<PAGE>
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                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                            ------------------------
                                   FORM 20-F
                                ---------------

<TABLE>
<C>        <S>
   / /     REGISTRATION STATEMENT PURSUANT TO SECTION 12
(b) OR
(g) OF THE
SECURITIES
 EXCHANGE
  ACT OF
   1934

   /X/     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15
(d) OF THE
SECURITIES
 EXCHANGE
  ACT OF
   1934
 for the
  fiscal
year ended
June 30,
   1999

   / /     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
           SECURITIES EXCHANGE ACT OF 1934
           For the transition period from              to
</TABLE>

                        COMMISSION FILE NUMBER: 0-29144
                                   ILOG S.A.
             (Exact name of Registrant as specified in its charter)

                             THE REPUBLIC OF FRANCE
                (Jurisdiction of incorporation or organization)

                    9, RUE DE VERDUN, 94253 GENTILLY, FRANCE
                    (Address 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: None

<TABLE>
<CAPTION>
          TITLE OF EACH CLASS:                      NAME OF EACH EXCHANGE ON WHICH REGISTERED:
          --------------------                      ------------------------------------------
<S>                                                 <C>
    American Depositary Shares, each                         Nasdaq National Market
    Representing one Ordinary Share
            Ordinary Shares                                  Nasdaq National Market*
</TABLE>

 * Not for trading, but only in connection with the American Depositary Shares.
                            ------------------------

Securities for which there is a reporting obligation pursuant to Section 15

                              (d) of the Act: None
                            ------------------------

    The number of outstanding shares of each of the issuer's classes of capital
or common stock as of June 30, 1999 was 14,096,500 Ordinary Shares of FF 4.00
nominal value, including 8,694,188 American Depositary Shares (as evidenced by
American Depositary Receipts), each corresponding to one Ordinary Share.

    Indicate by check mark whether the registrant (1) has filed all reports 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 required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.

<TABLE>
                                          <S>                         <C>
                                          /X/  Yes                    / /  No
</TABLE>

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
    Indicate by check mark which financial statement item the registrant has
elected to follow.

<TABLE>
                                          <S>                         <C>
                                          / /  Item 17                /X/  Item 18
</TABLE>
<PAGE>
    Unless the context otherwise requires, references herein to "the Company" or
to "ILOG" are to ILOG S.A. and its consolidated subsidiaries.

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

    The Company's name together with its logo is registered as a trademark in
France, the United States and a number of other countries. This Annual Report on
Form 20-F may also contain tradenames or trademarks of companies other than
ILOG.

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

                                 EXCHANGE RATES

    ILOG publishes its financial statements in dollars. In this Annual Report on
Form 20-F, references to "dollars" or "$" are to U.S. dollars and references to
"francs" or "FF" are to French francs. Except as otherwise stated herein, all
monetary amounts in this Annual Report on Form 20-F have been presented in
dollars.

    The table below sets forth, for information purposes only, for the periods
indicated, the high, low, average and end of period noon buying rates in New
York City for cable transfers in French francs as certified for customs purposes
by the Federal Reserve Bank of New York ("Noon Buying Rate") for the franc
against the dollar. Such rates are not used by the Company in the preparation of
its consolidated financial statements included elsewhere in this Annual Report
on Form 20-F. See Note 1 of Notes to Consolidated Financial Statements.

<TABLE>
<CAPTION>
                                                                         AVERAGE     END OF
YEAR ENDED JUNE 30,                                  HIGH       LOW      RATE(1)     PERIOD
-------------------                                --------   --------   --------   --------
                                                              (FRANCS PER DOLLAR)
<S>                                                <C>        <C>        <C>        <C>
1995.............................................    5.46       4.79       5.18       4.85
1996.............................................    5.19       4.78       5.02       5.15
1997.............................................    5.87       5.00       5.42       5.87
1998.............................................    6.20       5.77       6.03       6.05
1999.............................................    6.37       5.39       5.92       6.36
</TABLE>

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

(1) The average of the Noon Buying Rates on the last business day of each month
    during the year. From January 1, 1999, the above rates reflect those of the
    Euro converted into francs at the official fixed conversion rate of 6.55957
    francs = one Euro.

    For information regarding the effects of currency fluctuations on the
Company's results, see Items 9, "Management's Discussion and Analysis of
Financial Condition and Results of Operations", and 9A, "Quantitative and
Qualitative Disclosures about Market Risks".

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

                           AMERICAN DEPOSITARY SHARES

    Pursuant to a program sponsored by the Company, Ordinary Shares of the
Company (the "Shares") are traded in the United States in the form of American
Depositary Shares ("ADSs"), each ADS representing one Share placed on deposit
with Morgan Guaranty Trust Company of New York, as depositary (the "Depositary")
and issued and delivered by the Depositary through its principal office in New
York City at 60 Wall Street, (36th Floor), New York, New York, 10260. Under the
terms of the Deposit Agreement, dated as of February 13, 1997 and amended on
August 13, 1998, among the Company, the Depositary and the holders from time to
time of ADSs (the "Deposit Agreement"), Shares may be deposited with the Paris
office of Banque Paribas, as custodian (the "Custodian"), or any successor or
successors to such Custodian. The Depositary provides a variety of services to
registered holders of American Depositary Receipts, as more fully set forth in
the form of the Deposit Agreement which was filed as an exhibit to the Company's
Registration Statement on Form F-6 effective with the Securities and Exchange
Commission on February 13, 1997 and amended on August 13, 1998.

                                       2
<PAGE>
                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                          PAGE
                                                                        --------
<S>       <C>                                                           <C>
                                     PART I

Item 1.   Description of Business.....................................      4
Item 2.   Description of Property.....................................     17
Item 3.   Legal Proceedings...........................................     17
Item 4.   Control of Registrant.......................................     17
Item 5.   Nature of Trading Market....................................     18
Item 6.   Exchange Controls and Other Limitations Affecting Security
            Holders...................................................     21
Item 7.   Taxation....................................................     21
Item 8.   Selected Financial Data.....................................     26
Item 9.   Management's Discussion and Analysis of Financial Condition
            and Results of Operations.................................     27
Item 9A.  Quantitative and Qualitative Disclosures about Market
            Risks.....................................................     46
Item 10.  Directors and Officers of Registrant........................     46
Item 11.  Compensation of Directors and Officers......................     51
Item 12.  Options to Purchase Securities from Registrant or
            Subsidiaries..............................................     51
Item 13.  Interest of Management in Certain Transactions..............     53

                                    PART II

Item 14.  Description of Securities to be Registered..................     54

                                    PART III

Item 15.  Defaults Upon Senior Securities.............................     54
Item 16.  Changes in Securities and Changes in Security for Registered
            Securities................................................     54

                                    PART IV

Item 17.  Financial Statements........................................     54
Item 18.  Financial Statements........................................     54
Item 19.  Financial Statements and Exhibits...........................     54
</TABLE>

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

                           FORWARD-LOOKING STATEMENTS

    In addition to historical information, this Annual Report contains
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. The forward-looking statements contained herein are subject to
certain risks and uncertainties that could cause actual results to differ
materially from those reflected in the forward-looking statements. Factors that
might cause such a difference include, but are not limited to, those discussed
in the section entitled "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Risk Factors." Readers are cautioned not to
place undue reliance on these forward-looking statements, which reflect
management's analysis only as of the date hereof. ILOG undertakes no obligation
to publicly revise these forward-looking statements to reflect events or
circumstances that arise after the date hereof. Readers should carefully review
the risk factors described in other documents the Company files from time to
time with the Securities and Exchange Commission, including reports on Form 6-K
filed by the Company.

                                       3
<PAGE>
                                     PART I

ITEM 1. DESCRIPTION OF BUSINESS

BUSINESS

    ILOG develops, markets and supports software components for user interface,
resource optimization and data services functions that are fundamental to the
development of strategic business applications. By creating pre-built and
pre-tested features to address these common software functions, the Company's
object oriented components reduce the time, cost and risk in the development
process, and allow users to focus their own efforts on value-added, business
specific programming tasks. The Company's components provide high performance
and scalability, run on the most popular Windows and Unix platforms, and can be
used to facilitate client-side, server-side or web development efforts. The
Company also offers a range of consulting, customer training and maintenance
services.

BACKGROUND

    Increasing global competition and rapid changes in technology are
accelerating the demand by organizations for strategic business applications to
achieve competitive advantage. However, organizations face significant
challenges in developing strategic business applications that can keep pace with
this changing environment. These challenges include meeting the demand for new
applications, adapting these applications as business needs evolve and taking
advantage of new technologies such as distributed client server computing and
the internet/intranet. The result is a large and increasing backlog of strategic
business applications that need to be developed, maintained and enhanced.

    Organizations address their needs for strategic business software either by
purchasing packaged applications or writing their own applications. Packaged
applications are used for certain systems, such as back-office accounting, human
resources and order management, where the tasks are well defined. Where
organizations have specific needs and seek a proprietary advantage, but are
unable to customize fully packaged applications that meet their needs, they will
seek to build their own applications.

    Software development is a lengthy and difficult process. Developers must
build user interfaces, provide resource optimization and data services functions
into their applications as well as other structural layers of development. The
Company believes that these common programming functions typically represent
between 15% and 40% of the number of lines of code for strategic business
applications. The challenge of undertaking all these programming tasks increases
the risk of failure and time to market, and requires significant additional
expertise and maintenance.

    The shortage and high cost of software developers has created a need for a
hybrid approach to software development that combines the advantages of custom
developed software with pre-built and pre-tested software components or
libraries. The emergence of object oriented technology allows for the creation
of pre-built software components that address common programming tasks, thus
allowing programmers to shorten development time by combining these components
with their own programming. In order for these software components to meet the
evolving business and technology requirements of the specific organization, they
must provide high performance and scalability and yet be open and adaptable.

THE ILOG SOLUTION

    ILOG develops, markets and supports software components for user interface,
resource optimization and data services functions that are fundamental to the
development of strategic business applications. The Company's object oriented
components, which are written in the C, C++ or Java languages, can be readily
adapted to application development requirements. Since ILOG has effectively
pre-written many of the complex portions of each application, enterprises can
concentrate on the development of other portions of

                                       4
<PAGE>
the application that are specific to their respective businesses. The Company
believes that its components provide users with the following benefits:

    TIME TO MARKET AND COST REDUCTION.  ILOG components allow enterprises and
independent software vendors ("ISVs") to accelerate development time
significantly. The cost of a development license for an ILOG component is
substantially less than the cost for an organization to develop those same
features internally. Moreover, ILOG's continuing maintenance and improvement of
its components ensures periodic performance and functionality enhancements for
its customers.

    HIGH PERFORMANCE AND SCALABILITY.  The proprietary algorithms embedded in
ILOG components are highly efficient and scale well to specific application
needs. Applications using ILOG components can run efficiently on small PCs as
well as on the most powerful parallel workstations and servers because ILOG
components are both CPU and memory efficient. Intensive users can display or
manage tens of thousands of objects. ILOG components are currently being used in
demanding applications such as telecommunication network management, real-time
air traffic control, industrial control and military command and control.

    EASE OF USE.  The Company's components consist of layers of components that
can be used without modification if the customer so elects. With a few lines of
code, developers can implement their enterprise specific components on top of
the Company's high level components.

    FLEXIBILITY.  The Company's components are built as documented layered
classes. The lower layers can be exposed to allow programming changes at all
levels of the component's behavior to meet individual business specific
requirements.

    DEVELOPMENT RISK REDUCTION.  The common development task components provided
by the ILOG components enable software developers to rapidly prototype and test
the performance of an application. Developers are able to quickly confirm that
the envisioned system successfully addresses the problems and will withstand its
final design load before they enter into the detailed specification and design
of the actual application. This approach greatly decreases the technical risks
associated with the creation of a new application by providing a sound,
pre-built infrastructure.

    HARDWARE AND OPERATING SYSTEM INDEPENDENCE.  The programming interfaces for
ILOG components are identical for all platforms that the Company addresses,
which makes deploying applications across PCs and workstations easier.

    DEVELOPMENT STRATEGY INDEPENDENCE.  ILOG components are open (i.e.,
compatible with most development environments, compilers or methodologies and
software testing tools). The Company's customers can choose components from
other vendors and combine them with ILOG components in a true open environment.

STRATEGY

    ILOG's objective is to be the leading worldwide provider of visualization
and optimization software components. Key elements of the Company's strategy to
achieve this objective include the following:

    EXPAND INDIRECT SALES CHANNELS.  The Company intends to expand its global
sales capabilities by increasing the number of system integrators, value added
resellers ("VARs") and original equipment manufacturers ("OEMs") that market its
components worldwide and the number of distributors where it does not have a
local presence. The Company believes that these sales channels will allow the
Company to access additional vertical and geographic markets where it does not
currently possess marketing or sales capabilities.

                                       5
<PAGE>
    EXPAND ISV BUSINESS.  The Company has agreements with over 100 ISVs and
intends to sell its components to additional ISVs for inclusion in packaged
software products. Due to the recurring revenue nature of the royalty payments
made by ISVs that ultimately include one or more ILOG components in their
products, the Company is currently increasing its marketing efforts to ISVs.
Approximately 40% of the Company's revenues in 1999 are from ISVs and indirect
sales channels.

    EXTEND TECHNOLOGICAL LEADERSHIP.  The Company intends to maintain and extend
its current technological leadership as a provider of object oriented software
components. The Company intends to focus its development efforts on enhancing
the performance and scalability of its current components, porting them to
different platforms and additional programming languages and expanding the
number of components to address common software development needs. For example,
the Company has recently introduced a Java versions of its C++ graphical
component ILOG Views and its C++ rule based system ILOG rules. As part of the
strategy of extending its technological leadership position, the Company, in
1997, acquired the business of CPLEX Optimization, Inc., ("CPLEX") an
established leader in math programming optimization components and in 1998
acquired the Optimization Programming Language of Oasis Software, Inc.

    EXPAND SALES GEOGRAPHICALLY.  The Company's sales have historically been
concentrated in Europe, particularly in France. The Company believes that the
North American and Asian markets represent large growth opportunities for its
components. Since the beginning of 1995, the Company has significantly expanded
its sales effort by adding substantially to its U.S., Singapore and Japan direct
sales forces, which has resulted in rapid growth in these regions. The Company
intends to continue to add to its direct sales and consulting forces in all of
its three principal geographic regions.

    PENETRATE VERTICAL MARKET BASE.  Starting in 1997 the Company has devoted
significant sales efforts to two vertical markets: (i) graphic tools for
telecommunications network management and (ii) optimization engines for supply
chain management software applications. The Company has become a leader in these
two markets and may continue this strategy by adding further vertical markets.

    INCREASE PENETRATION OF EXISTING CUSTOMER BASE.  The Company intends to
expand sales of its components to its existing customers. Since the Company's
components are initially licensed to a few developers for benchmarking projects
inside an enterprise, the successful completion of these projects and the
launching of additional software design projects within a customer's
organization create additional sales opportunities for the Company. The Company
uses the success of projects with existing customers as an internal reference
for horizontal expansion within that organization through on-site seminars and
other marketing events.

SOFTWARE COMPONENT TECHNOLOGY

    The Company believes that the software component technology development path
is analogous to the integrated circuit revolution of the 1970s. At that time,
the components used to build circuit boards were elementary fine-grain
components such as capacitors, resistors and transistors. The advent of packaged
larger-grain integrated circuits precipitated a shift in the computer
manufacturing industry, from a model where every computer manufacturer built its
own boards from self-defined designs that assembled fine-grain components to a
model where much larger components were integrated onto much smaller boards.
This shift considerably reduced the time and risk of designing new boards, as
well as the cost of mass-producing them. The result was less expensive
computers.

    The Company believes that software component technology offers to the
software industry a similar potential to that which integrated circuits offered
the computer hardware industry. Software components are predefined pieces of
readily reusable software. These components provide ready-made, high level
functions without requiring software developers to understand the internals of
the components. This allows developers to focus on the use of these higher-level
functions to achieve the business-specific results that the application
requires. For example, a Gantt diagram (a standard scheduling graphic) component
will

                                       6
<PAGE>
display the use of resources by activities over time in a predefined fashion.
The application developer using such a component will not have to program the
details of the diagrams, but rather can concentrate on the definition of the
activities, the resources and their relationships. The developer will therefore
be able to develop a scheduling application that includes a Gantt diagram more
rapidly.

    Components have been used in user interfaces for more than ten years. Menu
bars, push buttons and selection boxes are reusable components that are
available on operating systems such as Windows, Unix and Macintosh. The
inflexible black-box nature of many of these components, however, can prevent
software developers from obtaining the desired effect. For example, a developer
may wish to create a read-only Gantt diagram that only displays information. If
the component has been built without this feature, the development speed gained
by the use of the predefined component is lost by the difficulty encountered in
designing around some of its predefined behaviors.

    Components created using object oriented technology add significant
flexibility. Using a component for a specific application often requires adding
new behaviors. Object oriented programming involves a cloning process that
allows developers to add new behaviors to existing classes of objects. This
"extensibility" is the principal reason that well-implemented object oriented
code has a longer life than traditional code. Object attributes (data) and
methods (behaviors) can be added to or changed without altering the original
"base classes," so that changes as the object environment evolves are
transparent to applications dependent on the base class. As a result of the
ability to further specify the behavior of code after it has been designed,
written and tested, object oriented technology allows the large-scale reuse of
components without sacrificing the flexibility needed for application-specific
behavior and optimization.

    Object oriented techniques greatly simplify the development of complex
strategic business applications. Each coherent part of the task is represented
as a set of interdependent classes assembled together using a protocol. Some of
these classes will be reused as large grain components, others as fine-detail
implementation classes useful only for extension purposes.

    In the example of the Gantt diagram, the elementary bars that appear in the
drawing can be thought of as instances of classes that are more fine-grained
than the Gantt diagram top level class. With this design, flexibility is pushed
one step further. It is now possible not only to extend the global Gantt object,
but also to extend some of its internals as well. For example, the developer may
wish to draw activities in a Gantt diagram in a different way, where a new
element of information is added to each of the bars. In that case, the developer
will extend the bar class of the Gantt-diagram library, instead of the
Gantt-diagram class. This is the flexibility that object oriented components are
intended to achieve.

    Object oriented components, or class libraries, are coherent sets of
predefined components written in an object oriented language in such a way that
black-box components become clear-box components that can be redefined locally
when some behaviors do not match the exact needs of the application. Therefore,
object oriented components that cover a particular infrastructure task, such as
user interface programming, are more than a set of independent components.
Object oriented components consist of layers of components, where each layer
relies on documented extensible lower components.

PRODUCTS

    The Company's products are high-performance C, C++ or Java software
components sold in binary form on CD-ROMs. The Company's software components are
sold to C, C++ or Java developers within information technology (IT or MIS)
departments of end-user enterprises or to system integrators, ISVs, VARs and
OEMs. The components facilitate rapid development and deployment of complex
applications by providing pre-written portions of the software in order to
reduce the time, cost and risk of the application development cycle. The
Company's components are independent and can be purchased for integration into
new or existing applications individually or in combination with other
components. The components run on the most popular Windows and Unix platforms
and can be used to facilitate client-side, server-side or internet development
efforts.

                                       7
<PAGE>
    The Company typically commences a customer relationship with one or more
licenses to use one or two of the Company's products for a given customer
development project. A single development license for one of the Company's
products normally ranges from $2,500 to $20,000, with a typical development sale
usually totaling approximately $20,000. Once the customer completes its
development projects, it must enter into run time licenses with the Company in
order to use any of the Company's resource optimization or data services
components needed to deploy the developed application within or outside its
organization. A customer typically does not purchase any run time licenses until
the successful completion of the application development process, which
typically takes between three and nine months from the initial order. Such run
time licenses start at $30,000 and are based upon the future number of
simultaneous users of the application, the number of different sites on which
the application will be deployed and the number and type of ILOG components used
in the application. The Company has reached a number of agreements for
deployment licenses valued at over $100,000.

    The following table sets forth certain information regarding the components
licensed by the Company:

<TABLE>
<CAPTION>
                           YEAR OF FIRST
                            COMMERCIAL
PRODUCT CATEGORY AND NAME    SHIPMENT                       PRODUCT DESCRIPTION
-------------------------  -------------   ------------------------------------------------------
<S>                        <C>             <C>
USER INTERFACE
ILOG Views...............       1993       Data visualization and graphical user interface
                                           in C++
ILOG InForm..............       1996       Data visualization for database applications
ILOG Vision..............       1996       3-D structured graphics environment
ILOG TGO.................       1997       Graphic components for the telecommunications industry
ILOG JViews..............       1997       Data visualization in Java
ILOG JTGO................       1998       ILOG TGO in Java

RESOURCE OPTIMIZATION
ILOG Solver..............       1993       Constraint-based reasoning for resource allocation
ILOG Scheduler...........       1994       Add-on product for Solver for short-term scheduling
ILOG Planner.............       1996       Add-on product for Solver for long-term planning
ILOG Dispatcher..........       1997       Add-on product for Solver for the transportation
                                           industry
ILOG CPLEX...............       1997       High performance components for linear programming
                                           in C
ILOG OPL Studio..........       1999       Optimization modeling
ILOG Configurator........       1999       Embeddable engine for configuration applications

DATA SERVICES
ILOG Rules...............       1993       Real-time agents for filtering and alarm management
ILOG Server..............       1995       Application integration and real-time event
                                           notification
ILOG JRules..............       1997       Real-time agents for filtering and alarm management in
                                           Java
</TABLE>

    Historically, the Company has made minor revisions to its products
approximately every six months and has released new versions of its products
every 12 to 18 months.

    The following describes the Company's software components by product
category.

USER INTERFACE PRODUCTS

    The Company currently markets six user interface components: ILOG Views,
ILOG JViews, ILOG InForm, ILOG Vision, ILOG TGO and ILOG JTGO.

    ILOG Views and JViews are each a comprehensive data visualization and
graphical user interface environment providing components for structured
two-dimensional graphics. ILOG Views is used to solve a wide range of graphics
problems in industrial and commercial environments. Approximately 38% of the

                                       8
<PAGE>
Company's revenues from license fees for 1999 were derived from visualization
components. See "Risk Factors Product Concentration Risk."

    ILOG Views is composed of a core technological layer and a number of
pre-defined, high-level graphical components. The core layer provides
performance and portability (i.e., the ability to implement platform independent
interfaces) and the object oriented representations of all the basic graphical
entities. This layer provides developers with hundreds of classes of graphical
objects and methods to construct highly interactive graphical environments,
allowing real-time display of several million graphical objects in a single
display space. Applications can rapidly pan and zoom within this virtual display
area, allowing selection and manipulation of objects anywhere in the display.
The Company believes its emphasis on performance represents an important
advantage of ILOG Views for implementing the graphical user interface of complex
applications such as real-time network supervision.

    ILOG Views also includes a number of pre-defined, high-level display
components, including a grapher, maps, graphs, a spreadsheet, a Gantt diagram, a
hypertext viewer and a graphical user interface ("GUI") editor. The ILOG Views
Grapher allows an application developer to represent entities as nodes and arcs
linking these nodes. Due to the object oriented nature of ILOG Views Grapher,
the developer can easily define application specific aspects and behaviors for
both the nodes and the arcs, as well as superimpose the graph on top of a map
representing the geography of the application. These features are implemented
with a small number of lines of C++ or Java code, because they reuse all the
common classes of both the underlying graphic engine and the Grapher.

    Other graphic components, such as ILOG Views Gadgets, allow for the
implementation of the structural part of the GUI in a portable link between
platforms such as Unix Motif and Microsoft Windows. Available as a component or
within an interactive Interface Builder, ILOG Views Gadgets provides a simple
way to rapidly construct the parts of an application's GUI. Furthermore, ILOG
Views presents an extensible class for building specialized high-performance
graphics editors that customers can use to manipulate complex objects. Each of
these customer-defined components can be used to accelerate further the
construction of highly customized display environments.

    ILOG InForm is an extension of ILOG Views that facilitates the development
of graphic-intensive database applications. Client server applications involving
multiple databases can be built almost entirely in a drag-and-drop environment,
without requiring Structured Query Language ("SQL") or significant C++ coding.
The Company believes that ILOG InForm has an advantage over competing products
because it works with ILOG Views C++ objects, which facilitates higher
performance and more efficient development. ILOG InForm also exploits all of a
customer's prior ILOG Views development and automatically generates C++ objects
that can be used in other development projects. ILOG InForm allows routine
applications to be constructed by users or developers with limited C++ knowledge
or related tools.

    ILOG InForm provides three advancements to the underlying ILOG Views feature
set: Studio, Data Sources and Data-Aware gadgets. ILOG InForm Studio provides an
intuitive environment for rapid application development and testing, and adds
new visual items that are useful for common database applications such as data
entry and review. Because ILOG InForm Studio is a superset of ILOG Views, the
Company's customers can rapidly take advantage of it even if their application
does not involve a database. ILOG Data Sources' innovation allows easy
definition of the tables and views needed in a client server application.
Instead of requiring SQL code manipulation, ILOG InForm Data Sources' GUI allows
more rapid selection of the rows and columns to be accessed. Once Data Sources
are set up, ILOG InForm's Data-Aware gadgets (e.g., spreadsheets, selection
buttons, data-entry fields) automatically connect to the relevant database
records for read or write access. This combination of features allows ILOG
Views' users to accelerate application development and customization whether the
user needs to work with relational or non-relational data.

                                       9
<PAGE>
    ILOG Vision is a component for high-performance 3D structured graphics that
can be used as a companion component to ILOG Views for very advanced graphics
applications. ILOG Vision provides a comprehensive set of high-level graphic
services (e.g., lighting, shading, object behaviors, animation) that facilitate
the development of sophisticated 3D applications. Developers can save
significant effort by using ILOG Vision's high-level application programming
interface ("API") instead of the basic OpenGL or Direct3D libraries that are
part of the platform operating system.

    ILOG TGO (Telecom Graphic Objects) is an extension to ILOG Views dedicated
to the creation of graphical user interfaces for telecommunication network
management and data applications. ILOG TGO provides in a single product
graphical objects representing dedicated industry behaviors and thus offers
major productivity improvements to telecommunication network software developers
and users.

    ILOG JTGO is a Java version of ILOG TGO and allows the development of pure
Java telecom graphical user interfaces.

RESOURCE OPTIMIZATION PRODUCTS

    The Company currently markets six resource optimization components and one
optimization modeling product.

    The ILOG Solver constraint-programming component provides the basic
programming layer embedding the core constraint processing technology, and the
ILOG Scheduler, ILOG Planner and ILOG Dispatcher components are vertical
add-ons. ILOG Solver provides developers with an off-the-shelf engine for
solving a wide variety of industrial problems, such as short-term scheduling
(e.g. MRP). Finding a high-quality solution was impractical until the advent of
constraint-based reasoning. ILOG Solver provides a problem-definition and
nonlinear modeling system that allows for accurate characterization of
real-world problems. ILOG Solver's solution algorithms (constraint propagation,
branch-and-bound, and numerical and logical processing) can then be used by
programmers to solve these difficult problems in telecommunications, defense,
transportation and manufacturing.

    The ILOG Scheduler time-constraint component is an extension to ILOG Solver
for solving complex scheduling problems quickly. ILOG Scheduler integrates
algorithms specific to scheduling and predefines a set of classes that model
scheduling activities. Constraints specific to scheduling define the different
ways to link activities and resources; an activity may either produce or consume
a resource. Furthermore, a typology of resources is defined that allows a direct
representation of domain specific data, freeing the developer from the difficult
task of analyzing the scheduling activity. ILOG Scheduler gives the developer a
pre-defined object oriented model that may be easily extended to suit
application specific needs. ILOG Scheduler also adds an "edge finder" algorithm
that improves the speed of finding solutions. By extending ILOG Solver
algorithms and supplying templates for common scheduling problems (e.g.,
bottlenecks, conflicts and sequencing preferences), ILOG Scheduler further
reduces the application development effort for programmers in a number of
application domains. ILOG Scheduler has been used for resource allocation,
personnel rostering, maintenance scheduling, labor-cost optimization and other
finite-capacity problems in utilities, transportation, medical and manufacturing
companies.

    The ILOG Planner linear-programming component also complements ILOG Solver.
ILOG Planner provides a number of new mathematical algorithms for solving ranges
of problems that ILOG Solver is not designed to address, including the Simplex
algorithm (embedded in the ILOG CPLEX component) for optimizing
continuous-process manufacturing plants. ILOG Planner allows for optimal
long-term mixes of resources for factories, refineries, warehouses and other
logistical systems. However, when there are temporal constraints that interfere
with the ideal resource mix, ILOG Planner and ILOG Scheduler together can
identify the best short-term answer considering the long-term objectives. The
Company believes that this contingent or reactive scheduling offers operational
benefits that are unavailable from any other C++ component vendor.

                                       10
<PAGE>
    ILOG Dispatcher is an optimization engine based on ILOG Solver for creating
vehicle routing and personnel dispatching applications. ILOG Dispatcher brings
specialized modeling and optimization technology to these types of
transportation applications.

    The ILOG CPLEX callable components provide a comprehensive set of linear
programming C routines for integration with ILOG Solver and other application
development components. These algorithms solve large and difficult linear
programs, mixed integer programs, quadratic programs and network problems at a
very high level of speed performance and are also integrated into ILOG Planner.

    ILOG OPL Studio combines linear and constraint-based optimization methods in
a single modeling language, allowing the user to identify the best approach for
a particular application. This development framework includes an online model
library, database connectivity tools, debugging tools and an automatic code
generator within a graphical environment.

    ILOG Configurator is an embeddable engine for customer relationship
management (CRM) and/or web-based configuration applications. Running in
conjunction with ILOG Solver, it is based on constraint programming applied to
structured objects. A hierarchical, dynamic tree describes the taxonomy of
component types with each component described by type, attributes, connection
ports and constraints. Types, attributes and ports are constrained variables,
and their domains represent the set of feasible values. For ports, a wildcard
allows the description of extensible domains. ILOG Configurator allows automatic
generation of a product either partially or completely, and the computation of
an optimized configuration. ILOG Configurator's capabilities are designed for
online selling applications to enable optimized selections between buyers' needs
and current offerings.

DATA SERVICES PRODUCTS

    The Company currently markets two data services components.

    The ILOG Rules component allows the development of intelligent agents for
monitoring data flows in real time. With ILOG Rules' dynamic engine these agents
monitor and evaluate complex conditions. When high performance correlation and
evaluation of data trends are critical for quick response, ILOG rules can
provide decision agents that respond more rapidly than humans. ILOG Rules can
also be used as an intelligent advisor embedded within editors and graphical
systems or provide real time simulation of events and processes. ILOG has
recently upgraded ILOG Rules to accept new rules without recompilation. The
Company licenses ILOG Rules from a third party and pays a small per unit royalty
to such third party when it licenses ILOG Rules. ILOG JRules offers in Java the
same functionality as ILOG Rules.

    The ILOG Server component facilitates the implementation of distributed
applications by introducing the concept of sharing objects in real time. ILOG
Server provides both high level object oriented modeling tools simplifying the
implementation of business processes and integration services and allowing the
different components of an application to be shared in real time in a
coordinated manner. These characteristics enable it to be an excellent medium
for solving system integration and business process operational problems.

SERVICES

    ILOG provides a number of services to assist customers in the design,
development and deployment of their object oriented software implementations.
Consulting services are available for designing, analyzing, implementing and
optimizing applications. In addition, the Company provides custom development
services to customers that request unique or proprietary product extensions.
Depending on the nature, complexity and duration of the project, these services
may be performed by third-party integrators, consultants or the Company.
Training is offered on a regular basis for customers needing to accelerate their
mastery of ILOG technologies and interfaces. Maintenance and technical support
are available for all ILOG components at an annual fee of 15% of the standard
software list price.

                                       11
<PAGE>
CUSTOMERS AND APPLICATIONS

    As of September 30, 1999, ILOG components had been licensed by over 2000
customers for development and/or deployment in a wide range of applications
described below.

TELECOMMUNICATIONS

NETWORK AND SYSTEMS MANAGEMENT

- Network Visualization

- Configuration management

- Fault management

- Performance management

- Security management

SERVICE MANAGEMENT

- Dynamic tariff policy Management

- On-demand service Provisioning

- Flexible invoicing

NETWORK PLANNING

- Economic analysis

- Ground and space equipment scheduling

- Satellite mission planning

- Network modeling

MANUFACTURING

SUPERVISION AND DATA VISUALIZATION

- Equipment performance analysis

- Geographic information Systems

- Process monitoring and control

- Quality analysis

- Resource Optimization

- Equipment configuration and diagnostics

- Logistics and distribution planning

- Manpower planning and crew scheduling

- Production line scheduling

PRODUCTION PLANNING

- Supply chain logistics

- Warehouse management

AEROSPACE AND DEFENSE

COMMAND, CONTROL, COMMUNICATIONS AND INTELLIGENCE (C3I) SYSTEMS

- Data fusion

- Geographic information

- Systems

- Image processing

- Logistics mapping

PROCESS MONITORING

- Data flow monitoring

- Radar visualization

- Test bench monitoring simulation

- Capability analysis

- Flight simulators

- Scenario analysis

RESOURCE ALLOCATION AND OPTIMIZATION

- Frequency and bandwidth allocation

- Mission planning

- On-board resource scheduling

- Payload optimization

- Supply chain logistics

TRANSPORTATION

RESOURCE OPTIMIZATION

- Airport counter, gate and belt allocation

- Command and control

- Crew allocation

- Distribution planning

- Equipment scheduling

- Fleet management

- Geographic information systems

- Maintenance planning and scheduling

- Timetabling

- Traffic monitoring

- Traffic planning

- Vehicle tracking systems

- Warehouse management

ENERGY AND PUBLIC UTILITIES

SUPERVISION, COMMAND AND CONTROL

- Electrical network monitoring

- Electrical powerplant monitoring

- Procedures monitoring

- Water and gas network monitoring

ANALYSIS AND TESTS

- Measuring systems

- Seismic data analysis

- Simulation tools

ENTERPRISE RESOURCE PLANNING

- Equipment configuration

- Maintenance planning and scheduling

- Network planning

- Nuclear plant decommissioning

- Staff planning

CUSTOMER SERVICES

- Claim resolution

- Price negotiation

                                       12
<PAGE>
SALES AND MARKETING

    The Company derives its revenues from the sale of development licenses to
application developers and from run time or deployment licenses once
applications are developed and deployed and related services. Revenues from
license fees represented 61% and from services 39% of the Company's revenues in
1999. Services revenue consist of consulting to facilitate the adoption of the
Company's products, maintenance and customer training. Consulting, maintenance
and training accounted for 22%, 14% and 3%, respectively, of the Company's total
revenues in 1999.

    Total revenues increased from $33.9 million in 1997 to $55.3 million in
1998, and to $63.7 million in 1999, representing increases of 63% and 15%,
respectively. The rate of growth in 1999 reflects the restructuring of the US
sales organization and spending diversions by customers from new application
development to Year 2000 readiness.

    The Company's sales have historically been concentrated in Europe,
particularly in France. During 1997, 1998 and 1999, revenues generated from
customers outside of France totaled $21.9 million, $38.1 million and
$42.8 million, respectively, representing 65%, 69% and 67% of total revenues,
respectively. The growth in revenues generated from customers outside of France
resulted primarily from the Company's increased presence in North America and
Asia and the acquisition of CPLEX in August 1998. During 1997, 1998 and 1999,
revenues generated from customers in North America totaled $10.5 million,
$22.4 million and $22.5 million, respectively. During 1997, 1998 and 1999,
revenues generated from customers in Asia totaled approximately $3.3 million,
$5.0 million and $6.7 million, respectively.

    The Company believes that the North American and Asian markets represent
large growth opportunities for its products and services. Since the beginning of
1995, the Company has significantly expanded its sales effort by adding to its
U.S. and Asian sales forces and in August 1997 acquiring in the U.S. CPLEX which
has resulted in revenue growth in the U.S. of 113% and Asia of 53% in 1998 over
the preceding year. In 1999, U.S. revenues grew by 1% and Asian revenues grew by
34%, respectively, over the preceding year reflecting the restructuring of the
US sales organization and spending diversions by customers from new application
development to Year 2000 preparedness. The Company made infrastructure and sales
and marketing investments in the U.S. and Japan in 1998 and 1999 resulting in
marketing and selling expenses increasing in 1998 and 1999 by 26% and 16%,
respectively, over the preceding year.

    ILOG markets and sells its products worldwide principally through its direct
sales force, ISVs and OEMs to two types of customers: end users and solution
providers which integrate the components into specific software applications or
as system enhancements.

    END USERS.  The Company has sales offices and/or subsidiaries in France, the
U.S, Germany, Japan, Singapore, Spain and the U.K. The sales organization
includes field sales representatives, who bear primary responsibility for
customer relationships; field sales engineers, who answer technical questions,
perform demonstrations and develop prototypes or proof-of-concept projects for
customers and inside telesales representatives.

    Due to the strategic nature of ILOG products, potential customers typically
conduct extensive evaluations of the available technologies before making
product acquisition decisions. Common objectives of such evaluations are to
determine whether a packaged application (as opposed to a component-based
development effort) exists that sufficiently meets requirements, and to assess
the degree of leverage provided by purchasing ILOG products versus rewriting
their salient features. Consequently, ILOG's sales cycle is generally three to
six months or more and varies substantially from customer to customer.

    A prospective customer typically has a specific strategic need for one or
more specialized software applications to help it gain a competitive advantage
in its market, as well as adequate technical expertise and resources in-house to
support a software development effort to meet that need. During the evaluation
period, meetings involving ILOG's field sales and technical staff are typically
conducted at the customer's site and at ILOG's offices. Upon completion of the
evaluation, the customer may purchase one or more

                                       13
<PAGE>
development licenses for ILOG products, as well as associated training courses,
consulting services and product maintenance. There is no advance guarantee that
any particular customer's application development process will be successful and
will ever yield deployment license revenues to ILOG.

    PARTNERS.  An important part of ILOG's sales strategy is the cultivation of
indirect sales channels. Of the approximately 2000 total ILOG customers, more
than 100 are ISVs or OEMs that develop and resell software based on ILOG
technologies. The Company also sells through systems integrators and VARs, and
distributors in Europe, Asia and South America. Substantially all of the
Company's indirect sales channels add significant value to the product in the
form of application development, integration with other software and/or hardware
products, consulting and/or training.

    MARKETING.  The Company markets its products and services through its four
worldwide business divisions. Three of these divisions serve the Company's core
industry segments and the fourth is dedicated to direct selling through the
telephone or Internet. This organization became effective July 1, 1999.
Previously the Company's sales and marketing activities were structured on a
geographic basis. The new structure is designed to bring the Company closer to
customers, foster more repeat sales, improve profitability and develop
opportunities within the electronic commerce arena.

    The three market-focused divisions handle industry marketing, sales,
consulting and some product development. Their charter is to meet and anticipate
customer needs while maintaining a tight industry focus. These business
divisions are Telecommunications, Value Chain Management and Industrial
Solutions.

    The Telecommunications Business Division is dedicated to the web-enabled
network management customer care and customer relationship management sectors.
The Value Chain Management Business Division is focussed on enterprise resource
planning (ERP), and supply chain management (SCM) applications for the
allocation of equipment, planning and scheduling production, assigning
personnel, and managing supply chains with the greatest possible efficiency. The
Industrial Solutions Division focuses on the transportation and defense
industries and emerging industries and new applications as businesses seek to
manage their resources more effectively and build value from their use of the
Internet..

    The fourth worldwide division, ILOG Direct, is a direct sales organization
with the mission of delivering product from orders received via the telephone
and the Internet to customers not requiring consulting, personal account
management or product customization.

    There can be no assurance that the recently completed corporate
reorganization will not have an adverse impact on the Company's operating
results due to account transition and other issues related to the
reorganization. See Risk Factors--Dependence upon Development of Sales and
Marketing Force.

    ILOG's software is typically shipped to customers promptly upon receipt of
an order and the execution of a license agreement. Consequently, ILOG seldom
experiences a material backlog of unfulfilled orders, and does not consider
backlog to be a meaningful indicator of future performance. See "Management's
Discussion and Analysis of Consolidated Financial Condition and Results of
Operations."

RESEARCH AND DEVELOPMENT

    The Company has committed, and expects to continue to commit in the future,
substantial resources to research and development. During 1997, 1998 and 1999,
net research and development expenses were $4.6 million, $6.6 million, and
$9.8 million, respectively. Gross research and development expenses before the
offsets of funding provided by the European Union and agencies of the French
government were $5.0 million, $7.2 million, and $10.6 million in 1997, 1998 and
1999, respectively. See "Risk Factors--Risk of Loss of Government Research and
Development Funding" and "Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations."

                                       14
<PAGE>
    Since its inception, the Company has maintained a research and development
focus on the solution of complex problems using object oriented technology. This
focus requires the fusion of different programming cultures, including object
oriented developers, who tend to be attracted by high-level modeling, and
developers working on complex algorithms, who tend to focus on tight low-level
code. This ILOG culture has arisen from twelve years of day-to-day development,
algorithmic optimization and object oriented design. The Company's engineers
work with customers to ensure that the customer's problem is solved efficiently.
The Company's engineers also interact closely with the scientific and academic
communities, which the Company believes is the best way to obtain and maintain
high performance algorithms.

    The Company's future success will depend in large part on its ability to
improve its current technologies and to acquire, develop and market new products
and product enhancements that address these changing market requirements on a
timely basis. There can be no assurance that the Company will be successful in
acquiring, developing and marketing new products or product enhancements, that
the Company will not experience difficulties that delay or prevent the
successful acquisition, development, introduction or marketing of such products
or enhancements or that any new products or product enhancements will adequately
address market requirements and achieve market acceptance. As is customary in
the software industry, the Company has in the past experienced delays in the
introduction of new products and features, and may experience such delays in the
future. If the Company is unable, for technological or other reasons, to
integrate acquired products, develop new products or enhancements of existing
products in a timely manner in response to changing market conditions or
customer requirements, the Company's business, operating results and financial
condition would be materially adversely affected. See "Risk Factors--Rapid
Technological Change and Introduction of New Products and Product Enhancements."

COMPETITION

    The Company believes that the primary competitive factors in its markets are
product performance and features, sales and distribution capabilities and total
cost. The Company's present direct competitors include a number of private and
public companies such as Blaze Software, Inc., Cosytech, Dash Associates
Limited, Dynatech Corporation, IBM, Selectica, Inc., SL Corporation, Template
Software, Inc., Trilogy Software, Inc., and 2order.com. The Company also
competes with companies that provide packaged software with respect to specific
applications. In addition, virtually all of the Company's customers have
significant investments in their existing solutions and have the resources
necessary to enhance existing products and to develop future products. These
customers have or may develop and incorporate competing technologies into their
systems, thereby replacing the Company's current or proposed components. This
would eliminate their need for the Company's services and components and limit
future opportunities for the Company. The Company therefore is required to
persuade development personnel within these customer organizations to outsource
the development of their software and to provide products and solutions to these
customers that cost-effectively compete with their internally developed
products. The Company expects to face additional competition from other
established and emerging companies if the market for its components continues to
develop and expand. In addition, current and potential competitors have
established or may establish cooperative relationships among themselves or with
third parties to increase the ability of their products to address the needs of
the Company's current and prospective customers. Accordingly, it is possible
that new competitors or alliances among competitors may emerge and rapidly gain
significant market share. New or enhanced products introduced by existing or
future competitors could increase the competition faced by the Company's
products. Increased competition could result in fewer customer orders, price
reductions, reduced transaction size, reduced gross margins and loss of market
share, any of which could have a material adverse effect on the Company's
business, operating results and financial condition. There can be no assurance
that the Company will be able to maintain prices for its products at levels that
will enable the Company to market its products profitably. Any decrease in
prices, as a result of competition or otherwise, could have a material adverse
effect on the Company's business, operating results and financial condition.

                                       15
<PAGE>
    Some of the Company's current, and many of the Company's potential
competitors have longer operating histories, significantly greater financial,
technical, marketing, service and other resources, significantly greater name
recognition, broader product offerings and a larger installed base of customers
than the Company. In addition, the Company's current and potential competitors
may have well-established relationships with current and potential customers of
the Company. As a result, such competitors may be able to devote greater
resources to the development, promotion and sale of their products, may have
more direct access to corporate decision-makers based on previous relationships
and may be able to respond more quickly to new or emerging technologies and
changes in customer requirements. There can be no assurance that the Company
will be able to compete successfully against current or future competitors or
that competitive pressures will not have a material adverse effect on its
business, operating results and financial condition.

INTELLECTUAL PROPERTY AND OTHER PROPRIETARY RIGHTS

    The Company relies primarily on a combination of copyright and trademark
laws, trade secrets, confidentiality procedures and contractual provisions to
protect its proprietary technology. For example, the Company licenses its
software pursuant to signed license agreements and, "shrink-wrap" licenses
included in product packaging, which impose certain restrictions on the
licensee's ability to use the software. In addition, the Company seeks to avoid
disclosure of its trade secrets, including requiring those persons with access
to the Company's proprietary information to execute confidentiality agreements
with the Company and restricting access to the Company's source codes. The
Company seeks to protect its software, documentation and other written materials
under the laws relating to trade secrets and copyright, which afford only
limited protection. The Company has no patents or pending patent applications.

    Despite the Company's efforts to protect its proprietary rights,
unauthorized parties may attempt to copy aspects of the Company's products,
obtain or use information that the Company regards as proprietary or use or make
copies of the Company's products. Policing unauthorized use of the Company's
products is difficult. In addition, the laws of many jurisdictions do not
protect the Company's proprietary rights to as great an extent as do the laws of
France and the U.S. In particular, "shrink-wrap" licenses may be wholly or
partially unenforceable under the laws of certain jurisdictions, and copyright
and trade secret protection for software may be unavailable in certain
countries. Under French intellectual property laws, rights over software are not
patentable but are protected under copyright law and infringements by third
parties can be enjoined. There can be no assurance that the Company's means of
protecting its proprietary rights will be adequate or that the Company's
competitors will not independently develop similar technology.

    There can be no assurance that the Company will not receive communications
in the future from third parties asserting that the Company's products infringe,
or may infringe, on their proprietary rights. There can be no assurance that
licenses to disputed third-party technology would be available on reasonable
commercial terms, if at all. In addition, the Company may initiate claims or
litigation against third parties for infringement of the Company's proprietary
rights or to establish the validity of the Company's proprietary rights.
Litigation to determine the validity of any claims could result in significant
expense to the Company and divert the efforts of the Company's technical and
management personnel from productive tasks, whether or not such litigation were
determined in favor of the Company. In the event of an adverse ruling in any
such litigation, the Company might be required to pay substantial damages,
discontinue the use and sale of infringing products, expend significant
resources to develop non-infringing technology or obtain licenses to infringing
technology. In the event of a successful claim against the Company and the
failure of the Company to develop or license a substitute technology, the
Company's business, operating results and financial condition would be
materially adversely affected. As the number of software products in the
industry increases and the functionality of these products further overlaps, the
Company believes that software developers may become increasingly subject to
infringement claims. Any such claims against the Company, with or without merit,
as well as claims initiated by the Company against third parties, could be time
consuming and expensive to defend or prosecute and to resolve.

                                       16
<PAGE>
EMPLOYEES

    As of September 30, 1999, the Company had 460 full-time employees, including
102 in research and development, 303 in sales and marketing, consulting and
customer support and 55 in finance and administration. As of September 30, 1999,
311 of the Company's employees were located in Europe, 103 were located in North
America and 46 in Asia.

    The Company has never experienced a work stoppage and believes that its
relationships with its employees are good. The future success of the Company
depends in large part on its ability to attract and retain highly skilled
technical, sales and managerial personnel. Competition for such personnel in the
software industry is intense, particularly with respect to technical personnel
with expertise in object oriented technology, and there can be no assurance that
the Company will be successful in attracting and retaining such personnel.

    Management is required under the French Labor Code to hold monthly meetings
with a delegation of elected employee representatives to discuss, in particular,
employment matters and the economic condition of the Company and to provide
appropriate information and documents relating thereto. As required under the
French Labor Code, two representatives of the employees are entitled to attend
meetings of the Board of Directors of the Company, but do not have any voting
rights.

ITEM 2. DESCRIPTION OF PROPERTY

    The Company's corporate headquarters are located in Gentilly, France, a
suburb of Paris, in premises consisting of approximately 54,000 square feet
under leases expiring in 2004. The Company maintains a research and development
facility in Sophia-Antipolis, in the south of France, in premises consisting of
approximately 2,000 square feet under a lease expiring in 2005. The Company has
its U.S. headquarters in Mountain View, California in premises consisting of
approximately 37,000 square feet under a lease expiring in 2007. The Company
maintains a telemarketing sales office and research and development facility in
Incline Village, Nevada, in premises consisting of approximately 4,000 square
feet under a lease expiring in October 2002, and a sales office in Cambridge,
Massachusetts. The Company has its Asian headquarters in Singapore in premises
consisting of approximately 6,500 square feet under a number of leases expiring
in 1999. In addition, the Company maintains sales and customer support offices
in Bracknell, near London, England; in Bad Homburg, near Frankfurt, Germany; in
Madrid, Spain; and Tokyo, Japan.

ITEM 3. LEGAL PROCEEDINGS

    The Company is a 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. Any litigation, however,
involves potential risk and potentially significant litigation costs, and
therefore there can be no assurance that any litigation which may arise in the
future will not have a material adverse effect on the Company's business.

ITEM 4. CONTROL OF REGISTRANT

    To the Company's knowledge, it is not owned or controlled by another
corporation or by any foreign government.

                                       17
<PAGE>
    The table below sets forth certain information with respect to the
beneficial ownership of shares of the Company as of September 30, 1999 by any
person known to the Company to be the owner of more than ten percent of the
Shares:

<TABLE>
<CAPTION>
                                                         SHARES           PERCENTAGE
NAME AND ADDRESS OF BENEFICIAL OWNER              BENEFICIALLY OWNED(1)     OWNED
------------------------------------              ---------------------   ----------
<S>                                               <C>                     <C>
INRIA...........................................        1,912,500            13.5%
  BP 105, 78153 Le Chesnay Cedex, France

All directors and executive officers as a group
  (16) persons)(2)..............................        5,763,919            46.5%
</TABLE>

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

(1) Number of Shares and percentage ownership is based on: (i) 14,182,495 Shares
    outstanding as of September 30, 1999. 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 such shares. Shares
    subject to options that are currently exercisable or exercisable within
    60 days of September 30, 1999 are deemed to be outstanding and to be
    beneficially owned by the person holding such options for the purpose of
    computing the percentage ownership of such person, but are not deemed to be
    outstanding and to be beneficially owned for the purpose of computing the
    percentage ownership of any other person.

(2) Includes 819,453 shares issuable upon exercise of options to purchase shares
    granted to executive officers and directors of the Company which are
    exercisable within 60 days of September 30, 1999.

ITEM 5. NATURE OF TRADING MARKET

    The ADSs are quoted on the Nasdaq National Market under the symbol "ILOG".
The shares are also listed on the NOUVEAU MARCHE, Paris.

THE PARIS BOURSE

    Securities listed on the BOURSE DE PARIS (the "Paris Bourse" or Paris Stock
Exchange) are traded in one of three markets. The securities of most large
public companies are listed on the PREMIER MARCHE, with the SECOND MARCHE
available for small and medium-sized companies. Trading on the NOUVEAU MARCHE
was introduced in March 1996 to allow companies seeking development capital to
access the stock market. In addition, securities of certain other companies are
traded on a non-regulated over-the-counter market, the MARCHE LIBRE OTC.

    The NOUVEAU MARCHE is a regulated market managed and operated by the
ParisBourse SBF S.A., the organization which manages and operates the Paris
Bourse (the "SBF"). The NOUVEAU MARCHE, however, is neither a new section of an
existing market, nor a stepping stone to the Paris Bourse's SECOND MARCHE. The
NOUVEAU MARCHE is an electronic market that combines a central order book with
market-making to ensure greater liquidity. Member firms of the NOUVEAU MARCHE
may act in one or more capacities: Listing Advisers/ Market-Makers
(INTRODUCTEURS/TENEURS DE MARCHE, or "ITMs") or broker-dealers (NEGOCIATEURS-
COURTIERS). Admission to the NOUVEAU MARCHE is subject to certain capital
adequacy and liquidity requirements determined by the SBF. In addition,
companies applying for listing on the NOUVEAU MARCHE are required to publish
comprehensive information regularly and to keep the public informed of events
likely to affect the market price of their securities. The NOUVEAU MARCHE may
also require certain current shareholders to enter into lock-up arrangements at
the time of offerings of securities.

    In October 1998, the SBF introduced continuous trading for the most actively
traded shares on the NOUVEAU MARCHE. Such trading takes place on each business
day from 10:30 a.m. to 4:30 p.m. local time, with a pre-opening session from
7:45 a.m. to 10:30 a.m. during which transactions are recorded but not executed.
For shares that are not traded continuously, retail orders on the NOUVEAU MARCHE
are matched by

                                       18
<PAGE>
the central system at two daily fixings, at 10:30 a.m. and 4:30 p.m. Between
such fixings, ITMs display bid/ asked spreads for a minimum number of each of
the securities for which they act as market-makers, and trades with the ITM are
executed from time to time throughout the day. The Shares are traded
continuously. Trading in the securities listed on the NOUVEAU MARCHE may be
suspended by the SBF if quoted prices fall outside certain price limits defined
by the regulations of the SBF. In particular, unless market conditions otherwise
require, the SBF may suspend trading of a security for up to 30 minutes if the
SBF believes that the bids and offers for such security would cause the next
quoted price of a security to vary by more than 10 percent from the quoted price
resulting from the last fixing or the last trading price for the shares which
are traded on a continuous basis. In the latter case, further suspensions for up
to 30 minutes are also possible if the price varies again by more than
5 percent. The SBF may also suspend trading of a listed security in certain
other limited circumstances, including, for example, the occurrence of unusual
trading activity in such security.

    Prior to any transfer of securities held in registered form on the NOUVEAU
MARCHE, such securities must be converted into bearer form and inscribed in an
account maintained by an accredited intermediary with Sicovam. Transactions in
securities are initiated by the owner giving instructions (through an agent, if
appropriate) to the relevant accredited intermediary. Trades of securities
listed on the Nouveau Marche are cleared and settled through Sicovam, a
registered clearing agency, using a continuous net settlement system. A fee or
commission is payable to the ITM or broker-dealer or other agent involved in the
transaction.

    SG Securities (Paris) SA acts as TENEUR DE MARCHE with respect to the Shares
traded on the NOUVEAU MARCHE.

CLOSING SALE PRICES OF ILOG SHARES

    The following table sets forth the range of quarterly high and low closing
sale prices of the ADSs (each ADS representing one Share) on the Nasdaq National
Market for each full quarterly period within the last two fiscal years.

<TABLE>
<CAPTION>
                                                                  IN DOLLARS
                                                              -------------------
<S>                                                           <C>        <C>
                                                               HIGH        LOW
                                                               ------     ------
1998:
First Quarter...............................................    9.375      5.625
Second Quarter..............................................   11.375      7.750
Third Quarter...............................................   13.750      8.500
Fourth Quarter..............................................   16.375     12.250

1999:
First Quarter...............................................   16.500      7.125
Second Quarter..............................................   14.000      7.000
Third Quarter...............................................   12.125      5.125
Fourth Quarter..............................................    5.813      4.438
</TABLE>

    On September 30, 1999, the last sale price for the ADSs as reported on the
Nasdaq National Market was $6.875 per ADS.

                                       19
<PAGE>
    The following table sets forth the range of quarterly high and low closing
sale prices of the Shares on the NOUVEAU MARCHE for each quarterly period within
the last fiscal year from the time trading in the Shares commenced on the
NOUVEAU MARCHE.

<TABLE>
<CAPTION>
                                                                   IN EUROS
                                                              -------------------
<S>                                                           <C>        <C>
                                                               HIGH       LOW
                                                               -----      -----
1999:
Second Quarter (from December 3, 1998)......................   12.65      10.64
Third Quarter...............................................   11.00       6.57
Fourth Quarter..............................................    5.50       4.40
</TABLE>

    On September 30, 1999, the last sale price for the Shares as reported on the
Nouveau Marche was 6.96 Euros per Share.

    The Depositary in respect of the ADSs is Morgan Guaranty Trust Company of
New York. Each ADS registered on the books of the Depositary corresponds to one
Share. As of September 30, 1999 there were 18 record holders of American
Depositary Receipts evidencing 7,996,172 ADSs. As of September 30, 1999 there
were 152 holders of record of the Company's 14,182,495 Shares.

TRADING BY THE COMPANY IN ITS SHARES

    Under French law as amended by a law dated July 2, 1998, a company may not
subscribe its own shares, but it may, either directly or through an intermediary
acting on its behalf, acquire its own shares (a) to reduce its share capital by
canceling such acquired shares, with approval of the shareholders at an
extraordinary meeting, (b) to obtain shares for distribution to employees under
a profit-sharing plan or stock option plan after obtaining shareholders'
approval at an ordinary shareholders' meeting, and (c) if the company's shares
are listed on a regulated market (i.e., on the PREMIER MARCHE, the SECOND MARCHE
or the NOUVEAU MARCHE), subject to the filing of a note D'INFORMATION that has
received a visa of the COB and after obtaining approval from the shareholders at
an ordinary meeting, to acquire up to 10 percent of its share capital in
connection with a corporate share repurchase program. In this latter case, the
company may decide to (i) keep these shares, (ii) to sell or transfer them
(including to employees under a profit-sharing or stock option plan) or
(iii) with the approval of the shareholders at an extraordinary shareholders'
meeting, to cancel them within a limit of 10 percent of the outstanding capital
over a 24 month-period. In addition, pursuant to Regulation No. 90-04 (as
modified) of the COB, all purchases by the Company of its own shares are subject
to certain limitations, including as to timing, price and quantity so as not to
disrupt the normal trading of the shares. Furthermore, the Company must inform
the CMF on a monthly basis of any purchase, sale, transfer or cancellation of
its own shares. The CMF makes this information public.

    In addition, under French law an issuer may not directly or through a person
acting on its own behalf, own more than 10 percent of its outstanding share
capital, except in certain limited circumstances. If a company acquires its own
shares, they must be held in registered form and fully paid up at the time of
their acquisition by the company. Such shares are deemed outstanding under
French law but, as long as held by the company, they are not entitled to
dividends, voting rights or preferential rights.

    Pursuant to an authority granted by its shareholders at an ordinary general
meeting held on November 4, 1998, the Company was authorized to trade its own
shares, up to 10 percent of the total outstanding share capital, for a period of
18 months. In addition, on November 4, 1998, the Company received shareholder
approval to cancel Shares so repurchased up to a limit of 10 percent of the
outstanding capital over a 24-month period.

    The Company will submit a resolution at the Shareholders meeting on
December 14, 1999, convened to approve the French statutory financial statements
for the fiscal year ended June 30, 1999, to be authorized to trade in its own
shares for a period ending on the date of the annual ordinary meeting of

                                       20
<PAGE>
shareholders that will approve the French statutory financial statements for the
fiscal year ended June 30, 2000.

ITEM 6. EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS

EXCHANGE CONTROLS

    The payment of any dividends to foreign shareholders must be effected
through an authorized intermediary bank. All registered banks and credit
establishments in The Republic of France are authorized intermediaries.

    Under current French exchange control regulations, there are no limitations
on the amount of cash payments that may be remitted by ILOG to residents of the
United States. Laws and regulations concerning foreign exchange controls do
require, however, that all payments or transfers of funds made by a French
resident to a non-resident be handled by an authorized intermediary bank.

OWNERSHIP OF SHARES BY NON-EUROPEAN UNION PERSONS

    Pursuant to a Decree dated February 14, 1996, the acquisition of a
controlling interest in ILOG by any Non-European Union ("EU") resident is
generally no longer subject to an AUTORISATION PREALABLE or prior authorization
of the French Ministry of the Economy, Finance and the Budget. Under the new
regulations, the acquisition of a controlling interest in ILOG by either an EU
or non-EU person or group of persons is subject to a simple declaration
containing the details of the acquisition. The declaration must be filed at the
time the investment is made. Direct and indirect ownership of 20% or more of a
quoted company is generally regarded as a controlling interest, but a lower
interest may be held to be a controlling interest in certain circumstances (such
as an option to purchase additional shares).

    Under French law, there is no limitation on the right of non-resident or
foreign shareholders to vote securities of a French company.

ITEM 7. TAXATION

    The following is a general summary of certain material French tax and United
States federal income tax consequences to certain holders of ADSs that are U.S.
citizens and residents, U.S. corporations, and certain other entities and
organizations potentially affected by U.S. Federal income taxation
(collectively, "U.S. Holders"). This summary does not purport to address all of
the material consequences to these U.S. Holders or to any other holders. This
summary also does not take into account the specific circumstances of any
particular U.S. Holder although such circumstances might materially affect the
general tax treatment of such U.S. Holder. Therefore, all prospective purchasers
of ADSs are advised to consult their own tax advisor with respect to the United
States federal, state and local tax consequences, French tax consequences, or
foreign tax consequences of the ownership of ADSs and the Shares corresponding
thereto.

    This summary is based on the Internal Revenue Code of 1986 as amended (the
"IRC"), French law, US Treasury and French tax regulations, and the Convention
between the Government of the United States of America and the Government of the
French Republic for the Avoidance of Double Taxation and the Prevention of
Fiscal Evasion with Respect to Taxes on Income and Capital of August 31, 1994
(the "Treaty").

    The statements of French and United States tax laws set out below assume
that each obligation in the Deposit Agreement and any related agreement will be
performed in accordance with its terms. In addition, all statements are based on
the Treaty, the laws, judicial decisions, administrative regulations, in force
as of the date of this Annual Report on Form 20-F, and as a consequence are
subject to any changes in United States or French law, or in the double taxation
conventions between the United States and France, occurring after such date,
possibly with retroactive effect.

                                       21
<PAGE>
    In order to be entitled to benefits conferred by the Treaty, a U.S. holder
must be a "resident" of the United States (hereafter referred to as a "U.S.
Resident Holder") within the meaning of the Treaty. Included in the category of
"U.S. Resident Holders" would generally be: (i) citizens or residents of the
United States; (ii) corporations organized under the laws of the United States,
or of any State thereof; (iii) certain pension trusts and other retirement or
employee benefits organizations established in the United States by a "resident"
thereof but generally exempt from U.S. tax; (iv) certain not-for-profit
organizations established in the U.S. but generally exempt from U.S. tax;
(v) U.S. regulated investment companies, U.S. real estate investment trusts, and
U.S. real estate mortgage investment conduits; and (vi) partnerships or similar
pass-through entities, estates, and trusts to the extent the income of such
partnerships, similar entities, estates, or trusts is subject to tax in the
United States as income of a resident in its hands or the hands of its partners,
beneficiaries, or grantors. In addition, in order to be entitled to benefits
conferred by the Treaty, a U.S. Resident Holder must also qualify for such
benefits under the limitation on benefits provisions of Article 30 of the
Treaty. The discussion below is based on the assumption that a U.S. Resident
Holder would so qualify but each U.S. Holder should consult with their own
advisor to ensure that this is the case.

    For most purposes of the Treaty and the IIRC as in effect as of the date of
this Annual Report on Form 20-F, U.S. Holders of ADSs will be treated as the
owners of the Shares corresponding to such ADSs. Accordingly, the French and
United States federal tax consequences discussed below will generally be
applicable to U.S. Holders of Shares.

TAXATION OF DIVIDENDS

    Under French law, dividends paid to non-residents of France are subject to
French withholding tax at a rate of 25%. A resident of France is entitled to an
AVOIR FISCAL, or a tax credit, in respect of a dividend received from a French
corporation, such as ILOG. The AVOIR FISCAL is generally equal to 50% of the
dividend paid, unless it is not used by an individual, in which case it is equal
to 45% of the dividend paid. Under French domestic law, dividends paid to
non-residents are usually subject to a 25% withholding tax and are not eligible
for the benefit of the AVOIR FISCAL. The benefit of the reduced rate of
withholding tax, and if applicable, of the AVOIR FISCAL may, under certain
conditions be allowed to shareholders who are not residents of France if they
are entitled to and they comply with procedures for claiming benefits under the
applicable tax treaty between France and such non-resident's country of
residence.

    Assuming dividends paid to a U.S. Resident Holder are not attributable to a
permanent establishment or fixed base maintained by such holder in France and
that such holder holds less than 10% of the capital of ILOG under the Treaty,
the rate of French withholding tax on such dividends is generally reduced to
15%. The rate of French withholding tax may be further reduced to 5% if the U.S.
Resident Holder is a company that owns directly or indirectly at least 10% of
the capital of ILOG.

    The French tax authorities established an instruction on June 7, 1994 (the
"Instruction") providing that dividends paid to a U.S. Resident Holder which is
entitled to either a full or partial refund of AVOIR FISCAL as described below
will no longer be subject to the French withholding tax of 25% (with this tax
reduced at a later date to 15% subject to filing formalities), but will be
immediately subject to the reduced rate of 15% provided that such U.S. Resident
Holder establishes before the date of payment that he is a "resident" of the
United States under the Treaty.

    In addition, assuming again that dividends are not attributable to a
permanent establishment or fixed base maintained in France, certain U.S.
Resident Holders described below are also entitled to a payment equal to the
AVOIR FISCAL, less a 15% withholding tax, with respect to such dividends. These
U.S. Resident Holders are: (i) individuals or other non-corporate persons;
(ii) United States corporations, other than regulated investment companies, that
do not directly or indirectly own 10% or more of the capital of ILOG; and
(iii) regulated investment companies that do not directly or indirectly own 10%
or more of the capital of ILOG but only if less than 20% of their shares are
beneficially owned by persons who are not

                                       22
<PAGE>
citizens or residents of the United States. It is important to note that a U.S.
Resident Holder described immediately above may receive a payment of the AVOIR
FISCAL only if such holder is subject to United States federal income tax on the
payment of the AVOIR FISCAL and the related dividend. Nevertheless, a
partnership or trust may also qualify but only to the extent that the partners,
beneficiaries, or grantors would qualify under (i) or (ii) immediately above
(and are subject to United States federal income tax on the payment of the AVOIR
FISCAL and the related dividend). In addition, in order to receive payment of
the AVOIR FISCAL, the U.S. Resident Holder may be required to demonstrate to the
French authorities that he is the beneficial owner of the dividend and that his
shareholding does not have as its principal purpose, or one of its principal
purposes, to allow another person to obtain the refund of AVOIR FISCAL.

    Under the Treaty, any payment of the AVOIR FISCAL (whether full or partial)
is subject to a 15% withholding tax. Thus, for example, provided that the
requirements of the Instruction are satisfied, if ILOG pays a dividend of 100 to
an individual U.S. Resident Holder entitled to a refund of AVOIR FISCAL, such
holder will initially receive 85 and will be entitled to an additional payment
of 42.5 (resulting in an aggregate payment of 127.5) consisting of the AVOIR
FISCAL of 50, less a 15% withholding tax on that amount equal to 7.50. As noted
below, the payment of the AVOIR FISCAL less a 15% withholding tax on that amount
will not be received until, at the earliest, January 15th following the close of
the calendar year in which the dividend was paid.

    The Treaty provides that certain tax-exempt U.S. pension trusts and other
organizations established and maintained to provide retirement or employee
benefits and certain tax-exempt organizations (as well as certain individuals
with respect to dividends beneficially owned by such individuals and derived
from an investment retirement account and the United States, its political
subdivisions or local authorities, and any agencies or instrumentalities
thereof, from the investment of retirement assets) which are U.S. Resident
Holders are entitled to receive a payment equal to 30/85 of the AVOIR FISCAL,
less a 15% withholding tax, provided that these entities own, directly or
indirectly, less than 10% of the capital of ILOG. The net effect of the partial
refund of the AVOIR FISCAL is to offset the economic effect of the 15% French
withholding tax imposed on the gross amount of the dividend.

    Under the Instruction, in order to benefit from the reduced withholding tax
rate of 15% immediately upon payment of a dividend and to receive, where
applicable, the payment of the AVOIR FISCAL less the 15% withholding tax on that
amount, a U.S. Resident Holder must complete and file a French Treasury form RF
IA EU-No. 5052, entitled "Application for Refund", before the date of payment of
the dividends. The form, together with instructions, will be provided by the
Depositary to all U.S. Holders registered with the Depositary and may also be
available from the United States Internal Revenue Service (the "Service").
However, should a U.S. Resident Holder not be able to complete and file the
French Treasury form RF IA EU-No. 5052 on the date of payment of the dividends
at the latest, such U.S. Resident Holder could benefit from the favorable
treatment provided by the Treaty if he or she completes and files a simplified
application form before the date of payment of the dividends. A model of such
simplified application form is provided by the Instruction. The Depositary will
arrange for the filing with the French fiscal authorities of all forms completed
by U.S. Holders registered with the Depositary and returned to the Depositary in
time to be filed with the French fiscal authorities prior to the payment of the
dividend. The payment of the AVOIR FISCAL (net of withholding tax) is generally
expected to be made within 12 months of filing the form, but not before
January 15 following the close of the calendar year in which the related
dividend is paid.

    In addition, U.S. pension funds must, inter alia, provide the CENTRE DES
IMPOTS DES NON-RESIDENTS with a tax certificate from the Service indicating that
such pension funds have been established and are operated in accordance with
Sections 401(a), 403(b) or 457 of the IRC. A mutual fund or other investment
company must provide a certification by the Service of such Company's status as
a regulated investment company under Section 851 of the IRC.

    Amounts distributed as dividends by French companies out of profits which
have not been taxed at the ordinary corporate income tax rate or which have been
earned and taxed more than five years before the

                                       23
<PAGE>
distribution are subject to a PRECOMPTE or equalization tax by such companies.
The PRECOMPTE is generally equal to one-half of the net amount distributed.
However, the PRECOMPTE may be reduced to 45% if the dividends are paid to
holders that are entitled to the AVOIR FISCAL at the rate of 45% rather than the
rate of 50%, provided however that the distributing company certifies to have
distributed such dividends to such beneficiaries. If a U.S. Resident Holder is
not entitled to the AVOIR FISCAL payment described above (or is entitled to only
a partial payment of the AVOIR FISCAL), such a holder generally may obtain from
the French tax authorities a refund of PRECOMPTE paid in respect of the
dividends, less French withholding tax on the amount thereof, and the partial
AVOIR FISCAL, if any.

    For United States federal income tax purposes, the gross amount of any
distribution as well as the gross amount of any AVOIR FISCAL (or PRECOMPTE) paid
to a U.S. Resident Holder (before reduction for French withholding taxes) will
generally be treated as a dividend to the extent paid or deemed paid out of the
current or accumulated earnings and profits of ILOG (as determined for United
States tax purposes) and will be included in gross income of the U.S. Holder as
ordinary income in the year actually or constructively received. A dividend
received deduction will generally not be allowed with respect to dividends paid
by the Company. For purposes of determining the amount included in gross income,
any distribution or AVOIR FISCAL payment (or PRECOMPTE refund) in Euros or
French francs will be converted to U.S. dollars at the spot exchange rate on the
date so included. Generally, gain or loss (if any) resulting from currency
exchange fluctuations during the period from the date the dividend is included
in income to the date such dividend payment is actually converted into U.S.
dollars will be treated as ordinary income or loss from sources within the
United States.

    French withholding tax imposed on dividends paid by ILOG and imposed on
related payments of AVOIR FISCAL (or PRECOMPTE) may, subject to certain
generally applicable conditions and limitations, be taken as a deduction or as a
foreign tax credit against such U.S. Holder's United States federal income tax
liability. Dividends and related payments of AVOIR FISCAL (or PRECOMPTE) will,
in most cases, be considered "passive income" from sources outside of the United
States for purposes of these U.S. foreign tax credit provisions.

TAXATION OF CAPITAL GAINS

    In general, a U.S. Resident Holder will not be subject to French tax on any
capital gain derived from the sale or exchange of ADSs, except where such gain
is attributable to a permanent establishment or fixed base maintained by the
U.S. Resident Holder in France.

    For U.S. tax purposes, U.S. Holders will generally recognize gain or loss
upon the sale or exchange of ADSs equal to the difference between the amount
realized from the sale or exchange of the ADSs and the U.S. Holder's basis in
such ADSs. In general, such gain or loss will be U.S. source capital gain or
loss. In the case of individual U.S. Holders, capital gains are subject to U.S.
federal income tax at preferential rates if specified minimum holding periods
are met.

FRENCH TRANSFER TAXES

    Given that the Shares are listed, transfers of Shares will not be subject to
French registration or transfer taxes, unless the transfer is effected by means
of a written agreement that is executed, registered, or enforced within France.

FRENCH ESTATE AND GIFT TAXES

    Under the Convention Between the United States of America and the French
Republic for the Avoidance of Double Taxation and the Prevention of Fiscal
Evasion with Respect to Taxes on Estates, Inheritance and Gifts of November 24,
1978, a transfer of ADSs by gift or by reason of the death of a U.S. Holder that
is an individual that would otherwise be subject to French gift or inheritance
tax, respectively, will not be subject to such French tax unless the donor or
the transferor is domiciled in France at the time

                                       24
<PAGE>
of making the gift, or of his or her death, or the ADSs were used in, or held
for use in, the conduct of a business through a permanent establishment or fixed
base in France.

FRENCH WEALTH TAX

    Under the Treaty, the French wealth tax applicable to individuals does not
apply to U.S. Resident Holders owning alone or with related persons, directly or
indirectly, ADSs giving the right to less than 25% of ILOG's share capital.

PASSIVE FOREIGN INVESTMENT COMPANY CONSIDERATIONS

    ILOG believes that its ADSs should not be treated as stock of a passive
foreign investment company (a "PFIC") for United States federal income tax
purposes, but this conclusion is a factual determination made annually and thus
is subject to change.

    ILOG will be a PFIC with respect to a U.S. Holder if, for any taxable year
in which the U.S. Holder holds ADSs, either (i) at least 75% of the gross income
of ILOG for the taxable year is passive income; or (ii) at least 50% of the
average fair market value (assuming ILOG is not a "controlled foreign
corporation" as defined under U.S. law) of ILOG's assets consists of assets that
produce or are held for the production of passive income. For this purpose,
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 that
produce passive income. For the purpose of the PFIC tests, ILOG will be treated
as owning directly its percentage share (presently 100%) of the assets of its
subsidiaries and of receiving directly its percentage share of each of those
subsidiaries' income, if any, so long as ILOG owns, directly or indirectly, at
least 25% by value of the particular subsidiary's stock.

    If ILOG were to become a PFIC, a U.S. Holder of ADSs or Shares generally
would be subject to adverse tax consequences with respect to certain
distributions on, and gains realized from a disposition of, ADSs or Shares. U.S.
Holders should consult their own tax advisors regarding the potential
application of the PFIC ruled to their ownership of ADSs or Shares.

FOREIGN CURRENCY ISSUES

    If dividends are paid in Euros or French francs, the amount of the dividend
distribution to be included in the income of a U.S. Holder will be the U.S.
dollar value of the payments made in French francs, determined at a spot French
franc/U.S. dollar rate applicable to the date such dividend is to be included in
the income of the U.S. Holder, regardless of whether the payment is in fact
converted into U.S. dollars. Generally, gain or loss (if any) resulting from
currency exchange fluctuations during the period from the date the dividend is
included in income to the date such payment is converted into U.S. dollars will
be treated as ordinary income or loss.

                                       25
<PAGE>
ITEM 8. SELECTED FINANCIAL DATA

    The following selected financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operation," the Consolidated Financial Statements and related Notes thereto and
other financial information appearing elsewhere in this Annual Report on
Form 20-F. The selected statement of operations data set forth below for each of
the years ended June 30, 1997, 1998 and 1999 and the balance sheet data at
June 30, 1998 and 1999 have been derived from the Consolidated Financial
Statements of the Company, which have been prepared in accordance with U.S. GAAP
and audited by Ernst & Young Audit, independent auditors, and included herein.
The selected statement of operations data for the years ended June 30, 1995 and
1996 and balance sheet data at June 30, 1995, 1996 and 1997 are derived from
audited financial statements not included herein.

<TABLE>
<CAPTION>
                                                                YEAR ENDED JUNE 30,
                                                ----------------------------------------------------
                                                  1995       1996       1997       1998       1999
                                                --------   --------   --------   --------   --------
<S>                                             <C>        <C>        <C>        <C>        <C>
                                                       (IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Revenues:
  License fees................................  $12,246    $19,056    $23,053    $ 34,652   $38,657
  Services....................................    5,530      7,226     10,877      20,604    25,066
                                                -------    -------    -------    --------   -------
Total revenues................................   17,776     26,282     33,930      55,256    63,723
Cost of revenues:
  License fees................................      680      1,105        917       1,183     1,149
  Services....................................    3,617      4,500      6,015      10,867    14,429
                                                -------    -------    -------    --------   -------
    Total cost of revenues....................    4,297      5,605      6,932      12,050    15,578
                                                -------    -------    -------    --------   -------
Gross profit..................................   13,479     20,677     26,998      43,206    48,145
                                                -------    -------    -------    --------   -------
Operating expenses:
  Marketing and selling.......................    7,828     17,461     21,724      27,290    31,531
  Research and development....................    2,926      4,437      4,566       6,575     9,835
  General and administrative..................    2,876      3,631      4,383       6,126     7,435
  Nouveau marche expenses.....................       --         --         --          --       466
  Write-off of acquired intangible assets.....       --         --         --      31,045     2,032
                                                -------    -------    -------    --------   -------
    Total operating expenses..................   13,630     25,529     30,673      71,036    51,299
                                                -------    -------    -------    --------   -------
Loss from operations..........................     (151)    (4,852)    (3,675)    (27,830)   (3,154)
Net interest income (expense) and other.......     (352)      (259)     1,124        (121)      114
Income taxes..................................       --         --         --          --      (130)
                                                -------    -------    -------    --------   -------
Net loss......................................  $  (503)   $(5,111)   $(2,551)   $(27,951)  $(3,170)
                                                =======    =======    =======    ========   =======
Net loss per share............................  $ (0.08)   $ (0.74)   $ (0.30)   $  (2.21)  $ (0.23)
                                                =======    =======    =======    ========   =======
Shares and share equivalents used in per share
  calculations (1)............................    6,506      6,907      8,428      12,665    13,999
                                                =======    =======    =======    ========   =======

BALANCE SHEET DATA:
Cash and cash equivalents.....................  $ 5,146    $ 4,977    $26,044    $ 20,101   $21,532
Working capital...............................    7,135      4,970     25,122      21,929    17,375
Total assets..................................   15,623     19,226     41,483      43,649    45,006
Convertible bonds.............................    4,533      4,272         --          --        --
Other long term obligations...................    2,044      2,364      1,134       5,979     3,879
Shareholders' equity..........................    2,466      1,197     27,057      19,799    18,025
</TABLE>

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

(1) See Note 1 of Notes to Consolidated Financial Statements for an explanation
    of the determination of the number of Shares and Share equivalents used in
    per share calculations.

                                       26
<PAGE>
    ILOG has never declared or paid any cash dividends on its Shares. ILOG
currently intends to retain all future earnings to finance future growth and
therefore does not anticipate paying any dividends in the foreseeable future.

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

    THIS SECTION CONTAINS TREND ANALYSIS AND OTHER FORWARD-LOOKING STATEMENTS
THAT ARE SUBJECT TO RISKS AND UNCERTAINTIES. THESE STATEMENTS ARE BASED ON
CURRENT EXPECTATIONS AND ACTUAL RESULTS MAY DIFFER MATERIALLY. 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.

OVERVIEW

    ILOG develops, markets and supports advanced software components for user
interface, resource optimization and data services functions that are
fundamental to the development of business applications. In 1988, the Company
began shipping software components developed in the LISP programming language.
In 1992, the Company started to transition its products to the C++ programming
language. In 1993, the Company began shipping ILOG Views and ILOG Solver, which
visualization and optimization product families represented 38% and 48%
respectively of the Company's total license fee revenues in 1999. During 1999
the Company introduced Java versions of certain of its products which
constituted approximately 10% of 1999 license fee revenues.

    In August 1997 the Company acquired the business of CPLEX
Optimization, Inc. ("CPLEX"), located in Incline Village, Nevada, which provides
linear based optimizer products written in C.

    Up until its initial public offering in February 1997, which raised
$24.9 million, the Company has financed itself through a combination of venture
capital investments and interest free loans from French government agencies and
the European Union. The Company partially financed the August 1997 CPLEX
acquisition through the issuance of 1.7 million shares and promissory notes
totaling $5.0 million. In June 1998 a further financing of $10.5 million was
received from SAP A.G. in exchange for approximately 0.7 million shares.

    The Company's software development efforts are based in France except for
the CPLEX products, which are developed in Incline Village, Nevada. In 1999, the
Company's French-based revenues and expenses were 26% and 34%, respectively, of
the Company's total revenues and expenses excluding the write-off of intangible
assets. The Company in 1998 and 1999 made significant investments in both new
products and improving existing products resulting in research and development
expenditures growing by 44% and 50% respectively over the previous year.

    The Company derives its revenues from the sale of development licenses to
application developers and from run time or deployment licenses once
applications are developed and deployed and related services. Revenues from
license fees represented 61% and from services 39% of the Company's revenues in
1999. Services revenue consist of consulting to facilitate the adoption of the
Company's products, maintenance and customer training. Consulting, maintenance
and training accounted for 22%, 14% and 3%, respectively, of the Company's total
revenues in 1999.

                                       27
<PAGE>
RESULTS OF OPERATIONS

    The following table sets forth certain items from the Company's consolidated
statement of operations as a percentage of total revenues for the periods
indicated:

<TABLE>
<CAPTION>
                                                                  YEAR ENDED JUNE 30,
                                                          ------------------------------------
                                                            1997          1998          1999
                                                          --------      --------      --------
<S>                                                       <C>           <C>           <C>
Revenues:
  License fees..........................................     68%           63%           61%
    Services............................................     32            37            39
                                                            ---           ---           ---
      Total revenues....................................    100           100           100
                                                            ---           ---           ---
Cost of revenues:
    License fees........................................      2             2             2
    Services............................................     18            20            22
                                                            ---           ---           ---
      Total cost of revenues............................     20            22            24
                                                            ---           ---           ---
Gross margin............................................     80            78            76
                                                            ---           ---           ---
Operating expenses:
    Marketing and selling...............................     64            50            49
    Research and development............................     14            12            15
    General and administrative..........................     13            11            12
    Nouveau marche expenses.............................     --            --             1
    Write-off of acquired intangible assets.............     --            56             4
                                                            ---           ---           ---
      Total operating expenses..........................     91           129            81
                                                            ---           ---           ---
Loss from operations....................................    (11)          (51)           (5)
Net interest income (expense) and other.................      3            --            --
                                                            ---           ---           ---
Net loss................................................     (8)%         (51)%          (5)%
                                                            ===           ===           ===
</TABLE>

REVENUES

    Total revenues increased from $33.9 million in 1997 to $55.3 million in
1998, and to $63.7 million in 1999, representing increases of 63% and 15%,
respectively. The rate of growth in 1999 reflects the restructuring of the US
sales organization and spending diversions by customers from new application
development to Year 2000 readiness.

    The Company's sales have historically been concentrated in Europe,
particularly in France. During 1997, 1998 and 1999, revenues generated from
customers outside of France totaled $21.9 million, $38.1 million and
$42.8 million, respectively, representing 65%, 69% and 67% of total revenues,
respectively. The growth in revenues generated from customers outside of France
resulted primarily from the Company's increased presence in North America and
Asia and the acquisition of CPLEX in August 1998. During 1997, 1998 and 1999,
revenues generated from customers in North America totaled $10.5 million,
$22.4 million and $22.5 million, respectively. During 1997, 1998 and 1999,
revenues generated from customers in Asia totaled approximately $3.3 million,
$5.0 million and $6.7 million, respectively.

    The Company believes that the North American and Asian markets represent
large growth opportunities for its products and services. Since the beginning of
1995, the Company has significantly expanded its sales effort by adding to its
U.S. and Asian sales forces and in August 1997 acquiring in the U.S. CPLEX which
has resulted in revenue growth in the U.S. of 113% and Asia of 53% in 1998 over
the preceding year. In 1999, U.S. revenues grew by 1% and Asian revenues grew by
34%, respectively, over the preceding year reflecting the restructuring of the
US sales organization and spending diversions by customers from new application
development to Year 2000 preparedness. The Company made infrastructure and sales
and

                                       28
<PAGE>
marketing investments in the U.S. and Japan in 1998 and 1999 resulting in
marketing and selling expenses increasing in 1998 and 1999 by 26% and 16%,
respectively, over the preceding year.

    In 1997, no single customer accounted for more than 5% of total revenues. In
1998 and 1999 SAP A.G. accounted for 7% and 13% of total revenues, respectively.
An order from a single customer in a particular quarter can materially affect
the Company's revenues and operating results for such period. See "Risk
Factors--Fluctuations in Operating Results."

    LICENSE FEES.  Revenues from license fees increased from $23.1 million in
1997 to $34.7 million in 1998, and to $38.7 million in 1999 representing
increases of 50% and 12%, respectively. These increases in license fees reflect
the growing market acceptance of the Company's products and the expansion of the
Company's product offerings. During this period, the Company was generally able
to maintain the price levels of its products.

    SERVICES.  Revenues from services consist of consulting, maintenance and
training. Consulting and training services are billed by the person day or on a
fixed price basis. Maintenance services are typically available at an annual fee
of 15% of the standard software list price. Cash related to maintenance
contracts is generally received in advance while revenues are deferred and
recognized ratably over the term of the maintenance agreement, which is
typically 12 months. Revenues from services increased from $10.9 million in 1997
to $20.6 million in 1998 and to $25.1 million in 1999, representing increases of
89% and 22%, respectively. The increases in revenues from services were due
primarily to increased maintenance revenue.

GROSS MARGIN

    The following table sets forth the gross margin for both categories of
revenues for 1996, 1997 and 1998:

<TABLE>
<CAPTION>
                                                                       YEAR ENDED
                                                                        JUNE 30,
                                                             ------------------------------
                                                               1997       1998       1999
                                                             --------   --------   --------
<S>                                                          <C>        <C>        <C>
Gross Margin:
  License fees.............................................     96%        97%        97%
  Services.................................................     45         47         42
    Total revenues.........................................     80         78         76
</TABLE>

    LICENSE FEES.  The Company's gross margin for license fees is currently
affected by the pricing of its products as it relates to documentation and
packaging costs. Cost of license fees, consisting primarily of documentation,
packaging and freight expenses, increased from $0.9 million in 1997 to
$1.2 million in 1998 and decreased to $1.1 million in 1999 representing 4%, 3%
and 3% of revenues from license fees in 1997, 1998 and 1999, respectively. The
payment of royalties to third parties is currently not a significant component
of the cost of license fees; however, in the event the Company significantly
increases the incorporation of third-party technology in its products, the
payment of such royalties may have the effect of lowering gross margins.

    SERVICES.  The Company's gross margin for services is primarily impacted by
the mix of consulting, maintenance and training revenues, where consulting and
training revenues are relatively lower margin activities. The need for
consulting and training services by the Company's customers to facilitate their
adoption of the Company's products and the Company's ability to satisfy the
demand for such services frequently has a direct impact on the Company's ability
to generate license fees. Cost of services, consisting of employee-related
expenses for these services, increased from $6.0 million in 1997 to
$10.9 million in 1998 and to $14.4 million in 1999. The services gross margin
increased from 45% to 47% and decreased to 42% in 1997, 1998 and 1999,
respectively, reflecting primarily the profitability of the Company's consulting

                                       29
<PAGE>
activities. In 1999 the profitability of the Company's consulting activities was
affected by lower margins on certain larger recurring contracts.

OPERATING EXPENSES

    MARKETING AND SELLING.  Marketing and selling expenses consist primarily of
salaries and other payroll related expenses such as incentive compensation,
promotional marketing activities, customer pre-sales technical support and
overhead costs relating to occupancy. Marketing and selling expenses increased
from $21.7 million in 1997 to $27.3 million in 1998 and to $31.5 million in
1999, representing 64%, 50% and 49% of total revenues, respectively. The level
of marketing and selling expenses as a percentage of total revenues is
attributable to the significant worldwide expansion of the Company's marketing
and selling organization. The increase in marketing and selling expenses over
the last three years is due primarily to sales and marketing headcount growth
which increased from 111 people at June 30, 1996 to 199 at June 30, 1999. The
increase in headcount resulted from growth in the U.S. and the opening of
offices in Germany and Japan in 1997 and 1998 respectively. The Company intends
to continue the expansion of its sales and marketing organization to promote its
products and provide customer support capability. Accordingly, the Company
anticipates that marketing and selling expenses will continue to increase in
absolute terms.

    RESEARCH AND DEVELOPMENT.  Research and development expenses consist
principally of personnel costs, overhead costs relating to occupancy, equipment
depreciation and travel, less amounts received from French government agencies
and the European Union to reduce the cost to the Company of certain specific
research and development projects. This financial support is recorded as a
reduction of research and development expenses in the periods the projects are
undertaken and the related expenses are incurred. The following table sets forth
research and development expenses and the amounts of government funding for
1997, 1998 and 1999:

<TABLE>
<CAPTION>
                                                          YEAR ENDED JUNE 30,
                                                     ------------------------------
                                                       1997       1998       1999
                                                     --------   --------   --------
                                                             (IN THOUSANDS)
<S>                                                  <C>        <C>        <C>
Gross research and development expenses............   $4,954     $7,204    $10,576
Less government funding............................     (388)      (629)      (741)
                                                      ------     ------    -------
Research and development expense, net of funding...   $4,566     $6,575    $ 9,835
                                                      ======     ======    =======
</TABLE>

    Research and development expenses increased from $4.6 million in 1997 to
$6.6 million in 1998 and to $9.8 million in 1999, representing 14%, 12% and 15%
of total revenues, respectively. The increases in research and development
expenses was due to the CPLEX acquisition in 1998, development of ILOG OPL
Studio and ILOG Configurator in 1999 and generally increased staffing associated
with the expansion and enhancement of the Company's product lines. During 1999
research and development staffing increased by 28 or 36% to 106 at June 30,
1999. The Company has not capitalized any software development costs and all
research and development costs have been expensed as incurred. See "Risk
Factors--Risk of Loss of Government Research and Development Funding" and
Note 1 of Notes to Consolidated Financial Statements.

    GENERAL AND ADMINISTRATIVE.  General and administrative expenses consist
primarily of personnel and related overhead costs for finance and general
management. General and administrative expenses increased from $4.4 million in
1997 to $6.1 million in 1998 and to $7.4 million in 1999, representing 13%, 11%
and 12% of total revenues, respectively. The increase in general and
administrative expenses is due to increased staffing to support the Company's
growth and changes in the Company's allowance for doubtful accounts. From
June 30, 1996 to June 30, 1999, the number of the Company's employees engaged in
general and administrative functions increased from 33 to 57.

                                       30
<PAGE>
    NOUVEAU MARCHE EXPENSES.  In December 1998 the Company listed its shares on
Le Nouveau Marche stock exchange in Paris. The expense related to such listing
totalled $466,000 and was charged to results of operations at that time.

    WRITE-OFF OF ACQUIRED INTANGIBLE ASSETS.  Write-off of acquired intangible
assets of $31.0 million in 1998 relates primarily to the expensing of software
under development or earlier versions thereof nearing the end of their life
cycle, which was acquired from CPLEX in August 1997. In 1999 $1.8 million was
written-off relating to the acquisition of software in December 1998 that was
utilized in the development of OPL Studio which was introduced in March 1999.

NET INTEREST INCOME (EXPENSE) AND OTHER

    Net interest income (expense) and other totaled $1.1 million, $(121,000),
and $114,000 in 1997, 1998 and 1999, respectively. In 1997, a $1.1 million grant
was received from an agency of the French government with respect to the
Company's establishment of subsidiaries outside of France. In 1998 net interest
income expense and other reflects primarily interest expense arising from the
promissory notes issued in connection with the CPLEX acquisition after offset of
income from the Company's cash equivalent investments. In 1999 net interest
income (expense) and other reflects primarily realized exchange gains with
interest income and expense offsetting each other.

CURRENCY FLUCTUATIONS

    The Company operates on a multinational basis and a significant portion of
its business is conducted in currencies other than the U.S. dollar, the
financial reporting currency. A significant portion of the Company's revenues
and expenses are denominated in French francs and Euros, and the remainder in
U.S. dollars and other currencies. 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 dollar-translated amounts to vary from one
period to another. Also currency rate movements on non-US dollar denominated
assets and liabilities, including intercompany accounts, can result in the
reporting of unrealized exchange gains or losses in the Company's statement of
operations. Due to the number of currencies involved, the constantly changing
currency exposures and the volatility of currency exchange rates, the Company
cannot predict the effect of exchange rate fluctuations upon future operating
results.

    Under the Company's accounting policy for foreign currency translation, the
results of the Company and each of its subsidiaries are measured in the currency
in which that entity primarily conducts its business (the functional currency).
The functional currencies of the Company and its subsidiaries are their
respective local currencies in accordance with Statement of Financial Accounting
Standard No. 52, "Foreign Currency Translation." All assets and liabilities in
the balance sheets of entities whose functional currency is not the U.S. dollar
are translated into U.S. dollar equivalents at exchange rates as
follows: (i) asset and liability accounts at year-end rates; and (ii) income
statement accounts at weighted average exchange rates of the year. Translation
gains or losses are recorded in shareholders' equity, and transaction gains and
losses are reflected in net income (loss). The net exchange gain for 1997, 1998
and 1999 was $2,000, $76,000 and $168,000 respectively. These amounts represent
transaction gains and are included in net interest income (expense) and other.
To date, the Company has not undertaken hedging transactions to cover its
currency transaction exposure but may undertake such transactions in a limited
manner in the future. See Note 1 of Notes to Consolidated Financial Statements.

INCOME TAXES

    The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 (SFAS 109), "Accounting for Income
Taxes."

    At June 30, 1999, the Company had net operating loss carryforwards from
various tax jurisdictions of approximately $21.1 million, of which $7.9 million
were in France with no expiration date and $9.6 million

                                       31
<PAGE>
were in the U.S. expiring between 1999 and 2019 if not utilized. Pursuant to the
U.S. Internal Revenue Code, use of the U.S. net operating loss carryforwards may
be limited if a cumulative change in ownership of more than 50% occurs within
any three-year period.

    As of June 30, 1999, a valuation allowance of $26.0 million had been
provided against total deferred tax assets of $26.0 million (which consists
primarily of the tax benefit of net operating loss carryforwards and the
amortization of acquired intangible assets). The Company's expectation for
realizing the deferred tax asset and the determination of the amount of the
valuation allowance is based upon the existence of both taxable temporary
differences and the likelihood of sufficient taxable income in the carryforward
period of certain jurisdictions.

LIQUIDITY AND CAPITAL RESOURCES

    Over the last three years, the Company has financed its operations,
investments in capital equipment and intangible assets acquired from CPLEX
through the issuance of equity securities for approximately $50.2 million and
$6.9 million of loans from the CPLEX vendors, banks and European government
agencies, of which a portion were interest free.

    The Company has lines of credit with a French bank allowing for a maximum
borrowing of approximately $3.2 million available until May 1, 2000. At
June 30, 1999, $1.1 million was outstanding under this facility. The lines of
credit bear interest at the rate of EURIBOR (offer rate determined by the
Banking Federation of the European Union) plus 1.5%, which at June 30, 1999,
corresponded to an effective rate of 4.1%.

    As of June 30, 1998 and 1999, the Company had cash and cash equivalents of
$20.1 million and $21.5 million, respectively, and working capital of
$21.9 million and $17.4 million, respectively. The net cash increase of
$1.4 million in 1999 was due to $2.0 million received from employees for shares
issued in connection with employee stock option and purchase plans and
$5.0 million provided from operating activities after a net decrease in other
working capital items less $3.3 million invested in tangible and intangible
assets, $1.1 million in loan repayments and $1.1 million exchange rate effect.

    Accounts receivable decreased from $15.3 million at June 30, 1998 to
$14.8 million at June 30, 1999. The decrease in accounts receivable during this
period despite growth in revenues in the period was due to shorter credit terms
being offered to customers.

    Net cash used for operating activities in 1997 totaled $1.4 million, due to
the net loss incurred in the year after adjusting for changes in working
capital. In 1998 the Company was provided cash from operations of $1.6 million
reflecting the Company's operating profitability before the write-off of
acquired intangible assets and after adjusting for changes in working capital.
In 1999 the Company was provided cash from operations of $5.0 million reflecting
the changes in working capital offsetting the operating loss for the year.

    The Company's investing activities have consisted primarily of expenditure
on fixed assets, which totaled $1.1 million, $1.9 million and $2.4 million in
1997, 1998 and 1999, respectively. In addition in 1998, as part of the CPLEX
acquisition the Company acquired $31.8 million of intangible assets consisting
primarily of software products under development or earlier versions thereof
nearing the end of their life cycle. As a result, $31.0 million thereof was
written-off in 1998.

    In 1997, 1998 and 1999, the Company's financing activities provided
$24.5 million, $10.7 million and $1.0 million respectively, of which, in 1997
$24.9 million were proceeds from the Company's initial public offering in
February 1997, in 1998 $10.5 million was from the issuance of shares to SAP A.G.
for cash and in 1999 $2.0 million was from the issuance of shares under employee
share option and share purchase plans.

                                       32
<PAGE>
    While operating activities may provide cash in certain periods to the extent
the Company may experience growth in the future, the Company anticipates that
its operating and investing activities may use cash and, consequently, such
growth may require the Company to obtain additional sources of financing.

YEAR 2000 COMPLIANCE RISKS

    The following is intended to be a "Year 2000 Readiness Disclosure" as
intended by the Year 2000 Information Readiness and Disclosure Act.

    The Company is aware that many currently installed information technology
("IT") systems, such as computer systems and software products, as well as
non-IT systems that include embedded technology, were not designed to correctly
process dates after December 31, 1999. The Company's own component products have
been determined by the Company to be "Year 2000" compliant, although the
customer applications into which they are integrated may not be Year 2000
compliant.

    The Company is also assessing the impact of such Year 2000 issues on its
internal IT and non-IT systems as well as on its customers, suppliers and
service providers. The Company is in the process of upgrading its accounting
systems and believes that they will be Year 2000 compliant. The Company
estimates that the expenses it has incurred to date to address Year 2000 issues
have not been material and, although it has not completed its full assessment of
its Year 2000 readiness, it does not expect to incur material expenses in
connection with any required remediation efforts.

    To date the Company has not identified any significant areas of
non-compliance with respect to its products or IT systems and expects that the
assessment and plans for remedial action for all of its products and non-IT
systems will be completed by the end of 1999. It may be difficult for the
Company to ensure Year 2000 readiness from third parties. Considering the
complex interrelationships among Year 2000 issues both internal and external to
the Company, there can be no assurance that the Company will be able to identify
and accurately evaluate all Year 2000 issues and that unresolved or undetected
internal and external Year 2000 issues will not have a material adverse effect
on the Company's business, financial condition and results of operations.

    If any customers, suppliers or service providers fail to appropriately
address their Year 2000 issues, such failure could have a material adverse
effect on the Company's business, financial condition and results of operation.
For example, because a significant percentage of the purchase orders received
from the Company's customers are computer generated, a failure of one or more of
the computer systems of the Company's customers could have a significant adverse
effect on the level and timing of orders from such customers. Similarly, if Year
2000 problems are experienced by any of the Company's significant suppliers or
service providers, such problems could cause or contribute to delays or
interruptions in the delivery of products or services to the Company; such
delays or interruptions could have a material adverse effect on the Company's
business, financial condition and results of operations.

    The Company may develop contingency plans in the event it has not completed
all of its remediation programs in a timely manner. Such contingency plans may
also address Year 2000 issues relating to third parties who provide goods or
services essential to the Company's business but fail to appropriately address
their Year 2000 issues. Even if these plans are completed on time and put in
place, there can be no assurance that unresolved or undetected internal and/or
external Year 2000 issues will not have a material adverse effect on the
Company's business, financial condition and results of operations.

    A significant impact of Year 2000 readiness preparations by the Company's
customers is that many have chosen to defer spending on the development of new
applications, which is the Company's target market, and focus on Year 2000
readiness. This has impacted the Company's 1999 results and it is not possible
to determine when or if customer spending patterns will return to their
historical levels. Accordingly Year 2000 issues will continue to have a material
adverse effect on the Company's business, financial condition and results of
operations.

                                       33
<PAGE>
    Finally, disruption in the economy generally resulting from Year 2000 issues
could also materially adversely affect the Company. The occurrence of one or
more of the risks described above could have a material adverse effect on the
Company's business, financial condition or results of operations.

INTRODUCTION OF THE EURO

    The Euro was introduced on January 1, 1999 in eleven European Monetary Union
countries including France where the Company has its headquarters and a
significant part of its worldwide operations is based, and in Germany and Spain
where it has sales subsidiaries. Legacy currencies however will continue to be
used as legal tender through January 1, 2002. The Company believes that the
introduction of the Euro will simplify the conduct of its business in the above
countries over time, however changes and/or improvements will need to be made to
its accounting and related internal systems.

    The Company has commenced planning and the training of its personnel to
handle the currency change and in addition the Company is also assessing the
impact of the Euro on its internal IT and non-IT systems. The Company plans to
implement a new enterprise accounting system in 2000 and modify certain existing
systems to accommodate the introduction of the Euro. The Company believes that
such systems and system modifications will aid in ensuring that it will be able
to accommodate the accounting and reporting requirements of the new currency.

    The Company does not expect to have to make major investments, other than in
IT systems, to handle the changeover. There however can be no assurance that new
systems will be introduced or existing systems modified in a timely and/or
effective manner such that the Company will be able to properly handle the
changeover to the Euro without causing a disruption to its business processes
and operations, which in turn may result in a material adverse effect on the
Company's business, financial condition and results of operations.

                                       34
<PAGE>
                                  RISK FACTORS

    IN ADDITION TO THE OTHER INFORMATION CONTAINED AND INCORPORATED BY REFERENCE
IN THIS FORM 20-F, THE FOLLOWING FACTORS SHOULD BE CAREFULLY CONSIDERED IN
EVALUATING THE COMPANY AND ITS BUSINESS:

HISTORY OF LOSSES; ACCUMULATED DEFICIT; FUTURE OPERATING RESULTS UNCERTAIN

    The Company has incurred net losses in all of the last five fiscal years. As
of June 30, 1999, the Company had an accumulated deficit of approximately
$44.4 million. There can be no assurance that the Company will be profitable on
a quarterly or annual basis in the future. The Company's limited operating
history and the relative immaturity of its market, together with the factors
described under "Fluctuations in Operating Results" and "Seasonality of
Operating Results," make the prediction of future operating results impossible.
The Company's past financial performance should not be considered indicative of
future results. The Company has experienced revenue growth in recent periods and
a slow-down in the rate of growth in 1999. There can be no assurance that the
Company's revenues will continue to increase or will not decrease. Future
operating results will depend on many factors, including the growth of the
market for the Company's object oriented components, demand for the Company's
products and services, the level of competition, the Company's success in
expanding its direct sales force and indirect distribution channels, the success
of the recent corporate reorganization, the ability of the Company to develop
and market new products and product enhancements and to control costs, as well
as general economic conditions and a resumption of spending by customers on
application development following their Year 2000 readiness activities. See
"Fluctuations in Operating Results," "Risk of Loss of Government Research and
Development Funding," "Seasonality of Operating Results" and "Management's
Discussion and Analysis of Consolidated Financial Condition and Results of
Operations."

FLUCTUATIONS IN OPERATING RESULTS

    The Company's operating results have varied significantly in the past and
may vary significantly in the future, on a quarterly and an annual basis, as a
result of a number of factors, many of which are outside the Company's control.
These factors include demand for the Company's products and services, the size,
timing and structure of significant licenses by customers, cost overruns on the
Company's fixed price consulting contracts, changes in the mix of products and
services licensed or sold by the Company, product life cycles, the publication
of opinions about the Company, its products and object oriented technology by
industry analysts, changes in pricing policies by the Company or its
competitors, changes in the method of product distribution (including the mix of
direct and indirect channels), customer order deferrals in anticipation of
product enhancements or new product offerings by the Company or its competitors,
customer cancellation of major planned software development programs, the grant
of research and development expense reimbursements by government agencies and
the timing of such research and development reimbursements. Moreover, declines
in general economic conditions, which could among other reasons occur because of
Year 2000, could precipitate significant reductions in corporate spending for
information technology, which could result in delays or cancellations of orders
for the Company's products. The Company's expense levels are relatively fixed
and are based, in significant part, on expectations of future revenues.
Consequently, if revenue levels are below expectations, expense levels could be
disproportionately high as a percentage of total revenues, and operating results
would be immediately and adversely affected. The Company has historically
operated with little backlog because its products are generally shipped as
orders are received. As a result, revenues from license fees in any quarter are
substantially dependent on orders booked and shipped in that quarter and on
sales by the Company's distributors and other resellers. Sales derived through
indirect channels are harder to predict and may have lower margins than direct
sales. The Company also believes that the purchase of its products is relatively
discretionary as was experienced in 1999 when its customers shifted their
spending from new applications to Year 2000 readiness and generally involves a
significant commitment of a customer's capital resources. Therefore, any
downturn in any potential customer's business would have a significant impact

                                       35
<PAGE>
on the Company's revenues and quarterly results. In addition, the Company has
historically recognized a substantial portion of its revenues from sales booked
and shipped in the last month of a quarter such that the magnitude of quarterly
fluctuations may not become evident until late in, or at the end of, a
particular quarter. Because a number of the Company's individual orders are for
significant revenue, the Company's operating expenses are based on anticipated
revenue levels and a high percentage of the Company's expenses are relatively
fixed, the failure to ship a significant order in a particular quarter could
substantially adversely affect revenues and operating results for such quarter.
To the extent that significant sales occur earlier than expected, operating
results for subsequent quarters may be adversely affected. Revenues are
difficult to forecast because the market for the Company's products is rapidly
evolving. The Company may choose to reduce prices or increase spending in
response to competition or to pursue new market opportunities. If new
competitors, technological advances by existing competitors or other competitive
factors require the Company to invest significantly greater resources in
research and development efforts, the Company's future operating results may be
adversely affected. Due to these and other factors, the Company's quarterly
revenues, expenses and operating results could vary significantly in the future,
and period-to-period comparisons should not be relied upon as indications of
future performance. There can be no assurance that the Company will be able to
grow in future periods or that it will be able to sustain its level of revenues
o its rate of revenue growth on a quarterly or annual basis. See "Risks
Associated with Sales Cycle," "Risk of Loss of Government Research and
Development Funding" and "Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations."

MARKET ACCEPTANCE OF OBJECT ORIENTED TECHNOLOGY

    The Company's products are designed for use in object oriented software
application development. Object oriented applications are characterized by
technology, development style and programming languages that differ from those
used in traditional software applications. Object oriented technology offers
greater flexibility and re-usability of code than traditional technologies.
Object oriented languages offer significant capabilities not available from
traditional programming languages, but require greater discipline and attention
to detail from developers. In addition, object oriented modeling and analysis
techniques are more sophisticated than traditional techniques. To transform a
software application written in a traditional programming language into an
object oriented application would involve significant re-design and re-
architecture. In many cases, every line of code would have to be re-written. The
Company's growth depends upon continued growth of the market for, and broader
acceptance of, object oriented technology. There can be no assurance that the
market for the Company's products or services will grow or be sustained or that,
if it does, the Company will benefit from such growth. The acceptance of object
oriented technology depends upon the widespread adoption of object oriented
programming, and there can be no assurance as to the rate or scale of such
adoption. For example, the number of software developers using object oriented
technology is relatively small compared to the number of developers using more
traditional software development technologies. The adoption of object oriented
technology by software programmers who have traditionally used other technology
requires reorientation to significantly different programming methods, and there
can be no assurance that the acceptance of object oriented technology will
expand beyond sophisticated programmers who were early adopters of the
technology. Furthermore, there can be no assurance that potential customers will
be willing to make the investment required to retrain programmers to build
software using object oriented technology rather than structured programming
techniques or other technologies. If the market for object oriented technology
fails to grow or grows more slowly than anticipated, the Company's business,
operating results and financial condition would be materially adversely
affected.

    The market for object oriented technology is characterized by a lack of
standards and numerous competitors in the areas of components, methodology and
services. The Company's future financial performance will depend in part upon
the development of standards that the Company's products address. There can be
no assurance that the Company will be able to respond effectively to the
evolving requirements of the market. For example, to date the Company has
focused its efforts on the C, C++ and

                                       36
<PAGE>
Java programming languages. Should these languages lose acceptance in the
marketplace or be replaced by other advanced languages, the Company's business,
operating results and financial condition would be materially adversely
affected. See "Business Software Component Technology" and "Products."

MARKET ACCEPTANCE OF THE COMPANY'S PRODUCTS

    The Company's future growth depends upon market acceptance of its products.
There can be no assurance that a significant number of organizations will choose
to use the Company's products, or that they will do so in a time frame that will
benefit the Company. In particular, many of the Company's customers have
licensed only small quantities of the Company's components, and there can be no
assurance that these or new customers will license additional components from
the Company or broadly implement object oriented technology. Industry data
indicate that many complex software development projects are abandoned before
completion or fail to satisfy user requirements, often after the expenditure of
substantial amounts of money and time. While the Company believes that the
components and professional services that it provides can increase the
likelihood that a software development project will be completed successfully,
the Company participates in an industry with an inherently high failure rate and
there can be no assurance that the Company's customers will achieve success when
using the Company's products and services. Any publicized performance problems
relating to object oriented technology or products offered by the Company or by
any competitor of the Company could also slow customer adoption of the Company's
products. Moreover, to the extent that the Company is associated with
unsuccessful customer projects, even if due to factors beyond the Company's
control, the Company's reputation and competitive position could be materially
and adversely affected. See "Business Products."

RISKS ASSOCIATED WITH SALES CYCLE

    The Company's sales cycle is generally three to six months or more and
varies substantially from customer to customer. Due in part to the strategic
nature of the Company's products, potential customers are typically cautious in
making product acquisition decisions. The decision to license the Company's
products generally requires the Company to provide a significant level of
education to prospective customers regarding the uses and benefits of the
Company's products, and the Company must frequently commit substantial presales
support and consulting resources. The Company has been constrained in its
ability to provide consulting resources as a result of a lack of trained
personnel, which may cause sales cycles to be lengthened or result in the loss
of sales.

    Sales of licenses are subject to a number of risks over which the Company
has little or no control, including customers' budgetary constraints, customers'
internal acceptance reviews, the success and continued internal support of
customers' own development efforts, the efforts of distributors and the
possibility of cancellation of projects by customers. The uncertain outcome of
the Company's sales efforts and the length of its sales cycles could result in
substantial fluctuations in operating results. If sales forecasted from a
specific customer for a particular quarter are not realized in that quarter, the
Company is unlikely to be able to generate revenues from alternate sources in
time to compensate for the shortfall. As a result, and due to the relatively
large size of some orders, a lost or delayed sale could have a material adverse
effect on the Company's quarterly operating results. Moreover, to the extent
that significant sales occur earlier than expected, current operating results
and/or those of subsequent quarters may be adversely affected. See "Management's
Discussion and Analysis of Consolidated Financial Condition and Results of
Operations."

RISK OF LOSS OF GOVERNMENT RESEARCH AND DEVELOPMENT FUNDING

    The Company has received significant amounts of research and development
funding from the European Union and, to a lesser extent, agencies of the French
government, which approximated $388,000, $629,000 and $741,000 for 1997, 1998
and 1999, respectively. Such funding has been netted against, and has therefore
reduced, the Company's reported research and development expenses on a dollar
for dollar

                                       37
<PAGE>
basis. Relevant authorities award research and development funding on a
discretionary basis based on applications made by the Company for specific
product related projects. The Company has contracts that provide for additional
research and development funds through June 2002 based upon recent funding
applications. However, there can be no assurance that any future grants will be
made. Failure to receive future funding, a reduction in existing levels of
funding, or delays in receipt of additional funding may cause the Company's
research and development expenses to increase and may adversely affect the
Company's operating results on a dollar for dollar basis. See "Fluctuations in
Operating Results" and "Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations."

SEASONALITY OF OPERATING RESULTS

    A majority of the Company's sales have historically come from Europe.
Similar to many companies in the software industry with significant sales
outside of the U.S., the Company generally realizes lower revenues (i) in the
September quarter than in the immediately preceding quarter due primarily to
reduced economic activity in Europe in the summer months; and (ii) to a lesser
extent, in the March quarter compared to the immediately preceding quarter due
to the concentration by some customers of purchases in the fourth quarter of the
calendar year, and their consequently lower purchasing activity during the
following quarter. See "Fluctuations in Operating Results" and "Management's
Discussion and Analysis of Consolidated Financial Condition and Results of
Operations."

RAPID TECHNOLOGICAL CHANGE AND INTRODUCTION OF NEW PRODUCTS AND PRODUCT
  ENHANCEMENTS

    The market for the Company's products and services is characterized by rapid
technological change, dynamic customer demands and frequent introductions of new
products and product enhancements. Customer requirements for products can change
rapidly as a result of innovations or changes within the computer hardware and
software industries, the introduction of new products and technologies
(including new hardware platforms and programming languages) and the emergence,
evolution or widespread adoption of industry standards. For example, increasing
commercial use of the internet may give rise to new customer requirements and
new industry standards. There can be no assurance that the Company will be
successful in modifying its products and services to address these requirements
and standards. The actual or anticipated introduction of new products,
technologies and industry standards can render existing products obsolete or
unmarketable or result in delays in the purchase of such products. As a result,
the life cycles of the Company's products are difficult to estimate. The Company
must respond to developments rapidly and make substantial product development
investments. Any failure by the Company to anticipate or respond adequately to
technology developments and customer requirements, or any significant delays in
product development or introduction, could result in loss of competitiveness
and/or revenues.

    The Company's future success will depend in large part on its ability to
improve its current technologies and to develop and market new products and
product enhancements that address these changing market requirements on a timely
basis. There can be no assurance that the Company will be successful in
developing and marketing new products or product enhancements, that the Company
will not experience difficulties that delay or prevent the successful
development, introduction or marketing of such products or enhancements or that
any new products or product enhancements will adequately address market
requirements and achieve market acceptance. As is customary in the software
industry, the Company has in the past experienced delays in the introduction of
new products and features, and may experience such delays in the future. If the
Company is unable, for technological or other reasons, to develop new products
or enhancements of existing products in a timely manner in response to changing
market conditions or customer requirements, the Company's business, operating
results and financial condition would be materially adversely affected. See
"Business Research and Development."

                                       38
<PAGE>
PRODUCT CONCENTRATION RISK

    The Company currently generates approximately 86% of its total license fees
from the ILOG Visualization and ILOG Optimization product families. The Company
expects that revenues from these two product families will continue to represent
a substantial portion of its total license fees for the foreseeable future. As a
result, any factor adversely affecting licenses of either ILOG Views or ILOG
Solver would have a material adverse effect on the Company's business, operating
results and financial condition. The Company's future financial performance will
depend in significant part on the Company's successful development and
introduction, and customer acceptance, of new and enhanced versions of is
visualization and optimization products. In addition, to the extent that
competitive pressures or other factors result in significant price erosion on
these products, the Company's results of operations would be materially
adversely affected. See "Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations," "Business Products" and
"Competition."

COMPETITION

    The Company's present direct competitors include a number of private and
public companies such as Blaze Software, Inc., Dash Associates Limited,
Cosytech, Dynatech Corporation, IBM, Selectica, Inc., SL Corporation, Template
Software, Inc., Trilogy Software, Inc., and 2order.com. In addition, virtually
all of the Company's customers have significant investments in their existing
solutions and have the resources necessary to enhance existing products and to
develop future products. These customers have or may develop and incorporate
competing technologies into their systems, thereby replacing the Company's
current or proposed components. This would eliminate their need for the
Company's services and components and limit future opportunities for the
Company. The Company therefore is required to persuade development personnel
within these customers' organizations to outsource the development of their
software and to provide products and solutions to these customers that
cost-effectively compete with their internally developed products. The Company
expects to face additional competition from other established and emerging
companies if the market for its components continues to develop and expand. In
addition, current and potential competitors have established or may establish
cooperative relationships among themselves or with third parties to increase the
ability of their products to address the needs of the Company's prospective
customers. Accordingly, it is possible that new competitors or alliances among
competitors may emerge and rapidly gain significant market share. New or
enhanced products introduced by existing or future competitors could increase
the competition faced by the Company's products. Increased competition could
result in fewer customer orders, price reductions, reduced transaction size,
reduced gross margins and loss of market share, any of which could have a
material adverse effect on the Company's business, operating results and
financial condition. There can be no assurance that the Company will be able to
maintain prices for products at levels that will enable the Company to market
its products profitably. Any decrease in prices, as a result of competition or
otherwise, could have a material adverse effect on the Company's business,
operating results and financial condition.

    Some of the Company's current, and many of the Company's potential,
competitors have longer operating histories, significantly greater financial,
technical, marketing, service and other resources, significantly greater name
recognition, broader product offerings and a larger installed base of customers
than the Company. In addition, the Company's current and potential competitors
may have well-established relationships with current and potential customers of
the Company. As a result, such competitors may be able to devote greater
resources to the development, promotion and sale of their products, may have
more direct access to corporate decision-makers based on previous relationships
and may be able to respond more quickly to new or emerging technologies and
changes in customer requirements. There can be no assurance that the Company
will be able to compete successfully against current or future competitors or
that competitive pressures will not have a material adverse effect on the
Company's business, operating results and financial condition.

                                       39
<PAGE>
DEPENDENCE UPON DEVELOPMENT OF SALES AND MARKETING FORCE

    The Company has made a significant investment in recent years in the
expansion of its sales and marketing force, primarily in the U.S. and Asia, and
plans to continue to expand its sales and marketing force. The Company's future
success will depend in part upon the productivity of its sales and marketing
force and the ability of the Company to continue to attract, integrate, train,
motivate and retain new sales and marketing personnel. There can be no assurance
that the Company's recent and planned investment in sales and marketing will
ultimately prove to be successful or that the incremental revenues generated
will exceed the significant incremental costs associated with these efforts.

    In the year ended June 30, 1999 the Company restructured its marketing and
sales organization into four business divisions in the U.S., and in the quarter
ended September 30, 1999, on a world-wide basis. Previously the Company's sales
and marketing activities were structured on a geographic basis. There can be no
assurance that the recently completed reorganization will not have an adverse
impact on the Company's operating results and financial position due to account
transition and other issues related to the reorganization. In addition, there
can no assurance that the reorganization will achieve its objectives of bringing
the Company closer to customers, foster more repeat sales, improve profitability
and develop opportunities within the electronic commerce arena.

    In addition, there can be no assurance that the Company's sales and
marketing organization will be able to compete successfully against the
significantly more extensive and better funded sales and marketing operations of
many of the Company's current and potential competitors. The Company's inability
to develop and manage its sales and marketing force expansion effectively could
have a material adverse effect on the Company's business, operating results and
financial condition. See "Business Sales and Marketing."

DEPENDENCE ON KEY PERSONNEL

    The Company's future success will depend in significant part upon the
continued service of its key technical, sales and senior management personnel,
including the Company's President and Chief Executive Officer, Pierre Haren. The
Company is particularly dependent upon its technical personnel with expertise in
object oriented technology. The loss of the services of one or more of the
Company's key employees could have a material adverse effect on the Company's
business, operating results and financial condition. The Company's future
success will depend on its ability to attract, integrate, train, motivate and
retain highly qualified technical, sales and managerial personnel, and there can
be no assurance that the Company will be able to do so. Competition for such
personnel is intense, especially the competition for technical personnel with
expertise in object oriented technology. The Company expects that such
competition will continue for the foreseeable future, and may intensify. If the
Company is unable to hire qualified personnel on a timely basis in the future,
the Company's business, operating results and financial condition would be
materially adversely affected. Additions of new personnel and departures of
existing personnel, particularly in key positions, can be disruptive, might lead
to additional departures of existing personnel and could have a material adverse
effect upon the Company's business, operating results and financial condition.
See "Business Sales and Marketing," "Employees" and "Management."

    The addition and assimilation of new personnel may be made more difficult by
the fact that the Company's research and development personnel are located
primarily in France, and its sales and marketing activities are located on three
continents, thus requiring the coordination of organizations separated by
geography and time zones, and the interaction of personnel with disparate
business backgrounds, languages and cultures. See "Risks Associated with
Worldwide Operations."

RISKS ASSOCIATED WITH WORLDWIDE OPERATIONS

    The Company's engineering and research and development operations are
located in France except for the CPLEX products which are developed in Incline
Village, Nevada, and its sales and marketing

                                       40
<PAGE>
operations are located on three continents. The geographic distance between
these locations has in the past led, and could in the future lead, to logistical
and communications difficulties. There can be no assurance that the geographic,
time zone, language and cultural differences between the Company's French, North
American and Asia personnel and operations will not result in problems that
materially adversely affect the Company's business, operating results and
financial condition. Further, the Company's operations may be directly affected
by economic and political conditions in the countries where the Company does
business.

    The Company expects to commit additional time and resources to expanding its
worldwide sales and marketing activities, localizing its products for selected
markets and developing local sales and support channels. There can be no
assurance that such efforts will be successful. Failure to sustain or increase
worldwide revenue, especially in North America and Asia, could have a material
adverse effect on the Company's business, operating results and financial
condition. Worldwide operations are subject to a number of risks, including the
costs of localizing products for different countries, longer accounts receivable
collection periods in certain geographic regions, especially Europe, and greater
difficulty in accounts receivable collections, unexpected changes in regulatory
requirements, dependence on independent resellers and technology standards,
import and export restrictions and tariffs, difficulties and costs of staffing
and managing international operations, potentially adverse tax consequences,
political instability, the burdens of complying with multiple, potentially
conflicting laws and the impact of business cycles and regional economic
instability. Approximately 26% of the Company's sales in 1999 were denominated
in French francs, with the remainder in U.S. dollars and, to a lesser extent,
Singapore dollars and other currencies. An increase in the value of the French
franc relative to foreign currencies could make the Company's products more
expensive and, therefore, less competitive in other markets. See "Management's
Discussion and Analysis of Consolidated Financial Condition and Results of
Operations" and "Business Sales and Marketing."

MANAGEMENT OF POTENTIAL GROWTH

    The Company has recently experienced a period of growth in revenues that has
placed a significant strain on its management systems and resources. In
addition, the size of the Company's staff increased from 398 to 474 employees
during 1999. Further increases in the number of employees are anticipated in
2000. Much of this growth has occurred and will occur in North America and Asia,
thus increasing the Company's need for information and communication systems.
The Company's ability to manage any future growth effectively will require it to
continue to improve its operational, financial and management controls,
accounting and reporting systems and procedures and other internal processes,
and there can be no assurance that the Company will be able to make such
improvements in an efficient and timely manner or that such improvement will be
adequate. If the Company's management is unable to manage growth and change
effectively, the Company's business, operating results and financial condition
could be materially adversely affected.

ACQUISITIONS

    In August 1997, the Company acquired the business of CPLEX
Optimization, Inc. ("CPLEX") which developed and marketed linear based
optimization libraries written in C, with operations in Incline Village, Nevada
in exchange for 1,700,000 Company shares, $10 million cash and $5 million of
promissory notes. In 1998 the Company commenced the integration of the CPLEX
business into the Company's operations. The process of integrating CPLEX's
business into the Company's operations may result in unforeseen operating
difficulties and could absorb significant management attention and/or
expenditures that would otherwise be available for the ongoing development of
the Company's business. In August 1998, the Company also acquired Compass
Modeling Solutions, Inc. ("Compass") in Reno, Nevada a small value added
reseller of CPLEX products in exchange for 51,852 Company shares. In December
1998 the

                                       41
<PAGE>
Company acquired full rights to the OASIS modeling language, OPL (Optimization
Programming Language), and the accompanying software development environment,
OPL Studio from Oasis Software, Inc. for $1.8 million.

    The Company may in the future pursue other acquisitions of complementary
product lines, technologies or businesses. Future acquisitions by the Company
could result in potentially dilutive issuances of equity securities, the
incurrence of debt and contingent liabilities and amortization expenses related
to goodwill and other intangible assets, which could materially adversely affect
any Company profitability. In addition, acquisitions, such as CPLEX, involve
numerous risks, including difficulties in the assimilation of the operations,
technologies and products of the acquired companies, the diversion of
management's attention from other business concerns, risks of entering markets
in which the Company may have limited direct prior experience, operating
companies in different geographical locations with different cultures, and the
potential loss of key employees of the acquired company. There are currently no
agreements with respect to any acquisitions. In the event that such an
acquisition does occur, however, there can be no assurance as to the effect
thereof on the Company's business, financial condition or operating results.

RISK OF SOFTWARE DEFECTS; PRODUCT LIABILITY

    As a result of their complexity, software products frequently contain
undetected errors or failures, especially when first introduced or when new
versions or enhancements are released. There can be no assurance that, despite
testing by the Company and testing and use by current and potential customers,
errors will not be found in new products and product enhancements released by
the Company in the future. The occurrence of such errors could result in
significant losses to the Company or a customer, especially if such errors occur
in strategic applications. Such occurrence could also result in reduced market
acceptance of the Company's products, which would have a material adverse effect
on the Company's business, operating results and financial condition. The
Company's license agreements with its customers typically contain provisions
designed to limit the Company's exposure to potential product liability and
other claims. It is possible, however, that the limitation of liability
provisions contained in the Company's license agreements, especially unsigned
"shrink-wrap" licenses, may not be effective under the laws of certain
jurisdictions. Consequently, the sale and support of the Company's software by
the Company entail the risk of such claims in the future. The Company currently
has limited insurance against product liability risks or errors or omissions
coverage, and there can be no assurance that additional insurance will be
available to the Company on commercially reasonable terms or at all. A product
liability claim or claim for economic loss brought against the Company could
have a material adverse effect upon the Company's business, operating results
and financial condition.

CURRENCY FLUCTUATIONS

    The Company publishes its financial statements in U.S. dollars. The Company
operates on a multinational basis and a significant portion of its business is
conducted in currencies other than the U.S. dollar, the financial reporting
currency. A significant portion of the Company's revenues and expenses are
denominated in French francs and Euros, and the remainder in U.S. dollars and
other currencies. 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 dollar-translated amounts to vary from one period to another.
Also currency rate movements on the non-U.S. dollar denominated assets and
liabilities, including intercompany accounts, can result in the reporting of
unrealized exchange gains or losses in the Company's statement of operations.
Due to the number of currencies involved, the constantly changing currency
exposures and the volatility of currency exchange rates, the Company cannot
predict the effect of exchange rate fluctuations upon future operating results.
To date, the Company has not undertaken hedging transactions to cover its
currency transaction exposure but may undertake such transactions in a limited
manner in the future. See "Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations" and "Quantitative and Qualitative
Disclosures about Market Risk."

                                       42
<PAGE>
PROTECTION OF INTELLECTUAL PROPERTY

    The Company's success is heavily dependent upon its proprietary technology.
The Company relies primarily on a combination of copyright and trademark laws,
trade secrets, confidentiality procedures and contractual provisions to protect
its proprietary technology. For example, the Company licenses its software
pursuant to signed license agreements and, to a lesser extent, "shrink-wrap"
licenses displayed on product packaging, which impose certain restrictions on
the licensee's ability to use the software. In addition, the Company seeks to
avoid disclosure of its trade secrets, including requiring those persons with
access to the Company's proprietary information to execute confidentiality
agreements with the Company and restricting access to the Company's source
codes. The Company seeks to protect its software, documentation and other
written materials under the laws relating to trade secret and copyright, which
afford only limited protection. The Company has no patents or pending patent
applications.

    Despite the Company's efforts to protect its proprietary rights,
unauthorized parties may attempt to copy aspects of the Company's products,
obtain or use information that the Company regards as proprietary or use or make
copies of the Company's products. Policing unauthorized use of the Company's
products is difficult. In addition, the laws of many jurisdictions do not
protect the Company's proprietary rights to as great an extent as do the laws of
France and the U.S. In particular, "shrink-wrap" licenses may be wholly or
partially unenforceable under the laws of certain jurisdictions, and copyright
and trade secret protection for software may be unavailable in certain
countries. Under French intellectual property laws, rights over software are not
patentable but are protected under copyright law and infringements by third
parties can be enjoined. There can be no assurance that the Company's means of
protecting its proprietary rights will be adequate or that the Company's
competitors will not independently develop similar technology.

    There can be no assurance that the Company will not receive communications
in the future from third parties asserting that the Company's products infringe,
or may infringe, on their proprietary rights. There can be no assurance that
licenses to disputed third-party technology would be available on reasonable
commercial terms, if at all. In addition, the Company may initiate claims or
litigation against third parties for infringement of the Company's proprietary
rights or to establish the validity of the Company's proprietary rights.
Litigation to determine the validity of any claims could result in significant
expense to the Company and divert the efforts of the Company's technical and
management personnel from productive tasks, whether or not such litigation were
determined in favor of the Company. In the event of an adverse ruling in any
such litigation, the Company might be required to pay substantial damages,
discontinue the use and sale of infringing products, expend significant
resources to develop non-infringing technology or obtain licenses to infringing
technology. In the event of a successful claim against the Company and the
failure of the Company to develop or license a substitute technology, the
Company's business, operating results and financial condition would be
materially adversely affected. As the number of software products in the
industry increases and the functionality of these products further overlaps, the
Company believes that software developers may become increasingly subject to
infringement claims. Any such claims against the Company, with or without merit,
as well as claims initiated by the Company against third parties, could be time
consuming and expensive to defend or prosecute and to resolve.

VOLATILITY OF SHARE PRICE

    The market price of the Company's ADSs and the Shares has experienced
significant fluctuation and may continue to fluctuate significantly. In
particular, the trading price of the ADSs and the Shares could be subject to
wide fluctuations in response to quarterly variations in operating results,
announcements of technological innovations or new products by the Company or its
competitors, changes in financial estimates by securities analysts, downturns in
the economy of regions in which the Company does business, and other events or
factors, many of which are beyond the Company's control. In some future quarters
the Company's operating results may be below expectations of public market
analysts and investors. In such event, or in the event that adverse conditions
prevail or are perceived to prevail generally or with respect to

                                       43
<PAGE>
the Company's business, the price of the Company's ADSs and the Shares would
likely be immediately materially adversely affected. In addition, the stock
market has experienced volatility that has particularly affected the market
prices of equity securities of many technology companies and that often has been
unrelated or disproportionate to the operating performance of such companies.
These broad market fluctuations, as well as general economic, political and
market conditions such as recessions or international currency fluctuations,
have and may continue to adversely affect the market price of the ADSs and the
Shares.

CONTROL BY OFFICERS AND DIRECTORS; FACTORS INHIBITING TAKEOVER

    As of September 30, 1999, the Company's executive officers and directors and
their affiliates beneficially owned approximately 46% of the Company's Shares.
As a result, such persons and entities, acting together, will have the effective
ability to control the Company and direct its affairs and business. The
concentration of ownership of the Company's Shares may have the effect of
delaying, deferring or preventing a change in control of the Company.

    Pursuant to the Company's charter or STATUTS, the members of the Company's
Board of Directors each serve for a three-year term. One-third of the directors
are elected every year, which may make it more difficult for the Company's
shareholders to replace the Board of Directors. The Board of Directors has also
been authorized by the shareholders of the Company to effect increases in the
Company's share capital in the context of a tender offer or exchange offer for
the securities of the Company, which could have an anti-takeover effect. See
"Directors and Executive Officers" and "Control of Registrant."

ENFORCEABILITY OF U.S. JUDGMENTS AGAINST FRENCH CORPORATIONS, DIRECTORS AND
  OFFICERS

    Judgments of U.S. courts, including judgments against the Company or its
directors or officers, predicated on the civil liability provisions of the
federal securities laws of the U.S. may not be enforceable in the Republic of
France.

NO DIVIDENDS

    The Company has not paid any cash dividends on its share capital to date.
The Company currently anticipates that it will retain any future earnings for
use in its business and, therefore, does not anticipate paying any cash
dividends in the foreseeable future. Any dividend would be declared and paid in
French francs and under the French Company Law (the "French Law") and the
Company's STATUTS, may only be paid from pre-consolidated net income, as
increased or reduced, as the case may be, by any net income or loss of ILOG
carried forward from prior years.

CERTAIN MATTERS RELATED TO FRENCH COMPANIES

    As a French SOCIETE ANONYME, the Company will be subject to certain
requirements not generally applicable to corporations organized in U.S.
jurisdictions. Among other things, holders of ADSs will be subject to voting
procedures that are more complicated than for U.S. jurisdictions. The Company's
ability to increase its share capital is subject to shareholder approval at an
extraordinary shareholders' meeting. Shareholder approval must in any event be
obtained for any issuances of share capital in connection with a merger even if
the Company is the surviving entity, or an acquisition of assets in exchange for
shares of the Company. In the case of an extraordinary general meeting, the
presence, in person or by proxy, of shareholders holding one-third of the Shares
upon first notice and one-quarter of the Shares upon second notice is required
for a quorum. The complicated voting procedures under French Law, coupled with
the increasing practice of ADS holders not to exercise their voting rights, may
prevent the Company from obtaining a quorum for future shareholders' meetings
and thereby impair the ability of the Company to take any action that requires
shareholder approval.

                                       44
<PAGE>
YEAR 2000 COMPLIANCE RISKS

    The following is intended to be a "Year 2000 Readiness Disclosure" as
intended by the Year 2000 Information Readiness and Disclosure Act.

    The Company is aware that many currently installed information technology
("IT") systems, such as computer systems and software products, as well as
non-IT systems that include embedded technology, were not designed to correctly
process dates after December 31, 1999. The Company's own component products have
been determined by the Company to be "Year 2000" compliant, although the
customer applications into which they are integrated may not be Year 2000
compliant.

    The Company is also assessing the impact of such Year 2000 issues on its
internal IT and non-IT systems as well as on its customers, suppliers and
service providers. The Company is in the process of upgrading its accounting
systems and believes that they will be Year 2000 compliant. The Company
estimates that the expenses it has incurred to date to address Year 2000 issues
have not been material and, although it has not completed its full assessment of
its Year 2000 readiness, it does not expect to incur material expenses in
connection with any required remediation efforts.

    To date the Company has not identified any significant areas of
non-compliance with respect to its products or IT systems and expects that the
assessment and plans for remedial action for all of its products and non-IT
systems will be completed by the end of 1999. It may be difficult for the
Company to ensure Year 2000 readiness from third parties. Considering the
complex interrelationships among Year 2000 issues both internal and external to
the Company, there can be no assurance that the Company will be able to identify
and accurately evaluate all Year 2000 issues and that unresolved or undetected
internal and external Year 2000 issues will not have a material adverse effect
on the Company's business, financial condition and results of operations.

    If any customers, suppliers or service providers fail to appropriately
address their Year 2000 issues, such failure could have a material adverse
effect on the Company's business, financial condition and results of operation.
For example, because a significant percentage of the purchase orders received
from the Company's customers are computer generated, a failure of one or more of
the computer systems of the Company's customers could have a significant adverse
effect on the level and timing of orders from such customers. Similarly, if Year
2000 problems are experienced by any of the Company's significant suppliers or
service providers, such problems could cause or contribute to delays or
interruptions in the delivery of products or services to the Company; such
delays or interruptions could have a material adverse effect on the Company's
business, financial condition and results of operations.

    The Company may develop contingency plans in the event it has not completed
all of its remediation programs in a timely manner. Such contingency plans may
also address Year 2000 issues relating to third parties who provide goods or
services essential to the Company's business but fail to appropriately address
their Year 2000 issues. Even if these plans are completed on time and put in
place, there can be no assurance that unresolved or undetected internal and/or
external Year 2000 issues will not have a material adverse effect on the
Company's business, financial condition and results of operations.

    A significant impact of Year 2000 readiness preparations by the Company's
customers is that many have chosen to defer spending on the development of new
applications, which is the Company's target market, and focus on Year 2000
readiness. This has impacted the Company's 1999 results and it is not possible
to determine when or if customer spending patterns will return to their
historical levels. Accordingly Year 2000 issues will continue to have a material
adverse effect on the Company's business, financial condition and results of
operations.

    Finally, disruption in the economy generally resulting from Year 2000 issues
could also materially adversely affect the Company. The occurrence of one or
more of the risks described above could have a material adverse effect on the
Company's business, financial condition or results of operations.

                                       45
<PAGE>
INTRODUCTION OF THE EURO

    The Euro was introduced on January 1, 1999 in eleven European Monetary Union
countries including France where the Company has its headquarters and a
significant part of its worldwide operations is based, and in Germany and Spain
where it has sales subsidiaries. Legacy currencies however will continue to be
used as legal tender through January 1, 2002. The Company believes that the
introduction of the Euro will simplify the conduct of its business in the above
countries over time, however changes and/or improvements will need to be made to
its accounting and related internal systems.

    The Company has commenced planning and the training of its personnel to
handle the currency change and in addition the Company is also assessing the
impact of the Euro on its internal IT and non-IT systems. The Company plans to
implement a new enterprise accounting system in 2000 and modify certain existing
systems to accommodate the introduction of the Euro. The Company believes that
such systems and system modifications will aid in ensuring that it will be able
to accommodate the accounting and reporting requirements of the new currency.

    The Company does not expect to have to make major investments, other than in
IT systems, to handle the changeover. There however can be no assurance that new
systems will be introduced or existing systems modified in a timely and/or
effective manner such that the Company will be able to properly handle the
changeover to the Euro without causing a disruption to its business processes
and operations, which in turn may result in a material adverse effect on the
Company's business, financial condition and results of operations.

ITEM 9A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

    The Company believes it does not have any significant risk with regard to
interest rate fluctuation and accordingly does not hedge for interest rate
exposure.

    The Company operates on a multinational basis and a significant portion of
its business is conducted in currencies other than the U.S. dollar, the
financial reporting currency. A significant portion of the Company's revenues
and expenses are denominated in French francs and Euros, and the remainder in
U.S. dollars and other currencies. 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 dollar-translated amounts to vary from one
period to another. Also currency rate movements on non-US dollar denominated
assets and liabilities, including intercompany accounts, can result in the
reporting of unrealized exchange gains or losses in the Company's statement of
operations. Due to the number of currencies involved, the constantly changing
currency exposures and the volatility of currency exchange rates, the Company
cannot predict the effect of exchange rate fluctuations upon future operating
results. The Company does not hedge its exchange rate risk.

    For the year ended June 30, 1999, the effect of a hypothetical uniform
strengthening in the value of the U.S. dollar relative to the French Franc and
Euro would result in a decrease in both revenues and expenses of $2.7 million
with no affect on operating income and a possible increase of other income of up
to approximately $400,000 and earnings per share of $0.03.

ITEM 10. DIRECTORS AND OFFICERS OF REGISTRANT

    In accordance with French law governing a SOCIETE ANONYME, the Company's
affairs are managed by its Board of Directors and by its Chairman, President and
Chief Executive Officer, who has full executive authority to manage the affairs
of the Company, subject to the prior authorization of the Board of Directors or
of the Company's shareholders for certain decisions specified by law.

DIRECTORS AND EXECUTIVE OFFICERS

    Under French law, the Board of Directors prepares and presents the year-end
accounts of the Company to the shareholders and convenes shareholders' meetings.
In addition, the Board of Directors

                                       46
<PAGE>
reviews and monitors ILOG's economic, financial and technical strategies. French
law provides that the Board of Directors be composed of no fewer than three and
no more than 24 members. The actual number of directors must be within such
limits and may be provided for in the STATUTS or determined by the shareholders
at the annual general meeting of shareholders. The number of members of the
Board may be increased only by decision of the shareholders. The Company's Board
of Directors currently consists of eight members. Each director must be a
shareholder of the Company. Under French law a director may be an individual or
a corporation, but the Chairman must be an individual. Each director is elected
for a three year term. There is no limitation, other than applicable age limits,
on the number of terms that a director may serve. Directors are elected by the
shareholders and serve until the expiration of their respective terms, or until
their resignation, death or removal, with or without cause, by the shareholders.
Vacancies which exist in the Board of Directors may be filled by the Board of
Directors, pending the next shareholders' meeting. However, if the number of
Directors falls below the legal minimum of three, the remaining Directors must
immediately call a shareholders meeting to elect a sufficient number of
Directors to reach the legal minimum.

    Meetings of the Board of Directors of ILOG are normally convened and
presided over by the Chairman, who is elected by the Board of Directors. A
quorum consists of one-half of the members of the Board of Directors and
decisions are generally taken by a vote of the majority of the members present
or represented by other members of the Board of Directors. The Chairman has the
ability to cast a deciding vote in the event of a tie vote. A director may give
a proxy to another director but a director cannot represent more than one other
director at any particular meeting. Members of the Board of Directors
represented by another member at meetings do not count for purposes of
determining the existence of a quorum. As required under French law, two
representatives of the employees are entitled to be present at meetings of the
Board of Directors of the Company, but do not have any voting rights.

    Directors are required to comply with applicable law and ILOG's STATUTS.
Under French law, directors are liable for violations of French legal or
regulatory requirements applicable to SOCIETES ANONYMES, violation of the
Company's STATUTS or mismanagement. Directors may be held liable for such
actions both individually and jointly with the other directors.

    The Board currently has two committees: the Audit Committee, currently
composed of Jean-Francois Abramatic (since September 22, 1999) and Marc
Fourrier, and a Compensation Committee, currently composed of Fredric Harman and
Marc Fourrier. Until September 22, 1999 Mr. Philippe Claude served on the Audit
Committe. The Audit Committee primarily reviews with management and the
Company's independent auditors the internal accounting procedures and quarterly
and annual financial statements of the Company and consults with and reviews the
services provided by the Company's independent auditors. The Compensation
Committee determines the compensation of Pierre Haren, the Chairman and Chief
Executive Officer of the Company, and the other executive officers of the
Company and makes recommendations as to the implementation of the Company's
stock option and other employee benefits plans. Each of the Committees makes
recommendations to the Board of Directors for final decision by the Board.

    Under French law, the Chairman and Chief Executive Officer has the broadest
powers to act on behalf of ILOG and to represent ILOG in dealings with third
parties, subject only to those powers expressly reserved by law to the Board of
Directors or the shareholders. The Chairman and Chief Executive Officer
determines, and is responsible for the implementation of, the goals, strategies
and budgets of ILOG, which are reviewed and monitored by the Board of Directors.
The Board of Directors has the power to appoint and remove, at any time, the
Chairman and Chief Executive Officer.

                                       47
<PAGE>
    The following table sets forth the names, ages and positions of the
directors and executive officers of ILOG:

<TABLE>
<CAPTION>
NAME                                     AGE                     POSITION WITH THE COMPANY
----                                   --------   --------------------------------------------------------
<S>                                    <C>        <C>
Pierre Haren.........................     46      Chairman and Chief Executive Officer
Patrick Albert.......................     43      Chief Technology Officer
Stuart Bagshaw.......................     54      Chief Operating Officer
Dr. Robert Bixby.....................     53      Director and Technology Fellow
Edouard Efira........................     51      Executive Vice President, Corporate Business Development
Roger Friedberger....................     48      Chief Financial Officer
Bounthara Ing........................     37      Vice President and General Manager Industrial Solutions
                                                    Division
Janet Lowe...........................     41      Vice President and General Manager ILOG Direct
Todd Lowe............................     43      Director, Executive Vice President and General Manager
                                                    Value Chain Management Business Division
Manuel Montalban.....................     40      Vice President and General Manager Telecommunications
                                                    Business Division
William Scull........................     46      Vice President of Worldwide Marketing
Jean-Francois Abramatic..............     50      Director
Pascal Brandys.......................     40      Director
Philippe Claude......................     51      Director
Marc Fourrier........................     45      Director
Fredric Harman.......................     39      Director
</TABLE>

    Pierre Haren is a founder of the Company and was the Managing Director from
April 1987 to December 1995, when he was appointed Chairman and Chief Executive
Officer of the Company. Prior to founding ILOG, Mr. Haren spent four years in
charge of the SMECI Expert System Shell Project with the Institut National de
Recherche en Informatique et en Automatique ("INRIA") following a three-year
term directing the investment department of the French Ministry of the Sea.
Mr. Haren received engineering degrees from Ecole Polytechnique in 1976 and
Ecole Nationale des Ponts et Chaussees in 1978. He received his M.S. from
Massachusetts Institute of Technology ("MIT") in 1978 and Ph.D. from MIT in
Civil Engineering in 1980. Mr. Haren's term on the Board of Directors expires in
1999, but will be extended to 2002 upon ILOG shareholder approval at its
Ordinary General Meeting to be held on December 14, 1999.

    Patrick Albert is a founder of the Company and has been Chief Technology
Officer of the Company since July 1996, having previously held the position of
Vice President of Research and Development from 1990. Mr. Albert was head of the
Expert System Shell Department of Groupe Bull prior to joining the Company in
April 1987. Mr. Albert received an M.S. in Information Technology from the
University of Paris VII in 1982.

    Stuart Bagshaw has served as Chief Operating Officer of the Company since
January 1998. From April 1995 until December 1997, Mr. Bagshaw was at
Gemplus, Inc. where his most recent position was as Executive Vice President,
Corporate Strategy. From November 1991 to March 1995 he was at XEROX Corporation
initially as Vice President International Operations and later as Vice President
Worldwide Operations for the corporation's Xsoft Division.

    Dr. Robert Bixby has served as a Director and Technology Fellow of the
Company since August 1997. Dr. Bixby was a founder of, and from 1988 until
August 1997, was Chairman of CPLEX Optimization, Inc. Dr. Bixby is a Noah
Harding Research Professor Emeritus of Computational and Applied Mathematics at

                                       48
<PAGE>
Rice University and is a member of the National Academy of Engineering.
Dr. Bixby's term on the Board of Directors expires in 2000.

    Edouard Efira has served as the Company's Executive Vice President,
Corporate Business Development since July 1999, having previously served as
Executive Vice President International Strategic Alliances and Business
Development since January 1997. From May 1996 to January 1997, he was Chief
Operating Officer of the Company and, from January 1989 to May 1996, he was
Director of International Sales. Mr. Efira served on ILOG's Board of Directors
from August 1997 to September 1998.

    Roger Friedberger has served as Chief Financial Officer of the Company since
May 1996. From March 1988 through March 1996, he served as Senior Vice
President, Chief Financial Officer and Secretary of Insignia Solutions plc, a
software company. Mr. Friedberger graduated from the University of Leeds,
England in 1972 with a Bachelor of Commerce degree in Accounting and Law. He is
a certified public accountant in California and a member of the Institute of
Chartered Accountants in England and Wales.

    Bounthara Ing has served as Vice President and General Manager Industrial
Solutions Division of the Company since July 1999, as President of ILOG
Pte Ltd. Singapore since January 1994, and ILOG KK Japan since September 1997.
He joined the Company in April 1988 as Manager of the Graphic Department.
Mr. Ing received an Engineering degree from Ecole Centrale de Paris in 1986.

    Janet Lowe has served as Vice President and General Manager ILOG Direct
since July 1999, having previously held the position from August 1997 of
Director of Marketing, Optimization Products. Ms. Lowe co-founded in 1988 CPLEX
Optimization, Inc., and served as its Vice President of Marketing and Chief
Financial Officer until the company was acquired by ILOG in 1997. She received a
B.S. in chemical engineering at the University of Texas in 1980 and an M.B.A. at
Rice University in 1988.

    Todd Lowe has served as a Director since August 1997, and as the Company's
Executive Vice President and General Manager Value Chain Management Business
Division since July 1999, having previously held the position of Executive Vice
President CPLEX and ILOG Direct since July 1998. From August 1997 until June
1998 he was the Company's Executive Vice President, CPLEX business. From 1988
until 1997 he was President of CPLEX Optimization, Inc. He received a Chemical
Engineering degree from the University of California. Mr. Lowe's term on the
Board of Directors expires in 2000.

    Manuel Montalban has served as Vice President and General Manager
Telecommunication Business Division since July 1999, having previously held the
position of Vice President of Sales, Europe since July 1996 after having served
as European Sales Manager of the Company from February 1993 to July 1996. From
April 1991 to February 1993, Mr. Montalban served as General Manager of ILOG
Spain and, from 1987 to April 1991, as Manager of the Consulting Department.
Mr. Montalban received a Ph.D. in Computer Science at the University of Nice in
1987.

    William Scull has served as Vice President of Worldwide Marketing since
September 1997. From October 1993 until September 1997, Mr. Scull was president
of Catalyst Consultants, a strategic marketing consulting firm based in Los
Altos, California. From November 1988 until September 1993, Mr. Scull was at
Tandem Computers where his most recent position was as Director of Corporate
Development, New Ventures. Mr. Scull received an M.B.A. from Stanford University
in 1981 and a Master of Science degree in Engineering from MIT in 1979.

    Jean-Francois Abramatic has served as a director of the Company since
December 1994. Since 1992, Mr. Abramatic has been Director of Development at
INRIA which position was extended in September 1997 to Director of Development
and Industrial Relations. In September 1996, Mr. Abramatic was appointed
Chairman of the International World Wide Web Consortium and as an Associate
Director of the MIT Laboratory of Computer Science. Mr. Abramatic received an
Engineering degree from Ecole des Mines, Nancy in 1971 and a Ph.D. from the
University of Paris VI in 1980. Mr. Abramatic's term on the Board of Directors
expires in 2000.

                                       49
<PAGE>
    Pascal Brandys has served as a director of the Company since September 1998.
Mr. Brandys has been Chairman of the Board of Directors and Chief Executive
Officer of Genset S.A. since he co-founded it in 1989. Since 1997, Mr. Brandys
has served as President of France Biotech, the association of French
biotechnology companies. Mr. Brandys graduated from the Ecole Polytechnique in
1980, received an M.S. in Economic Systems from Stanford University in 1982 and
an M.S. in Civil Engineering from the Ecole Nationale des Ponts et Chaussees in
1983. Mr. Brandys's term on the Board of Directors expires in 2000.

    Philippe Claude has served as the permanent representative of Atlas Venture
Europe Fund B.V., a director of the Company, since January 1995, and was
appointed a director of the Company in his individual capacity in September
1996. Mr. Claude has been a General Partner of Atlas Venture, a venture capital
firm, since January 1993. Prior to joining Atlas Venture Group, he had been a
general partner of Partech International since 1987. He is also a Director of
Business Objects S.A., a software company. Mr. Claude graduated from the
University of Brussels, Solvay School in 1971 and received an M.B.A. from Oregon
State University in 1973. Mr. Claude's term on the Board of Directors expires in
1999, but will be extended to 2002 upon ILOG shareholder approval at its
Ordinary General Meeting to be held on December 14, 1999.

    Marc Fourrier has served as a director of the Company since April 1987.
Mr. Fourrier is President of Delphis, a holding company that specializes in the
creation and development of high technology companies. From 1988 to June 1997,
Mr. Fourrier was a principal of Cleversys S.A., a consulting firm which
specializes in information technology. Mr. Fourrier received engineering degrees
from Ecole Polytechnique in 1976 and Ecole Nationale des Ponts et Chaussees in
1978, and an M.S. from MIT in 1978. Mr. Fourrier's term on the Board of
Directors expires in 2001. He is also a Director of Wavecom S.A.

    Fredric Harman has served as the permanent representative of Oak Management
Corporation, a director of the Company, since December 1994, and was appointed a
director of the Company in his individual capacity in September 1996.
Mr. Harman is a General Partner of Oak Investment Partners, a venture capital
firm. Mr. Harman was formerly with Morgan Stanley where he was a General Partner
of Morgan Stanley Venture Partners, L.P., a venture capital firm. He is also a
Director of Inktomi Corporation, InterNAP Netowork Services, and Primus
Knowledge Solutions. Mr. Harman received his B.S. and an M.S. in Electrical
Engineering from Stanford University in 1983, and an M.B.A. from the Harvard
Graduate School of Business in 1987. Mr. Harman's term on the Board of Directors
expires in 2001.

LIABILITY INSURANCE

    French law generally prohibits the Company from entering into
indemnification agreements with its directors and officers providing for
limitations on personal liability for damages and other costs and expenses that
may be incurred by directors and officers arising out of or related to acts or
omissions in such capacity. French law also prohibits the STATUTS of the Company
from providing for the limitation of liability of a member of the Board of
Directors. These prohibitions may adversely affect the ability of the Company to
attract and retain directors. Generally, under French law, directors and
officers will not be held personally liable for decisions taken diligently and
in the corporate interest of the Company.

    The Company has entered into an agreement with each of its directors, its
Chairman and Chief Executive Officer, its Chief Operating Officer, its Chief
Financial Officer and other members of senior management designated by the Board
of Directors pursuant to which the Company agreed to contract for and maintain
liability insurance against liabilities which may be incurred by such persons in
their respective capacities, including liabilities which may be incurred under
the U.S. federal and state securities laws, subject to certain limitations. The
Company believes that entering into such agreements and maintaining appropriate
liability insurance for its directors and officers will assist the Company in
attracting and retaining qualified individuals to serve as directors and
officers.

                                       50
<PAGE>
ITEM 11. COMPENSATION OF DIRECTORS AND OFFICERS

    The aggregate amount of compensation of all executive officers of ILOG as a
group (11 persons) paid or accrued for services in all capacities for the year
ended June 30, 1999 was approximately $2.3 million. In accordance with French
law relating to commercial companies, only shareholders may determine directors
fees paid to the Board of Directors. The Board of Directors then has full and
discretionary authority to decide the allocation of the directors' fees
authorized by the shareholders among its members. The shareholders of the
Company have not authorized the payment of any directors fees for 1999.

ITEM 12. OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES

    The Company has five employee stock option or purchase plans currently in
effect. The following is a summary description of each of the Company's plans.

    THE 1992 STOCK OPTION PLAN.  In general meetings held in 1992 and in 1993,
the shareholders of the Company authorized the Board of Directors to grant
options with respect to an aggregate of 614,275 Shares at a price to be
determined by the Board of Directors on the date of grant based on the net
assets of the Company and increased by a reasonable estimate of the future
profitability of the Company (the "1992 Plan"). The Board of Directors were able
to grant options under the 1992 Plan until June 1998. Under the 1992 Plan,
options become exercisable for a period of five years following the date of
grant subject to vesting on the basis of one-fourth of the Shares upon the date
of grant, and one-fourth in each of the three following years. As of
October 20, 1999, options with respect to an aggregate of 251,676 Shares were
outstanding under the 1992 Plan at exercise prices ranging from FF9.00 per share
to FF32.00 per share.

    THE 1996 STOCK OPTION PLAN.  In 1994, the shareholders of the Company
authorized the Board of Directors to grant up to 500,000 options at a price to
be determined by the Board of Directors on the date of grant based on the net
assets of the Company, a reasonable estimate of its future profitability and its
future development prospects (the "1994 Plan"). The Board of Directors may grant
such options until November 23, 1999. In order to comply with the U.S. Internal
Revenue Code of 1986, as amended (the "Code") for the granting of incentive
stock options, the Company decided to adopt a new plan (the "1996 Plan"),
incorporating Shares authorized under the 1994 Plan. The 1996 Plan was approved
by the shareholders on May 30, 1996, and on that date 600,000 Shares, on
October 17, 1996, 200,000 Shares, on August 20, 1997, 1,600,000 Shares, on
December 17, 1997, 500,000 Shares and on August 31, 1998, 1,000,000 Shares, were
added to the 1996 Plan with respect to which options may also be granted by the
Board of Directors until November 23, 1999. Following the approval by
shareholders of the 1998 Plan (see below) 1,000,000 shares authorized for the
1996 Plan were transferred to the 1998 Plan. Under the 1996 Plan, optionees are
entitled to exercise options for ten years (or seven years less one day for U.K.
employees). Under the 1996 Plan, generally and unless otherwise specified,
one-fourth of the Shares subject to option vest 12 months after the date of
grant of options and 1/48 of the Shares vest each month thereafter provided the
optionee continues to render services to the Company. As of October 20, 1999,
options with respect to an aggregate of 3,056,477 Shares were outstanding at
exercise prices ranging from FF12.80 to FF88.79, and options to purchase 31,012
Shares remained available for grant under the 1996 Plan.

    THE 1998 STOCK OPTION PLAN.  On November 4, 1998 the shareholders approved
the 1998 Stock Option Plan, to succeed the 1996 Stock Option Plan and at that
time 1,000,000 options previously authorized for the 1996 Plan were transferred
to the 1998 Plan. In addition on September 21, 1999, 900,000 Shares were
authorized with respect to which options may be granted by the Board of
Directors. The 1998 Stock Option Plan is identical to the 1996 Stock Option Plan
except that it expires in 2003. As of October 20, 1999, options with respect to
an aggregate of 1,559,490 Shares were outstanding at exercise prices ranging
from FF44.08 to FF57.72, and options to purchase 340,510 Shares remained
available for grant under the 1998 Plan.

                                       51
<PAGE>
    As of October 20, 1999, options to purchase an aggregate of 1,654,625 Shares
were held by executive directors and/or executive officers of the Company as a
group (11 persons). Under French Law, the Company cannot grant options to
members of the Board of Directors (other than the Chairman, Chief Executive
Officer or Managing Director) who are not employees.

    All Options granted under the 1996 and 1998 Plans have a term of ten years,
other than options granted to employees in the United Kingdom which have a term
of seven years less one day. Generally, and unless otherwise specified, if an
optionee terminates his or her employment with the Company, the optionee may
exercise only those options vested as of the date of termination and must effect
such exercise within three months. In general, if an optionee dies during his or
her employment, or within three months after termination of employment, such
person's options may be exercised up to six months after his or her death to the
extent vested at the time of his or her death or termination. No option may be
transferred by the optionee other than by will or the laws of intestacy.

    In December 1996, the French parliament adopted a law that requires French
companies to pay French social contributions and certain salary-based taxes,
which may represent, for the Company, up to 45% of the taxable salary, on the
difference between the exercise price of a stock option and the fair market
value of the underlying shares on the exercise date, if the beneficiary disposes
of the shares before a five-year period following the grant of the option. The
new law is consistent with French personal income tax law pursuant to which the
difference between the option exercise price and the fair value of the shares at
the grant date is treated as salary income if the shares are sold or otherwise
disposed of within five years of the option grant. The law applies to all
options, whatever the grant date, exercised after January 1, 1997. Pursuant to a
law of July 2, 1998, both the beneficiary and the Company are exempted from such
social security related taxation if the options were granted before January 1,
1997 and are exercised after April 1, 1998.

    The Company has not recorded a liability for social charges which may be
assessed for options granted as of June 30, 1999 as the liability, being
dependent on future values of the Company's shares and the timing of employees'
decisions to exercise options and sell the related shares, cannot be estimated.
The Company also does not consider that the liability is probable due to the
income tax disincentives to employees of exercising options and selling the
shares in less than a five year period.

    For options granted after the adoption of the new law, the Company has
decided to subject such options to a minimum holding period of the underlying
shares, whereby French optionees will not be allowed to sell or dispose of the
shares before the expiration of a 5-year period from the grant date.

    1996 INTERNATIONAL EMPLOYEE STOCK PURCHASE PLAN.  In October 1996, the
shareholders of the Company approved the Company's International Employee Stock
Purchase Plan (the "Purchase Plan") and renewed such approval in November 1998
which reserves a total of 200,000 Shares for issuance thereunder for a period of
two years from the date of renewed approval by the Company's shareholders. The
Purchase Plan permits eligible employees to acquire Shares in the form of ADSs
through payroll deductions. The Purchase Plan is intended to qualify as an
"employee stock purchase plan" under Section 423 of the Code. The Purchase Plan
is implemented by consecutive offering periods. Except for the initial offering,
each offering under the Purchase Plan will be for a period of six months (the
"Offering Period") commencing on February 1 and August 1 of each year. The first
Offering Period began on February 14, 1997 being the date on which price
quotations for the ADSs corresponding to the Shares were first available on the
Nasdaq National Market and ended on July 31, 1997. The Board of Directors has
the power to set the beginning of any Offering Period and to change the duration
of Offering Periods without shareholder approval, provided that the change is
announced at least 15 days prior to the scheduled beginning of the first
Offering Period to be affected. Eligible employees may select a rate of payroll
deduction up to 10% of their compensation, up to an aggregate total payroll
deduction not to exceed $21,250 in any calendar year. The purchase price for
ADSs purchased under the Purchase Plan is 85% of the lesser of the fair market
value of the Company's ADSs on the first day of each applicable Offering Period
and on the last day of such Offering Period.

                                       52
<PAGE>
    1996 FRENCH EMPLOYEE SAVINGS PLAN.  The Company's 1996 French Employee
Savings Plan (the "Savings Plan"), which was approved by the Company's
shareholders in October 1996, and renewed such approval in November 1998
reserves a total of 200,000 Shares for issuance thereunder for a period of two
years from the date of such renewed approval. The Savings Plan permits eligible
employees primarily to make contributions for purposes of purchasing shares in
investment funds managed for the Company on behalf of employees, or to acquire
Shares issued by the Company itself. The Savings Plan is intended to qualify as
an Employee Savings Plan under Article 443-1 et. seq. of the French Labor Code.
The Savings Plan is funded by an annual contribution made on behalf of employees
from a special employee profit-sharing reserve, by voluntary contributions made
by employees, by discretionary supplemental contributions made by the Company,
and by the reinvestment of revenues and capital gains from investments in the
Savings Plan prior to distribution. In accordance with the French Labor Code,
voluntary contributions in any one calendar year for an eligible employee may
not exceed 25% of such employee's gross annual salary. The price for Shares of
the Company purchased under the Savings Plan is 80% of the mean of the fair
market value of the Company's ADSs as quoted on the Nasdaq National Market or
the NOUVEAU MARCHE in the twenty trading days preceding the Board of Directors'
decision to issue Shares to eligible employees under the Savings Plan.
Investments made on behalf of eligible employees may be distributed on the first
day of the fourth month of the fifth fiscal year following the year in which
investment fund shares or Shares of the Company were purchased. The Savings Plan
is automatically renewed each year unless otherwise terminated by the Company.

    As of September 30, 1999 the Company had issued 189,794 and 86,291 Shares
under the Purchase Plan and Savings Plan, respectively since their inception.

WARRANTS FOR NON-EXECUTIVE DIRECTORS

    Pursuant to a resolution adopted on September 21, 1999, the shareholders
have authorized the Board to issue warrants for the purchase of shares in the
Company, of up to 20,000 shares which are to be reserved for issuance to the
non-executive Directors. On September 22, 1999, warrants to purchase 20,000
shares were granted to 5 non-executive Directors. Such warrants may be exercised
at any time until September 21, 2004 at a price of 7.55 Euros or FF 49.52 per
share.

ITEM 13. INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS

    Since July 1, 1998, there has not been, nor is there currently proposed, any
transaction or series of similar transactions to which the Company was or is to
be a party in which the amount involved exceeds $60,000 and in which any
director, executive officer or holder of more than 5% of the share capital of
the Company had or will have a direct or indirect material interest other than
in the transactions described below.

    In January 1997, the Company's U.S. subsidiary extended a loan in the amount
of $75,000 to Mr. Edouard Efira, an executive officer of the Company. The loan
yielded interest at a rate of 5.63% and was repaid on September 1, 1998.

    In August 1998 the Company entered into an Agreement and Plan of
Reorganization whereby it acquired Compass Modeling Solutions, Inc., in exchange
for 51,852 Company shares of which Mr. Todd Lowe, a director of the Company, and
Ms. Lowe, an executive officer of the Company, as trustees of the Lowe Family
Trust, received 20,514 Company shares and Mr. Robert Bixby, a director of the
Company, received 4,559 Company shares.

    In December 1998, the Company's U.S. subsidiary extended a loan in the
amount of $65,997 to Mr. Efira. The loan is to be repaid in July 2005 or earlier
under certain circumstances. The loan yields interest at the rate of 4.47% per
annum.

    The Company believes that the terms of each of the foregoing transactions
were as favorable to the Company as the terms that would have been available
from unaffiliated third parties.

                                       53
<PAGE>
                                    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 F-1 through F-20.

ITEM 19. FINANCIAL STATEMENTS AND EXHIBITS

    (A) Financial Statements

    The following financial statements and schedules, together with the report
of Ernst & Young Audit thereon, are filed as part of this annual report:

       Independent Auditors' Report

       Consolidated Balance Sheets

       Consolidated Statements of Operations

       Consolidated Statements of Shareholders' Equity

       Consolidated Statements of Cash Flows

       Notes to Consolidated Financial Statements

    Schedule II to Financial Statements (Financial statement schedules I, III,
IV and V are omitted as the information is not required, is not applicable or
the information is presented in the financial statements or related notes
thereto)

    (B) Exhibits

<TABLE>
<CAPTION>
       EXHIBIT
       NUMBER                                     EXHIBITS
---------------------   ------------------------------------------------------------
<C>                     <S>
          1             Lease for 1080 Linda Vista Avenue, Mountain View and
                        amendment thereto*
</TABLE>

*   Original agreement and amendment incorporated by reference to the Form 6-K
    filed on February 23, 1999.

                                       54
<PAGE>
                                   SIGNATURES

    Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the registrant certifies that it meets all of 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.

                                          ILOG S.A.

                                          [SIGNATURE]

                                          Roger D. Friedberger
                                          CHIEF FINANCIAL OFFICER

Dated: October 25, 1999

                                       55
<PAGE>
                                   ILOG S.A.

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                PAGE
                                                              --------
<S>                                                           <C>
Report of Independent Auditors..............................    F-2
Consolidated Balance Sheets.................................    F-3
Consolidated Statements of Operations.......................    F-4
Consolidated Statements of Shareholders' Equity.............    F-5
Consolidated Statements of Cash Flows.......................    F-6
Notes to Consolidated Financial Statements..................    F-7
</TABLE>

                                      F-1
<PAGE>
                         REPORT OF INDEPENDENT AUDITORS

The Directors and Shareholders
ILOG S.A.

    We have audited the accompanying consolidated balance sheets of ILOG S.A.
and subsidiaries as of June 30, 1998 and 1999 and the related consolidated
statements of operations, shareholders' equity and cash flows for each of the
three years in the period ended June 30, 1999. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

    We conducted our audits in accordance with generally accepted auditing
standards 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
ILOG S.A. and subsidiaries at June 30, 1998 and 1999, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended June 30, 1999, in conformity with generally accepted accounting
principles in the United States.

                                          ERNST & YOUNG Audit

                                          [SIGNATURE]

                                          Represented by
                                          John Mackey

Paris, France
July 26, 1999

                                      F-2
<PAGE>
                                   ILOG S.A.
                          CONSOLIDATED BALANCE SHEETS
                       (IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
                                                                   JUNE 30,
                                                              -------------------
                                                                1998       1999
                                                              --------   --------
<S>                                                           <C>        <C>
                                     ASSETS

Current assets:
  Cash and cash equivalents.................................  $ 20,101   $ 21,532
  Accounts receivable (less allowance for doubtful accounts
    of $526 and $941 at June 30, 1998 and 1999,
    respectively)...........................................    15,328     14,839
  Value-added tax collectible on accounts receivable........     1,374      1,248
  Other receivables.........................................     1,917      1,896
  Prepaid expenses..........................................     1,079        962
                                                              --------   --------
    Total current assets....................................    39,799     40,477
Property and equipment......................................     8,352      9,902
  Less accumulated depreciation and amortization............    (5,022)    (5,646)
                                                              --------   --------
  Property and equipment, net...............................     3,330      4,256
                                                              --------   --------
Other assets................................................       520        273
                                                              --------   --------
    Total assets............................................  $ 43,649   $ 45,006
                                                              ========   ========

                      LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
  Lines of credit...........................................  $  1,300   $  1,100
  Accounts payable and accrued expenses.....................     4,888      5,944
  Accrued compensation......................................     4,523      5,690
  Value-added tax payable...................................     1,361      1,162
  Current portion of long-term debt.........................       331      2,007
  Current portion of capitalized lease obligations..........       424        424
  Deferred revenue..........................................     5,044      6,775
                                                              --------   --------
    Total current liabilities...............................    17,871     23,102
Long-term portion of interest-free loans....................       590        223
Long-term portion of capitalized lease obligations..........       389        323
Other long-term liabilities.................................     5,000      3,333
                                                              --------   --------
    Total liabilities.......................................    23,850     26,981

Commitments and contingencies

Shareholders' equity:
  Shares, FF 4.00 nominal value: 13,740,677 and
    14,096,500 shares issued and outstanding at June 30,
    1998 and 1999, respectively.............................     9,713      9,918
  Additional paid-in capital................................    50,583     52,506
  Accumulated deficit.......................................   (39,562)   (42,732)
  Cumulative translation adjustment.........................      (935)    (1,667)
                                                              --------   --------
    Total shareholders' equity..............................    19,799     18,025
                                                              --------   --------
    Total liabilities and shareholders' equity..............  $ 43,649   $ 45,006
                                                              ========   ========
</TABLE>

                 See notes to consolidated financial statements

                                      F-3
<PAGE>
                                   ILOG S.A.

                     CONSOLIDATED STATEMENTS OF OPERATIONS

                (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                  YEAR ENDED JUNE 30,
                                                         --------------------------------------
                                                            1997         1998          1999
                                                         ----------   -----------   -----------
<S>                                                      <C>          <C>           <C>
Revenues:
  License fees.........................................  $   23,053   $    34,652   $    38,657
  Services.............................................      10,877        20,604        25,066
                                                         ----------   -----------   -----------
    Total revenues.....................................      33,930        55,256        63,723

Cost of revenues:
  License fees.........................................         917         1,183         1,149
  Services.............................................       6,015        10,867        14,429
                                                         ----------   -----------   -----------
    Total cost of revenues.............................       6,932        12,050        15,578
                                                         ----------   -----------   -----------
Gross Profit...........................................      26,998        43,206        48,145
Operating expenses:
  Marketing and selling................................      21,724        27,290        31,531
  Research and development.............................       4,566         6,575         9,835
  General and administrative...........................       4,383         6,126         7,435
  Nouveau marche expenses..............................          --            --           466
  Write-off of acquired intangible assets..............          --        31,045         2,032
                                                         ----------   -----------   -----------
    Total operating expenses...........................      30,673        71,036        51,299
                                                         ----------   -----------   -----------
Loss from operations...................................      (3,675)      (27,830)       (3,154)
Interest expense.......................................        (246)         (466)         (475)
Interest income........................................         334           283           503
Foreign exchange gain..................................           2            76           168
Other..................................................       1,034           (14)          (82)
                                                         ----------   -----------   -----------
Loss before income taxes...............................      (2,551)      (27,951)       (3,040)
Income taxes...........................................          --            --          (130)
                                                         ----------   -----------   -----------
Net loss...............................................  $   (2,551)  $   (27,951)  $    (3,170)
                                                         ==========   ===========   ===========
Net loss per share, basic and diluted..................  $    (0.30)  $     (2.21)  $     (0.23)
                                                         ==========   ===========   ===========
Number of shares used in computing net loss per share,
  basic and diluted....................................   8,428,263    12,664,720    13,998,859
                                                         ==========   ===========   ===========
</TABLE>

                 See notes to consolidated financial statements

                                      F-4
<PAGE>
                                   ILOG S.A.

                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

                       (IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
                                                                                         ACCUMULATED
                                            SHARES           ADDITIONAL                     OTHER       SHAREHOLDERS'
                                     ---------------------    PAID-IN     ACCUMULATED   COMPREHENSIVE      EQUITY
                                       SHARES      AMOUNT     CAPITAL       DEFICIT     INCOME (LOSS)     (DEFICIT)
                                     ----------   --------   ----------   -----------   -------------   -------------
<S>                                  <C>          <C>        <C>          <C>           <C>             <C>
Balance June 30, 1996, as
  previously reported..............   6,947,649    $5,024      $ 3,941      $ (8,726)      $   997        $  1,236
  Adjustment in connection with
    pooling of interests...........      51,852        35          191          (334)           --            (108)
                                     ----------    ------      -------      --------       -------        --------
Balance June 30, 1996, as
  restated.........................   6,999,501     5,059        4,132        (9,060)          997           1,128
  Options exercised................      44,587        31           80            --            --             111
  Conversion of bonds..............   1,329,986       933        3,355            --            --           4,288
  Issuance of shares...............   2,637,400     1,850       23,089            --            --          24,939
  Amortization of deferred stock
    compensation...................          --        --           95            --            --              95
  Components of comprehensive loss
    Translation adjustment.........          --        --           --            --        (1,019)         (1,019)
    Net loss.......................          --        --           --        (2,551)                       (2,551)
                                                                                                          --------
  Total comprehensive loss.........          --        --           --            --            --          (3,570)
                                     ----------    ------      -------      --------       -------        --------
Balance June 30, 1997..............  11,011,474     7,873       30,751       (11,611)          (22)         26,991
  Options exercised................     336,471       224          448            --            --             672
  Issuance of shares...............   2,444,584     1,616       19,267            --            --          20,883
  Amortization of deferred stock
    compensation...................          --        --          117            --            --             117
  Components of comprehensive loss
    Translation adjustment.........          --        --           --            --          (913)           (913)
    Net loss.......................          --        --           --       (27,951)           --         (27,951)
                                                                                                          --------
  Total comprehensive loss.........          --        --           --            --            --         (28,864)
                                     ----------    ------      -------      --------       -------        --------
Balance June 30, 1998..............  13,792,529     9,713       50,583       (39,562)         (935)         19,799
  Options exercised................     150,106       101          684            --            --             785
  Issuance of shares...............     153,865       104        1,137            --            --           1,241
  Amortization of deferred stock
    compensation...................          --        --          102            --            --             102
  Components of comprehensive loss
    Translation adjustment.........          --        --           --            --          (732)           (732)
    Net loss.......................          --        --           --        (3,170)           --          (3,170)
                                                                                                          --------
  Total comprehensive loss.........          --        --           --            --            --          (3,902)
                                     ----------    ------      -------      --------       -------        --------
Balance June 30, 1999..............  14,096,500    $9,918      $52,506      $(42,732)      $(1,667)       $ 18,025
                                     ==========    ======      =======      ========       =======        ========
</TABLE>

                 See notes to consolidated financial statements

                                      F-5
<PAGE>
                                   ILOG S.A.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                   YEAR ENDED JUNE 30,
                                                              ------------------------------
                                                                1997       1998       1999
                                                              --------   --------   --------
<S>                                                           <C>        <C>        <C>
Cash flows from operating activities:
Net loss....................................................  $(2,551)   $(27,951)  $(3,170)
Adjustments to reconcile net loss to net cash used for
  operating activities:
  Depreciation and amortization of property and equipment...      862       1,445     1,860
  Amortization of deferred stock compensation...............       95         117       102
  Write-off of acquired intangible assets...................       --      31,045     2,032
  Loss (gain) on sales of fixed assets......................       (5)          5         6
  Increase (decrease) in cash from:
    Accounts receivable.....................................   (2,039)     (5,761)      161
    Value-added tax collectible on accounts receivable......     (182)        382       (64)
    Other receivables.......................................    1,034      (1,680)      140
    Prepaid expenses........................................     (193)       (447)      570
    Accounts payable and accrued expenses...................      362       1,108      (244)
    Accrued compensation....................................      484       1,541     1,380
    Deferred revenue........................................    1,035       2,222     2,332
    Value-added tax payable.................................     (114)        656      (149)
    Other...................................................     (143)     (1,058)       38
                                                              -------    --------   -------
      Net cash provided by (used for) operating
        activities..........................................   (1,355)      1,624     4,994
                                                              -------    --------   -------
Cash flows from investing activities:
Acquisition of intangible assets............................       --     (15,600)   (1,000)
Purchases of property and equipment.........................   (1,133)     (1,870)   (2,424)
Proceeds from sale of property and equipment................       --         136        82
                                                              -------    --------   -------
      Net cash used for investing activities................   (1,133)    (17,334)   (3,342)
                                                              -------    --------   -------
Cash flows from financing activities:
Proceeds from loans.........................................      768          --        --
Repayment of loans..........................................     (810)       (372)     (639)
Principal payments on capital lease obligations.............     (516)       (482)     (481)
Cash proceeds from issuance of shares.......................   25,050      11,655     2,026
Dividends paid..............................................       (7)        (71)       --
                                                              -------    --------   -------
      Net cash provided by financing activities.............   24,485      10,730       906
                                                              -------    --------   -------
Effect of exchange rate changes on cash and cash
  equivalents...............................................     (930)       (963)   (1,127)
                                                              -------    --------   -------
Net increase (decrease) in cash and cash equivalents........   21,067      (5,943)    1,431
Cash and cash equivalents, beginning of period..............    4,977      26,044    20,101
                                                              -------    --------   -------
Cash and cash equivalents, end of period....................  $26,044    $ 20,101   $21,532
                                                              =======    ========   =======
</TABLE>

                 See notes to consolidated financial statements

                                      F-6
<PAGE>
                                   ILOG S.A.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NATURE OF BUSINESS

    ILOG S.A. (the "Company") is organized as a SOCIETE ANONYME, or limited
liability company, under the laws of the Republic of France. The Company was
founded in 1987.

    The Company develops, markets and supports advanced software components for
user interface, resource optimization and data services functions that are
fundamental to the development of business applications. The Company's object
oriented libraries are used in all development stages, from conceptual modeling
to final delivery, of C, C++ and Java compiled applications. The Company's
products are distributed through its direct sales force, ISVs, and VARs.

BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION

    The accompanying consolidated financial statements were prepared in
accordance with accounting principles generally accepted in the United States.
The preparation of financial statements requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying footnotes. Actual results could differ from those estimates.

    The accompanying consolidated financial statements include the Company and
its subsidiaries in the United States, Germany, Japan, Singapore, Spain and the
United Kingdom after eliminating intercompany accounts and transactions.

    On August 31, 1998, the Company acquired Compass Modeling Solutions, Inc.
(Compass) in a business combination accounted for as a pooling of interests. All
prior period consolidated financial statements presented have been restated to
include the combined results of operations, financial position and cash flows of
Compass to give effect to the combination.

FOREIGN CURRENCY TRANSLATION

    The reporting currency of the Company and its subsidiaries is the United
States dollar.

    All assets and liabilities in the balance sheets of entities whose
functional currency, which generally is the local currency, is other than the
United States dollar are translated into dollar equivalents at exchange rates as
follows:(1) asset and liability accounts at year-end rates, (2) income statement
accounts at weighted average exchange rates for the year, and (3) shareholders'
equity accounts at historical exchange rates.

    Gains or losses resulting from the above translation process are recorded in
shareholders' equity. Gains and losses resulting from foreign currency
transactions are reflected in net loss. The Company has not undertaken hedging
transactions to cover its currency translation exposure.

REVENUE RECOGNITION

    Effective July 1, 1998, the Company adopted Statement of Position 97-2
"Software Revenue Recognition" as amended by Statement of Position 98-4. The
effect of adoption did not have a material impact on the Company's results of
operations.

    The Company derives it revenues from license fees and from charges for
services, consisting of software maintenance, consulting and training services.
The Company generally recognizes software license fees when all of the following
criteria are satisfied: persuasive evidence of an arrangement exists,

                                      F-7
<PAGE>
                                   ILOG S.A.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
delivery has occurred, the vendor's fee is fixed or determinable, and
collectibility is probable. The Company recognizes revenues from software
maintenance on a straight-line basis over the period during which it provides
the maintenance. The Company recognizes consulting and training service revenues
as the services are provided. In software arrangements that include rights to
multiple software products, post-contract customer support, and/or other
services, the total arrangement fee among each deliverable is allocated based on
the relative fair value of each of the deliverables determined based on
vendor-specific objective evidence.

CONCENTRATION OF RISK

    Financial instruments that potentially subject the Company to concentrations
of credit risk consist principally of cash and cash equivalents and trade
receivables.

    The Company has cash investment policies that limit investments to
short-term low risk instruments. The Company's cash is held principally in
French francs and concentrated primarily in one major French bank.

    The Company sells its products to customers in a variety of industries in
Europe, North America and Asia. The Company performs ongoing credit evaluations
of its customers and maintains allowances for potential credit losses. To date,
such losses have been within management's expectations. The Company generally
requires no collateral, but does request letters of credit in certain
circumstances.

    Sales to one customer accounted for approximately 13% of revenues for the
year ended June 30, 1999. No single customer accounted for more than 10% of
revenues in 1997 or 1998.

CASH EQUIVALENTS

    The Company considers all highly liquid investments with insignificant
interest risk and purchased with an original maturity of three months or less to
be cash equivalents. Cash equivalents include marketable securities which are
principally money market funds certificates of deposits, and commercial paper.
The cost associated which such securities approximates fair market value.

    Under Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities", investments classified as
available-for-sale are reported at fair-value. Unrecognized gain or losses on
available-for-sale securities are included, net of tax, in equity until their
disposition. Realized gains and losses and decline in value judged to be
other-than-temporary on available-for-sale securities are included in interest
income. The cost of securities sold is based on the specific identification
method.

FAIR VALUE OF FINANCIAL INSTRUMENTS

    At June 30, 1998 and 1999, the carrying values of current financial
instruments such as cash, accounts receivable, accounts payable, other
receivables, accrued liabilities and the current portion of long-term debt
approximated their market values, based on the short-term maturities of these
instruments. At June 30, 1998 and 1999, the fair value of long-term debt was
$5,601,000 and $3,557,000 respectively, compared to book values of $5,591,000
and $3,556,000 respectively. Fair value is determined based on expected future
cash flows, discounted at market interest rates, and other appropriate valuation
methodologies.

                                      F-8
<PAGE>
                                   ILOG S.A.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NET LOSS PER SHARE

    The Company adopted Statement of Financial Accounting Standards No. 128,
"Earnings per Share" (FAS 128), beginning in 1997. FAS 128 replaced the
calculation of primary and fully diluted earning per share with basic and
diluted earnings per share. Unlike primary earnings per share, basic earnings
per share excluded any dilutive effects of options, warrants, and convertible
securities. Diluted earning per share are similar to the previously reported
fully diluted earnings per share.

PROPERTY AND EQUIPMENT

    Property and equipment is stated at cost. Depreciation and amortization are
computed using the straight-line method over the following estimated useful
lives:

<TABLE>
<S>                                               <C>
Computer equipment and purchased software.......  1-3 years
Furniture and other equipment...................  4-8 years
Leasehold improvements..........................  10 years, or lease term if less
</TABLE>

    Amortization of capitalized leased equipment is included in depreciation
expense.

    Long-lived assets are written-down when as a result of events and changes in
circumstances within the year, their recoverable value based on undiscounted
future cash flow appear to be permanently less than their carrying value.

SOFTWARE DEVELOPMENT COSTS

    In accordance with Statement of Financial Accounting Standards No. 86,
"Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise
Marketed", the Company capitalizes eligible computer software costs upon
achievement of technological feasibility subject to net realizable value
considerations. The establishment of technological feasibility and the ongoing
assessment of the recoverability of these costs require management's judgment
with respect to certain external factors, including, but not limited to,
anticipated future gross license revenues, estimated economic life and changes
in software and hardware technology. Research and development costs prior to the
establishment of technological feasibility are expensed as incurred. Because the
period between achievement of technological feasibility and the general release
of the Company's products has been of relatively short duration, costs
qualifying for capitalization were insignificant during the years ended
June 30, 1997, 1998 and 1999, and accordingly, have been charged to research and
development expenses in the accompanying statements of operations.

RESEARCH AND DEVELOPMENT GRANTS

    The Company receives financial support for various research projects from
public institutions. Such support is recorded as a reduction of research and
development expenses in the periods when the projects are undertaken, the
related expenses have been incurred and the funding has been definitively
acquired. Financial support of $388,000, $629,000 and $741,000 received in the
years ended June 30, 1997, 1998 and 1999, has been recorded as reductions to the
related research and development expenses in each such year.

                                      F-9
<PAGE>
                                   ILOG S.A.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES

    The Company uses the liability method in accounting for income taxes. Under
this method, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and liabilities
and are measured using the enacted tax rates and laws that will be in effect
when the differences are expected to reverse. A valuation allowance is
established if, based on the weight of available evidence, it is more likely
than not that some portion or all of the deferred tax asset will not be
realized.

EMPLOYEE STOCK OPTION PLANS

    The Company complies with the disclosure provisions of Financial Accounting
Standard No.123 (SFAS 123), "Accounting for Stock Based Compensation". As
permitted by SFAS 123, the Company continues to account for its employee stock
option plans in accordance with the provisions of the Accounting Principles
Board opinion No.25 (APB 25), "Accounting for Stock Issued to Employees", which
requires that compensation expense be recorded when the option exercise price is
less than the market value of the underlying share on the grant date.
Differences between the exercise price of the options and the estimated fair
value of the underlying shares are recorded as compensation expense and
amortized over the vesting period.

ADVERTISING COSTS

    The Company expenses advertising expenses as incurred. Advertising expenses
totaled $2,132,000, $2,145,000, and $2,763,000 for the years ended June 30,
1997, 1998, and 1999, respectively.

COMPREHENSIVE INCOME

    As of July 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" (FAS 130), which establishes
rules for the reporting and display of comprehensive income and its components;
however, the adoption of this Statement had no impact on the Company's results
of operations or stockholders' equity. FAS 130 requires the foreign currency
translation adjustments, which prior to adoption were reported separately in
stockholders' equity, to be included in other comprehensive income. For each of
the years presented, the Company has changed the format of its consolidated
statement of shareholders' equity to present comprehensive income.

RECENT PRONOUNCEMENTS

    In March 1998, the Accounting Standards Board issued Statement of
Position 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use" (SOP 98-1). SOP 98-1 is effective for years beginning
after December 15, 1998. SOP 98-1 will require the capitalization of certain
costs incurred after the date of adoption in connection with developing or
obtaining software for internal use. The Company does not believe that SOP 98-1
will have a significant impact on its consolidated financial position, results
of operations, or cash flows.

    In June 1998, the Financial Accounting Standard Board issued Statement
No. 133, "Accounting for Derivative Instruments and Hedging Activities". The
Statement will require the Company to recognize all derivatives on the balance
sheet at fair value. This statement is effective for fiscal years beginning
after June 15, 2000, and will be adopted by the Company for the year ending
June 30, 2001. Because of the

                                      F-10
<PAGE>
                                   ILOG S.A.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Company's minimal use of derivatives, management does not anticipate that the
adoption of the new Statement will have a significant effect on earnings or the
financial position of the Company.

    Statement of Position 98-9, "Modification of SOP 97-2, Software Revenue
Recognition, With Respect to Certain Transactions" (SOP 98-9) was issued in
December 1998 and addresses software revenue recognition as it applies to
certain multiple-element arrangements. SOP 98-9 also amends Statement of
Position 98-4, "Deferral of the Effective Date of a Provision of SOP 97-2," to
extend the deferral of application of certain passages of Statement of
Position 97-2 through fiscal years beginning on or before March 15, 1999. All
other provisions of SOP 98-9 are effective for transactions entered into in
fiscal years beginning after March 15, 1999. The Company will comply with the
requirements of SOP 98-9 as they become effective and this is not expected to
have a significant effect on the Company's revenues and earnings.

INTRODUCTION OF THE EURO

    On January 1, 1999, 11 of the 15 member countries of the European Union
established a fixed conversion rate between their sovereign currencies and
adopted the Euro as their common legal currency. As a result, the Euro now
trades on currency exchanges and is available for non-cash transactions. The
Company is modifying its business operations and systems to accommodate the Euro
conversion, and as of June 30, 1999, the cost of these modifications has not
significantly affected its operating results.

RECLASSIFICATIONS

    For comparative purposes, certain reclassifications have been made to
amounts previously reported.

2. BUSINESS ACQUISITIONS

    On August 20, 1997, the Company acquired the business of CPLEX
Optimization, Inc. (CPLEX), a software company based in Incline Village, Nevada
in exchange for $15.0 million cash, promissory notes of $5.0 million and
1,700,000 shares of the Company. The acquisition was accounted for as a purchase
with substantially all of the purchase price being allocated to in-process
technology and other intangible assets with $31.0 million thereof being charged
to operations during the year.

    The operating results of the acquired company have been included in the
accompanying consolidated financial statements from its date of acquisition.
Unaudited pro-forma information of the Company for the year ended June 30, 1997
as if the acquisition had taken place on July 1, 1996 are (in thousands, except
per share information): net sales $38,983, loss from operations $31,703, net
loss $35,546 and net loss per share $3.03. Included in the pro-forma loss from
operations is $31,045 of expensed in-process technology and written-off
intangibles acquired in the acquisition.

    Similar pro-forma information has not been presented for the years ended
June 30, 1998 and 1999 as the results of operations of CPLEX for the entire
year, or substantially the entire year, have been included in the accompanying
consolidated financial statements.

    On August 31, 1998, the Company completed the acquisition of Compass by
issuing 51,852 shares of ILOG common stock for all of the outstanding shares of
Compass.

    The merger has been accounted for as a pooling of interests. Accordingly,
all prior period consolidated financial statements have been restated to show
the results of operations, financial position and cash

                                      F-11
<PAGE>
                                   ILOG S.A.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. BUSINESS ACQUISITIONS (CONTINUED)
flows combined with Compass. Prior to the merger, Compass utilized a
December 31 fiscal year end. For purposes of the combined results of operations
for the years ended June 30, 1997 and 1998, the amounts include Compass'
historical results of operations for the four quarters ended June 30, 1997 and
1998. All reclassifications and adjustments performed to conform Compass'
accounting policies to ILOG's accounting policies were immaterial. Revenue and
net loss for Compass from July 1, 1998 to the date of acquisition were
approximately $98,000 and $(90,000), respectively. Selected financial
information for the combining entities included in the consolidated statements
of income for the two years ended June 30, 1997 and 1998 are as follows (in
thousands):

<TABLE>
<CAPTION>
                                                   COMPANY    COMPASS    COMBINED
                                                   --------   --------   --------
<S>                                                <C>        <C>        <C>
1997:
  Revenues.......................................   33,325      605       33,930
  Net income (loss)..............................   (2,623)      72       (2,551)

1998:
  Revenues.......................................   54,596      660       55,256
  Net income (loss)..............................  (28,035)      84      (27,951)
</TABLE>

    A reconciliation of the Company's historical loss per share to the loss per
share as restated due to the Compass merger is as follows:

<TABLE>
<CAPTION>
                                                                1997       1998
                                                              --------   --------
<S>                                                           <C>        <C>
Loss per share, as previously reported......................   $(0.31)    $(2.22)
Effect of Compass...........................................     0.01       0.01
                                                               ------     ------
  Restated basic and diluted loss per share.................   $(0.30)    $(2.21)
                                                               ======     ======
</TABLE>

3. CASH AND CASH EQUIVALENTS

    Cash and cash equivalents, all of which are classified as available-for-sale
securities, include:

<TABLE>
<CAPTION>
                                                                 JUNE 30,
                                                            -------------------
                                                              1998       1999
                                                            --------   --------
                                                              (IN THOUSANDS)
<S>                                                         <C>        <C>
Cash held at bank.........................................  $14,105    $ 7,054
Cash equivalents..........................................    5,996     14,478
                                                            -------    -------
Total cash and cash equivalents...........................  $20,101    $21,532
                                                            =======    =======
</TABLE>

    Gross realized gains and losses on sales of available-for-sale securities
during 1997, 1998 and 1999 were immaterial. There was no unrealized gain or loss
at June 30, 1998 or 1999.

    As of June 30, 1998 and 1999, all cash equivalents have contractual
maturities of less than three months.

                                      F-12
<PAGE>
                                   ILOG S.A.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

4. PROPERTY AND EQUIPMENT

    Property and equipment includes:

<TABLE>
<CAPTION>
                                                                   JUNE 30,
                                                              -------------------
                                                                1998       1999
                                                              --------   --------
                                                                (IN THOUSANDS)
<S>                                                           <C>        <C>
  Computer equipment and purchased software.................  $ 6,096    $ 6,660
  Furniture and other equipment.............................    2,055      2,504
  Leasehold improvements....................................      201        738
                                                              -------    -------
  Total property and equipment..............................    8,352      9,902
  Accumulated depreciation and amortization.................   (5,022)    (5,646)
                                                              -------    -------
  Property and equipment, net...............................  $ 3,330    $ 4,256
                                                              =======    =======
</TABLE>

    Equipment purchased under capital leases in the years ended June 30, 1998,
and 1999 totaled $510,000 and $551,000, respectively. The cost of such equipment
included in property and equipment at June 30, 1998 and 1999 totaled $2,645,000,
and $2,633,000, respectively. Accumulated amortization of this equipment totaled
$1,799,000 and $1,862,000 at June 30, 1998 and 1999, respectively.

5. DEBT

    The following table presents a summary of the Company's debt:

<TABLE>
<CAPTION>
                                                                   JUNE 30,
                                                              -------------------
                                                                1998       1999
                                                              --------   --------
                                                                (IN THOUSANDS)
<S>                                                           <C>        <C>
Short-term debt and current portion of long-term debt:
  Lines of credit...........................................   $1,300     $1,100
  Current portion of interest-free loans from French
    government agencies, denominated in French francs.......      331        340
  Current portion of capitalized lease obligations..........      424        424
  Current portion of notes payable to stockholders..........       --      1,667
                                                               ------     ------
                                                               $2,055     $3,531
                                                               ======     ======
Long-term debt:
  Long-term portion of interest-free loans from French
    government agencies, denominated in French francs.......   $  591     $  223
  Long-term portion of capitalized lease obligations........      389        323
  Notes payable to stockholders.............................    5,000      3,333
                                                               ------     ------
                                                               $5,980     $3,879
                                                               ======     ======
</TABLE>

    The Company has lines of credit with a French bank allowing for a maximum
borrowing of FF 20,000,000 (approximately $3,150,000) at June 30, 1999 and which
expire on May 1, 2000. The lines of credit bear interest at the rate of EURIBOR
(offer rate determined by the Banking Federation of the European Union) plus
1.5% which corresponded to effective rates of 5.1% and 4.1% at June 30, 1998 and
1999, respectively. The amounts outstanding under these lines at June 30, 1999
were denominated in Euros, French francs, U.S. dollars, pounds sterling,
Singapore dollars and Spanish pesetas.

                                      F-13
<PAGE>
                                   ILOG S.A.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

5. DEBT (CONTINUED)
    The Company has received interest-free loans from Anvar, an agency of the
French government that provides financing to French companies for research and
development, and the French Ministry of Trade and Industry. Repayment of the
loans, except for a required minimum payment of $340,000 which is due in March
2000, is contingent upon the technical and commercial success of the research
programs to which they relate.

    Promissory notes for a total of $5,000,000 were issued on August 20, 1997,
in connection with the CPLEX acquisition. The note holders became stockholders
and directors of the Company following the acquisition. The notes bear interest
at a fixed rate of 6.39%. Repayment is in three annual equal installments
commencing on August 20, 1999.

    Future payments of long-term debt, excluding capitalized lease obligations,
for the years ending June 30 are as follows (in thousands):

<TABLE>
<S>                                                           <C>
2000........................................................   $2,007
2001........................................................    1,863
2002........................................................    1,667
2003........................................................       26
                                                               ------
                                                               $5,563
                                                               ======
</TABLE>

    Future minimum lease payments under capitalized lease obligations due for
the years ending June 30 are as follows (in thousands):

<TABLE>
<S>                                                           <C>
2000........................................................   $ 450
2001........................................................     265
2002........................................................      61
2003........................................................       3
2004........................................................       2
                                                               -----
Total minimum lease payments................................     781
Less amount representing interest...........................     (34)
                                                               -----
Present value of net minimum lease payments.................     747
Less current portion........................................    (424)
                                                               -----
Long-term portion...........................................   $ 323
                                                               =====
</TABLE>

    Interest paid in the years ended June 30, 1997, 1998 and 1999 totaled
$48,000, $51,000 and $47,000 respectively.

6. SHAREHOLDERS' EQUITY

GENERAL

    At June 30 1999, the issued and outstanding share capital of the Company
consisted of 14,096,500 shares with a nominal value of FF 4.00.

    In August 1998, 51,852 shares were issued as part of the Compass
acquisition. In June 1998, 685,064 shares were issued for cash to a customer at
$15.31 per share, resulting in total proceeds of approximately

                                      F-14
<PAGE>
                                   ILOG S.A.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

6. SHAREHOLDERS' EQUITY (CONTINUED)
$10,500,000. In August 1997, 1,700,000 shares were issued as part of the
purchase consideration in the CPLEX acquisition. In February 1997, the Company
issued 2,500,000 shares for cash at $11.00 per share in connection with its
initial public offering in the United States.

PREEMPTIVE SUBSCRIPTION RIGHTS

    Shareholders have preemptive rights to subscribe on a pro rata basis for
additional shares issued by the Company for cash. Shareholders may waive such
preemptive subscription rights at an extraordinary general meeting of
shareholders under certain circumstances. Preemptive subscription rights, if not
previously waived, are transferable during the subscription period relating to a
particular offer of shares.

DIVIDEND RIGHTS

    Dividends may be distributed from the statutory retained earnings, subject
to the requirements of French law and the Company's statutes. The Company has
not distributed any dividends since its inception. The accumulated deficit for
statutory purposes totaled approximately $4,470,000 at June 30, 1999. Dividend
distributions, if any, will be made in French francs.

STOCK OPTIONS

    Stock options have been granted to employees under the Company's 1989, 1992,
1994, 1996, and 1998 stock option plans. Generally, options vest over four years
from, and expire between five to ten years after, the date of hire or grant.
During the years ended June 30, 1997, 1998 and 1999, the Company recorded
compensation expense related to options of $95,000, $117,000 and $102,000,
respectively. The Company will record an aggregate compensation expense of
approximately $70,000 over the related vesting period of the options in future
years.

                                      F-15
<PAGE>
                                   ILOG S.A.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

6. SHAREHOLDERS' EQUITY (CONTINUED)
    A summary of activity under the option plans is as follows:

<TABLE>
<CAPTION>
                                                                           WEIGHTED            WEIGHTED
                                            SHARES         OPTIONS          AVERAGE             AVERAGE
                                         RESERVED FOR    GRANTED AND   EXERCISE PRICE IN   EXERCISE PRICE IN
                                         FUTURE GRANTS   OUTSTANDING     FRENCH FRANCS       U.S. DOLLARS
                                         -------------   -----------   -----------------   -----------------
<S>                                      <C>             <C>           <C>                 <C>
Balances at June 30, 1996..............      646,670        973,391          13.13               2.62
Options authorized.....................      200,000             --             --                 --
Options granted........................     (397,385)       397,385          31.60               5.80
Options exercised......................           --        (44,587)         13.63               2.50
Options canceled.......................       42,185        (42,185)         22.54               4.14
                                          ----------      ---------          -----               ----
Balances at June 30, 1997..............      491,470      1,284,004          18.88               3.46
Options authorized.....................    2,100,000             --             --                 --
Options granted........................   (2,195,789)     2,195,789          45.58               7.60
Options exercised......................           --       (336,471)         12.01               2.00
Options canceled.......................      161,185       (161,185)         25.02               4.17
                                          ----------      ---------          -----               ----
Balances at June 30, 1998..............      556,866      2,982,137          54.18               9.03
Options authorized.....................    1,000,000             --             --                 --
Options granted........................   (1,205,977)     1,205,977          47.57               8.08
Options exercised......................           --       (150,106)         30.86               5.24
Options canceled.......................      103,552       (103,552)         47.95               8.15
                                          ----------      ---------          -----               ----
Balances at June 30, 1999..............      454,441      3,934,456          45.54               7.74
                                          ==========      =========          =====               ====
</TABLE>

    At June 30, 1997, 1998 and 1999, 335,514, 361,322, and 1,059,045
respectively, of the outstanding options were exercisable at weighted average
exercise prices of FF10.20 ($1.87), FF18.37 ($3.06), and FF31.85 ($5.41)
respectively. Exercise prices for options outstanding as of June 30, 1999 ranged
from FF9.00 to FF88.79 ($1.42 to $13.98). The weighted average remaining
contractual life of those options is 8.2 years.

    As allowed under SFAS 123, the Company has elected to continue using APB 25
in accounting for its employee stock options. Under APB 25, when the exercise
price of the Company's employee stock options is less than the market price of
the underlying shares at the date of grant, compensation expense is recognized.

    Pro forma information regarding net income and earnings per share is
required by SFAS 123, and has been determined as if Company had accounted for
its employee stock options under the fair value method of SFAS 123. The fair
value for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following average assumptions for 1997, 1998 and
1999, respectively: Risk-free interest rates of 4%, dividend yield of 0%;
volatility factors of the expected market price of the Company's ordinary shares
of 0.47, 0.98, and 0.93, for 1997, 1998, and 1999; and a weighted-average
expected life of the option of 5 years.

    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, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different form those of traded options, and because the changes in the
subjective input assumptions can materially affect the fair value estimate, in

                                      F-16
<PAGE>
                                   ILOG S.A.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

6. SHAREHOLDERS' EQUITY (CONTINUED)
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options

    For purposes of pro forma disclosures, the estimated fair value of the
options is expensed over the vesting period of the options. The Company's pro
forma information follows (in thousands except for loss per share information):

<TABLE>
<CAPTION>
                                                     1997       1998       1999
                                                   --------   --------   --------
<S>                                                <C>        <C>        <C>
Pro forma net loss...............................  $(3,356)   $(30,956)  $(8,273)
Pro forma loss per share.........................  $ (0.40)   $  (2.44)  $ (0.59)
</TABLE>

    The weighted-average value of options granted during 1997, 1998 and 1999 was
as follows:

<TABLE>
<CAPTION>
                                                     1997       1998       1999
                                                   --------   --------   --------
<S>                                                <C>        <C>        <C>
Options whose exercise price equaled market price
  of the underlying shares on the grant date.....  $  4.95    $   5.48   $  6.16
Options whose exercise price was more than the
  market price of the underlying shares on the
  grant date.....................................       --    $   5.71        --
Options whose exercise price was less than the
  market price of the underlying shares on the
  grant date.....................................  $  3.30    $   7.21   $  6.08
</TABLE>

EMPLOYEE STOCK PURCHASE PLAN

    In March 1997, the Company implemented the 1996 International Employee Stock
Purchase Plan and the 1996 French Employee Savings Plan, as authorized by the
shareholders in October 1996. Under provisions of the Company's employee stock
purchase plans, employees can purchase the Company's common stock at a specified
price through payroll deductions during an offering period. Up to 200,000 shares
per Plan have been reserved for issuance to employees pursuant to the terms of
these Plans, of which 153,865 were issued under the Plans during the year ended
June 30, 1999.

7. INCOME TAXES

    For financial reporting purposes, loss before income taxes includes the
following components:

<TABLE>
<CAPTION>
                                                        YEAR ENDED JUNE 30,
                                                   ------------------------------
                                                     1997       1998       1999
                                                   --------   --------   --------
                                                           (IN THOUSANDS)
<S>                                                <C>        <C>        <C>
France...........................................  $   952    $(27,556)  $   748
United States....................................   (2,550)       (514)   (3,784)
Rest of the world................................     (953)        119        (4)
                                                   -------    --------   -------
  Total..........................................  $(2,551)   $(27,951)  $(3,040)
                                                   =======    ========   =======
</TABLE>

                                      F-17
<PAGE>
                                   ILOG S.A.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

7. INCOME TAXES (CONTINUED)
    A reconciliation of income taxes computed at the French statutory rate
(36.7% in 1997, and 41.7% in 1998 and 1999) to the income tax benefit is as
follows:

<TABLE>
<CAPTION>
                                                        YEAR ENDED JUNE 30,
                                                   ------------------------------
                                                     1997       1998       1999
                                                   --------   --------   --------
                                                           (IN THOUSANDS)
<S>                                                <C>        <C>        <C>
Income tax expense (benefit) computed at the
  French statutory rate..........................  $  (936)   $(11,644)  $(1,266)
Operating losses not utilized....................      936      11,504     1,396
Use of operating losses whose benefits were not
  previously recognized..........................       --         140        --
                                                   -------    --------   -------
  Total income taxes.............................  $    --    $     --   $   130
                                                   =======    ========   =======
</TABLE>

    Significant components of the Company's deferred tax assets and liabilities
consist of the following:

<TABLE>
<CAPTION>
                                                       YEAR ENDED JUNE 30,
                                                  ------------------------------
                                                    1997       1998       1999
                                                  --------   --------   --------
                                                          (IN THOUSANDS)
<S>                                               <C>        <C>        <C>
Deferred tax assets:
  Net operating loss carryforwards..............  $ 4,300    $  5,414   $  5,397
  Acquired intangibles capitalized and amortized
    for tax purposes............................       --      24,772     19,517
  Provisions and accruals not currently
    deductible..................................      116         208        419
  Other.........................................      501         544        665
                                                  -------    --------   --------
                                                    4,917      30,938     25,998
Valuation allowance.............................   (4,917)    (30,938)   (25,998)
                                                  -------    --------   --------
  Net deferred taxes............................  $    --    $     --   $     --
                                                  =======    ========   ========
</TABLE>

    Due to its history of losses, the Company does not believe that sufficient
objective, positive evidence exists to conclude that recoverability of its net
deferred tax assets is more likely than not. Consequently, the Company has
provided valuation allowances covering 100% of its net deferred tax assets.

    As of June 30, 1999 the Company had net operating loss carryforwards for
French tax purposes of approximately $7,892,000 which have no expiration date.
The Company also has U.S. net operating loss carryforwards for federal and state
tax purposes of approximately $9,600,000 and $3,300,000, respectively, that
expire in the years 1999 through 2019. The Company has U.K. net operating losses
of approximately $3,128,000 which have no expiration date. The Company also has
net operating loss carryforwards totaling approximately $452,000 in various
other jurisdictions.

    The utilization of these net operating loss carryforwards is limited to the
future operations of the Company in the tax jurisdictions in which such
carryforwards arose.

8. EMPLOYEE RETIREMENT PLANS

    The Company contributes to pensions for personnel in France in accordance
with French law by contributing based on salaries to the relevant government
agencies. There exists no actuarial liability in

                                      F-18
<PAGE>
                                   ILOG S.A.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

8. EMPLOYEE RETIREMENT PLANS (CONTINUED)
connection with these plans. French law also requires payment of a lump sum
retirement indemnity to employees based upon years of service and compensation
at retirement. Benefits do not vest prior to retirement. The Company's
obligation at June 30, 1998 and 1999 was immaterial.

9. OPERATING LEASE COMMITMENTS

    The Company leases its facilities and certain equipment under operating
leases that expire through 2007. Future minimum lease payments under operating
leases due for the fiscal years ending June 30 are as follows (in thousands):

<TABLE>
<S>                                                           <C>
2000........................................................   $3,027
2001........................................................    2,958
2002........................................................    2,794
2003........................................................    2,448
2004 and thereafter.........................................    7,016
</TABLE>

    Rental expense for the years ended June 30, 1997, 1998 and 1999 was
approximately $1,329,000, $1,964,000 and $2,496,000, respectively.

10. OTHER INCOME (EXPENSE)

    During the year ended June 30, 1997, the Company received a $1,096,000 grant
from an agency of the French government related to the Company's establishment
of subsidiaries outside of France which has been recorded in Other income
(expense).

                                      F-19
<PAGE>
                                   ILOG S.A.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

11. SEGMENT AND GEOGRAPHIC INFORMATION

    SEGMENT:  The Company and its subsidiaries operate in one segment: the
development, marketing and support of advanced software components for certain
user interface, resource optimization and data services functions that are
fundamental to the development of business applications. The Company makes key
decisions and evaluates performance of the Company based on this single segment.

    GEOGRAPHY:  Information about the Company's operations by geographic area is
as follows (in thousands):

<TABLE>
<CAPTION>
                                                                            EUROPE,
                                                      UNITED               EXCLUDING
                                           FRANCE     STATES      ASIA      FRANCE     ELIMINATION   CONSOLIDATED
                                          --------   --------   --------   ---------   -----------   ------------
<S>                                       <C>        <C>        <C>        <C>         <C>           <C>
1997
Net revenues:
  Customers.............................   11,996     10,487     3,266       8,181            --         33,930
  Intercompany..........................    4,371         --        --          --        (4,371)            --
                                          -------     ------     -----      ------       -------        -------
                                           16,367     10,487     3,266       8,181        (4,371)        33,930
                                          =======     ======     =====      ======       =======        =======
  Operating loss........................     (374)    (2,417)     (797)        (87)           --         (3,675)
  Identifiable assets...................   46,487      4,703     2,022       3,261       (14,990)        41,483
  Capital expenditures..................      107        451       486          89            --          1,133
  Depreciation and amortization.........      242        312       111         197            --            862

1998
Net revenues:
  Customers.............................   17,191     22,312     4,985      10,768            --         55,256
  Intercompany..........................    7,437         --        --          --        (7,437)            --
                                          -------     ------     -----      ------       -------        -------
                                           24,628     22,312     4,985      10,768        (7,437)        55,256
                                          =======     ======     =====      ======       =======        =======
  Operating loss........................  (25,579)      (440)      (58)     (1,753)           --        (27,830)
  Identifiable assets...................   47,808      9,566     2,884       5,273       (21,882)        43,649
  Capital expenditures..................      270        889       232         479            --          1,870
  Depreciation and amortization.........      392        694       140         219            --          1,445

1999
Net revenues:
  Customers.............................   20,956     22,440     6,680      13,647            --         63,723
  Intercompany..........................    8,831         --        --          --        (8,831)            --
                                          -------     ------     -----      ------       -------        -------
                                           29,787     22,440     6,680      13,647        (8,831)        63,723
                                          =======     ======     =====      ======       =======        =======
  Operating income (loss)...............      216     (4,003)      644         (11)           --         (3,154)
  Identifiable assets...................   49,836      9,400     4,284       6,282       (24,796)        45,006
  Capital expenditures..................      549      1,453       164         258            --          2,424
  Depreciation and amortization.........      758        672       169         261            --          1,860
</TABLE>

    Intercompany sales between geographic regions are accounted for at third
party selling price less a discount.

                                      F-20
<PAGE>
                 SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS

                                   ILOG S.A.

<TABLE>
<CAPTION>
             COL. A                   COL. B                 COL. C                  COL. D         COL. E
---------------------------------  ------------   -----------------------------   ------------   -------------
                                                           ADDITIONAL
                                                  -----------------------------
                                    BALANCE AT    CHARGED TO      CHARGED TO
                                   BEGINNING OF   COSTS AND    OTHER ACCOUNTS--   DEDUCTIONS--    BALANCE AT
           DESCRIPTION                PERIOD       EXPENSES        DESCRIBE         DESCRIBE     END OF PERIOD
---------------------------------  ------------   ----------   ----------------   ------------   -------------
<S>                                <C>            <C>          <C>                <C>            <C>
YEAR ENDED JUNE 30, 1997
Reserves and allowances deducted
  from asset accounts:
Allowance for doubtful
  accounts.......................    $290,000      $ 27,000           --            $ 44,000       $273,000

YEAR ENDED JUNE 30, 1998
Reserves and allowances deducted
  from asset accounts:
Allowance for doubtful
  accounts.......................    $273,000      $302,000           --            $ 49,000       $526,000

YEAR ENDED JUNE 30, 1999
Reserves and allowances deducted
  from asset accounts:
Allowance for doubtful
  accounts.......................    $526,000      $596,000           --            $181,000       $941,000
</TABLE>

                                      F-21