain of the Company's subsidiaries have agreements with their credit
institutions which allow them to carry deficit balances in their demand deposit
accounts. Borrowings under such agreements amounted to $877,000 and $20,000 at
December 31, 1997 and 1998, respectively.

     The weighted average interest rates on the short-term borrowings were
11.33% and 6.87% as of December 31, 1997 and 1998, respectively.






                                       73
<PAGE>   75
LONG-TERM DEBT

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

<TABLE>
<CAPTION>
                                                                      DECEMBER 31,
                                                               -------------------------
                                                                 1997             1998
                                                               --------         --------
<S>                                                           <C>              <C>
            Convertible subordinated notes, 4.50%, due
            December 15, 2001 ........................         $200,000         $190,103
            Other ....................................            1,571            1,312
                                                               --------         --------
                                                                201,571          191,415
            Less current portion .....................              853              402
                                                               --------         --------
                                                               $200,718         $191,013
                                                               ========         ========
</TABLE>

     In December 1996, the Company issued $175,000,000 of 4.5% unsecured
convertible subordinated notes ("Notes") pursuant to an indenture dated as of
December 15, 1996 ("Indenture"). The Notes are convertible into the Company's
common shares at any time after the 90th day following the last original issue
date of the Notes at a conversion price of $22.00 per share. The Notes are
redeemable by the Company under certain conditions after December 16, 1998 and
at any time after December 16, 1999. Until the Notes are converted or redeemed,
the Company will pay interest semi-annually, commencing June 15, 1997. In
January 1997, the Company issued another $25,000,000 of Notes under the same
terms and conditions. The Notes are subordinated in right of payment to all
existing and future Senior Indebtedness (as defined in the Indenture) of the
Company. As of December 31, 1998, $9.9 million of notes had been converted to
common shares.

     Costs of $5,000,000 incurred in connection with issuing the Notes have been
capitalized and are being amortized on a straight-line basis to interest expense
over the term of the Notes. A total of $875,000 and $1,000,000 were amortized in
the years ended December 31, 1997 and 1998, respectively. Remaining unamortized
costs are included in Other non-current assets in the accompanying Consolidated
Balance Sheets.

     The aggregate amount of maturities subsequent to December 31, 1998 for all
long-term debt based on the exchange rates at December 31, 1998 are as follows
(in thousands):


<TABLE>
<S>                                                          <C>
            1999 ........................................    $    402
            2000 ........................................         778
            2001 ........................................     190,235
                                                             --------
                                                             $191,415
                                                             ========
</TABLE>


6  SHAREHOLDERS' EQUITY

COMMON SHARES

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

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



                                       74
<PAGE>   76


commencing October 1, 1999, Fletcher has the additional right to purchase
another $75 million in common shares.

COMPANY STOCK PLAN

     In December 1993, shareholders approved the 1993 Stock Plan (the "Company
Plan"). Through this Plan and subsequent amendments, the Company has reserved a
total of 40,000,000 common shares for grant thereunder to eligible participants.
The shares may be authorized but unissued, or reacquired common stock. The
number of common shares covered under the Plan shall be proportionately adjusted
for any increase or decrease in the number of shares issued for which the
Company receives no consideration. As of December 31, 1997 and 1998, 2,222,000
and 3,071,000 common shares, respectively, remain available for grant.

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

ASSUMED STOCK PLANS

     As a result of the Company's acquisition of Berclain Group, Inc.
("Berclain") in May 1996, the Company assumed the outstanding options under The
Berclain Stock Option Plan (the "Berclain Plan"). The Berclain Plan provided for
grants of non-qualified stock options to employees and eligible participants of
Berclain. The term of each option was not to exceed a period of five years from
the grant date and each option generally vested over one year. At December 31,
1998, the Company had reserved 6,926 of its common shares for issuance under the
Berclain Plan. No additional grants will be made under the Berclain Plan.

     As a result of the Company's acquisition of Aurum Software, Inc. ("Aurum")
in 1997, the Company assumed the outstanding options under Aurum's Stock Option
Plans (the "Aurum Plans"). The Aurum Plans provided for grants of incentive and
repurchaseable stock options to employees and non-qualified options to eligible
participants of Aurum. The term of each option was not to exceed a period of ten
years from the grant date and each option generally vested over four years. At
December 31, 1998, the Company had reserved 1,567,952 of its common shares for
issuance under the Aurum Plans. No additional grants will be made under the
Aurum Plans.

     As a result of the Company's acquisition of Beologic A/S ("Beologic") in
November 1997, the Company assumed the outstanding options under The Beologic
Warrant Scheme (the "Beologic Plan"). The Beologic Plan provided for grants of
non-qualified stock options to employees and eligible participants of Beologic.
The term of each option was not to exceed a period of 32 months and 31 days from
the grant date and each option generally vested over 2.6 years. At December 31,
1998, the Company had reserved 122,796 of its common shares for issuance under
the Beologic Plan. No additional grants will be made under the Beologic Plan.

     As a result of the Company's acquisition of CODA ("Coda") in May 1998, the
Company assumed the outstanding options under Coda's three stock options plans:
the Coda Worldwide Scheme, Coda Incorporated Scheme (U.S.), and Coda Executive
Scheme (U.K.) (the "Coda Plans"). The Coda Plans provided for grants of
incentive stock options to employees and non-qualified options to eligible
participants of Coda. The term of each option was not to exceed a period of ten
years from the grant date and each option generally vested over three years. At



                                       75
<PAGE>   77



December 31, 1998, the Company had reserved 97,207 of its common shares for
issuance under the Coda Plans. No additional grants will be made under the Coda
Plans.

EMPLOYEE STOCK PURCHASE PLANS

     In February 1995, the Company adopted the 1995 Employee Stock Purchase
Plans (U.S. ESPP and Non-U.S. ESPP). The U.S. ESPP permits eligible employees of
Baan USA to purchase common shares through payroll deductions of up to the
lesser of 10% of their compensation, or $25,000 in any year. The price of common
shares purchased under the U.S. ESPP will be 85% of the lower of the fair market
value of the Company's common shares on the first or last day of each offering
period. The Non-U.S. ESPP terms are modified for local rules governing such
plans. A total of 4,000,000 common shares are available for grant under the two
Employee Stock Purchase Plans. Approximately 2,185,750 common shares were issued
under these plans through December 31, 1998.

DIRECTOR STOCK OPTION PLAN

     In March 1995, the Company adopted the 1995 Director Stock Option Plan
("Director Plan"). Under the terms of the Director Plan, each person who becomes
a Supervisory Director after July 1, 1995 shall automatically be granted an
option to purchase 32,000 common shares of the Company ("Initial Options").
Initial Option grants vest in four equal annual installments. All options have a
term of five years and are to be granted at fair market value at the date of
grant. In the event of a merger or sale of the Company, all options granted
become exercisable immediately. The Company has reserved a total of 1,600,000
common shares for grant under the Director Plan.

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


<TABLE>
<CAPTION>
                                                              OUTSTANDING           WEIGHTED
                                                               NUMBER OF          AVERAGE PRICE
                                                                OPTIONS            PER OPTION
                                                              -----------          -----------
<S>                                                           <C>                 <C>
            Balance at December 31, 1995 ............          18,432,000          $      1.74
            Granted .................................           5,752,000          $     14.16
            Canceled or expired .....................          (1,461,000)         $      2.94
            Exercised ...............................          (3,779,000)         $      1.28
                                                              -----------          -----------
            Balance at December 31, 1996 ............          18,944,000          $      7.74
            Granted .................................           7,901,000          $     31.66
            Canceled or expired .....................            (616,000)         $     15.39
            Exercised ...............................          (4,185,000)         $      4.69
                                                              -----------          -----------
            Balance at December 31, 1997 ............          22,044,000          $     18.62
            Granted .................................          11,706,000          $     16.18
            Canceled or expired .....................          (8,629,000)         $     23.86
            Exercised ...............................          (5,575,000)         $      4.68
                                                              -----------          -----------
            Balance at December 31, 1998 ............          19,546,000          $     11.42
                                                              ===========          ===========
</TABLE>




                                       76
<PAGE>   78
     As of December 31, 1997 and 1998, stock options were exercisable for
6,189,000 and 7,425,000 common shares, respectively.

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

     The following table summarizes information about stock options outstanding
at December 31, 1998:


<TABLE>
<CAPTION>
                                            OPTIONS OUTSTANDING                                      OPTIONS EXERCISABLE
            ---------------------------------------------------------------------------       --------------------------------
                                     WEIGHTED AVERAGE                        WEIGHTED                                WEIGHTED
                RANGE OF               REMAINING            NUMBER         AVERAGE PRICE          NUMBER         AVERAGE PRICE
             EXERCISE PRICES        CONTRACTUAL LIFE      OUTSTANDING       PER OPTION          EXERCISABLE       PER OPTION
            ----------------        ----------------      -----------      -------------        -----------      -------------
<S>                                     <C>              <C>                <C>                <C>               <C>
              $0.01 -  $5.68            1.0 year           3,511,000        $      1.27          2,611,000        $      1.15
              $5.69 - $11.36            2.4 years          9,918,000        $     10.72          3,825,000        $     10.41
             $11.37 - $17.03            3.9 years          3,352,000        $     12.21            204,000        $     13.72
             $17.04 - $22.71            2.7 years          1,289,000        $     18.20            285,000        $     18.77
             $22.72 - $28.39            5.5 years             11,000        $     27.27              8,000        $     27.74
             $28.40 - $34.07            3.1 years          1,217,000        $     31.25            400,000        $     31.08
             $34.08 - $39.75            3.3 years            181,000        $     36.59             75,000        $     36.82
             $39.76 - $45.42            3.1 years             43,000        $     43.62              3,000        $     44.63
             $45.43 - $51.10            6.7 years             13,000        $     49.69              6,000        $     49.69
             $51.11 - $56.78            0.5 years             11,000        $     55.85              8,000        $     56.60
                                                        ------------                           -----------
                                                          19,546,000                             7,425,000
                                                        ============                           ===========
</TABLE>

STOCK-BASED COMPENSATION

     As permitted under Statement of Financial Accounting Standards No. 123,
"Accounting for Stock Based Compensation" (SFAS No. 123), the Company has
elected to follow Accounting Principles Board's Opinion No. 25 "Accounting for
Stock Issued to Employees" (APB No. 25) in accounting for stock-based awards to
employees. Under APB No. 25, the Company generally recognizes no compensation
expense with respect to such awards since the exercise price of the stock
options granted are equal to the fair market value of the underlying security on
the grant date.

     Pro forma information regarding net income and earnings per share is
required by SFAS No. 123 for awards granted after December 31, 1994 as if the
Company had accounted for its stock-based awards to employees under the fair
value method of SFAS No. 123. The fair value of the Company's stock-based awards
to employees was estimated as of the date of grant using a Black-Scholes option
pricing model. The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, the Black-Scholes model requires the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's stock-based awards to employees have
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect the
fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its



                                       77
<PAGE>   79


stock-based awards to employees. The fair value of the Company's stock-based
awards to employees was estimated assuming no expected dividends and the
following weighted-average assumptions:


<TABLE>
<CAPTION>
                                                                 OPTIONS                             ESPP
                                                     ----------------------------         ----------------------------
                                                     1996         1997       1998         1996        1997        1998
                                                     ----         ----       ----         ----        ----        ----
<S>                                                 <C>         <C>         <C>          <C>         <C>         <C>
            Expected life (months) ..........         56          56          59           6           6           6
            Expected volatility .............         50%         50%         75%         50%         50%         75%
            Risk-free interest rate .........         6.1%        5.7%        5.1%        6.2%        5.4%        5.1%
</TABLE>

     For pro forma purposes, the estimated fair value of the Company's
stock-based awards to employees is amortized over the options' vesting period
(for options) and the six-month purchase period (for stock purchases under the
ESPP). The Company's pro forma net income and net income per share for 1996,
1997 and 1998 is as follows (in thousands except for net income per share):


<TABLE>
<CAPTION>
                                                       1996                 1997                1998
                                                    -----------         -----------         -----------
<S>                                                 <C>                 <C>                 <C>
            Net income (loss):
               As reported ................         $    36,612         $    77,156         $  (315,192)
               Pro forma ..................         $    28,616         $    50,479         $  (383,920)
            Basic income (loss) per share
               As reported ................         $      0.20         $      0.40         $     (1.59)
               Pro forma ..................         $      0.16         $      0.26         $     (1.93)
            Diluted income (loss) per share
               As reported ................         $      0.19         $      0.37         $     (1.59)
               Pro forma ..................         $      0.15         $      0.25         $     (1.93)
</TABLE>

     The weighted-average fair value of options granted during 1996, 1997 and
1998 was $5.30, $11.25 and $14.73 respectively. The weighted average fair value
of employee stock purchase rights granted under the U.S. ESPP and Non-U.S. ESPP
during 1996, 1997 and 1998 was $3.61, $6.28 and $11.57, respectively.


7 INCOME TAXES

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

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


<TABLE>
<CAPTION>
                                                                 YEAR ENDED DECEMBER 31,
                                                      ---------------------------------------------
                                                         1996              1997             1998
                                                      ---------         ---------         ---------
<S>                                                   <C>               <C>               <C>
            The Netherlands .................         $  49,229         $  81,629         $(119,744)
            Rest of the world ...............            10,638            31,881          (215,448)
                                                      ---------         ---------         ---------
            Income (loss) before income taxes         $  59,867         $ 113,510         $(335,192)
                                                      =========         =========         =========
</TABLE>


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


<TABLE>
<CAPTION>
                                                                   YEAR ENDED DECEMBER 31,
                                                         --------------------------------------------
                                                           1996              1997              1998
                                                         --------          --------          --------
<S>                                                      <C>               <C>               <C>
            Current:
              The Netherlands ..................         $ 22,184          $ 31,316          $(31,088)
              Germany ..........................            4,393             4,536            (6,000)
              United States ....................            3,168             7,579             1,300
              Other countries ..................              697             3,515             5,000
                                                         --------          --------          --------
                Total current ..................           30,442            46,946           (30,788)
</TABLE>






                                       78
<PAGE>   80


<TABLE>
<S>                                                     <C>                <C>               <C>
            Deferred:
              The Netherlands ..................           (7,410)          (11,741)           13,708
              Germany ..........................              223               415            (4,629)
              United States ....................               --               734             1,709
                                                         --------          --------          --------
                Total deferred .................           (7,187)          (10,592)           10,788
                                                         --------          --------          --------
            Provision (benefit) for income taxes         $ 23,255          $ 36,354          $(20,000)
                                                         ========          ========          ========
</TABLE>


     In 1996, the Company recognized tax benefits related to stock option plans
of $797,000. Such benefits were recorded as an increase to additional paid-in
capital.

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


<TABLE>
<CAPTION>
                                                                            YEAR ENDED DECEMBER 31,
                                                                --------------------------------------------------
                                                                   1996               1997                1998
                                                                ---------           ---------           ---------
<S>                                                             <C>                 <C>                 <C>
            Expected tax at standard rate .............         $  20,953           $  39,729           $(117,317)
            Amortization of goodwill ..................               661               2,106               8,341
            Foreign earnings taxed at higher rates ....             1,881                 239                  --
            Dutch qualifying income tax reduction .....                --              (4,382)                 --
            Increase in valuation allowance ...........                --                  --             116,404
            Rate differential on subsidiary write-downs                --                  --             (50,600)
            Other, net ................................              (240)             (1,338)             23,172
                                                                ---------           ---------           ---------
            Provision (benefit) for income taxes ......         $  23,255           $  36,354           $ (20,000)
                                                                =========           =========           =========
            Effective tax rate ........................                39%                 32%                  6%
                                                                =========           =========           =========
</TABLE>

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


<TABLE>
<CAPTION>
                                                                DECEMBER 31,
                                                         ---------------------------
                                                           1997              1998
                                                         ---------         ---------
<S>                                                      <C>               <C>
            Deferred tax assets:
              Expenses not currently deductible          $   1,709         $  13,210
              Net operating losses .............            13,708           137,349
              Deferred revenue .................                --             7,760
              Credits ..........................                --             3,348
                                                         ---------         ---------
                Total deferred tax assets ......            15,417           161,667
                Less valuation allowance .......                --          (116,404)
                                                         ---------         ---------
                Total deferred tax assets ......            15,417            45,263
                                                         ---------         ---------

            Deferred tax liabilities:
              Software development costs .......                --             2,663
              Reduction in value of subsidiaries                --            42,600
              Intangible assets ................             4,629                --
                                                         ---------         ---------
                Total deferred tax liabilities .             4,629            45,263

            Total net deferred tax asset .......         $  10,788         $      --
                                                         =========         =========
</TABLE>

     At December 31, 1998 the Company had net operating losses generated in
various countries totaling approximately $445,449,000 of which $333,000,000,
$25,074,000 and $67,905,000 were generated in The Netherlands, Germany and the
United States, respectively. The Netherlands and Germany net operating losses
can be carried forward indefinitely to offset future taxable income. The net
operating losses generated in the United States expire in 2008 or later.
Approximately $29,100,000 of the net operating losses generated in the United
States relate to disqualifying dispositions of qualified incentive stock options
and will not result in a tax rate benefit when these losses are utilized. The
benefit of the net operating losses generated in 1996 and 1997 was



                                       79
<PAGE>   81


recorded as a reduction of the provision for Dutch income taxes in 1996 and
1997. As of December 31, 1998, the Company has established a valuation allowance
for all net operating losses.

     No deferred income taxes have been provided for the income tax liability
which may be incurred on repatriation of the undistributed earnings of the
Company's consolidated foreign subsidiaries because the Company intends to
reinvest such benefits indefinitely. A determination of that liability is not
practicable.

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


8  FINANCIAL INSTRUMENTS

DERIVATIVE FINANCIAL INSTRUMENTS

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

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

     The Company's foreign currency forward contracts all have maturities of
less than one year. These forward contracts are summarized below at contract
value (in thousands):

<TABLE>
<CAPTION>
                                                   DECEMBER 31,
                                             -----------------------
                                               1997            1998
                                             -------         -------
<S>                                          <C>             <C>
            European currencies ....         $45,124         $ 2,811
            Asian currencies .......          29,584              --
            Other currencies .......           1,210              --
                                             -------         -------
            Total ..................         $75,918         $ 2,811
                                             =======         =======
</TABLE>


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

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




                                       80
<PAGE>   82

FAIR VALUES OF FINANCIAL INSTRUMENTS

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


<TABLE>
<CAPTION>
                                                                  1997                                1998
                                                         -------------------------         -------------------------
                                                         CARRYING          FAIR            CARRYING          FAIR
                                                          AMOUNT           VALUE            AMOUNT           VALUE
                                                         --------         --------         --------         --------
<S>                                                      <C>              <C>              <C>              <C>
            Financial assets
              Cash and cash equivalents ........         $111,417         $111,417         $205,751         $205,751
              Marketable securities ............          104,847          104,847            1,080            1,080
            Financial liabilities
              Short-term borrowings ............              877              877              121              121
              Convertible subordinated notes ...          200,000          316,060          190,103          143,053
              Other long-term borrowings
                 (including current portion) ...            1,571            1,571            1,312            1,312
            Off-balance sheet instruments
              Foreign currency forward contracts               --           75,014               --            2,972
</TABLE>

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

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

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

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

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

               Foreign currency forward contracts -- The fair value of the
        contracts is based on the estimated amount at which they could be
        settled based on quoted exchange rates. Foreign currency contracts are
        usually three months in duration and typically are due at the end of
        each quarter. There were no material differences between contract value
        and fair value at December 31, 1998.


9  CONCENTRATION OF CREDIT RISK

     Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of cash equivalents, marketable
securities, accounts receivable, and financial instruments used in hedging
activities.




                                       81
<PAGE>   83

     The Company places its cash equivalents and marketable securities with high
quality financial institutions and, by policy, limits the amount of credit
exposure with any one financial institution.

     Credit risk associated with accounts receivable is limited due to the large
number of customers comprising the Company's customer base and their dispersion
among many different industries and geographical regions. The Company does not
require collateral to support customer receivables. The Company also maintains
reserves for potential losses, and all credit losses to date have been within
management's expectations. For the year ended December 31, 1996, the Company
charged $8.3 million to bad debt expense. Bad debt write-offs in 1996 were $1.6
million. For the year ended December 31, 1997 the Company charged $12.4 million
to bad debt expense and recorded bad debt write-offs of $3.0 million. For the
year ended December 31, 1998, the Company charged $55.3 million to bad debt
expense and recorded bad debt write-offs of $23.8 million.


10 TRANSACTIONS WITH RELATED PARTIES

     Jan Baan, formerly Chief Executive Officer and a Managing Director of the
Company, and J.G. Paul Baan, formerly a Supervisory Director of the Company, and
the Company's founders, effectively control a Netherlands limited liability
company called Vanenburg Ventures B.V. ("VV," formerly Baan Investment B.V.). As
of April 9, 1999, VV owns approximately 20% of the Company's outstanding Common
Shares. All of the shares of VV are in turn held by a share administration
foundation of which Messrs. Baan and Baan are directors, thereby providing them
with effective voting control of VV's shares in the Company. The economic
interest in VV's shares is held by the Oikonomos Foundation, a foundation the
Baan brothers established under Netherlands law in 1994 to carry out charitable
activities throughout the world.

     VV was created in 1994 as a venture capital company that invests in the
form of corporations, joint ventures, or partnerships in various new
technologies, educational programs, research projects and sales, consulting, and
support activities principally in the ERP and other technology markets. As
described further below, the Company has entered into various agreements with
entities owned or controlled by VV and has recognized revenue and reimbursement
of expenses from, and incurred costs for goods and services provided by, such
related parties. The Company believes that all such transactions have been
entered into in the ordinary course of business and have been on terms no less
favorable than would have been obtained from unrelated third parties. During
1998, it has been Company policy to have all material agreements with VV
approved by the independent directors of the Company's Supervisory Board, and
information on all material VV relationships has also been provided to the
Company's Audit Committee.

     As reported in the Company's Form 20-F for 1997, VV owned approximately 39%
of the Company's outstanding shares as of April 1998. In October 1998, however,
VV publicly disclosed that it had secured $500 million in loans to help fund
certain of its operations and investments, with VV's shares in the Company
serving as collateral on those loans. When the publicly traded share price in
the Company's stock declined over the summer and into the fall of 1998, VV
reported that its lenders began selling the VV collateral shares to pay down the
VV debt obligations. As a consequence of these actions, VV's holdings of the
Company's shares had declined to 20.12% as of April 9, 1999. VV also indicated
that it would undertake a review of its operations/investments, with an eye
toward reorganizing and/or selling certain of its assets.

     Revenues from VV during 1996, 1997 and 1998, were $14.5 million, $66.3
million and $50.6 million, respectively. As of December 31, 1997 and 1998, the
outstanding balances with VV (reflected in amounts (due to) and due from related
parties) consisted of the following (in thousands):


                                       82
<PAGE>   84


<TABLE>
<CAPTION>
                                                           DECEMBER 31,
                                                     -----------------------
                                                      1997            1998
                                                     -------         -------
<S>                                                  <C>             <C>
            Baan Midmarket Solutions(BMS) ....       $19,396         $ 2,648
            Vanenburg Business Systems(VBS) ..         9,935           1,142
            Vanenburg Ventures ...............         9,079          (1,463)
            Other ............................         4,355           3,970
                                                     -------         -------
                                                     $42,765         $ 6,297
                                                     =======         =======
</TABLE>

     THE COMPANY'S INDIRECT CHANNEL. Since 1996, one of the principal
relationships between VV and the Company has been VV's involvement as both a
reseller and manager of the Company's indirect channel. As indicated above, the
Company began building an indirect channel in 1996 as part of its strategy to
penetrate the SME market (or so-called midmarket). Because the go-to-market
strategy and demands of the midmarket differ significantly from those of the
high-end ERP sector, the Company believed then (and continues to believe) that
the midmarket could likely best be served through creation of an indirect
channel. Commencing in 1996, therefore, the Company embarked on a strategy of
signing resellers as part of this midmarket strategy.

     1. The BBS relationship. Consistent with its venture capital philosophy,
and in an effort to participate in the indirect channel the Company was
creating, VV and a third party in 1996 created a joint venture known as BBS
Holding B.V. (now owned 100% by VV). That company in turn owns a series of
approximately fifteen companies operating as resellers in the midmarket space.
These companies were commonly referred to throughout 1996-1998 as the Baan
Business Systems network, or "BBS." In April 1999, BBS changed its name to the
Vanenburg Business Systems network, or "VBS."

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

     The Company recognized revenues of approximately $4.5 million and $32.3
million from VBS during 1996 and 1997, respectively, from sales of licenses
pursuant to the VBS reseller agreement. In addition, during 1996 and 1997, the
Company assigned to VBS a number of customer contracts that the Company believed
could best be served by VBS. In connection with assigning those contracts: (i)
the Company assigned the related outstanding accounts receivable balances in the
aggregate amount of $4.6 million and $0.3 million, respectively, and VBS paid
for such outstanding receivables; and (ii) VBS paid the Company for these
contracts $10.0 million, $18.0 million and $2.9 million in 1996, 1997 and 1998,
respectively, representing the value of certain potential future license revenue
forgone by the Company as a result of pricing differences between customary
terms in direct sales versus indirect channel, third-party contracts. Finally,
during 1997 the Company recognized $8.7 million from the VBS holding company for
the non-recourse assignment of the remaining rights and obligations under a
license agreement with an



                                       83
<PAGE>   85

unrelated third-party. All revenue recognized from VBS is included in "License
revenue from related parties" in the accompanying Consolidated Statements of
Operations.

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

     2. Creation of BMS. Over the course of 1997, the Company's indirect channel
grew to approximately 110 resellers, including approximately 15 VBS companies.
Given that growth, and the potential for future growth of the channel, the
Company determined that a stronger infrastructure to manage and support the
channel was needed. To provide that "backbone," the Company and VV entered into
a joint venture agreement in the fourth quarter of 1997 under which BMS was
created (85% owned by VV, 15% by the Company). As envisioned, BMS would act as
the wholesaler to the indirect channel distributors and resellers, and would
provide training, lead generation and sales support to further develop and
sustain the channel. With the creation of BMS, the Company ceased to sell
directly to VBS and its other resellers (with the exception of minor direct
sales to independent third-party resellers in the first quarter of 1998 in the
amount of $5.3 million, $1.3 million of which was recorded as deferred revenue).

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

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

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

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




                                       84
<PAGE>   86
     Over the course of 1998, however, BMS better than doubled the number of
channel partners selling the Company's products into the midmarket - ending 1998
with approximately 215 independent, third-party VARs and approximately 15 VBS
resellers. With a related party acting as the sole distributor for indirect
sales, and with indirect sales in early 1998 showing the potential to grow
significantly as a percentage of the Company's total sales, the Company
announced in the second quarter of 1998 that it would change to the sell-through
model for channel revenue recognition. With this change, sales to BMS were made
based on BMS's reports of the VAR's sell-through to end-users.

     With the exception of the limited sales the Company made directly to
resellers in the first quarter of 1998, all of the 230 or so VARs bought
licenses from BMS. As a result, virtually all of the Company's indirect channel
revenue in 1998 was reported under the "License revenue from related parties"
item in the accompanying Consolidated Statement of Operations. During the course
of 1998, sales to BMS, recognized by the Company as related party revenue, were
$15.3 million in the first quarter, $32.6 million in the second quarter, and
$23.2 million in the third quarter. With respect to the fourth quarter of that
year, BMS advised the Company that $17 million in licenses had been sold through
to end-users during that quarter. As described in the next subsection, however,
the Company did not sell new licenses to BMS in the fourth quarter as part of a
strategy to address inventory levels in the channel in light of declining ERP
demand.

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

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

     The Company entered 1998 in what appeared to be an expanding ERP market.
Based on a review of the public filings and analyst estimates of 20 leading
enterprise application vendors, the data suggests that license revenues for
these companies grew overall 58% in 1997. That growth rate continued strong at
47% in the first quarter of 1998 (year over year), and softened some to


                                       85
<PAGE>   87


35% in the second quarter; but in the third quarter the license revenue growth
rate for these companies had declined to 20%, and it dropped even further to
just 4% in the fourth quarter.

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

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

     4. The Company's acquisition of core BMS assets. In connection with its
October 1998 announcement that VV's lenders were selling the Company shares VV
owned and had pledged as collateral to pay down VV's debt obligations, VV also
announced that it would reorganize its business, and potentially liquidate or
substantially restructure certain of its assets.

     One of the assets immediately and significantly put at risk by these events
was the BMS joint venture with the Company. Given the importance of the indirect
channel to the Company's strategy going forward, the Company decided to purchase
the core BMS assets. In January 1999, the Company entered into an agreement with
VV pursuant to which the Company purchased (or was assigned) all VAR agreements
that had previously been assigned to BMS and/or that BMS had entered into since
its creation. Approximately 130 BMS employees also transferred to the Company as
part of the transaction.

     The purchase price is comprised of the following: (i) $2 million paid in
cash upon execution, representing one-half the total discount negotiated by the
third-party distributor that purchased the BMS inventory existing at the end of
1998; and (ii) a three-year, 15% royalty on the Company's net revenues from its
indirect channel that includes a minimum payment and maximum potential earn out.
The minimum guaranteed payment is approximately $41 million. To the extent this
minimum is not earned in full via the royalty the Company would be obligated to
pay VV the difference between the earned amounts and the minimum guaranty). The
maximum potential earn out is the guaranteed minimum payment plus up to an
additional $44 million.




                                       86
<PAGE>   88


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

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

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

     OTHER COMPANY-VV RELATIONSHIPS DURING 1998. During early 1998, the Company
sold to or acquired from VV (or VV-related entities) the following
assets/entities:

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

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

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

     During 1997 and 1998, the Company also charged VV the following amounts for
certain IT and marketing services:

-        $5.0 million and $16.5 million, respectively, pursuant to an IT
         services agreement between the parties under which the Company provides
         VV use of the Company's IT and telephony infrastructure. Pricing was
         based on third-party information the Company obtained



                                       87
<PAGE>   89


         concerning outsource rates charged for similar arrangements by third
         parties. VV has indicated it expects that at some point during 1999 it
         will no longer require these services and this agreement will be
         terminated; and

-        $3.6 million and $5.3 million, respectively, for marketing costs
         (including without limitation for its use of the "Baan" name). Due to
         VV's election in late 1998 to close or sell a substantial number of its
         investments, and its agreement to cease use of the "Baan" name
         (described above), the Company will not be charging VV any such
         marketing costs in 1999.

     Such amounts have been reflected as reductions in operating expenses in the
accompanying Consolidated Statements of Operations.

     During 1998, the Company entered into OEM agreements with certain software
companies owned or controlled by VV. The Company recognized royalties and
development expenses in connection with such agreements during 1998 of
approximately $1.4 million and $2.5 million, respectively. Such royalties and
development expenses are included in "Cost of license revenue" and "Research and
development expense," respectively, in the accompanying Consolidated Statements
of Operations.

     In addition, the Company has entered into several agreements with VV
entities under which the Company paid VV certain product, services, or lease
fees during 1997 and 1998. These agreements include royalty agreements under
which the Company is authorized to resell instructional or other materials
created by certain companies owned or controlled by VV; subcontracting
agreements whereby the Company retains the services of certain VV entities to
assist in fulfilling customer commitments; and lease agreements for certain of
the Company's Netherlands facilities that are properties owned by VV entities.
The total costs and expenses incurred by the Company in 1997 and 1998 associated
to these agreements were not material.

     VV has indicated that it intends to continue the process of closing or
selling certain of its investments. Certain of the assets VV is prepared to sell
may fit within the Company's strategy going forward and may add value to its
product offerings or ability to better serve its customers. The Company will
evaluate any such opportunities with the advice and approval of its independent
directors and independent valuations as appropriate.


11  ACQUISITIONS

     In May 1996, the shareholders of Berclain Group Inc. ("Berclain") agreed to
exchange their shares in Berclain for approximately 1.1 million shares of the
Company's common shares. Berclain is a Canadian software company and a provider
of manufacturing synchronization and scheduling solutions. The business
combination was effective May 31, 1996 and was accounted for as a pooling of
interests. In November 1996, the shareholders of Antalys, Inc. ("Antalys")
agreed to exchange their shares in Antalys for approximately 1.8 million shares
of the Company's common shares. Antalys is an American software company and a
provider of configuration management software that automates the configuration
and pricing for products and services. The business combination was effective
November 30, 1996 and was accounted for as a pooling of interests. Because
Berclain's and Antalys' financial statements were not material to the
consolidated financial statements of the Company, the Company did not restate
any of its consolidated financial statements prior to the combinations.
Consolidation of Berclain and Antalys reduced the Company's retained earnings by
approximately $548,000.




                                       88
<PAGE>   90
     In August 1997, the Company acquired all of the outstanding shares of Aurum
Software Inc. ("Aurum") for approximately 8.3 million of the Company's common
shares. Aurum is a provider of enterprise-wide sales-force automation software.
The business combination was accounted for as a pooling of interests. Since the
combination was material to the Company, the accompanying consolidated financial
statements are presented on a combined basis for all periods presented. There
were no significant intercompany transactions between the two companies and no
significant conforming accounting adjustments.

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


<TABLE>
<CAPTION>
                                                  YEAR ENDED           EIGHT MONTHS ENDED
                                              DECEMBER 31, 1996          AUGUST 31, 1997
                                              -----------------        ------------------
                                                   (AUDITED)               (UNAUDITED)
<S>                                                <C>                      <C>
            Net Revenues:
                Aurum Software, Inc.               $  27,584                $  24,232
                Baan Company .......                 387,958                  319,098
                                                   ---------                ---------
                                                   $ 415,542                $ 343,330
                                                   =========                =========
            Net Income (Loss):
                Aurum Software, Inc.               $     279                $  (3,538)
                Baan Company .......                  36,333                    2,537
                                                   ---------                ---------
                                                   $  36,612                $  (1,001)
                                                   =========                =========
</TABLE>

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

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

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



                                       89
<PAGE>   91


liabilities, $1.5 million was allocated to customer lists, $7.2 million to
assembled workforce and $21.3 million to goodwill.

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

     In September 1998, the Company acquired all of the outstanding shares of
CAPS Logistics, Inc. ("CAPS"), a provider of optimization software for logistics
planning and scheduling. The Company issued 2.5 million of the Company's common
shares, with an aggregate fair value on the acquisition date of approximately
$68 million and incurred other acquisition costs of approximately $3 million,
resulting in a total purchase price of approximately $71 million. The purchase
price was allocated as follows: capitalized software of $31 million, goodwill of
$37 million, assembled workforce of $2 million, and net tangible assets of $1
million.


12  COMMITMENTS AND CONTINGENCIES

LEASES

     The Company has operating leases for substantially all of its offices
globally, certain data-processing equipment, telephone equipment, and other
office equipment. Rental expense for operating leases for the years ended
December 31, 1996, 1997, and 1998 was approximately $8,075,000, $14,701,000, and
$24,827,000, respectively.

     Minimum annual rental commitments under noncancelable operating leases for
periods subsequent to December 31, 1998, (based upon the exchange rates at
December 31, 1998), are as follows (in thousands):

<TABLE>
<S>                                                        <C>
            1999 ......................................    $28,027
            2000 ......................................     20,266
            2001 ......................................     16,496
            2002 ......................................     11,596
            2003 ......................................      4,856
            Thereafter ................................      3,355
                                                           -------
            Total minimum rental commitments ..........    $84,596
                                                           =======
</TABLE>


LITIGATION

     The Company is party to legal proceedings from time to time. There is no
such proceeding currently pending which the Company believes is likely to have a
material adverse effect upon



                                       90
<PAGE>   92

the Company's business as a whole. Any litigation, however, involves potential
risk and potentially significant litigation costs, and, therefore, there can be
no assurances that any litigation which is now pending or which may arise in the
future will not have such a material adverse effect.

     In October of 1998, the Company and certain of its current or former
officers and directors were named as defendants in a purported shareholder class
action lawsuit entitled Salerno v. Baan Company N.V. et al., which was brought
in the United States District Court for the District of Columbia. Six additional
purported shareholder class action lawsuits were subsequently brought, each in
the same court with substantially similar allegations: that the Company
allegedly violated certain of the U.S. securities laws by making purportedly
false and misleading statements about the Company's operations during the period
from, in or around the end of January 1998 through mid-October 1998.

     On February 16, 1999, the Court consolidated the actions and, as a
consequence, plaintiffs' leave to file a consolidated amended complaint has been
granted. Plaintiffs' motion for appointment of lead plaintiffs and lead counsel
remains pending. The Company has retained outside counsel and intends to
vigorously defend. Management, with the advice of outside legal counsel, expects
that the outcome of the actions will not have a materially adverse impact on the
Company's consolidated financial position.


13  INDUSTRY SEGMENT, GEOGRAPHIC AND OTHER INFORMATION

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

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


<TABLE>
<CAPTION>
                                                                                       YEAR ENDED DECEMBER 31,
                                                                          ----------------------------------------------
                                                                            1996               1997               1998
                                                                          --------           --------           --------
<S>                                                                       <C>                <C>                <C>
            Net revenues from unaffiliated customers:
              The Netherlands .................................           $ 82,622           $ 78,695           $ 79,475
              Germany .........................................             54,073             90,122             95,167
              United States ...................................            157,441            250,343            256,804
              Other international .............................            106,874            194,111            253,603
                                                                          --------           --------           --------
                 Total net revenues from unaffiliated customers            401,010            613,271            685,049
              Related-party revenue ...........................             14,532             66,325             50,600
                                                                          --------           --------           --------
                 Total net revenues ...........................           $415,542           $679,596           $735,649
                                                                          ========           ========           ========

            Long-lived assets:
              The Netherlands .................................           $ 53,082           $103,965           $173,789
              Other international .............................             26,665             74,149             72,028
                                                                          --------           --------           --------
                 Total long-lived assets ......................           $ 79,747           $178,114           $245,817
                                                                          ========           ========           ========
</TABLE>





                                       91
<PAGE>   93
     No customer accounted for 10% or more of consolidated net revenues in 1996,
1997 or 1998. Related party revenue for all such parties as a group accounted
for 10% of the Company's total net revenue for 1997.


14 NON-RECURRING ACTIVITIES

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

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

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

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

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


<TABLE>
<CAPTION>
                                                       Total               Cash              Asset        Accrual Balance at
                                                       Costs               Paid            Write-offs     December 31, 1998
                                                      --------           --------          ----------     ------------------
<S>                                                   <C>                <C>                 <C>              <C>
            Reorganization:
               Asset write-downs ..........           $ 27,299                 --             27,299           $     --
               Loss on disposal of assets .             58,030                 --             45,988             12,042
               Severance-related costs ....             22,204             13,897                 --              8,307
               Sales and marketing programs             21,694                 --             14,693              7,001
               Closure of offices .........              9,849              6,754                 --              3,095
               Other non-recurring charges               1,425                538                 --                887
                                                      --------           --------           --------           --------
                                                       140,501             21,189             87,980             31,332
                                                      --------           --------           --------           --------
            Coda acquisition:
               Software development costs .              9,600                 --              9,600                 --
               Closure of offices .........              1,800              1,800                 --                 --
               Professional fees ..........              3,000              3,000                 --                 --
                                                      --------           --------           --------           --------
                                                        14,400              4,800              9,600                 --
                                                      --------           --------           --------           --------
            Total non-recurring expenses ..           $154,901           $ 25,989           $ 97,580           $ 31,332
                                                      ========           ========           ========           ========
</TABLE>




                                       92
<PAGE>   94

                                   SIGNATURES

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



                                           BAAN COMPANY N.V.



                                           By: /s/ Tom C. Tinsley
                                               -------------------------------
                                                   Tom C. Tinsley
                                                   Managing Director



                                           By:  /s/ N.M. (Klaas) Wagenaar
                                               -------------------------------
                                                    N.M. (Klaas) Wagenaar
                                                    Executive Vice President,
                                                    Operational and
                                                    Strategic Initiatives
                                                    (Chief Financial Officer
                                                    during 1998)



Date: June 2, 1999



                                       93
<PAGE>   95
                                INDEX TO EXHIBITS

<TABLE>
<CAPTION>

EXHIBIT
  NO.                              DESCRIPTION
-------               ---------------------------------------
<S>                  <C>

1.1     English translation of Articles of Association of the Company lodged
        with the Chamber of Commerce and Industry for Arnhem, The Netherlands*

2.1     Indenture, dated as of December 15, 1996, between the Company and
        Marine Midland Bank, as Trustee, relating to the 4.5% Convertible
        Subordinated Notes***

2.2     Form of Notes included in Exhibit 2.1.***

2.3     Agreement and Plan of Reorganization, dated as of May 13, 1997, among
        Baan Company N.V., Green Software Acquisition Corporation and Aurum
        Software, Inc. ****

2.4     Share Rights Agreement, dated December 31, 1998, between Baan Company
        N.V. and Fletcher International Limited

3.1     Form of Indemnification Agreement between the Company and directors and
        officers*

3.2     1993 Stock Plan, as amended on May 1, 1995, and form of Option Agreement
        thereunder*

3.3     1995 Director Option Plan*

3.4     1995 Employee Stock Purchase Plan for U.S. Employees*

3.5     1995 Employee Stock Purchase Plan for Non-U.S. Employees*

3.6     Management Agreement between the Company and Jan Baan B.V., together
        with form of Agreement among the Company, Jan Baan B.V. and Jan Baan*

3.7     Management Agreement between the Company and Paul Baan B.V., together
        with form of Agreement among the Company, Paul Baan B.V. and J.G. Paul
        Baan*

3.9     Agreement dated as of August 3, 1994 between the Company and Boeing*+

3.13    Agreement dated May 15, 1995 between the Company and Baan Deutschland
        GmbH regarding the Company's acquisition of Baan Deutschland GmbH*

3.14    Employment Agreement between the Company and Tom Tinsley**

3.19    Employment Agreement dated as of September 29, 1994 between the Company
        and Amal Johnson*

3.20    Recommended Offer by Goldman Sachs International on behalf of Baan
        Company N.V. for The CODA Group plc. dated March 13, 1998.

3.21    Agreement and Plan of Reorganization, Escrow Agreement, and Shareholder
        Agreement, each dated as of September 23, 1998 regarding acquisition of
        CAPS Logistics, Inc.

3.22    Baan Midmarket Solutions B.V. Share Purchase and Asset Purchase
        Agreements among Baan Company N.V., Vanenburg Ventures B.V. and Baan
        Midmarket Solutions B.V. dated January 20, 1999.

A.1     Subsidiaries of the Company

A.2     Consent of PricewaterhouseCoopers N.V., Independent Accountants

A.3     Consent of Ernst & Young Accountants, Independent Auditors
</TABLE>

---------------

   *  Incorporated by reference to the Registration Statement (Registration
      Statement No. 33-91598) on Form F-1 effective on May 19, 1995
  **  Incorporated by reference to the Registration Statement (Registration
      Statement No. 333-00800) on Form F-1 effective on March 1, 1996
 ***  Incorporated by reference to the Registration Statement (Registration
      Statement No. 333-24201) on Form F-3 filed on March 31, 1997
****  Incorporated by reference to the Registration Statement (Registration
      Statement No. 333-31999) on Form F-4 effective on July 24, 1997
   +  Confidential treatment granted.