<PAGE>
                                EXPLANATORY NOTE


This Amendment No. 1 to Form 20-F/A to the Annual Report on Form 20-F for the
fiscal year ended June 30, 2001 is being filed to amend and restate the entire
Form 20-F which, as originally filed on November 14, 2001, contained duplicate,
missing, and misplaced pages as a result of filing agent technical errors. In
accordance with Rule 12b-15 promulgated under the Securities Exchange Act of
1934, as amended, the text of the Form 20-F is amended and restated in its
entirety as set forth in this Amendment No. 1.
<PAGE>

   AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 13, 2001
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

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

                                  FORM 20-F/A
                             ---------------------

[ ]   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, 2001

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

                        COMMISSION FILE NUMBER: 0-29144

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

                                   ILOG S.A.
             (Exact name of Registrant as specified in its charter)

<Table>
<Caption>
                     NOT APPLICABLE                                        THE REPUBLIC OF FRANCE
<S>                                                       <C>
     (Translation of Registrant's Name into English)           (Jurisdiction of incorporation or organization)
</Table>

                    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:

<Table>
<Caption>
             TITLE OF EACH CLASS:                NAME OF EACH EXCHANGE ON WHICH REGISTERED:
             --------------------                ------------------------------------------
<S>                                            <C>
American Depositary Shares, each representing              Nasdaq National Market
 one Ordinary Share, nominal value E0.61 per
                    share

Ordinary Shares, nominal value E0.61 per share            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 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, 2001 was 16,152,850 Ordinary Shares of E0.61
nominal value, including 4,874,638 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.  [X] Yes  [ ] No

     Indicate by check mark which financial statement item the registrant has
elected to follow.  [ ] Item 17   [X] Item 18

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>

                               TABLE OF CONTENTS

<Table>
<Caption>
                                                                        PAGE
                                                                        ----
<C>       <S>                                                           <C>
                                INTRODUCTION
          Cautionary Statement Regarding Forward-Looking Statements...    2
          Presentation of Information.................................    3
          American Depositary Shares..................................    3
          Exchange Rates..............................................    3

                                   PART I
 ITEM 1.  Identity of Directors, Senior Management and Advisers.......    4
 ITEM 2.  Offer Statistics and Expected Timetable.....................    4
 ITEM 3.  Key Information
      A.  Selected Financial Data.....................................    4
      B.  Capitalization and Indebtedness.............................    5
      C.  Reasons for the Offer and Use of Proceeds...................    5
      D.  Risk Factors................................................    5
 ITEM 4.  Information on the Company
      A.  History and Development of ILOG.............................   14
      B.  Business Overview...........................................   14
      C.  Organizational Structure....................................   26
      D.  Property, Plant and Equipment...............................   26
 ITEM 5.  Operating and Financial Review and Prospects
      A.  Operating Results...........................................   26
      B.  Liquidity and Capital Resources.............................   31
      C.  Research and Development, Patents and Licenses..............   31
      D.  Trend Information...........................................   32
 ITEM 6.  Directors, Senior Management and Employees
      A.  Directors and Senior Management.............................   33
      B.  Compensation................................................   37
      C.  Board Practices.............................................   37
      D.  Employees...................................................   38
      E.  Share Ownership.............................................   39
 ITEM 7.  Major Shareholders and Related Party Transactions
      A.  Major Shareholders..........................................   42
      B.  Related Party Transactions..................................   43
      C.  Interests of Experts and Counsel............................   43
 ITEM 8.  Financial Information
      A.  Consolidated Statements and Other Financial Information.....   43
      B.  Significant Changes.........................................   43
 ITEM 9.  The Offer and Listing
      A.  Offer and Listing Details...................................   44
      B.  Plan of Distribution........................................   45
      C.  Markets.....................................................   45
      D.  Selling Shareholders........................................   47
</Table>

                                        1
<PAGE>

<Table>
<Caption>
                                                                        PAGE
                                                                        ----
<C>       <S>                                                           <C>
      E.  Dilution....................................................   47
      F.  Expenses of the Issue.......................................   47
ITEM 10.  Additional Information
      A.  Share Capital...............................................   47
      B.  Memorandum and Articles of Association......................   47
      C.  Material Contracts..........................................   56
      D.  Exchange Controls...........................................   56
      E.  Taxation....................................................   56
      F.  Dividends and Paying Agents.................................   60
      G.  Statement by Experts........................................   61
      H.  Documents on Display........................................   61
      I.  Subsidiary Information......................................   61
ITEM 11.  Quantitative and Qualitative Disclosures About Market
          Risk........................................................   62
ITEM 12.  Description of Securities Other Than Equity Securities......   62

                                  PART II
ITEM 13.  Defaults, Dividend Arrearages and Delinquencies.............   62
ITEM 14.  Material Modification to the Rights of Security Holders and
          Use of Proceeds.............................................   62
ITEM 15.  [Reserved]..................................................   62
ITEM 16.  [Reserved]..................................................   62

                                  PART III
ITEM 17.  Financial Statements........................................   62
ITEM 18.  Financial Statements........................................   62
ITEM 19.  Exhibits....................................................   62
</Table>

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

                                  INTRODUCTION

           CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

     In addition to historical information, this Annual Report on Form 20-F
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. These forward-looking statements 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 "Item 3. Key Information -- Risk Factors," "Item 4. Information
on the Company" and "Item 5. Operating and Financial Review and Prospects."
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 of this Annual Report
on Form 20-F. 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.
                                        2
<PAGE>

                          PRESENTATION OF INFORMATION

     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.

                           AMERICAN DEPOSITARY SHARES

     Pursuant to a program sponsored by the Company, Ordinary Shares of the
Company, or the Shares, are traded in the United States in the form of American
Depositary Shares, or ADSs, each ADS representing one Share placed on deposit
with JPMorgan Chase Bank, as 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. Shares may be deposited with the Paris
office of BNP Paribas, as Custodian, or any successor or successors to such
Custodian under the terms of the Deposit Agreement, dated as of February 13,
1997 and amended on August 13, 1999, among the Company, the Depositary and the
holders from time to time of ADSs. 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, 1999.

                                 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. 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 low, high, average and end of period noon buying rates in New
York City for cable transfers in Euros as certified for customs purposes by the
Federal Reserve Bank of New York, or Noon Buying Rate, for the Euro against the
dollar. These 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,                       LOW    HIGH   RATE(1)   PERIOD
                    -------------------                       ----   ----   -------   ------
                                                                    (DOLLARS PER EURO)
<S>                                                           <C>    <C>    <C>       <C>
1997........................................................  1.12   1.31    1.21      1.12
1998........................................................  1.06   1.14    1.09      1.08
1999........................................................  1.03   1.22    1.11      1.03
2000........................................................  0.89   1.09    1.00      0.95
2001........................................................  0.84   1.09    0.96      0.85
</Table>

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

(1) The average of the Noon Buying Rates on the last business day of each month
    during the year. Through December 31, 1998, the above rates reflect those of
    the French Franc converted into Euros at the official fixed conversion rate
    of one Euro = 6.55957 French francs.

     For information regarding the effects of currency fluctuations on the
Company's results, see "Item 5. Operating and Financial Review and Prospects",
and "Item 11. Quantitative and Qualitative Disclosures about Market Risk."
                             ---------------------

                                        3
<PAGE>

                                     PART I

ITEM 1.  IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

     Not Applicable.

ITEM 2.  OFFER STATISTICS AND EXPECTED TIMETABLE

     Not Applicable.

ITEM 3.  KEY INFORMATION

A.  SELECTED FINANCIAL DATA

     The following selected financial data should be read in conjunction with
"Item 5. Operating and Financial Review and Prospects," 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, 2001,
2000 and 1999 and the balance sheet data at June 30, 2001 and 2000 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, 1998 and 1997 and balance sheet data at June
30, 1999, 1998 and 1997 are derived from audited financial statements not
included herein.

<Table>
<Caption>
                                                                      YEAR ENDED JUNE 30,
                                                        ------------------------------------------------
                                                         2001      2000      1999       1998      1997
                                                        -------   -------   -------   --------   -------
                                                             (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                     <C>       <C>       <C>       <C>        <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
    License fees......................................  $52,325   $46,776   $38,657   $ 34,652   $23,053
    Services..........................................   26,831    24,519    25,066     20,604    10,877
                                                        -------   -------   -------   --------   -------
         Total revenues...............................   79,156    71,295    63,723     55,256    33,930
Cost of revenues:
    License fees......................................    1,258     1,065     1,149      1,183       917
    Services..........................................   12,709    13,090    14,429     10,867     6,015
                                                        -------   -------   -------   --------   -------
         Total cost of revenues.......................   13,967    14,155    15,578     12,050     6,932
                                                        -------   -------   -------   --------   -------
Gross profit..........................................   65,189    57,140    48,145     43,206    26,998
                                                        -------   -------   -------   --------   -------
Operating expenses:
    Marketing and selling.............................   40,958    35,625    31,531     27,290    21,724
    Research and development..........................   14,804    12,195     9,835      6,575     4,566
    General and administrative........................    8,689     8,115     7,435      6,126     4,383
    Nouveau marche expenses...........................       --        --       466         --        --
    Write-off of acquired intangible assets...........       20       253     2,032     31,045        --
                                                        -------   -------   -------   --------   -------
         Total operating expenses.....................   64,471    56,188    51,299     71,036    30,673
                                                        -------   -------   -------   --------   -------
Income (loss) from operations.........................      718       952    (3,154)   (27,830)   (3,675)
Net interest income (expense) and other...............      998       794       114       (121)    1,124
                                                        -------   -------   -------   --------   -------
Income (loss) before income taxes.....................    1,716     1,746    (3,040)   (27,951)   (2,551)
Income taxes..........................................     (789)     (566)     (130)        --        --
                                                        -------   -------   -------   --------   -------
Net income (loss).....................................  $   927   $ 1,180   $(3,170)  $(27,951)  $(2,551)
                                                        =======   =======   =======   ========   =======
Net income (loss) per share
    -- basic..........................................  $  0.06   $  0.08   $ (0.23)  $  (2.21)  $ (0.30)
    -- diluted........................................  $  0.05      0.07     (0.23)     (2.21)    (0.30)
                                                        =======   =======   =======   ========   =======
Shares and share equivalents used in per share
  calculations(1):
    -- basic..........................................   15,765    14,628    13,999     12,665     8,428
    -- diluted........................................   17,547    17,855    13,999     12,665     8,428
                                                        =======   =======   =======   ========   =======
</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.

                                        4
<PAGE>

<Table>
<Caption>
                                                                  JUNE 30,
                                               -----------------------------------------------
                                                2001      2000      1999      1998      1997
                                               -------   -------   -------   -------   -------
                                                               (IN THOUSANDS)
<S>                                            <C>       <C>       <C>       <C>       <C>
BALANCE SHEET DATA:
Cash and cash equivalents....................  $20,870   $20,316   $21,532   $20,101   $26,044
Working capital..............................   20,894    21,793    17,375    21,929    25,122
Total assets.................................   55,377    52,737    45,006    43,649    41,483
Long-term obligations........................      262     1,969     3,879     5,979     1,134
Shareholders' equity.........................   27,528    24,082    18,025    19,799    27,057
</Table>

     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.

B.  CAPITALIZATION AND INDEBTEDNESS

     Not Applicable.

C.  REASONS FOR THE OFFER AND USE OF PROCEEDS

     Not Applicable.

D.  RISK FACTORS

     In addition to the other information contained and incorporated by
reference in this Annual Report on Form 20-F, the following risk factors should
be carefully considered in evaluating the Company and its business:

  THE COMPANY HAS INCURRED LOSSES IN THE PAST AND, AS OF JUNE 30, HAD A
  SUBSTANTIAL ACCUMULATED DEFICIT. THE COMPANY'S FUTURE OPERATING RESULTS ARE
  UNCERTAIN AND THERE CAN BE NO ASSURANCE THAT THE COMPANY WILL BE PROFITABLE IN
  THE FUTURE.

     The Company has incurred losses in three of the last five fiscal years. As
of June 30, 2001, the Company had an accumulated deficit of approximately $40.6
million. There can be no assurance that the Company will be profitable on a
quarterly or annual basis in the future. The Company's operating history and the
relative immaturity of its market, together with the factors described in these
risk factors under "The Company's operating results have fluctuated
significantly in the past and may continue to do so in the future," and "The
Company's operating results are subject to seasonal fluctuations," 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 years combined with a slowing-down in
the rate of growth. 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, and the ability of the Company to develop and
market new products and product enhancements and to control costs, as well as
general economic conditions.

  THE COMPANY'S OPERATING RESULTS HAVE FLUCTUATED SIGNIFICANTLY IN THE PAST AND
  MAY CONTINUE TO DO SO IN THE FUTURE.

     The Company's operating results have varied significantly in the past, 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 and/or royalty payments 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

                                        5
<PAGE>

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. These factors and
others could cause the Company's operating results to vary significantly in the
future. Moreover, acts of terrorism and/or war and declines in general economic
conditions, 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 and/or royalties in any quarter are substantially dependent on
orders booked and shipped in that quarter and on sales by the Company's ISVs,
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 2000 and 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 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 and/or royalties 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
or its rate of revenue growth on a quarterly or annual basis.

  THE UNCERTAIN OUTCOME OF SALES EFFORTS AND THE EXTENDED LENGTH OF THE
  COMPANY'S SALES CYCLE COULD RESULT IN SUBSTANTIAL FLUCTUATIONS IN OPERATING
  RESULTS.

     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 and/or royalty receipts 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 ISVs and

                                        6
<PAGE>

distributors and the possibility of cancellation of projects by customers. The
uncertain outcome of the Company's and/or ISV's sales efforts and the length of
its sales cycles could result in substantial fluctuations in operating results.
If sales and/or royalties 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 or
royalties, 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.

  THERE CAN BE NO ASSURANCES THAT THE COMPANY'S SALES AND MARKETING FORCE WILL
  GENERATE ADEQUATE REVENUES OR BE ABLE TO COMPETE SUCCESSFULLY.

     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 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.

  THE INDUSTRY IN WHICH THE COMPANY OPERATES IS CHARACTERIZED BY INTENSE
  COMPETITION. IF THE COMPANY IS UNABLE TO COMPETE SUCCESSFULLY AGAINST NEW OR
  FUTURE COMPETITORS, ITS OPERATING RESULTS WOULD BE NEGATIVELY AFFECTED.

     The Company's present direct competitors include a number of private and
public companies such as Computer Associates, Cosytech, Dash Associates Limited,
HNC Software, Inc., IBM, Loox Software, Selectica, Inc., SL Corporation, and
Trilogy Software, Inc. 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.
                                        7
<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, these 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.

  IF THE COMPANY IS UNABLE TO MEET EVOLVING MARKET CONDITIONS OR CUSTOMER
  REQUIREMENTS, ITS BUSINESS, OPERATING RESULTS AND FINANCIAL CONDITION WOULD BE
  MATERIALLY ADVERSELY AFFECTED.

     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.

  ERRORS IN THE COMPANY'S SOFTWARE PRODUCTS COULD RESULT IN SIGNIFICANT LOSSES
  TO THE COMPANY OR ITS CUSTOMERS AND COULD RESULT IN PRODUCT LIABILITY CLAIMS
  AGAINST THE COMPANY.

     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 these errors could result in
significant losses to the Company or a customer, especially if these 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.

                                        8
<PAGE>

     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 these 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.

  PATENT INFRINGEMENT DISPUTES COULD RESULT IN SIGNIFICANT EXPENSE TO THE
  COMPANY AND DIVERT TECHNICAL AND MANAGEMENT PERSONNEL.

     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.

  AS A RESULT OF ITS GLOBAL OPERATIONS, THE COMPANY IS EXPOSED TO NUMEROUS
  RISKS, INCLUDING LOGISTICAL DIFFICULTIES, CULTURAL DIFFERENCES, PRODUCT
  LOCALIZATION COSTS, IMPORT AND TARIFF RESTRICTIONS, ADVERSE FOREIGN TAX
  CONSEQUENCES AND FLUCTUATIONS IN CURRENCIES.

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

                                        9
<PAGE>

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.

  CURRENCY FLUCTUATIONS COULD RESULT IN LOWER PROFITABILITY FOR THE COMPANY IN
  U.S. DOLLAR TERMS AND THE REPORTING OF EXCHANGE GAINS OR LOSSES.

     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. Approximately 30% of the Company's sales and 50% of the Company's
expenses in 2001 were denominated in Euros or Euro equivalent currencies, with
the remainder in U.S. dollars and, to a lesser extent, other currencies. An
increase in the value of the Euro relative to the U.S. dollar will result in
lower profitability in U.S. dollar terms. 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.

  THE LOSS OF SERVICES OF ANY KEY PERSONNEL, OR THE INABILITY OF THE COMPANY TO
  SUCCESSFULLY RECRUIT, COULD HAVE A MATERIAL ADVERSE IMPACT ON THE COMPANY'S
  BUSINESS, OPERATING RESULTS OR FINANCIAL CONDITION.

     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. 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.

  THE COMPANY IS HEAVILY DEPENDENT UPON ITS PROPRIETARY TECHNOLOGY. THERE CAN BE
  NO ASSURANCE THAT THE COMPANY'S MEANS OF PROTECTING ITS PROPRIETARY RIGHTS
  WILL BE ADEQUATE OR THAT ITS COMPETITORS WILL NOT DEVELOP SIMILAR TECHNOLOGY.

     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

                                        10
<PAGE>

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.

  THE COMPANY'S ADSS AND SHARES HAVE EXPERIENCED SIGNIFICANT FLUCTUATIONS IN THE
  PAST. THE FLUCTUATIONS HAVE ADVERSELY AFFECTED THE MARKET PRICE OF THE ADSS
  AND SHARES AND MAY CONTINUE TO DO SO IN THE FUTURE.

     The market price of the Company's ADSs and the Shares has experienced
significant fluctuations 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 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.

  LIMITATIONS IMPOSED BY FRENCH LAW MAY PREVENT OR DELAY THE ABILITY OF THE
  COMPANY TO TAKE CORPORATE ACTIONS THAT REQUIRE SHAREHOLDER APPROVAL.

     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 voting
Shares upon first notice and one-quarter of the voting 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 such
as the approval of acquisitions, mergers and/or corporate reorganizations that
requires shareholder approval.

                                        11
<PAGE>

  THE COMPANY GENERATES ITS REVENUES FROM A CONCENTRATED GROUP OF PRODUCT
  FAMILIES. ANY FACTOR ADVERSELY AFFECTING ANY OF THESE PRODUCT FAMILIES COULD
  HAVE A MATERIAL ADVERSE EFFECT ON THE COMPANY.

     The Company generates its license fees from the ILOG optimization (49%),
business rules (20%) and visualization (31%) product families. The Company
expects that revenues from these 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 Solver, ILOG
CPLEX, ILOG Views and/or ILOG Rules 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 its optimization, visualization and business rules
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.

  THE COMPANY'S OPERATING RESULTS ARE SUBJECT TO SEASONAL FLUCTUATIONS.

     A significant proportion of the Company's sales 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 in the September quarter
than in the immediately preceding quarter due primarily to reduced economic
activity in Europe in the summer months.

  THE COMPANY'S INABILITY TO MANAGE ITS GROWTH COULD RESULT IN INCREASED COSTS
  AND COULD ADVERSELY IMPACT ITS BUSINESS, OPERATING RESULTS AND FINANCIAL
  CONDITION.

     The Company has recently experienced a period of growth in revenues and
employees that has placed a significant strain on its management systems and
resources. Much of this growth increases the Company's need for information and
communication systems. The Company's ability to manage its 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.

  REDUCTIONS OR DELAYS IN GOVERNMENT RESEARCH AND FUNDING COULD MATERIALLY
  AFFECT THE COMPANY'S OPERATING RESULTS ON A DOLLAR FOR DOLLAR BASIS.

     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 $824,000, $880,000 and $741,000 for 2001, 2000
and 1999, respectively. This funding has been netted against, and has therefore
reduced, the Company's reported research and development expenses on a dollar
for dollar 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 2003 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.

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

     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.

                                        12
<PAGE>

  THE COMPANY HAS NOT PAID DIVIDENDS ON ITS SHARE CAPITAL TO DATE AND DOES NOT
  INTEND TO PAY DIVIDENDS IN THE FORESEEABLE FUTURE.

     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
Euros and under the French Company 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.

  OWNERSHIP OF SHARES BY THE COMPANY'S MANAGEMENT AND BOARD OF DIRECTORS AND
  CERTAIN PROVISIONS OF THE COMPANY'S CHARTER MAY REDUCE THE LIKELIHOOD OF A
  CHANGE IN CONTROL OF THE COMPANY.

     As of September 30, 2001, the Company's executive officers, members of its
Technical Advisory Board and directors and their affiliates beneficially owned
an aggregate of approximately 17.4% of the Company's Shares. As a result, these
persons and entities, acting together, may have the 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 by-laws, 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 may also
be 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. A new
authorization to this effect will be submitted at the next shareholders'
meeting.

  THE COMPANY MAY ENGAGE IN ACQUISITIONS WHICH COULD ADVERSELY AFFECT
  PROFITABILITY. THE COMPANY MAY NOT BE ABLE TO COMPETE EFFECTIVELY OR BECOME
  PROFITABLE IN ANY MARKETS IT ENTERS.

     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.

                                        13
<PAGE>

ITEM 4.  INFORMATION ON THE COMPANY

A.  HISTORY AND DEVELOPMENT OF ILOG

     ILOG S.A. is a societe anonyme, a form of limited liability company,
incorporated under the laws of France. The Company was registered at the Greffe
of the Registry of Commerce, Paris on April 6, 1987 for a duration of 99 years.
The Company was founded by Mr. Pierre Haren and Mr. Patrick Albert, with the
support of the Institut National de Recherche en Informatique et en Automatique
(INRIA). It is subject to Book II of the French Code du Commerce and to Act No.
67-236 of March 23, 1967 on les societes commerciales (French Company Law).

     The Company is registered with the Register of Commerce and Companies of
Creteil under number B 340 852 458. The corporate purposes of the Company,
within France, its overseas territories, and outside of France, are as follows:

          a. the consultation and completion of research and studies and
     generally all services related to intelligent software;

          b. the development, running, distribution and maintenance of hardware
     and software;

          c. training in these areas of activity, including audiovisual
     techniques and generally, all useful support tools,

all directly or indirectly, on its own behalf or on behalf of third parties, for
sale or in conjunction with third parties, by means of the setting-up of new
companies, capital contributions, the purchase of securities, mergers, alliances
or investment companies or by lease or management lease of any assets or rights
or otherwise. These corporate purposes may be found in Article 3 of the
Company's statuts.

     The registered office of the Company is located at 9 rue de Verdun, 94253
Gentilly, France, and its telephone number is 011 33 1 49 08 35 00. The
Company's agent for service of process in the United States is CT Corporation
System located at 111 Eighth Avenue, New York, New York, 10011.

     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. In 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. In 1998 the Company started to
introduce Java versions of its products.

     The Company's software development efforts are based in France, except for
the CPLEX products, which are developed in Incline Village. Until 1995 the
Company's sales were concentrated in Europe, particularly in France. In 1995,
the Company started to expand its sales efforts globally by establishing a major
sales presence in the U.S. and Asia and acquiring CPLEX, which has resulted in
revenue and expense growth.

     Up until its initial public offering in 1997 on the Nasdaq National Market,
which raised $24.9 million, the Company has financed itself through a
combination of retained earnings, venture capital investments and interest free
loans from French government agencies and the European Union. The Company
partially financed the 1997 CPLEX acquisition through the issuance of 1.7
million shares and promissory notes totaling $5.0 million. In 1998 a further
financing of $10.5 million was received from SAP A.G. in exchange for 685,064
shares. In 1998 the Company listed its shares on the Nouveau Marche, Paris.

B.  BUSINESS OVERVIEW

     ILOG develops, markets and supports software components for visual
interface, resource optimization and business rules functions that are
fundamental to the development of strategic business applications by creating
pre-built and pre-tested software components 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,

                                        14
<PAGE>

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.

     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 computing and the
internet/intranet.

     Software development is a lengthy and difficult process. Developers must
build visual interfaces, provide resource optimization and business rules
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
Company's object oriented components, which are written in the C, C++ and/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
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 independent
software vendors ("ISVs") and enterprises to accelerate development time of
their applications. 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 communication 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.
                                        15
<PAGE>

     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 optimization,
visualization and business rules software components. Key elements of the
Company's strategy to achieve this objective include the following:

     Expand ISV Business.  The Company has agreements with over 300 ISVs and
intends to sell its components to additional ISVs for inclusion in packaged
software products. Approximately 50% of the Company's revenues in 2001 were from
ISVs. The Company is currently increasing its marketing efforts to ISVs because
of the ability to generate license fees and/or royalties from ISVs that include
one or more ILOG components in their products.

     Increase Penetration of Existing Customer Base.  The Company intends to
expand revenues from its components used by its existing customers. Since the
Company's components are initially licensed to a few developers for application
development 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 and royalty opportunities for
the Company. The Company uses the success of projects with existing customers as
an internal reference for horizontal expansion within that organization.

     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 additional programming languages and expanding the number of components
to address common software development needs.

     Penetrate Vertical Market Base.  The Company devotes significant sales
efforts to three vertical markets: (i) graphic tools for communications network
management, (ii) optimization engines for supply chain management software
applications and (iii) business rules engines for e-commerce and financial
applications. The Company has become a leader in these markets and may continue
this strategy by adding further vertical markets.

  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 display the use of resources by activities over time in a predefined
fashion. The application developer using such a component
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<PAGE>

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.

  PRODUCTS

     The Company's products are high-performance C, C++ or Java software
components sold in binary form delivered on CD-ROMs or over the internet. 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, value added resellers ("VARs"), ISVs, 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.

     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 $15,000, with a typical basic
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 components needed to deploy the
developed application within or outside its organization. A customer will either
prepay at the time of the initial contract or purchase the run time licenses
upon deployment following the successful completion of the application
development process, which typically takes between three and nine months from
the initial order. Pricing for run time licenses are based upon the number of
users of the application, the number of different
                                        17
<PAGE>

sites on which the application will be deployed and the number and type of ILOG
components used in the application.

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

<Table>
<Caption>
                                           CALENDAR        CALENDAR
                                         YEAR OF FIRST   YEAR OF MOST
                                          COMMERCIAL        RECENT
PRODUCT CATEGORY AND NAME                  SHIPMENT        VERSION             PRODUCT DESCRIPTION
-------------------------                -------------   ------------          -------------------
<S>                                      <C>             <C>            <C>
OPTIMIZATION
ILOG Solver............................      1993            2001       Constraint-based reasoning for
                                                                        resource allocation
ILOG Scheduler.........................      1994            2001       Add-on product for Solver for
                                                                        short-term scheduling
ILOG Dispatcher........................      1997            2001       Add-on product for Solver for the
                                                                        transportation industry
ILOG CPLEX.............................      1997            2001       High performance components for
                                                                        linear programming in C
ILOG OPL Studio........................      1998            2001       Optimization modeling
ILOG Configurator......................      1999            2001       Embeddable engine for
                                                                        configuration applications
ILOG JConfigurator.....................      2001            2001       Embeddable engine for
                                                                        configuration applications in Java
ILOG JSolver...........................      2001            2001       Embeddable constraint-based
                                                                        reasoning for resource allocation
                                                                        in Java
VISUALIZATION
ILOG Views Component Suite.............      1993            2000       Data visualization and graphical
                                                                        user interface in C++
ILOG DB-Link...........................      1994            2000       Access to relational and object
                                                                        relational data from C++
ILOG Server............................      1996            2000       Application integration and
                                                                        real-time event notification
ILOG JViews Component Suite............      1997            2001       Data visualization in Java
ILOG JTGO..............................      1998            2001       Graphic components for the
                                                                        communications industry
RULES
ILOG Rules.............................      1993            2001       Real-time agents for filtering and
                                                                        alarm management
ILOG JRules............................      1997            2001       Real-time agents for filtering and
                                                                        alarm management in Java
</Table>

     The above products are sold by all of the Company's business units except
JTGO which is a vertical product for the communications industry. 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:

  Optimization Products

     The Company currently markets seven optimization components and one
optimization modeling product which in 2001 comprised 49% of the Company's
revenue from license fees. The Company generates its revenues from a
concentrated group of product families. Any factor adversely affecting any of
these product families could have a material adverse affect on the Company. See
"Item 3. Key Information -- Risk Factors."

                                        18
<PAGE>

     The ILOG Solver and JSolver constraint-programming components provides the
basic programming layer embedding the core constraint processing technology, and
the ILOG Scheduler 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 communications, 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.

     ILOG Configurator and JConfigurator are embeddable engines for customer
relationship management (CRM) and/or web-based configuration applications. They
are 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.

     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.

     ILOG CPLEX components provide a comprehensive set of linear programming C
routines. These algorithms solve large and difficult linear programs, mixed
integer programs, quadratic programs and network problems at a high level of
performance. The CPLEX base system encompasses primal Simplex, dual Simplex, and
network Simplex solvers for linear programming problems in an interactive
format. The CPLEX Mixed Integer Solver solves problems with mixed integer
variables (general or binary) using algorithms and techniques such as cuts
(cliques & covers), heuristics, and a variety of branching and node selection
strategies. It is designed to handle large and difficult integer problems. The
CPLEX Barrier is a primal-dual log barrier algorithm with predictor corrector
designed to solve certain classes of linear programming models and quadratic
programming problems. CPLEX Simplex, mixed integer, and barrier solvers are
available in parallel forms for certain parallel computing environments.

     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.

                                        19
<PAGE>

  Visualization Products

     The Company currently markets user interface components which in 2001
comprised approximately 31% of the Company's revenues from license fees. The
Company generates its license fees from a concentrated group of product
families. As a result, any factor adversely affecting the license of any of
these product families could have a material adverse effect on the Company.

     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.

     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
graphic objects such as controls, charts, Gantts, spreadsheets, network
graphers, and more. It displays and interacts with maps, networks and other
complex 2D representations. Users can visually create panels, business graphic
objects and C++ or JavaScript code. Dedicated add-on modules, ILOG Views Maps,
ILOG Views Charts, ILOG Inform, ILOG DB-Link, ILOG TGO and ILOG TGF, are
available to facilitate the access to data sources and RDBMS, and ease the
development of mapping or communications specific applications. ILOG Views
supports ActiveX and Netscape Plugs-Ins.

     ILOG DB-Link is a set of libraries, which provide access to relational and
object-relational data. ILOG DB-Link includes native support for Informix,
Ingres, Oracle and Sybase on UNIX and Windows platforms, and supports Microsoft
SQL Server, Centura SQL Base, and ODBC on PCs. The API of ILOG DB-Link is
platform and database independent, allowing application code to be fully
portable onto UNIX and Microsoft Windows. ILOG DB-Link connects to O/RDBMS
handling SQL statements, including proprietary extensions. It passes SQL
requests from C++ applications to the O/RDBMS, and supports transaction
management, data handling and access to data dictionaries. ILOG DB-Link allows
the user to call stored procedures and apply multiple executions of
parameterized queries. It supports large object handling to enable C3I, GIS and
text processing applications to use native data formats. It permits access to
the internal O/RDBMS client structures when applications require specific
O/RDBMS extensions.

     ILOG Server 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 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.

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

  Rules Products

     The ILOG Rules and JRules components, which comprised approximately 20% of
the Company's license revenues in 2001, allows the development of intelligent
agents for monitoring data flows in real time. ILOG Rules and ILOG JRules
provide an environment for building and managing enterprise-wide business rule
applications in C++ and Java. They share a common set of tools known as the Rule
Kit which includes: (i) Rule Builder, an integrated development environment for
developing and debugging business rule

                                        20
<PAGE>

applications; (ii) Business Rule Language, a customizable and extensible
business rule language, placing business rule definition in the hands of the
user; and (iii) Rule Editor, adaptable web-enabled and JavaBean components that
can be embedded in applications. ILOG Rules is used in applications such as
network management, process monitoring and fraud detection. ILOG JRules is used
in multi-threaded application servers to create rule-based personalization,
customer relationship management, pricing, and workflow solutions for eCommerce
and eBusiness web-based applications. JRules is also used to develop network
management applications and business applications containing complex business
procedures and policy.

  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.

  CUSTOMERS AND APPLICATIONS

     As of September 30, 2001, ILOG components had been licensed by over 2,000
customers for development and/or deployment in a wide range of applications
described below.

                                 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
                                 COMMUNICATIONS

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
                             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

                                        21
<PAGE>

                                 TRANSPORTATION

Resource Optimization

- Airport counter, gate and belt allocation
- Command and control
- Crew allocation
- Distribution planning
- Equipment scheduling
- Fleet management
- Maintenance planning and scheduling
- Timetabling
- Traffic planning
- Warehouse management

Supervision & Data Visulations

- Geographic information systems
- Traffic monitoring
- Vehicle tracking systems
                                    FINANCE

- Online investment management
- Online lending
- Online trading
- Online financial planning & advisory services
- Web personalization
- Portfolio management & optimization
- Risk management
- Automated trading
- Order generation & management
- Loan configuration
- Underwriting
- Claims processing
- Straight-through-processing
- Customer care & billing
                                   E-BUSINESS

- Configuration
- Web personalization
- Online production scheduling
- E-merchandising management
- E-supply chain cockpit
- E-marketing

  SALES AND MARKETING

     The Company derives its revenues from the sale of development licenses to
application developers and from royalties or deployment licenses once
applications are developed and deployed and related services. Revenues from
license fees and services represented 66% and 34%, respectively, of the
Company's total revenues in 2001. Services revenue consist of consulting to
facilitate the adoption of the Company's products, maintenance and customer
training. Consulting, maintenance and training accounted for 15%, 17% and 2%,
respectively, of the Company's total revenues in 2001.

     Total revenues increased to $79.2 million in 2001 from $71.3 million in
2000, and from $63.7 million in 1999, representing increases of 11% and 12% over
the respective previous years. The rate of growth in 2001 reflects the
transition of the Company's channels of distribution from end users to ISVs,
which have a longer selling cycle, and the impact of slower spending by
communications industry customers in the latter part of 2001. The rate of growth
in 2000 reflects the ISV transition and spending diversions by customers from
new application development to Year 2000 readiness.

     During 2001, 2000 and 1999, revenues generated from customers in North
America totaled approximately in $36.3 million, $32.0 million and $22.5 million;
in Europe $34.1 million, $32.6 million and $34.5 million; and in Asia $8.8
million, $6.7 million and $6.7 million; respectively. The 12% growth in North
American revenues and the 4% increase in European revenues in 2001 over 2000
reflects the decline of the Euro and the transition of the Company's channel of
distribution from end users to ISVs, which have a greater proportion located in
North America, combined with the general strength of the internet driven economy
in the U.S. in the first part of 2001. The 31% growth in Asia in 2001 reflects
the successful results of the Company's Japanese operations which were
established in 1999.

     ILOG markets and sells its products worldwide principally through its
direct sales force, system integrators, VARs, 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.

     The Company has sales offices and/or subsidiaries in France, U.S., Germany,
Japan, Singapore, Spain and U.K. Similar to many companies in the software
industry with significant sales outside of the U.S., the Company generally
realizes lower revenues in the September quarter than in the immediately
preceding quarter due primarily to reduced economic activity in Europe in the
summer months.

                                        22
<PAGE>

     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 these evaluations are to
determine 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 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.

     An important part of ILOG's sales strategy is the cultivation of indirect
sales channels. Of the approximately 2,000 total ILOG customers, more than 300
are ISVs and/or OEMs that develop and resell software based on ILOG
technologies. In 2001 approximately 50% of the Company's license revenues were
from ISVs and/or OEMs. 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.

     The Company markets its products and services through its three worldwide
business divisions that serve the Company's core industry segments. The Company
also has a business division dedicated to direct selling through the telephone
and internet in support of the three market-focused divisions. Their structure
is designed to bring the Company close 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 Value Chain Management, Communications and Industry Solutions.

     The Value Chain Management Business Division is focused on 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 Communications Division is dedicated to the
web-enabled network management and customer care sectors. The Industry Solutions
Division focuses on the e-commerce, finance, transportation and defense
industries.

     The ILOG Direct Division 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.

     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 "Item 5.
Operating and Financial Review and Prospects."

     Marketing and selling expenses increased to $40.9 million in 2001 from
$35.6 million in 2000 and from $31.5 million in 1999, representing 52%, 50% and
49% of total revenues, respectively. The level of marketing and selling expenses
as a percentage of total revenues is attributable to the on-going worldwide
expansion of the Company's marketing and selling organization.

                                        23
<PAGE>

  RESEARCH AND DEVELOPMENT

     The Company has committed, and expects to continue to commit in the future,
substantial resources to research and development. During 2001, 2000 and 1999,
net research and development expenses were $14.8 million, $12.2 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 $15.6 million, $13.1 million, and $10.6 million in 2001, 2000
and 1999, respectively.

     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 math
oriented code. This ILOG culture has arisen from fourteen 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.

  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 Computer Associates, Cosytech, Dash Associates
Limited, HNC Software, Inc., IBM, Loox Software, Selectica, Inc., SL
Corporation, and Trilogy Software, Inc. 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
                                        24
<PAGE>

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 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.

                                        25
<PAGE>

C.  ORGANIZATIONAL STRUCTURE

     The Company has the following wholly owned subsidiaries: ILOG, Inc., ILOG
Limited, ILOG GmbH, ILOG SA, the ILOG(S) (Pte) Ltd and ILOG KK, which operate in
the United States, United Kingdom, Germany, Spain, Singapore and Japan,
respectively.

D.  PROPERTY, PLANT AND EQUIPMENT

     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 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 leased sales offices in Arlington,
Virginia, Bingham Farms, Michigan, and Southborough, Massachusetts. In addition,
the Company maintains leased sales and customer support offices in Bracknell,
near London, England; in Bad Homburg, near Frankfurt, Germany; in Madrid, Spain;
in Singapore; and in Tokyo, Japan.

ITEM 5:  OPERATING AND FINANCIAL REVIEW AND PROSPECTS

A.  OPERATING RESULTS

     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,
                                                              ---------------------
                                                              2001    2000    1999
                                                              -----   -----   -----
<S>                                                           <C>     <C>     <C>
Revenues:
     License fees...........................................    66%     66%     61%
     Services...............................................    34      34      39
                                                               ---     ---     ---
          Total revenues....................................   100     100     100
                                                               ---     ---     ---
Cost of revenues:
     License fees...........................................     2       2       2
     Services...............................................    16      18      22
                                                               ---     ---     ---
          Total cost of revenues............................    18      20      24
                                                               ---     ---     ---
Gross margin................................................    82      80      76
                                                               ---     ---     ---
Operating expenses:
     Marketing and selling..................................    51      50      49
     Research and development...............................    19      17      15
     General and administrative.............................    11      11      12
     Nouveau marche expenses................................    --      --       1
     Write-off of acquired intangible assets................    --       1       4
                                                               ---     ---     ---
          Total operating expenses..........................    81      79      81
                                                               ---     ---     ---
Income (loss) from operations...............................     1       1      (5)
Net interest income (expense), income taxes and other.......    --       1      --
                                                               ---     ---     ---
Net income (loss)...........................................     1%      2%     (5)%
                                                               ===     ===     ===
</Table>

                                        26
<PAGE>

  Revenues

     Total revenues increased to $79.2 million in 2001 from $71.3 million in
2000, and from $63.7 million in 1999, representing increases of 11% and 12% over
the respective previous years. The rate of growth in 2001 reflects the
transition of the Company's channels of distribution from end users to ISVs,
which have a longer selling cycle, and the impact of slower spending by
communications industry customers in the latter part of 2001. The rate of growth
in 2000 reflects the ISV transition and spending diversions by customers from
new application development to Year 2000 readiness.

     During 2001, 2000 and 1999, revenues generated from customers in North
America totaled approximately in $36.3 million, $32.0 million and $22.5 million;
in Europe $34.1 million, $32.6 million and $34.5 million; and in Asia $8.8
million, $6.7 million and $6.7 million; respectively. The 12% growth in North
American revenues and the 4% increase in European revenues in 2001 over 2000
reflects the decline of the Euro and the transition of the Company's channel of
distribution from end users to ISVs, which have a greater proportion located in
North America, combined with the general strength of the internet driven economy
in the U.S. in the first part of 2001. The 31% growth in Asia in 2001 reflects
the activities of the Company's Japanese operations which were established in
1999.

     In 2001, 2000 and 1999 SAP A.G. accounted for 9%, 10% and 13% of total
revenues, respectively. In 2001 the next four largest customers accounted for
approximately 11% of total revenues, and the next five largest accounted for
approximately 6% of revenues. Revenues from a single customer in a particular
quarter can materially affect the Company's revenues and operating results for
such period.

     License Fees.  Revenues from license fees increased to $52.3 million in
2001 from $46.8 million in 2000, and from $38.7 million in 1999, representing
increases of 12% and 21%, 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. During 2001 the growth rate slowed
down reflecting the economic conditions of the communications industry.

     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 to $26.8 million in 2001
from $24.5 million in 2000 as compared to $25.1 million in 1999. This
represented an increase of 9% and a decrease of 2%, over the respective prior
years. The increase in revenues from services in 2001 over 2000 was due
primarily to increased maintenance revenue. The decrease in revenues in 2000
from 1999 was due to lower consulting revenues reflecting spending diversions by
customers from new application development to Year 2000 preparedness.

  Gross Margin

     The following table sets forth the gross margin for both categories of
revenues for 2001, 2000 and 1999:

<Table>
<Caption>
                                                               YEAR ENDED JUNE 30,
                                                              ---------------------
                                                              2001    2000    1999
                                                              -----   -----   -----
<S>                                                           <C>     <C>     <C>
Gross Margin:
     License fees...........................................    98%     98%     97%
     Services...............................................    53      47      42
          Total revenues....................................    82      80      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 royalties to
third parties, documentation, packaging and freight expenses, increased to $1.3
million in 2001 from $1.1 million in 2000 and 1999 representing 2%, 2% and 3% of
revenues from license fees in 2001, 2000

                                        27
<PAGE>

and 1999, respectively. In the event the Company significantly increases the
incorporation of third-party technology in its products, the payment of
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 primarily of
employee-related expenses for these services, decreased to $12.7 million in 2001
from $13.1 million in 2000 and from $14.4 million in 1999. The services gross
margin increased to 53% in 2001, from 47% in 2000 and 42% in 1999, reflecting
the trend of the Company's consulting and training activities decreasing in
relation to higher margin maintenance revenues which increased.

  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
to $41.0 million in 2001 from $35.6 million in 2000 and from $31.5 million in
1999, representing 52%, 50% and 49% of total revenues, respectively. The level
of marketing and selling expenses as a percentage of total revenues is
attributable to the 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
to 250 at June 30, 2001 from 177 at June 30, 1998. The increase in headcount
resulted primarily from organizational growth in the U.S. 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
2001, 2000 and 1999:

<Table>
<Caption>
                                                                  YEAR ENDED JUNE 30,
                                                              ---------------------------
                                                               2001      2000      1999
                                                              -------   -------   -------
                                                                    (IN THOUSANDS)
<S>                                                           <C>       <C>       <C>
Gross research and development expenses.....................  $15,628   $13,075   $10,576
Less government funding.....................................     (824)     (880)     (741)
                                                              -------   -------   -------
Research and development expense, net of funding............  $14,804   $12,195   $ 9,835
                                                              =======   =======   =======
</Table>

     Research and development expenses increased to $14.8 million in 2001 from
$12.2 million in 2000 and from $9.8 million in 1999, representing 19%, 17% and
15% of total revenues, respectively. The increases in research and development
expenses was due to staffing increases and the development of ILOG JSolver and
JConfigurator and significant upgrades to the Company's visualization and
business rules product lines. From June 30, 1998 to June 30, 2001 research and
development staffing increased from 76 to 137. The Company has not capitalized
any software development costs and all research and development costs have been
expensed as incurred.

     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 to $8.7 million in
2001 from $8.1 million in 2000 and from $7.4 million in 1999, representing 11%,
11% and 12% of total revenues, respectively. The increase in general and
administrative expenses is due to increases in the

                                        28
<PAGE>

Company's allowance for doubtful accounts and some increased staffing to support
the Company's growth. From June 30, 1998 to June 30, 2001, the number of the
Company's employees engaged in general and administrative functions increased
from 54 to 70.

     Nouveau Marche expenses.  In December 1998 the Company listed its shares on
the Nouveau Marche stock exchange in Paris. The expense related to this listing
totaled $0.5 million and was charged to results of operations at that time.

     Write-off of Acquired Intangible Assets.  Write-off of acquired intangible
assets of $0.3 million in both 2000 and 1999 relates to trademarks acquired in
1997. In addition, in 1999 $1.8 million was written-off relating to the
acquisition of software that was utilized in the development of OPL Studio.

  Interest Income (Expense) and Other

     Net interest income (expense) and other totaled $1.0, $0.8 and $0.1
million, in 2001, 2000 and 1999, respectively. In 2001 and 2000 net interest
income (expense) and other includes realized exchange gains and net interest
income (expense), and in 1999 net interest income (expense) and other reflects
primarily interest expense arising from the promissory notes issued in
connection with an acquisition, after offset of income from the Company's cash
equivalent investments.

     Segments:  From July 1, 1999, ILOG has been organized into three divisions,
each operating in different markets. They each handle industry marketing, sales,
consulting and some product development. The Value Chain Management Business
Division ("VCM") is focused 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 Communications Business Division ("COM")
is dedicated to the web-enabled network management, and customer management,
service and billing. The Industry Solutions Division ("ISD") focuses on the
e-commerce, finance, transportation and defense industries. "Corporate & other"
includes a segment which does not meet the quantitative threshold for
determining reportable segments, and corporate overhead and other expenses which
are not allocated to reportable segments. In 1999 the Company operated in one
reportable segment and accordingly comparative information is unavailable. The
Company evaluates performance and allocates resources based on segment revenues
and operating results. There are no intersegment sales.

     The following table sets forth segment revenue and operating results for
2001 and 2000:

<Table>
<Caption>
                                                                          CORPORATE
                                              VCM       COM       ISD      & OTHER    CONSOLIDATED
                                            -------   -------   -------   ---------   ------------
<S>                                         <C>       <C>       <C>       <C>         <C>
2001
Revenues..................................  $25,196   $18,250   $25,545    $10,165      $79,156
Income (loss) from operations.............    6,580      (888)    2,897     (7,871)         718
2000
Revenues..................................   19,925    20,422    23,911      7,037       71,295
Income (loss) from operations.............    3,617     1,337     2,101     (6,103)         952
</Table>

     The growth in the value chain market revenues in 2001 to $25.2 million from
$19.9 million in 2000 reflects a number of the Company's major supply chain ISVs
entering and/or increasing deployment of the Company's optimization products,
combined with the strength of the global economy through early 2001. The revenue
growth resulted in the profitability of this segment increasing from $3.6
million in 2000 to $6.6 million in 2001.

     The decline in the communications market revenues in 2001 to $18.3 million
from $20.4 million in 2000, reflects the significant slow-down in spending by
this sector since mid-2001. As a result, in this segment a loss of $0.9 million
in 2001 was incurred compared to a profit of $1.3 million in 2001.

                                        29
<PAGE>

     The growth in e-commerce, finance, transportation and defense industry
revenues to $25.5 million in 2001 from $23.9 million in 2000 reflects the
Company's penetration of the finance sector market place, where previously it
had minimal presence. This is predominantly a result of the competitive success
of the Company's business rules products, which also generated additional
cross-selling opportunities for other ILOG products. This revenue growth
resulted in the profitability of this segment increasing from $2.1 million in
2000 to $2.9 million in 2001.

     Other revenues, which predominantly are from Asia, grew in 2001 to $10.2
million from $7.0 million in 2000 due to the establishment of the Company's
Japanese operations in 1999. The operating loss for the corporate and other
segment increased from $6.1 million in 2000 to $7.9 million in 2001 as a result
of significant increased spending in research and development in 2001 over 2000.

  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 Euros or Euro equivalent currencies, 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-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.

     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 2001, 2000 and
1999 was $0.6, $0.7 and $0.2 million, respectively. These amounts represent
transaction gains and are included in net interest income (expense) and other.
Through June 30, 2001, the Company has not undertaken hedging transactions to
cover its currency transaction exposure. However, in July 2001 the Company
started some limited hedging activities designed to mitigate the effect of
changing exchange rates on earnings per share. See Note 1 of Notes to
Consolidated Financial Statements and "-- Trend Information".

  Income Taxes

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

     Income tax expense in 2001, 2000 and 1999 was $0.8 million, $0.6 million
and $0.1 million, respectively, reflecting tax charges in certain sales
subsidiaries that were profitable on a tax basis in those years.

     At June 30, 2001, the Company had net operating loss carryforwards from
various tax jurisdictions of approximately $40 million, of which $10 million and
$3 million were in France and the U.K., respectively, with no expiration date
and $26 million were in the U.S. expiring between 2002 and 2021 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.

                                        30
<PAGE>

     As of June 30, 2001, a valuation allowance of $18.6 million had been
provided against total deferred tax assets of $18.6 million (which consists
primarily of the tax benefit of net operating loss carryforwards and the
amortization of acquired intangible assets).

B.  LIQUIDITY AND CAPITAL RESOURCES

     Over the last three years, the Company has financed its operations and
investments in property and capital equipment through cash from operations and
the issuance of equity securities to employees under the company's stock
purchase plans.

     In 2001, 2000 and 1999, the Company's financing activities provided $3.2
million, $4.3 million and $1.0 million respectively. In 2001, 2000 and 1999
$5.3, $6.3 and $2.0 million respectively was provided from the issuance of
shares under employee stock option and stock purchase plans and $2.1, $2.0 and
$1.1 million respectively was used to repay loans and capitalized lease
obligations.

     The Company's investing activities have consisted primarily of expenditure
on fixed assets, which totaled $4.6 million, $1.5 million and $2.4 million in
2001, 2000 and 1999, respectively. During 2001 approximately $2.3 million was
invested in the United States for a customer relationship management system for
use by the Company on a global basis. Other than further development of this
system no specific new major capital expenditure projects are anticipated for
2002. Capital expenditure in 2002 is expected to approximate $4 million. As of
June 30, 2001 fixed assets were located in the United States, France, rest of
Europe and Asia with net book values of $4.0, $1.9, $0.4 and $0.6 million,
respectively. The Company's fixed assets are generally unencumbered.

     As of June 30, 2001 and 2000, the Company had cash and cash equivalents of
$20.9 million and $20.3 million, respectively, and working capital of $20.9
million and $21.8 million, respectively. The net cash increase of $0.6 million
in 2001 was due to $5.3 million received for shares issued in connection with
employee stock option and purchase plans plus $4.6 million provided by operating
activities less $4.8 million of property and equipment expenditure, $2.1 million
in loan repayments and $2.4 million exchange rate effect. The Company's cash is
unrestricted except that $1.3 million is secured against its line of credit and
the transfer of $1.6 million in Japan on June 30, 2001 to France may result in a
10% Japanese withholding tax liability.

     Accounts receivable decreased to $22.2 million at June 30, 2001 from $23.4
million at June 30, 2000 due to customers paying more promptly.

     The Company has lines of credit with a French bank allowing for a maximum
borrowing of approximately $2.7 million. At June 30, 2001, $1.3 million was
outstanding under this facility. The line of credit bears interest at the bank's
prime rate plus 1.5%, which at June 30, 2001, corresponded to 8.25%.

     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.
However, the Company believes it currently has sufficient working capital to
meet its present requirements.

C.  RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES

     The Company has committed, and expects to continue to commit in the future,
substantial resources to research and development. During 2001, 2000 and 1999,
net research and development expenses were $14.8 million, $12.2 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 $15.6 million, $13.1 million, and $10.6 million in 2001, 2000
and 1999, respectively.

     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 math
oriented code. This ILOG culture has arisen from fourteen 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
                                        31
<PAGE>

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.

D.  TREND INFORMATION

     The Company sells its products and services to software developers in a
number of different market places. During 2001 revenues were derived from the
value chain software market; communications industry; finance, transportation
and defense sectors; and other sectors encompassing Asia, which accounted for
32%, 23%, 32% and 13% of revenues, respectively, compared to 28%, 29%, 34% and
9%, respectively, in 2000.

     The growth in the value chain market revenues in 2001 to $25.2 million from
$19.9 million in 2000 reflects a number of the Company's major supply chain ISVs
entering and/or increasing deployment of the Company's optimization products,
combined with the strength of the global economy through early 2001. The
projected weakening of the global economy in 2002 is expected to adversely
impact demand and revenues for supply chain optimization products for the coming
year.

     The decline in the communications market revenues in 2001 to $18.3 million
from $20.4 million in 2000 reflects the significant slow-down in spending by
this sector since mid-2001 and spending is generally not expected to resume to
its historic levels in 2002.

     The growth in e-commerce, finance, transportation and defense industry
revenues to $25.5 million in 2001, from $23.9 million in 2000, reflects the
Company's penetration of the finance sector market place, where previously it
had minimal presence. This is predominantly a result of the competitive success
of the Company's business rules products, which also generated additional
cross-selling opportunities for other ILOG products. Until September 2001,
demand by the transportation sector for the Company's products has been stable
as it sought to improve efficiencies amid capacity restraints. However the
events of September 11, 2001 is causing major changes in the transportation
industry on a global basis, and its impact on the purchasing of the Company's
products by this sector is currently indeterminable. The events of September 11
are also expected to have an impact on defense spending patterns, which may
positively or negatively impact the Company's revenues from this sector.

     Other revenues, which predominantly are from Asia, grew in 2001 to $10.2
million from $7.0 million in 2000 due to the establishment of the Company's
Japanese operations in 1999.

     Since mid-2001, in response to general economic trends in its business, the
Company has significantly limited employee recruitment and thus, expense growth.
This is expected to continue until signs of business strength re-emerge. The
events of September 11 have resulted in some reduced corporate travel and the
deferral of the Company's User Meeting from October 2001 to April 2002. The
company does not have any operations in the New York area.

     The recent weakening trend of the US dollar against the Euro will have a
negative impact on the results of operations of the Company. However, in July
2001 the Company started some limited hedging activities in the form of forward
contracts selling U.S. dollars for Euros that are designed to mitigate the
effect of changing exchange rates on earnings per share.

                                        32
<PAGE>

ITEM 6.  DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

A.  DIRECTORS AND SENIOR MANAGEMENT

     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. The Chairman and Chief Executive Officer, under French law, 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. French company law no. 2001-420
dated May 15, 2001, published on May 16, 2001, known as the Law of May 15, 2001,
gives to the Board of Directors the right to elect one person to assume the
position of Chairman and Chief Executive Officer or to split the function
between two different persons. The Company's statuts currently do not provide
for this. As provided in the Law of May 15, 2001, the Company must amend its
statuts to comply with the new law within 18 months of its publication. The
Company intends to submit a resolution to this effect at the next general
shareholders' meeting to be convened on December 18, 2001, to approve the
accounts for the fiscal year ended June 30, 2001. Pursuant to French law and the
Company's statuts, the Board of Directors can appoint up to five Directeurs
Generaux Delegues whose powers and responsibilities are determined by the Board
together with the Chief Executive Officer who have broad powers to represent and
bind the Company in dealings with third parties. Pursuant to the Law of May 15,
2001 (when implemented by the Company), if the function of Chairman and Chief
Executive Officer is split between two different persons, the right to propose
to the Board the appointment of one or several Directeurs Generaux Delegues will
belong to the Chief Executive Officer.

     The following table sets forth the names, ages and positions of the
Directors and executive officers of ILOG as of September 30, 2001:

<Table>
<Caption>
NAME                                    AGE         POSITION WITH THE COMPANY
----                                    ---         -------------------------
<S>                                     <C>   <C>
Pierre Haren..........................  48    Chairman and Chief Executive Officer
Jean-Francois Abramatic...............  52    Senior Vice President, Research and
                                              Development
Patrick Albert........................  45    Chief Technology Officer
Eric Brisson..........................  36    Vice President and General Manager
                                              Communications Business Division
Christian Deutsch.....................  56    Vice President, Operations
Douglas Doyle.........................  45    Vice President, Marketing
Roger Friedberger.....................  50    Chief Financial Officer
Bounthara Ing.........................  38    Vice President and General Manager
                                              Industry Solutions Division
Janet Lowe............................  43    Vice President, Special Projects
Todd Lowe.............................  45    Director, Executive Vice President and
                                              General Manager Value Chain Management
                                              Business Division
Sanjay Saigal.........................  38    Vice President and General Manager
                                              ILOG Direct
Michel Alard..........................  47    Director
Marie-Claude Bernal...................  54    Director
Pascal Brandys........................  42    Director
Marc Fourrier.........................  48    Director
Richard Liebhaber.....................  66    Director
</Table>

                                        33
<PAGE>

     Pierre Haren is a founder of the Company and was its Managing Director from
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. He
is also a Director of IPSOS S.A. and a member of the Academie des Technologies.
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
2002.

     Jean-Francois Abramatic has served as Senior Vice President, Research and
Development of the Company since July 2000 and as a Director of the Company from
December 1994 to July 2000. Since September 1996, Mr. Abramatic has been the
Chairman of the International World Wide Web Consortium and from September 1996
to September 1997 he was an Associate Director of the MIT Laboratory of Computer
Science. From September 1997 to July 2000 Mr. Abramatic was INRIA's Director of
Development and Industrial Relations and from 1992 to September 1997 its
Director of Development. Abramatic received an Engineering degree from Ecole des
Mines, Nancy in 1971 and a Ph.D. from the University of Paris VI in 1980.

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

     Eric Brisson has served as Vice President and General Manager
Communications Business Division of the Company since August 2000 previously
having held the position of Worldwide Director, Professional Services of the
Division since July 2000. From July 1999 to July 2000 he served as a Consulting
Manager and since September 1995 as a Senior Consultant and Software Developer
of the Company. From 1991 to September 1995 he was a Research Engineer at CSTB,
French government research center. Mr. Brisson received a Bachelor's degree in
Computer Science at the University of Nice in 1988 and a Master's degree in
Computer Science at the University of Paris in 1990.

     Christian Deutsch has served as Vice President, Operations of the Company
since August 2000 previously holding the position of Manager, Corporate Business
Development since January 1999. From 1974 to 1997 he was Chief Executive and
Technical Officer of OPEFORM, an information technology consulting company for
the transportation industry, which he co-founded. Mr. Deutsch received in 1968 a
Master's degree and in 1972 a Ph.D. in Advanced Mathematics from the University
of Paris.

     Douglas Doyle has served as Vice President, Marketing of the Company since
September 2001. From March 2001 to September 2001 he served as Senior Director
Marketing at iBeam Broadcasting, Inc., from September 2000 to March 2001 he was
an independent consultant and from January 2000 to September 2000 he served as
Vice President Product Marketing at Bigvine, Inc. Previously from October 1997
to September 2000 he was Director of Retail and Internet Marketing at E*Trade
Group, Inc. and from January 1995 to October 1997 Director of Sales at Eagle
River Interactive, Inc. He received a B.A. in economics from the University of
California, Los Angeles in 1983 and an M.B.A. from Cornell University in 1987.

     Roger Friedberger has served as Chief Financial Officer of the Company
since May 1996. From 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 Industry
Solutions Division of the Company since July 1999, as President of ILOG KK Japan
since September 1997, and as Managing Director

                                        34
<PAGE>

of ILOG Pte. Ltd. Singapore since January 1994. He joined the Company in 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 since July 1999 and as General
Manager ILOG Direct from July 1999 until August 2001, 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 of the Company 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 2003.

     Sanjay Saigal has served as Vice president and general manager of ILOG
Direct since September 2001, having previously held the position of Manager of
Technical Services for ILOG Direct from September 1998. From 1995 to its
acquisition by ILOG in August 1998, Mr. Saigal served as the Director of
Technical Services at Compass Modeling Solutions, Inc. From 1991 to 1995 he was
a consultant at Decision Focus, Inc. Mr. Saigal earned a B.A. in Mathematics
from St. Stephens College in Delhi, India in 1984 and a Ph.D. in Mathematical
Sciences from Rice University, Houston, Texas in 1991.

     Michel Alard has served as a Director of the Company since July 2000. Mr.
Alard is Chairman of the Board of Directors of Wavecom S.A. which he co-founded
in 1993. Previously from 1988 he was a project manager at Matra Communications.
Mr. Alard received degrees from Ecole Polytechnique in 1976 and from the Paris
Communications Engineering School in 1978. Mr. Alard's term on the Board of
Directors expires in 2003.

     Marie-Claude Bernal has served as a Director since December 2000. From 1979
until December 2000, she has been a senior vice president, partner and
International Equity Portfolio manager at Wellington Management Company. She is
also President of the Supervisory Board of Esker. Ms. Bernal graduated from
France's Haut Enseignement Commercial pour les Jeunes Filles, with a major in
finance and accounting in 1967 and received an M.B.A. from the University of
Chicago in finance and computer science in 1971. Ms. Bernal's term on the Board
of Directors expires in 2002.

     Pascal Brandys has served as a Director of the Company since September
1998. Mr. Brandys has been Chairman of the Board of Directors of Genset S.A.
since he co-founded it in 1989 and its Chief Executive Officer until July 2000.
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 2003.

     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. He is also a Director of Wavecom S.A. 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, but will be extended
to 2004 upon ILOG shareholder approval at its Ordinary General Meeting to be
held on December 18, 2001.

     Richard Liebhaber has served as a Director since December 2000. From 1995
to 2000 he served on the board of Qwest Communications and from 1985 until 1995
he served as a board member and management committee member at MCI
Communications. From 1954 through 1985 Mr. Liebhaber worked at IBM, where he
served in a number of positions. He is also a Director of KPN/Qwest, and Avici
Systems. He graduated

                                        35
<PAGE>

from New York University with a BSEE in 1954. Mr. Liebhaber's term on the Board
of Directors expires in 2002.

  TECHNICAL ADVISORY BOARD

     Since December 2000 the Company has had a Technical Advisory Board ("TAB")
consisting of a select group of industry and academic leaders which is designed
to strengthen the Company's links with the technical and research communities as
well as stimulate corporate awareness of fundamental technology issues. Key
technologies represented by the board include business rules and agent
technologies; constraint programming; mathematical programming/optimization;
visualization; and world wide web. The TAB has met twice since its formation and
expects to continue to meet bi-annually.

     Members as of September 30, 2001 are:

<Table>
<Caption>
NAME                          AGE                           POSITION
----                          ---                           --------
<S>                           <C>   <C>
Robert Bixby................  56    President, Technical Advisory Board and Fellow, ILOG
Patrick Albert..............  45    Chief Technology Officer, ILOG
Eugene Freuder..............  56    Professor, University College Cork, Ireland
Gilles Kahn.................  55    Vice President, INRIA
Martin Grotschel............  53    Professor, Technische Universitat Berlin
Ben Shneiderman.............  54    Professor, University of Maryland
</Table>

     Robert Bixby is a Research Professor at the Department of Computational and
Applied Mathematics of Rice University; and Noah Harding Professor Emeritus. Dr.
Bixby earned a BS from the University of California-Berkeley and a Ph.D. from
Cornell University. He has held academic positions at Cornell, the University of
Kentucky, the University of Wisconsin-Madison, Northwestern University, the
Institut for Operations Research-Bonn, the Institute for Mathematics of the
Universitat Augsburg, the Konrad-Zuse-Zentrum fur Informationstechnik and the
Technische Universitat Berlin. Dr. Bixby is chairman of the Mathematical
Programming Society and was formerly editor-in-chief of the journal Mathematical
Programming. He is a member of the National Academy of Engineering. He
co-founded CPLEX Optimization, Inc. whose business was acquired by the Company
in 1997, and has served on ILOG's Board of Directors from 1997 to 2000.

     Eugene Freuder is a Science Foundation Ireland Research Professor at
University College Cork in Ireland, and Director of the Cork Constraint
Computation Centre. Dr. Freuder earned a BA from Harvard and a Ph.D. from MIT.
He is a fellow of the American Association for Artificial Intelligence. Dr.
Freuder is the editor-in-chief of the journal Constraints and executive chair of
the organizing committee of the International Conference on Principles and
Practice of Constraint Programming. He is the senior technical advisor of Ecora,
and a member of the Technical Advisory Board of Celcorp.

     Gilles Kahn is Vice President for Science at INRIA. Dr. Kahn graduated from
the Ecole Polytechnique. He is or has been a member of various scientific
advisory boards, including IRISA, IMAG, LABRI, LRI, Ecole Normale Superieure,
ENS, LIX, CERMICS, Greco Calcul Formel, UNU-IIST, CWI Amsterdam, the
Franco-Chinese Computer Science Laboratory, the Microsoft Research Center, the
Valuation Research Committee in Computer Science, and LORIA. Dr. Kahn is a
member of the French Academy of Sciences, and of the Academia Europaea.

     Martin Grotschel is Vice President at the Konrad-Zuse-Zentrum fur
Informationstechnik and a Professor at the Department of Mathematics, Technische
Universitat Berlin. Dr. Grotschel studied mathematics and economics in Bochum
and earned a Ph.D. and Habilitation in Bonn. He is a member of the Berlin-
Brandenburg Academy of Sciences and Humanities. He is an honorary member of the
German Mathematical Society and served as its president from 1993 to 1994, and
is a foreign associate of the National Academy of Engineering.

     Ben Shneiderman is Professor at the Department of Computer Science,
University of Maryland-College Park. Dr. Shneiderman earned his Ph.D. at the
State University of New York-Stony Brook. He is the

                                        36
<PAGE>

founding director of the Human-Computer Interaction Laboratory, and a member of
the Institute for Advanced Computer Studies and the Institute for Systems
Research, both at the University of Maryland-College Park. He is also a fellow
of the ACM and the AAAS, was cochair of the ACM Policy98 Conference, and is
founding chair of the ACM Conference on Universal Usability.

B. COMPENSATION

     The aggregate amount of compensation comprising of salary, commissions,
bonus and benefits, exclusive of stock option gains, 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, 2001, was approximately $2.3 million. In accordance
with French law 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 2001. For information relating to stock
options and warrants granted to ILOG's Directors, TAB members and executives in
2001 see "-- Share Ownership".

  Warrants for Non-Executive Directors and TAB Members

     Pursuant to resolutions adopted on September 21, 1999 and October 18, and
December 18, 2000, the shareholders have authorized the Board to issue warrants
to the non-executive Directors and TAB members for the purchase of Shares in the
Company, of up to a total of 160,000 Shares. On September 21, 1999, November 22,
2000 and January 15, 2001, warrants to purchase 20,000, 32,000 and 80,000
Shares, respectively, were granted to 9 non-executive Directors and 3 TAB
members. Warrants representing over 148,000 shares were outstanding as of
September 30, 2001. The warrants may be exercised at prices between 7.55 and
39.06 Euros at any time until the fifth anniversary of the date of grant, when
they lapse.

C.  BOARD PRACTICES

     The Board currently has two committees: the Audit Committee, currently
composed of Pascal Brandys (since October 25, 2000), Marie-Claude Bernal (since
January 23, 2001) and Marc Fourrier, and a Compensation Committee, composed of
Michel Alard and Richard Liebhaber (both since October 23, 2001). Until December
18, 2000 Fredric Harmon, and until October 22, 2001, Marc Fourrier, served on
the Compensation Committee. 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
approval by the Board.

     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 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 18 members. The
actual number of Directors must be within such limits and may be provided for in
the statuts. 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 seven members. Each director must be a shareholder of the Company.
Under French law a director may be an individual or a corporation in which case,
it must appoint a "representant legal", but the Directeur General, or 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 appointed by the shareholders at an ordinary
meeting and serve until the expiration of their respective terms, or until their
resignation, death or removal, with or without cause, by the shareholders at an
ordinary meeting, however, under the Law of May 15, 2001 the Chairman cannot be
removed by the Board of Directors without cause. 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
                                        37
<PAGE>

remaining Directors must immediately call an ordinary 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.
Meetings of the Board of Directors, which are held as often as the Company's
interests require, are normally convened and presided over by the Chairman and
the Chief Executive Officer, who is elected by the Board of Directors. According
to French law, if the Board of Directors has not met for more than two months,
at least one-third of the members of the Board of Directors may request that the
Chairman convene a meeting of the Board of Directors regarding matters listed on
the agenda. A resolution will be submitted for approval at the Company's next
shareholders' meeting in order to amend the statuts to provide for the
possibility for any Director to attend, participate and vote at any meeting by
videoconference, subject to applicable regulations. 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, in principle, 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.

     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.

D.  EMPLOYEES

     The following chart indicates the total number of the Company's employees,
and the distribution of the Company's employees by function, as of September 30:

<Table>
<Caption>
                                                              2001   2000   1999
                                                              ----   ----   ----
<S>                                                           <C>    <C>    <C>
Total Employees.............................................  586    518    460
Sales and Marketing.........................................  258    224    199
Consulting and Customer Support.............................  122    104    104
Research and Development....................................  137    128    102
Finance and Administration..................................   70     62     55
</Table>

                                        38
<PAGE>

     The following chart indicates the geographic distribution of the Company's
employees, as of September 30:

<Table>
<Caption>
                                                              2001   2000   1999
                                                              ----   ----   ----
<S>                                                           <C>    <C>    <C>
Europe......................................................  359    329    311
North America...............................................  168    138    103
Asia........................................................   59     51     46
</Table>

     Employee turnover in 2001 and 2000 was approximately 20% in each year.

     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.

     The Company's employees are not represented by any unions; however,
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.

     Pursuant to French laws dated June 13, 1998 and January 19, 2000 which took
effect on February 1, 2000, all employers of more than 20 employees in France
are required to implement a 35-hour work week. In order to implement the 35-hour
work week regulations, the Company signed an agreement with the representatives
of its employees on September 18, 2000 by which the reduction in the number of
working hours was established with effect from October 1, 2000. This agreement
allows employees to have between 12 and 22 days additional days vacation
depending on their position. It is estimated that this agreement increased
employment costs by approximately $900,000 in 2001.

E.  SHARE OWNERSHIP

     The table below sets forth certain information with respect to the
beneficial ownership of shares, options and/or warrants of the Company
outstanding as of September 30, 2001 by its Directors, TAB members and executive
officers, where such beneficial ownership represents one percent or more of the
outstanding Shares:

<Table>
<Caption>
                                                                   OPTIONS & WARRANTS
                                        OPTIONS & WARRANTS           GRANTED IN 2001
                                     ------------------------   -------------------------
                                                   EXERCISE                   EXERCISE         SHARES
                                     NUMBER OF     PRICE(S)     NUMBER OF     PRICE(S)      BENEFICIALLY
NAME                     SHARES(1)   SHARES(5)      EUROS        SHARES         EUROS         OWNED(1)     PERCENTAGE(1)
----                     ---------   ---------   ------------   ---------   -------------   ------------   -------------
<S>                      <C>         <C>         <C>            <C>         <C>             <C>            <C>
All as a group (21
  persons).............  1,900,810   1,207,396   3.35 - 51.50    307,500    39.21 - 51.50    2,827,736         17.4%
Robert Bixby...........    640,895    315,000     5.62 - 6.70         --         --            948,707          5.8%
Marc Fourrier(2).......    232,285     12,000    7.55 - 45.36      8,000    45.12 - 45.36      244,285          1.5%
Pierre Haren(3)........    305,124    170,000    3.81 - 10.01         --         --            479,124          2.9%
Todd and Janet
  Lowe(4)..............    655,514    130,000     5.62 - 6.70         --         --            771,138          4.7%
</Table>

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

(1) Number of Shares and percentage ownership are based on 16,241,500 Shares
    outstanding as of September 30, 2001. Beneficial ownership is determined in
    accordance with the General Instructions of Form 20-F and includes voting
    and investment power with respect to such shares. Shares subject to options
    and warrants that are currently exercisable or exercisable within 60 days of
    September 30, 2001 are deemed to be outstanding and to be beneficially owned
    by the person holding such options or warrants for the purpose of computing
    the percentage ownership of such person, but are not deemed to be

                                        39
<PAGE>

    outstanding and to be beneficially owned for the purpose of computing the
    percentage ownership of any other person.

(2) Includes 2 shares held by Delphis, a corporation controlled by Mr. Fourrier
    and his family.

(3) Includes 56,000 shares held in the name of Mr. Haren's children.

(4) Shares are held in the name of the Lowe Family Trust of which Mr. & Ms. Lowe
    are trustees.

(5) Warrants granted to non-executive Directors and TAB members expire five
    years from the date of grant. Options granted to executive officers under
    the plans described below expire ten years from the date of grant.

     The Company has various employee stock option, employee purchase plans and
Stock warrant plans currently in effect. Under French law, the Company cannot
grant options to members of the Board of Directors (other than the Chairman and
Chief Executive Officer or Managing Director) who are not employees.

     The following is a summary description of each of the Company's plans.

     The 1996 Stock Option Plan.  In 1994, the shareholders of the Company at an
extraordinary meeting authorized the Board of Directors to grant, until November
23, 1999, options on up to 500,000 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,
a reasonable estimate of its future profitability and its future development
prospects (the "1994 Plan"). 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 at an extraordinary meeting 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 at an extraordinary meeting 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 September 30, 2001, options with respect to an aggregate of
1,573,749 Shares were outstanding at exercise prices ranging from Euro 1.95 to
13.54.

     The 1998 Stock Option Plan.  On November 4, 1998, the shareholders at an
extraordinary meeting approved the 1998 Stock Option Plan, to succeed the 1996
Stock Option Plan, and at that time options representing 1,000,000 Shares
previously authorized for the 1996 Plan were transferred to the 1998 Plan. In
addition on September 21, 1999, 900,000 Shares and on October 18, 2000,
1,250,000 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 September 30, 2001,
options with respect to an aggregate of 2,779,130 Shares were outstanding at
exercise prices ranging from Euro 6.70 to 51.50, and options to purchase or
subscribe for up to 268,907 Shares remained available for grant under the 1998
Plan.

     The 2001 Stock Option Plan.  On September 25, 2001, the shareholders, at an
extraordinary meeting, authorized the Board of Directors to grant options, which
give the right to subscribe for or purchase up to 1,100,000 Shares, to employees
under the 2001 Stock Option Plan. Pursuant to this authorization, the issue
price of the Shares will be equal to the closing price for a Share on the
Nouveau Marche on the last trading day preceding the date of the grant of the
options, provided that the issue price is not less than (i) 80% of the average
of the closing prices quoted for a Share on the Nouveau Marche during the twenty
trading days preceding such date of grant and (ii) 80% of the average repurchase
price of any Shares held by the Company. Under the 2001 Plan, generally and
unless otherwise specified, one-fourth of the Shares subject to option vest 12
months after the date of grant and 1/48 of the Shares vest each month thereafter
provided the optionee continues to render services to the Company. As of
September 30, 2001, no options had been granted under

                                        40
<PAGE>

the 2001 Plan. The 2001 Stock Option Plan is to be submitted to Shareholders for
approval at their annual meeting on December 18, 2001.

     All Options granted under the 1996, 1998 and 2001 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 and optionees 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 is a French resident at the date of grant of the stock options and
disposes of the shares before a five-year period following the date of grant of
the option. In addition, such difference is treated as salary income for
personal income tax purposes if the shares are sold or otherwise disposed of
within five years of the option grant. The law applies to all options granted to
French residents exercised after January 1, 1997. However pursuant to a law of
July 2, 1998, both the beneficiary and the Company are exempted from such social
contributions if the options were granted before January 1, 1997 and are
exercised after April 1, 1998. According to the Law of May 15, 2001, the
five-year lock-up period is reduced to four years with respect to stock options
granted on or after April 27, 2000.

     The Company has not recorded a liability for social charges which may be
assessed for options granted as of June 30, 2001 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 or 4-year period from the grant date.

     1998 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 September 2001
which reserves a total of 300,000 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.

     French Employee Savings Plan.  The Company's French Employee Savings Plan
(the "Savings Plan"), which was approved by the Company's shareholders in
October 1996, and renewed such approval in September 2001 reserves a total of
300,000 Shares for issuance to ILOG S.A. Employee Benefits Trust thereunder for
a period of two years from the date of such renewed approval. The Savings Plan
permits
                                        41
<PAGE>

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 will be determined by the Board on the basis of the fair market
value of a Share; more precisely, the Board may determine the issue price of one
Share by reference to a sale price of the Share in Euros on the Nouveau Marche.
However, in no case should the issue price be less than 80% of the mean of the
closing sales prices for a Share as quoted on the Nouveau Marche during the
twenty days of quotation preceding the decision of the Board called to set the
opening date for subscription and as reported in La Tribune or such other source
the Board deems reliable. 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, 2001, the Company had issued 52,842 and 42,439 Shares
under the Purchase Plan and Savings Plan, respectively, since December 2000.

ITEM 7.  MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

A.  MAJOR SHAREHOLDERS

     The table below sets forth certain information with respect to the
beneficial ownership of shares of the Company as of September 30, 2001 by any
person known to the Company to be the owner of five percent or more of the
outstanding Shares, and of the Company's Directors, TAB members and executive
officers, considered as one group:

<Table>
<Caption>
                                                            SHARES BENEFICIALLY   PERCENTAGE
NAME AND ADDRESS OF BENEFICIAL OWNER                             OWNED(1)          OWNED(1)
------------------------------------                        -------------------   ----------
<S>                                                         <C>                   <C>
Fidelity Investments......................................       1,532,237            9.4%
INRIA.....................................................       1,337,500            8.2%
Robert Bixby(2)...........................................         948,707            5.8%
All Directors, TAB members and executive officers as a
  group (21 persons)(3)...................................       2,831,736           17.4%
</Table>

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

(1) Number of Shares and percentage ownership is based on: (i) 16,241,500 Shares
    outstanding as of September 30, 2001. Beneficial ownership is determined in
    accordance with the General Instructions of Form 20-F and includes voting
    and investment power with respect to such shares. Shares subject to options
    and warrants that are currently exercisable or exercisable within 60 days of
    September 30, 2001 are deemed to be outstanding and to be beneficially owned
    by the person holding such options or warrants 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 307,812 shares issuable upon exercise of options to purchase shares
    which are exercisable within 60 days of September 30, 2001.

(3) Includes 926,926 shares issuable upon exercise of options and warrants to
    purchase shares which are exercisable within 60 days of September 30, 2001.

     Over the last three years there have been no significant changes in the
Company's ownership. To the Company's knowledge, it is not owned or controlled
by another corporation or by any foreign government or any other natural or
legal person.

                                        42
<PAGE>

B.  RELATED PARTY TRANSACTIONS

     In 1998 SAP A.G. purchased 685,064 shares in the Company for $10.5 million.
In December 1997, SAP and the Company entered into a three-year agreement for
the licensing and support of certain ILOG products. Over the three-year period
of this agreement, ILOG has received approximately $19 million in revenues. In
1999, the agreement was amended to include certain additional ILOG products in
exchange for $0.9 million. In December 2000, the three-year agreement was
extended for an additional year in exchange for additional license and
maintenance fees.

     In 1999 Temposoft S.A. entered into a licensing agreement for the Company's
products. Under the terms of the licensing and other contemporaneous agreements
ILOG receives license fees and royalties for certain ILOG products from
Temposoft and warrants to purchase Temposoft shares. In September 2001 ILOG
exercised the warrants received under the agreement, in full, and participated
in a financing of Temposoft for a total investment of approximately Euros
300,000. As of September 30, 2001 ILOG owned 2.1% of Temposoft. Since 1999 Mr.
Patrick Albert the Company's Chief Technical Officer has been a Director of
Temposoft. Revenues received from Temposoft by ILOG were $778,000, $173,000 and
$24,000 in 2001, 2000 and 1999 respectively.

     All the commercial aspects of the above transactions were carried out on an
arm's length basis and on commercially reasonable terms.

C.  INTERESTS OF EXPERTS AND COUNSEL

     Not Applicable.

ITEM 8.  FINANCIAL INFORMATION

A.  CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION

     See "Item 18. Financial Statements" for a list of the financial statements
filed with this Annual Report on Form 20-F.

     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.

     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
Euros and under the French Company 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.

B.  SIGNIFICANT CHANGES

     None

                                        43
<PAGE>

ITEM 9.  THE OFFER AND LISTING

A.  OFFER AND LISTING DETAILS

  CLOSING SALE PRICES OF ILOG ADSS AND SHARES

     In February 1997, the Company's ADSs (each ADS representing one Share) were
listed on the Nasdaq National Market. The following table sets forth the range
of low and high reported closing sale prices of the ADSs on the Nasdaq National
Market for the periods indicated.

<Table>
<Caption>
                                                                 IN DOLLARS
                                                              ----------------
                                                               LOW      HIGH
                                                              ------   -------
<S>                                                           <C>      <C>
1998(1).....................................................   5.625    16.375
1999........................................................   4.438    16.500
2000........................................................   5.000   104.500
First Quarter...............................................   5.000     8.500
Second Quarter..............................................   6.625    26.125
Third Quarter...............................................  21.000   104.500
Fourth Quarter..............................................  24.750    59.500
2001........................................................   9.594    63.250
First Quarter...............................................  36.250    63.250
Second Quarter..............................................  24.125    62.750
Third Quarter...............................................   9.594    34.000
Fourth Quarter..............................................  10.875    20.640
2002
First Quarter...............................................   5.090    17.150
MONTHLY
May 2001....................................................  15.460    20.600
June 2001...................................................  13.210    20.640
July 2001...................................................   8.660    17.150
August 2001.................................................   8.750    12.000
September 2001..............................................   5.090     6.500
October 2001................................................   5.850     8.640
</Table>

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

(1) From February 1997.

     On October 31, 2001, the last sale price for the ADSs as reported on the
Nasdaq National Market was $8.000 per ADS.

                                        44
<PAGE>

     In December 1998, the Shares were listed on the Nouveau Marche of Euronext
Paris. The following table sets forth the range of high and low reported closing
sale prices of the Shares on the Nouveau Marche for the periods indicated.

<Table>
<Caption>
                                                                 IN EUROS
                                                              --------------
                                                               LOW     HIGH
                                                              -----   ------
<S>                                                           <C>     <C>
1999(1).....................................................   4.40    12.65
2000........................................................   5.01     8.70
First Quarter...............................................   5.01     8.70
Second Quarter..............................................   6.64    26.90
Third Quarter...............................................  20.20   107.90
Fourth Quarter..............................................  29.10    71.50
2001........................................................  11.49    23.51
First Quarter...............................................  39.00    72.50
Second Quarter..............................................  26.80    72.60
Third Quarter...............................................  11.49    36.35
Fourth Quarter..............................................  12.55    24.44
2002
First Quarter...............................................   5.00    19.20
MONTHLY
May 2001....................................................  18.20    24.44
June 2001...................................................  15.40    23.44
July 2001...................................................   9.90    19.20
August 2001.................................................   9.00    13.50
September 2001..............................................   5.00     8.48
October 2001................................................   6.06     8.91
</Table>

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

(1) From December 1998.

     On October 31, 2001, the last sale price for the Shares as reported on the
Nouveau Marche was 8.60 Euros per Share.

     The Depositary in respect of the ADSs is JPMorgan Chase Bank. Each ADS
registered on the books of the Depositary corresponds to one Share. As of
September 30, 2001 there were 22 record holders of American Depositary Receipts
evidencing 4,747,870 ADSs.

B.  PLAN OF DISTRIBUTION

     Not Applicable.

C.  MARKETS

     The ADSs are quoted on the Nasdaq National Market under the symbol "ILOG".
The shares are also listed on the Nouveau Marche of Euronext Paris.

  GENERAL

     In September, 2000, upon successful completion of an exchange offer, the
Paris Bourse(SBF) S.A. (the "SBF"), the Amsterdam Stock Exchanges and the
Brussels Stock Exchanges merged to create Euronext, a Pan-European exchange.
Through the exchange offer, all the shareholders of SBF, the Amsterdam Stock
Exchanges and the Brussels Stock Exchanges contributed their shares to Euronext
N.V., a Dutch holding company. Securities quoted on exchanges participating in
Euronext will be traded over a common Euronext

                                        45
<PAGE>

platform, with central clearinghouse, settlement and custody structures.
However, these securities will remain listed on their local exchanges. As part
of Euronext, Euronext Paris retains responsibility for the admission of shares
to the Euronext Paris's trading markets as well as the regulation of those
markets.

     Securities listed on Euronext Paris 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

     The Nouveau Marche is a regulated market managed and operated by Euronext
Paris, the organization which manages and operates the three markets. 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 Euronext Paris's
regulations. 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.

     The shares listed on the Nouveau Marche are placed in one of two categories
depending on the volume of transactions, continu or fixing. ILOG's Shares are
placed in the category continu, which incudes the most actively traded shares on
the Nouveau Marche. Such trading takes place on each business day from 9:00 a.m.
to 5:30 p.m. local time, with a pre-opening session from 7:15 a.m. to 9:00 a.m.
and a pre-closing session from 5:25 p.m. to 5:30 p.m. during which transactions
are recorded but not executed, and a closing auction at 5:30 p.m. For shares
that are not traded continuously, retail orders on the Nouveau Marche are
matched by the central system at two daily fixings, at 10:30 a.m. and 4:00 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. Trading in securities on
the Nouveau Marche may be suspended by Euronext Paris, if quoted prices exceed
certain price limits defined by the regulations of Euronext Paris. In
particular, if the quoted price of a continu security varies by more than 10%
from the previous day's closing price, trading may be suspended for 4 minutes.
Once trading has commenced, further suspensions of up to four minutes are also
possible if the price again varies by more than 10% from the threshold at which
the suspension was initiated. During the continuous trading session, Euronext
Paris also suspends trading for a 4-minute period if the price varies by more
than 2% from the last traded price. Euronext Paris may also suspend trading of a
listed security on the Nouveau Marche in certain other limited circumstances,
including, for example, the occurrence of unusual trading activity in such
security. In addition, in exceptional cases, the Conseil des Marches Financiers
(the "CMF") may also suspend trading.

     Trades of securities listed on the Nouveau Marche are settled on a cash
basis on the third trading day following the trade. Market intermediaries are
also permitted to offer investors a deferred settlement service (service de
reglement differe) for a fee. The deferred settlement service is only available
for trades in securities which either (i) are a component of the Index SBF 120
or (ii) have both a total market capitalization of at least Euro 1 billion and a
daily average volume of trades of at least Euro 1 million. The Shares are not
eligible for the deferred settlement service. Investors can elect on the
determination date (date de liquidation), which is the fifth trading day before
the end of the month, either to settle the trade by the last trading day of the
month or to pay an additional fee and postpone settlement to the determination
date of the following month.

     Equity securities traded on a deferred settlement basis are considered to
have been transferred only after they have been registered in the purchaser's
account. Under French securities regulations, any sale of a security traded on a
deferred settlement basis during the month of a dividend is deemed to occur
after the dividend has been paid. If the sale takes place before, but during the
month of, a dividend payment date, the

                                        46
<PAGE>

purchaser's account will be credited with an amount equal to the dividend paid
and the seller's account will be debited by the same amount.

     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 Euroclear France, a
settlement organization. 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 Euroclear France, 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.

D.  SELLING SHAREHOLDERS

     Not Applicable.

E.  DILUTION

     Not Applicable.

F.  EXPENSES OF THE ISSUE

     Not Applicable.

ITEM 10.  ADDITIONAL INFORMATION

A.  SHARE CAPITAL

     Not Applicable.

B.  MEMORANDUM AND ARTICLES OF ASSOCIATION

     For a discussion of the history of the Company, please see "Item 4.
Information on the Company -- History and Development of ILOG."

     The Company is a societe anonyme, a form of limited liability company,
incorporated under the laws of France. In this section, the Company summarizes
material information concerning the Company's share capital, together with
material provisions of applicable French law and the Company's statuts
(by-laws). An unofficial English translation of the Company's statuts is
included as an exhibit to this Annual Report on Form 20-F. One may obtain copies
of the Company's statuts in French from the Greffe of the Registry of Commerce
and Companies of Creteil, France. Those full documents provide additional
details.

  1.  SHAREHOLDERS' MEETINGS AND VOTING RIGHTS

  General

     In accordance with French Company Law, there are two types of shareholders'
general meetings, ordinary and extraordinary.

     Ordinary general meetings of shareholders are required for matters such as:

     - electing, replacing and removing Directors;

     - appointing independent auditors;

     - approving the annual accounts;

     - declaring dividends or authorizing dividends to be paid in shares; and

     - issuing debt securities.

                                        47
<PAGE>

     Extraordinary general meetings of shareholders are required for approval of
matters such as amendments to the Company's statuts, including any amendment
required in connection with extraordinary corporate actions. Extraordinary
corporate actions include:

     - changing the Company's company's name or corporate purpose;

     - increasing or decreasing the Company's share capital;

     - authorizing or deciding the issuance of investment certificates,
       convertible or exchangeable securities, or any other securities giving
       rights to equity securities; and

     - the voluntary liquidation of the Company.

  Annual Ordinary Meetings

     French Company Law requires the Company's Board of Directors to convene an
annual ordinary general meeting of shareholders for approval of the annual
accounts. This meeting must be held within six months of the end of each fiscal
year. This period may, however, be extended by an order of the President of the
Tribunal de Commerce (Commercial Court). The Board of Directors may also convene
an ordinary or extraordinary meeting of shareholders upon proper notice at any
time during the year. If the Board of Directors fails to convene a shareholders'
meeting, the Company's independent auditors may call the meeting. In bankruptcy,
the Company's liquidator or court-appointed agent may also call a shareholders'
meeting in some instances. Any of the following may request the court to appoint
an agent:

     - one or several shareholders holding at least 5% of the Company's share
       capital;

     - any interested party, in cases of urgency; or

     - duly qualified associations of shareholders who have held their shares in
       registered form for at least two years and who together hold at least a
       specified percentage of the Company's voting rights.

  Notice of Shareholders' Meetings

     The Company must announce general meetings at least 30 days in advance by
means of a preliminary notice, which is published in the Bulletin des Annonces
Legales Obligatoires, or "BALO," and must be sent to the Commission des
Operations de Bourse (the "COB") prior to publication. This preliminary notice
must contain, among other things, the time, date and place of the meeting, the
agenda, a draft of the resolutions to be submitted to the shareholders, a
description of the procedures that holders of bearer shares must follow to
attend the meeting and the procedure for voting by mail.

     At least 15 days prior to the date set for the meetings on first call and
at least six days before any second call, the Company must publish a final
notice (avis de convocation) containing among other things, the final agenda,
time and place of the meeting and other related information. This final notice
must be sent by mail to all registered shareholders who have held shares for at
least one month prior to the date of publication of the final notice, and must
also be published in a newspaper authorized to publish legal announcements in
the local administrative department (departement) in which the Company is
registered, as well as in the BALO, with prior notice having been given to the
COB.

     In general, shareholders can only take action at shareholders' meetings on
matters listed on the agenda for the meeting. As an exception, shareholders may
take action with respect to the dismissal of Directors and various matters even
though these actions have not been included on the agenda.

     Additional resolutions to be submitted for approval by the shareholders at
the meeting may be proposed to the Board of Directors within 10 days of the
publication of the preliminary notice in the BALO by:

     - one or several shareholders holding a minimum number of shares calculated
       on the basis of a formula relating to the Company's share capital; or

     - a duly qualified association of shareholders who have held their shares
       in registered form for at least two years and who together hold at least
       1% of the Company's voting rights.
                                        48
<PAGE>

     The Board of Directors must submit these resolutions to a vote of the
shareholders.

     During the two weeks preceding a meeting of shareholders, any shareholder
may submit written questions to the Board of Directors relating to the agenda
for the meeting. The Board of Directors is then obliged to respond to these
questions.

  Attendance and Voting at Shareholders' Meetings

     Each Share confers on a shareholder the right to one vote. Shareholders may
attend ordinary general meetings and extraordinary general meetings and exercise
their voting rights, subject to the conditions specified in French Company Law
and the Company's statuts. There is no requirement that a shareholder have a
minimum number of shares in order to attend or to be represented at an ordinary
or extraordinary general meeting or to vote by mail.

     In order to participate in any general meeting, a holder of shares held in
registered form must have its shares registered in its name in a shareholder
account maintained by the Company or on the Company's behalf by an agent
appointed by the Company at least five days prior to the date of the meeting.

     A holder of bearer shares must obtain a certificate from the accredited
intermediary with whom the holder has deposited its shares. This certificate
must indicate the number of bearer shares the holder owns and must state that
these shares are not transferable until the time fixed for the meeting. The
holder must deposit this certificate at the place specified in the notice of the
meeting at least five days before the meeting.

  Proxies and Votes by Mail

     In general, all shareholders who have properly registered their Shares or
duly presented a certificate from their accredited financial intermediary may
participate in general meetings. Shareholders may participate in general
meetings either in person or by proxy. Shareholders may vote in person, by proxy
or by mail.

     Proxies will be sent to any shareholder on request with, among other
things, the text of the resolutions to be passes at the relevant meeting. In
order to be counted, such proxies must be received at the Company's registered
office, or at any other address indicated on the notice convening the meeting,
prior to the date of the meeting. A shareholder may grant proxies to his or her
spouse or to another shareholder. A shareholder that is a corporation may grant
proxies to a legal representative. Alternatively, the shareholder may send the
Company a blank proxy without nominating any representative. In this case, the
chairman of the meeting will vote the blank proxies in favor of all resolutions
proposed or agreed by the Board of Directors and against all others.

     With respect to votes by mail, the Company must send shareholders a voting
form. The completed form must be returned to the Company at least three days
prior to the date of the shareholders' meeting.

  Quorum

     French Company Law requires that shareholders having at least 25% of the
shares entitled to voting rights must be present in person or voting by mail or
by proxy to fulfill the quorum requirement for:

     - an ordinary general meeting; and

     - an extraordinary general meeting where an increase in the Company's share
       capital is proposed through incorporation of reserves, profits or share
       premium.

     The quorum requirement is 33 1/3% of the shares entitled to voting rights,
on the same basis, for any other extraordinary general meeting.

     If a quorum is not present at a meeting, the meeting is adjourned. When an
adjourned ordinary meeting is resumed, there is no quorum requirement. No quorum
is required when an adjourned extraordinary general meeting is resumed only to
approve an increase in the Company's share capital through incorporation of
reserves, profits or share premium. In the case of any other resumed
extraordinary general meeting, shareholders having at least 25% of outstanding
voting rights must be present in person or voting by mail or by
                                        49
<PAGE>

proxy and, if it is provided for by the by-laws (statuts), by videoconference or
by any means of telecommunication allowing them to be identified (an amendment
to the Company's statuts to this effect will be submitted to the next general
shareholders' meeting convened to approve the accounts for the fiscal year ended
June 30, 2001) for a quorum. If a quorum is not present, the reconvened meeting
may be adjourned for a maximum of two months. No deliberation by the
shareholders may take place without a quorum. However, only questions which were
on the agenda of the adjourned meeting may be discussed and voted upon.

  Majority

     A simple majority of shareholders may pass a resolution at either an
ordinary general meeting or an extraordinary general meeting deciding upon a
capital increase by incorporation of reserves, profits or share premium. At any
other extraordinary general meeting, a two-thirds majority of the shareholder
votes cast is required.

     A unanimous shareholder vote is required to increase liabilities of
shareholders.

     Abstention from voting by those present either in person or, if it is
provided for by the by-laws (statuts), by videoconference or by any means of
telecommunication allowing them to be identified (an amendment to the Company's
statuts to this effect will be submitted to the next general shareholders'
meeting convened to approve the accounts for the fiscal year ended June 30,
2001), or those represented by proxy or voting by mail is counted as a vote
against the resolution submitted to a shareholder vote.

     In general, each shareholder is entitled to one vote per share at any
general meeting. Under French Company Law, shares of a company held by entities
controlled directly or indirectly by that company are not entitled to voting
rights and do not count for quorum or majority purposes.

  Financial Statements and Other Communications with Shareholders

     In connection with any shareholders' meeting, the Company must provide a
set of documents, including the Company's annual report and a summary of the
results of the five previous fiscal years, to any shareholder who so requests.
French Company Law requires that a special report be provided to the ordinary
shareholders' meeting regarding stock options authorized and/or granted by the
Company.

  2.  DIVIDENDS

     The Company may only distribute dividends out of the Company's
"distributable profits," plus any amounts held in the Company's reserve which
the shareholders decide to make available for distribution, other than those
reserves which are specifically required by law or the Company's statuts.
"Distributable profits" consist of the Company's unconsolidated net profit in
each fiscal year, as increased or reduced by any profit or loss carried forward
from prior years, less any contributions to the reserve accounts pursuant to law
or the Company's statuts.

  Legal Reserve

     French Company Law provides that each French societe anonyme, such as the
Company, must allocate 5% of their unconsolidated statutory net profit for each
year to their legal reserve fund before dividends may be paid with respect to
that year. Funds must be allocated until the amount in the legal reserve is
equal to 10% of the aggregate nominal value of the share capital. This
restriction of payment of dividends also applies to each of the Company's French
subsidiaries on an unconsolidated basis. The legal reserve of any company
subject to this requirement may only be distributed to shareholders upon
liquidation of the company.

  Approval of Dividends

     According to French Company Law, the Board of Directors may propose a
dividend for approval by the shareholders at the annual general meeting of
shareholders. If the Company has earned distributable profits since the end of
the preceding fiscal year, as reflected in an interim income statement certified
by the Company's auditors, the Board of Directors may distribute interim
dividends for a minimum amount of
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<PAGE>

Euro 0.76 (FF 5) per share, to the extent of the distributable profits for the
period covered by the interim income statement. The Board of Directors may
declare such dividends, subject to French law, and may do so, for interim
dividends paid in cash, without obtaining shareholder approval. For interim
dividends paid in shares, prior authorization by an ordinary shareholders'
meeting is required.

  Distribution of Dividends

     If a priority dividend is paid in full, dividends are distributed to
shareholders pro-rata according to their respective holdings of shares.
Outstanding dividends are payable to shareholders on the date of the
shareholders' meeting at which the distribution of dividends is approved. In the
case of interim dividends, distributions are made to shareholders on the date of
the Board of Directors' meeting in which the distribution of interim dividends
is approved. The actual dividend payment date is decided by the shareholders in
an ordinary general meeting, or by the Board of Directors in the absence of such
a decision by the shareholders.

  Timing of Payment

     According to French Company Law, the Company must pay any dividends within
nine months of the end of the Company's fiscal year, unless otherwise authorized
by court order. Dividends on shares that are not claimed within five years of
the date of declared payment revert to the French State.

  3.  CHANGES IN SHARE CAPITAL

  Increases in Share Capital

     As provided by French Company Law, the Company's share capital may be
increased only with the shareholders' approval at an extraordinary general
meeting following a recommendation of the Board of Directors. Increases in the
Company's share capital may be effected by:

     - issuing additional shares;

     - increasing the nominal value of existing shares; or

     - issuing investment certificates or a new class of shares.

     Increases in share capital by issuing additional shares, investment
certificates or a new class of shares may be effected by issuing such
securities:

     - for cash;

     - for assets contributed in kind;

     - by conversion of debt securities previously issued;

     - by capitalization of profits, reserves or share premiums;

     - subject to various conditions, in satisfaction of debt incurred by the
       Company; or

     - any combination of the above.

     Decisions to increase the share capital through the capitalization of
reserves, profits and/or share premiums require the approval of an extraordinary
general meeting, acting under the quorum and majority requirements applicable to
ordinary shareholders' meetings. Increases effected by an increase in the
nominal value of shares require unanimous approval of the shareholders, unless
effected by capitalization of reserves, profits or share premiums. All other
capital increases require the approval of an extraordinary general meeting.

     The shareholders may delegate the right to carry out any increase in share
capital to the Board of Directors, provided that this increase has been
previously authorized by the shareholders. The Board of Directors may further
sub-delegate this right to the Company's Chairman and Chief Executive Officer.
Each time the shareholders decide on a capital increase or decide to delegate to
the Board of Directors the right to carry out a capital increase, they must
decide on whether or not to proceed with a capital increase reserved to

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<PAGE>

employees of the Company and its subsidiaries or whether or not to delegate to
the Board of Directors the right to carry out such reserved capital increase.

  Decreases in Share Capital

     According to French Company Law, any decrease in the Company's share
capital requires approval by the shareholders entitled to vote at an
extraordinary general meeting. In the case of a capital reduction, other than a
reduction to absorb losses or a reduction as part of a program to purchase the
Company's own shares, all holders of shares must be offered the possibility to
participate in such a reduction. The share capital may be reduced either by
decreasing the nominal value of the outstanding share capital or by reducing the
number of outstanding shares. The number of outstanding shares may be reduced
either by an exchange of shares or by the repurchase and cancellation of shares.
Holders of each class of shares must be treated equally unless each affected
shareholder agrees otherwise.

  4.  PREEMPTIVE SUBSCRIPTION RIGHTS

     According to French Company Law, if the Company issue new securities for
cash giving rights, either immediately or at a later date, to subscribe to the
Company's new shares, current shareholders will have preemptive subscription
rights to these securities on a pro-rata basis. These preemptive rights require
the Company to give priority treatment to those shareholders. Preemptive
subscription rights are transferable during the subscription period relating to
a particular offering. These rights may also be listed on Euronext Paris.

     A two-thirds majority of the shares entitled to vote at an extraordinary
general meeting may vote to waive preemptive subscription rights with respect to
any particular offering. French Company Law requires that the Board of Directors
and the Company's independent auditors present reports that specifically address
any proposal to waive preemptive subscription rights. In the event of a waiver,
the issue of securities must be completed within the period prescribed by law.
The shareholders may also decide at an extraordinary general meeting to give
existing shareholders a non-transferable priority right to subscribe to such new
equity securities during a limited period of time. Shareholders also may notify
the Company that they wish to waive their own preemptive subscription rights
with respect to any particular offering if they so choose.

  5.  FORM, HOLDING AND TRANSFER OF SHARES

  Form of Shares

     The Company's statuts provide that the Shares may be held in registered or
bearer form.

  Holding of Shares

     In accordance with French law concerning dematerialization of securities,
ownership of shares are not represented by share certificates but by book
entries.

     The Company maintains a share account with Euroclear France ("Euroclear")
in respect of all shares in registered form which is administered by BNP
Paribas. In addition, the Company maintain separate accounts in the name of each
shareholder either directly, or, at the shareholder's request, through his
accredited intermediary. Each shareholder account shows the name of the holder
and the number of shares held through an accredited intermediary, the
shareholder account shows that the shares are held through such intermediary.
BNP Paribas, as a matter of course, issues confirmations to each registered
shareholder as to shares registered in the shareholder's account, but these
confirmations do not constitute documents of title.

     Shares held in bearer form are held on the shareholder's behalf in an
account maintained by an accredited intermediary and are registered in an
account maintained by such accredited intermediary with Euroclear. This account
is separate from the Company's account with Euroclear. Each accredited
intermediary maintains a record of shares held through it and will issue
certificates of registration in respect thereof. The Company's statuts permit
the Company to request that Euroclear provide the Company at any time with the

                                        52
<PAGE>

identity of the holders of the Company's shares or other securities granting
immediate or future voting rights, held in bearer form, and with the number of
shares or other securities so held.

     In addition, according to French Company Law, shares held by any non-French
residents may be held on the shareholders behalf in a collective account or in
several individual accounts by an intermediary.

  Transfer of Shares

     The Company's statuts do not contain any restrictions relating to the
transfer of shares.

     Registered shares must be converted into bearer form before being
transferred on Euronext Paris and, accordingly, must be registered in an account
maintained by an accredited intermediary. A shareholder may initiate a transfer
by giving instructions to the relevant accredited intermediary.

     A fee or commission is payable to the French broker, accredited
intermediary or other agent involved in the transaction regardless of whether
the transaction occurs within or outside France. No registration duty is
normally payable in France, unless a transfer instrument has been executed in
France.

  6.  LIQUIDATION RIGHTS

     If the Company is liquidated, any assets remaining after payment of the
Company's debts, liquidation expenses and all of the Company's remaining
obligations will be distributed first to repay in full the nominal value of the
Company's shares. Any surplus will be distributed pro rata among shareholders in
proportion to the nominal value of their shareholdings.

  7.  REQUIREMENTS FOR HOLDINGS EXCEEDING CERTAIN PERCENTAGES

     French Company Law provides that any individual or entity (including a
holder of ADSs), acting alone or in concert with others, that becomes the owner,
directly or indirectly, of more than 5%, 10%, 20%, 33 1/3%, 50% or 66 2/3% of
the outstanding shares or the voting rights of a listed company in France such
as the Company, or that decreases its shareholding or voting rights above or
below any of these percentages, must notify the company within 15 calendar days
of the date it crosses each threshold of the number of shares or ADSs it holds
and their voting rights. The individual or entity must also notify the Conseil
des Marches Financiers (the "CMF") within five trading days of such date of the
number of equity securities it holds and the voting rights attached thereto.

     French law and the COB impose additional reporting requirements on persons,
acting alone or in concert with others, who acquire more than 10% or 20% of the
outstanding shares or voting rights of a listed company. These persons must file
with the CMF, the COB and such listed company, a report within fifteen calendar
days of the date such threshold has been crossed. In this report the acquirer
must specify its intentions for the following 12-month period including whether
or not such person or persons intend to continue its purchases, to increase its
shareholdings or to seek a nomination to such company's Board of Directors. This
report must be filed with the CMF, the COB and with such listed company. The CMF
publicly releases the notice. The acquirer must also publish a press release
stating its intentions in a financial newspaper of national circulation in
France. The acquirer may amend its stated intentions, provided that it does so
on the basis of significant changes in its own situation or shareholders. Upon
any change of intention, it must file a new report.

     Under the regulations of the CMF, and subject to limited exemptions granted
by the CMF, any person or persons acting in concert acquiring 33 1/3% of the
share capital or voting rights of a French listed company must initiate a public
tender offer for the balance of the share capital of such company.

     In the case of a violation of the notification requirements provided for
under French Company Law, the undeclared share capital interest in excess of the
required notification level will be deprived of voting rights for all
shareholders' meetings until the end of a two-year period following the date on
which the owner thereof complies with such notification requirement. In
addition, any shareholder who fails to comply with the above legal requirements
may have all or part of its voting rights suspended for up to five years by the
Commercial

                                        53
<PAGE>

Court at the request of the Company's chairman, any shareholder or the COB, and
may be further subject to a Euro 18,294 fine.

     In order to permit shareholders to give the notice required by law, the
Company must publish information with respect to the total number of voting
rights outstanding as of the date of the Company's annual general meeting in the
BALO not later than 15 calendar days after such meeting. In addition, if the
number of outstanding voting rights changes by at least 5% or more between two
ordinary general meetings, the Company must publish in the BALO, within 15
calendar days of such change, the number of voting rights then outstanding and
provide the CMF with a written notice. The CMF publishes the total number of
voting rights so notified by all listed companies in a weekly notice (avis),
mentioning the date each such number was updated. In order to facilitate
compliance with the notification requirements, a holder of ADSs may deliver any
such notification to the depositary and the depositary shall, as soon as
practicable, forward such notification to the Company and to the CMF.

  8.  PURCHASE OF THE COMPANY'S OWN SHARES

     Under French Company Law, the Company may not subscribe its own shares.
However, the Company may, directly or through an intermediary acting on its
behalf, acquire the Company's own shares for, among other things:

          (a) to reduce the Company's share capital by canceling such acquired
     shares, with approval of the Company's shareholders at an extraordinary
     meeting,

          (b) to obtain shares for distribution to the Company's employees under
     a profit-sharing plan or stock option plan or,

          (c) to acquire up to 10% of the Company's share capital in connection
     with a corporate share repurchase program, provided the Company's shares
     are listed on a regulated market (e.g., the Premier Marche, the Second
     Marche, or the Nouveau Marche). The Company has filed a Note d'information
     and has received the approval, or visa, of the COB on November 30, 2000, as
     well as the Company's shareholders' approval at an ordinary general
     meeting. The COB visa number is 00-1935. A new resolution will be submitted
     to this effect to the next general shareholders' meeting convened to
     approve the accounts for the fiscal year ending June 30, 2001.

     The Company must hold any Shares it repurchases in registered form. These
shares also must be fully paid up. Shares repurchased by the Company are deemed
outstanding under French law but are not entitled to dividends or voting rights,
and the Company may not exercise any preemptive subscription rights attached to
them.

     The shareholders, at an extraordinary general meeting, may decide not to
take these shares into account in determining the preemptive subscription rights
attached to other shares. However, if the shareholders decide to take them into
account, the Company must either sell the rights attached to the shares the
Company holds on the market before the end of the subscription period or
distribute them to the other shareholders on a pro rata basis.

     On December 18, 2000, the shareholders authorized the Board of Directors to
repurchase up to 10% of the Company's total outstanding share capital. The total
amount of such purchase may not exceed Euro 5 million. This authorization voids
and replaces the one which was granted by the Company's general shareholders
meeting on December 14, 1999. This authorization will expire on the date of the
annual shareholders' meeting called to approve the accounts for the fiscal year
ending June 30, 2001. A new resolution will be submitted to this effect at the
December 18, 2001 shareholders' general meeting convened to approve the accounts
for the fiscal year ended June 30, 2001.

                                        54
<PAGE>

  9.  TRADING THE COMPANY'S SHARES

     Under Reglement No. 90-04 of the COB, as amended, the Company may not trade
in its shares for the purpose of manipulating the market. There are three
requirements for trades by a company in its own shares to be considered valid.
Specifically, in order to be valid:

     - trades must be executed on behalf of the Company by only one intermediary
       or, if the issuer uses its share repurchase program in part by way of
       derivatives, by two intermediaries provided that the issuer is able to
       ensure an appropriate coordination between the intermediaries,

     - any block trades may not be at a price above the current market price,
       and

     - each trade must be made at a price that falls between the lowest and the
       highest trading price of the trading session during which is executed.

     If a Company's shares are continuously quoted (cotation en continu), then a
trade must meet the following further requirements to be considered valid:

     - the trade must not influence the determination of the quoted price before
       the opening of trading, at the opening of the trading or session, at the
       first trade of the shares, at the reopening of trading following a
       suspension, or, as applicable, in the last half-hour of any trading
       session or at the fixing of the closing price,

     - the trade must not be carried out in order to influence the price of a
       derivative instrument relating to the company's shares, and

     - the trade must not account for more than 25% of the average total daily
       trading volume on the Nouveau Marche in the shares during the 15 trading
       days immediately preceding the trade. This last requirement applies only
       to trades in shares that, like the Company's shares, are traded on the
       immediate settlement market and are not eligible for the deferred
       settlement service.

     If a company's shares are quoted at fixings, then a trade must meet one
further requirement to be considered valid:

     - the trade must not account for more than 25% of the average daily trading
       volume of the Nouveau Marche in the shares during the 15 trading days
       immediately preceding the trade.

     Prescriptions regarding volume of purchases do not apply to purchase of
stock for an issuer by an authorized investment firm ("prestataire de services
d'investissement") in conformity with a code of ethics ("charte de deontologie")
that has been approved by the COB. The first code of ethics was adopted by the
"Association Francaise des entreprises d'investissement" (AFEI) and approved by
the COB on February 13, 2001.

     However, there are two periods during which the Company is not permitted to
trade in the Company's own securities: the 15-day period before the date on
which the Company make the Company's consolidated or annual accounts public, and
the period beginning on the date at which the Company become aware of
information that, if disclosed, would have a significant impact on the market
price of its securities and ending on the date this information is made public.

     After making an initial purchase of its own shares, the Company must file
monthly reports with the COB and the CMF that contain specified information
about subsequent transactions. The CMF makes this information publicly
available.

                                        55
<PAGE>

C.  MATERIAL CONTRACTS

     None.

D.  EXCHANGE CONTROLS

  Exchange Controls

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

  Ownership of ADSs or Shares by Non-French Residents

     Under French law, there is no limitation on the right of non-French
residents or non-French shareholders to own, or where applicable, to vote
securities of a French company.

     A French law dated February 14, 1996 abolished the requirement that a
person who is not a resident of the European Union obtain an autorisation
prealable, or prior authorization, prior to acquiring a controlling interest in
a French company. However, both E.U. and non-E.U. residents must file a
declaration administrative, or administrative notice, with French authorities in
connection with the acquisition of a controlling interest in any French company.
Such declaration administrative must also be filed in connection with the
acquisition made by a French company under foreign control. Under existing
administrative rulings, a French company listed on a regulated market is
regarded as under foreign control if 20% or more of its share capital or voting
rights is held by a non-French resident or French company under foreign control,
but a lower percentage may be held to constitute foreign control in certain
circumstances (depending, for instance, upon such factors as the acquiring
party's intentions and its ability to elect Directors or financial reliance by
the French Company on the acquiring party).

E.  TAXATION

     The following is a general summary of certain material French tax and U.S.
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 holders of ADSs are
advised to consult their own tax advisors, with respect to the U.S. federal,
state and local tax consequences, French tax consequences, or foreign tax
consequences of the ownership and disposition of ADSs and the Shares
corresponding thereto.

     This summary is based on the Internal Revenue Code of 1986 as amended (the
"Internal Revenue Code"), French law, U.S. 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 U.S. 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 pronouncements, in force as
of the date of this Annual Report on Form 20-F, and as a consequence are subject
to any change or changes in interpretation in United States or French law, or in
the double taxation conventions between the U.S. and France, occurring after
such date, possibly with retroactive effect.

                                        56
<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 Internal Revenue Code 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 U.S. federal tax consequences discussed below will generally be
applicable to U.S. Holders of Shares.

  TAXATION OF DIVIDENDS

     In France, companies may only pay dividends out of income remaining after
tax has been paid. 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 amount of the avoir fiscal is generally equal to:

     - 50% of the dividend paid for (i) individuals and (ii) companies which own
       at least 5% of the capital of the French distributing company and meet
       the conditions to qualify under the French parent-subsidiary regime; or

     - 25% of the dividend paid for the other shareholders who use the avoir
       fiscal in 2001, and 15% of the dividend paid for such other shareholders
       who will use the avoir fiscal as of January 1, 2002.

     In addition, if the distribution of dividends by the company gives rise to
the precompte, shareholders entitled to the avoir fiscal at the rate of 25%, and
then 15%, will generally be entitled to an additional amount of avoir fiscal
equal to:

     - 50% of the precompte paid in cash by the company for shareholders
       entitled to use the avoir fiscal at the rate of 25%; and

     - 70% of the precompte paid in cash by the company for shareholders
       entitled to use the avoir fiscal at the rate of 15%.

     As indicated below, the precompte is a tax which is paid by French
companies when they distribute dividends out of certain profits (see paragraph
below relating to the precompte).

     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%.

                                        57
<PAGE>

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 published 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 such holder 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)
U.S. 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 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 U.S. 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 U.S. 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 such holder is the beneficial owner
of the dividend and that the 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 U.S. Internal Revenue 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 the holder 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

                                        58
<PAGE>

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 U.S. Internal Revenue
Service indicating that such pension funds have been established and are
operated in accordance with Sections 401(a), 403(b) or 457 of the Internal
Revenue Code. 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 Internal Revenue Code.

     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 distribution are subject to a
tax known as the precompte. The precompte is paid by the distributing company to
the French tax authorities. The amount of the precompte is equal to 50% of the
net dividends before withholding tax.

     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 U.S. 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 the Company (as determined for U.S. tax
purposes) and will be included in gross income of the U.S. Holder as ordinary
income in the year actually or constructively received. To the extent that the
amount of any distribution exceeds current and accumulated earnings and profits
of the Company as calculated for U.S. federal income tax purposes, the
distribution will first be treated as a tax-free return of capital, causing a
reduction in the adjusted basis of the U.S. Holder's ADSs (thereby increasing
the amount of gain, or decreasing the amount of loss, the U.S. Holder will
recognize on a subsequent disposition of the ADSs), and the balance in excess of
adjusted basis will be taxed as capital gain recognized on a sale or exchange. 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 will be converted to U.S. dollars at the spot 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 the Company and imposed
on related payments of avoir fiscal (or precompte) may, subject to certain
generally applicable conditions and limitations, be taken as a foreign tax
credit against such U.S. Holder's U.S. 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. Alternatively, a U.S.
Holder may claim the foreign taxes as an itemized deduction for the taxable year
within which they are paid or accrued. A deduction does not reduce U.S. tax on a
dollar-for-dollar basis like a tax credit. The deduction, however, is not
subject to the limitations applicable to foreign tax credits.

  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.

                                        59
<PAGE>

     For U.S. tax purposes, a U.S. Holder generally will 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, and will be treated as a long-term capital gain or loss if the U.S.
Holder's holding period in the ADSs exceeds one year. The deductibility of
capital losses is subject to significant limitations. In the case of individual
U.S. Holders, any adjusted capital gains are generally subject to U.S. federal
income tax at preferential rates if specified minimum holding periods are met.

  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 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 the Company's share
capital.

  U.S. INFORMATION REPORTING AND BACKUP WITHHOLDING

     Dividend payments made to a Holder and proceeds paid from the sale,
exchange, redemption or disposal of Shares or ADSs may be subject to information
reporting to the Internal Revenue Service and possible U.S. federal backup
withholding at a rate of up to 30.5%. Certain exempt recipients (such as
corporations) are not subject to these information reporting requirements.
Backup withholding will not apply to a holder who furnishes a correct taxpayer
identification number of certificate of foreign status and makes any other
required certification, or who is otherwise exempt from backup withholding. U.S.
persons who are required to establish their exempt status generally must file
Internal Revenue Service Form W-9 (Request for Taxpayer Identification Number
and Certification). Non-U.S. holders generally will not be subject to U.S.
information reporting or backup withholding. However, such holders may be
required to provide certification of non-U.S. status in connection with payments
received in the United States or through certain U.S. related financial
intermediaries. Backup withholding is not an additional tax. Amounts withheld as
a backup withholding may be credited against a Holder's U.S. federal income tax
liability, and a Holder may obtain a refund of any excess amounts withheld under
the backup withholding rules by filing the appropriate claim for refund with the
Internal Revenue Service and furnishing any required information. Holders should
consult their own tax advisors regarding the application of the U.S. information
reporting and backup withholding rules.

  FOREIGN CURRENCY ISSUES

     If dividends are paid in Euros, 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 Euros, determined at a spot 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.

                                        60
<PAGE>

F.  DIVIDENDS AND PAYING AGENTS

     Not Applicable.

G.  STATEMENTS BY EXPERTS

     Not Applicable.

H.  DOCUMENTS ON DISPLAY

     The documents filed by the Company with the Securities and Exchange
Commission can be read at the Securities and Exchange Commission's public
reference facilities at Room 1024, 450 Fifth Street N.W., Washington D.C. 20549,
and at the Northwest Atrium Centre, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511.

I.  SUBSIDIARY INFORMATION

     Not Applicable.

ITEM 11.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Approximately 30% of the Company's revenues and 50% of the Company's
expenses in 2001 were denominated in Euros or Euro equivalent currencies, with
the remainder in U.S. dollars and, to a lesser extent, other currencies. An
increase in the value of the Euro relative to the U.S. dollar will result in
lower profitability in U.S. dollar terms. For the year ended June 30, 2001, the
effect of a 10% hypothetical uniform strengthening in the value of the Euro
relative to the U.S. dollar would result in an increase in revenues of $2.2
million and expenses of $3.9 million with a decrease in operating income and a
decrease of other income of approximately $1.7 million and decrease of earnings
per share of $0.10.

     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-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. Until June 2001 the
Company did not undertake any hedging activities, However, in July 2001 the
Company started some limited hedging activities in the form of forward contracts
selling U.S. dollars for Euros that are designed to mitigate the effect of
changing exchange rates on earnings per share.

     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.

ITEM 12.  DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

     Not Applicable.
                             ---------------------

                                        61
<PAGE>

                                    PART II

ITEM 13.  DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

     None.

ITEM 14.  MATERIAL MODIFICATION TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
PROCEEDS

     None.

ITEM 15.  [RESERVED]

ITEM 16.  [RESERVED]

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

                                    PART III

ITEM 17.  FINANCIAL STATEMENTS

     Not Applicable.

ITEM 18.  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:

<Table>
<Caption>
                                                               PAGE
                                                               ----
<S>                                                            <C>
Report of Independent Auditors..............................   F-1
Consolidated Balance Sheets.................................   F-2
Consolidated Statements of Operations.......................   F-3
Consolidated Statements of Shareholders' Equity.............   F-4
Consolidated Statements of Cash Flows.......................   F-5
Notes to Consolidated Financial Statements..................   F-6
Schedule II to Financial Statements.........................   F-20
</Table>

     (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)

ITEM 19.  EXHIBITS

     The following exhibits are filed as part of this Annual Report:

     3.(ii)  Status (by-laws), of ILOG S.A., as amended (unofficial English
             translation)

     4.     Subscription Agreement, dated as of June 29, 1998, between ILOG S.A.
            and SAP Aktiengesellschaft (incorporated by reference as Exhibit 3
            on Form 20-F of the Company for the fiscal year ended June 30, 1998,
            Commission file Number 0-29144)

     21.    Subsidiaries of the Registrant (see "Item 4: Information on the
            Company -- Organizational Structure")

                                        62
<PAGE>

                                   ILOG S.A.

                         REPORT OF INDEPENDENT AUDITORS

The Directors and Shareholders
ILOG S.A.

     We have audited the accompanying consolidated balance sheets of ILOG S.A.
as of June 30, 2001 and 2000 and the related consolidated statements of
operations, shareholders' equity and cash flows for each of the three years in
the period ended June 30, 2001. Our audits also included the financial statement
schedule listed in the Index at Item 18. These financial statements and schedule
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and schedule based on our
audits.

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

     In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
ILOG S.A. at June 30, 2001 and 2000, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
June 30, 2001, in conformity with accounting principles generally accepted in
the United States. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.

                                          ERNST & YOUNG Audit

                                          (/s/ JOHN MACKEY)

                                          Represented by John Mackey

Paris, France
July 26, 2001

                                       F-1
<PAGE>

                                   ILOG S.A.

                          CONSOLIDATED BALANCE SHEETS
                     (IN THOUSANDS, EXCEPT FOR SHARE DATA)

<Table>
<Caption>
                                                                   JUNE 30,
                                                              -------------------
                                                                2001       2000
                                                              --------   --------
<S>                                                           <C>        <C>
                                     ASSETS
Current assets:
  Cash and cash equivalents.................................  $ 20,870   $ 20,316
  Accounts receivable (less allowance for doubtful accounts
     of $1,074 and $691 at June 30, 2001 and 2000,
     respectively)..........................................    22,215     23,393
  Value-added tax collectible on accounts receivable........     1,135      1,539
  Other receivables.........................................     2,958      2,363
  Prepaid expenses..........................................     1,303        868
                                                              --------   --------
          Total current assets..............................    48,481     48,479
                                                              --------   --------
Property and equipment......................................    13,237      9,490
Less accumulated depreciation and amortization..............    (6,555)    (5,252)
                                                              --------   --------
Property and equipment, net.................................     6,682      4,238
                                                              --------   --------
Other assets................................................       214         20
                                                              --------   --------
          Total assets......................................  $ 55,377   $ 52,737
                                                              ========   ========

                      LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
  Lines of credit...........................................  $  1,303   $  1,602
  Accounts payable and accrued expenses.....................     7,827      7,588
  Accrued compensation......................................     7,139      7,172
  Value-added tax payable...................................     1,276      1,177
  Current portion of long-term debt.........................     1,707      1,714
  Current portion of capitalized lease obligations..........       320        399
  Deferred revenue..........................................     8,015      7,034
                                                              --------   --------
          Total current liabilities.........................    27,587     26,686
Long-term portion of capitalized lease obligations..........       262        302
Other long-term liabilities.................................        --      1,667
                                                              --------   --------
          Total liabilities.................................    27,849     28,655
                                                              --------   --------
Commitments and contingencies
Shareholders' equity:
  Shares, Euro 0.61 nominal value 16,152,850 and 15,362,719
     shares issued and outstanding at June 30, 2001 and
     2000, respectively.....................................    11,109     10,672
  Additional paid-in capital................................    62,863     57,893
  Accumulated deficit.......................................   (40,625)   (41,552)
  Cumulative translation adjustment.........................    (5,819)    (2,931)
                                                              --------   --------
          Total shareholders' equity........................    27,528     24,082
                                                              --------   --------
          Total liabilities and shareholders' equity........  $ 55,377   $ 52,737
                                                              ========   ========
</Table>

                 See notes to consolidated financial statements
                                       F-2
<PAGE>

                                   ILOG S.A.

                     CONSOLIDATED STATEMENTS OF OPERATIONS
              (IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)

<Table>
<Caption>
                                                                  YEAR ENDED JUNE 30,
                                                        ---------------------------------------
                                                           2001          2000          1999
                                                        -----------   -----------   -----------
<S>                                                     <C>           <C>           <C>
Revenues:
     License fees.....................................  $    52,325   $    46,776   $    38,657
     Services.........................................       26,831        24,519        25,066
                                                        -----------   -----------   -----------
          Total revenues..............................       79,156        71,295        63,723
Cost of revenues:
     License fees.....................................        1,258         1,065         1,149
     Services.........................................       12,709        13,090        14,429
                                                        -----------   -----------   -----------
          Total cost of revenues......................       13,967        14,155        15,578
                                                        -----------   -----------   -----------
Gross profit..........................................       65,189        57,140        48,145
Operating expenses:
     Marketing and selling............................       40,958        35,625        31,531
     Research and development.........................       14,804        12,195         9,835
     General and administrative.......................        8,709         8,115         7,435
     Nouveau marche expenses..........................           --            --           466
     Write-off of acquired intangibles................           --           253         2,032
                                                        -----------   -----------   -----------
          Total operating expenses....................       64,471        56,188        51,299
                                                        -----------   -----------   -----------
Income (loss) from operations.........................          718           952        (3,154)
Interest expense......................................         (312)         (424)         (475)
Interest income.......................................          775           483           503
Foreign exchange gain.................................          555           735           168
Other.................................................          (20)           --           (82)
                                                        -----------   -----------   -----------
Net income (loss) before income taxes.................        1,716         1,746        (3,040)
Income taxes..........................................         (789)         (566)         (130)
                                                        -----------   -----------   -----------
Net income (loss).....................................  $       927   $     1,180   $    (3,170)
                                                        ===========   ===========   ===========
Net income (loss) per share
     -- basic.........................................         0.06   $      0.08   $     (0.23)
     -- diluted.......................................  $      0.05   $      0.07   $     (0.23)
                                                        ===========   ===========   ===========
Number of shares used in computing net income (loss)
  per share
     -- basic.........................................   15,764,770    14,628,098    13,998,859
     -- diluted.......................................   17,546,904    17,854,659    13,998,859
                                                        ===========   ===========   ===========
</Table>

                 See notes to consolidated financial statements
                                       F-3
<PAGE>

                                   ILOG S.A.

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

<Table>
<Caption>
                                                                             ACCUMULATED
                                                                                OTHER
                                 SHARES          ADDITIONAL                 COMPREHENSIVE   SHAREHOLDERS'
                          --------------------    PAID-IN     ACCUMULATED      INCOME          EQUITY
                            SHARES     AMOUNT     CAPITAL       DEFICIT        (LOSS)         (DEFICIT)
                          ----------   -------   ----------   -----------   -------------   -------------
<S>                       <C>          <C>       <C>          <C>           <C>             <C>
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 income
  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
  Options exercised.....     874,301       514      3,321                                        3,835
  Issuance of shares....     391,918       240      2,042                                        2,282
Amortization of deferred
  stock compensation....                               24                                           24
Components of
  comprehensive income
  Translation
  adjustment............                                                        (1,264)         (1,264)
  Net income............                                          1,180                          1,180
                                                                                               -------
     Total comprehensive
       loss.............                                                                           (84)
                          ----------   -------    -------      --------        -------         -------
Balance June 30,
  2000..................  15,362,719    10,672     57,893       (41,552)        (2,931)         24,082
  Options exercised.....     761,891       421      4,186                                        4,607
  Issuance of shares....      28,240        16        774                                          790
Amortization of deferred
  stock compensation....                               10                                           10
Components of
  comprehensive income
  Translation
  adjustment............                                                        (2,888)         (2,888)
  Net income............                                            927                            927
                                                                                               -------
     Total comprehensive
       loss.............                                                                        (1,961)
                          ----------   -------    -------      --------        -------         -------
Balance June 30,
  2001..................  16,152,850   $11,109    $62,863      $(40,625)       $(5,819)        $27,528
                          ==========   =======    =======      ========        =======         =======
</Table>

                 See notes to consolidated financial statements
                                       F-4
<PAGE>

                                   ILOG S.A.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<Table>
<Caption>
                                                                  YEAR ENDED JUNE 30,
                                                              ---------------------------
                                                               2001      2000      1999
                                                              -------   -------   -------
<S>                                                           <C>       <C>       <C>
Cash flows from operating activities:
  Net income (loss) income..................................  $   927   $ 1,180   $(3,170)
  Adjustments to reconcile net income (loss) to net cash
     used for operating activities:
     Depreciation and amortization of property and
       equipment............................................    2,079     1,910     1,860
     Amortization of deferred stock compensation............       10        24       102
     Write-off of acquired intangible assets................       --       253     2,032
     Loss on sales of fixed assets..........................       98         5         6
     Increase (decrease) in cash from:
       Accounts receivable..................................     (154)   (9,154)      161
       Value-added tax collectible on accounts receivable...     (255)      453       (64)
       Other receivables....................................      (26)   (1,379)      140
       Prepaid expenses.....................................     (565)       17       570
       Accounts payable and accrued expenses................      666     1,288      (244)
       Accrued compensation.................................      576     1,816     1,380
       Deferred revenue.....................................    1,537       727     2,332
       Value-added tax payable..............................      233        95      (149)
       Other................................................     (559)     (258)       38
                                                              -------   -------   -------
          Net cash provided by (used for) operating
            activities......................................    4,567    (3,023)    4,994
                                                              -------   -------   -------
Cash flows from investing activities:
  Acquisition of intangible assets..........................     (284)       --    (1,000)
  Purchases of property and equipment.......................   (4,510)   (1,534)   (2,424)
  Proceeds from sale of property and equipment..............        1        25        82
                                                              -------   -------   -------
          Net cash used for investing activities............   (4,793)   (1,509)   (3,342)
                                                              -------   -------   -------
Cash flows from financing activities:
  Repayment of loans........................................   (1,699)   (1,558)     (639)
  Principal payments on capital lease obligations...........     (453)     (479)     (481)
  Cash proceeds from issuance of shares.....................    5,347     6,318     2,026
                                                              -------   -------   -------
          Net cash provided by financing activities.........    3,195     4,281       906
                                                              -------   -------   -------
Effect of exchange rate changes on cash and cash
  equivalents...............................................   (2,415)     (965)   (1,127)
                                                              -------   -------   -------
Net increase (decrease) in cash and cash equivalents........      554    (1,216)    1,431
Cash and cash equivalents, beginning of period..............   20,316    21,532    20,101
                                                              -------   -------   -------
Cash and cash equivalents, end of period....................  $20,870   $20,316   $21,532
                                                              =======   =======   =======
</Table>

                 See notes to consolidated financial statements
                                       F-5
<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 business rules 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, system integrators,
VARs, ISVs, and OEMs.

  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,
which were applied on a consistent basis. The preparation of financial
statements in conformity with U.S. generally accepted accounting principles
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.

  FOREIGN CURRENCY TRANSLATION

     The functional currency of the Company and its subsidiaries is the
applicable local currency in accordance with Statement of Financial Accounting
Standards No. 52, "Foreign Currency Translation", while the Company's reporting
currency is the U.S. dollar.

     All assets and liabilities of the Company and its subsidiaries with
functional currencies other than the U.S. dollar are translated into U.S. dollar
equivalents at exchange rates as follows: (1) asset and liability accounts at
the rate of exchange in effect on the balance sheet date, (2) revenues and
expenses at the weighted average exchange rates for the year, and (3)
shareholders' equity accounts at historical exchange rates. Translation gains or
losses are recorded as a separate component of shareholders' equity, and
transaction gains and losses are reflected in net income.

     Due to the number of currencies involved, the constant change in currency
exposures, and the substantial volatility of currency exchange rates, the effect
of exchange rate fluctuations upon future operating results could be
significant. At June 30, 2001, the Company has not undertaken hedging
transactions to cover any currency exposure.

  REVENUE RECOGNITION

     The Company recognizes revenue from product licensing fees, whether sold
directly or through distributors, when the product is shipped, evidence of an
arrangement has been received, all significant contractual obligations have been
satisfied and the resulting receivable is deemed collectible by management, in
accordance with Statement of Position 97-2, "Software Revenue Recognition" ("SOP
97-2",) as amended by Statement of Position 98-4, "Deferral of the Effective
Date of a Provision of SOP 97-2" and Statement of Position 98-9, "Modification
of SOP 97-2, Software Revenue Recognition, with Respect to Certain
Transactions".

                                       F-6
<PAGE>
                                   ILOG S.A.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     If an arrangement to deliver software, either alone or together with other
products or services, requires significant production, modification,
customization or complex integration of software, the entire arrangement is
accounted for in conformity with Accounting Research Bulletin (ARB) No. 45,
"Long-Term Construction-Type Contracts", using the relevant guidance in SOP
81-1, "Accounting for Performance of Construction-Type and Certain
Production-Type Contracts".

     Service revenue from software maintenance agreements is recognized ratably
over the maintenance period, which in most instances is one year. Other service
revenue, primarily consulting and training, are generally recognized at the time
the service is performed. In software arrangements that include rights to
multiple software products, post-contract customer support, and/or other
services, the Company allocates the total arrangement fee among each deliverable
based on the relative fair value of each of the deliverables determined based on
vendor-specific objective evidence.

  SALES RETURNS AND WARRANTIES

     The Company's customers generally do not have the right to return product
for credit or refund. Any potential sales returns are covered by the Company's
allowance for sales returns and doubtful accounts. The Company provides for the
costs of warranty when specific problems are identified. The Company has not
experienced any significant sales returns and warranty claims to date.

  NET INCOME OR LOSS PER SHARE

     Basic net income (loss) per share is computed using the weighted average
number of shares outstanding during the period. Diluted net income (loss) per
share is computed using the weighted average number of shares and dilutive
equivalent shares outstanding during the period. Dilutive equivalent shares
consist of stock options and warrants.

  CASH AND 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
consist principally of money market funds certificates of deposits, and
commercial paper. The cost associated which such securities approximates fair
market value.

     All of the Company's cash and cash equivalents are classified as
available-for-sale and are recorded at amounts that approximate fair market
value based on quoted market prices at June 30, 2001 and 2000. 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, 2001 and 2000, 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. There was no long-term debt at June 30, 2001. At June 30, 2000, the
fair value of long-term debt approximated its carrying value of $1,667,000. Fair
value is determined based on expected future cash flows, discounted at market
interest rates, and other appropriate valuation methodologies.

                                       F-7
<PAGE>
                                   ILOG S.A.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

  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.

  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 Euros
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.
Collateral is generally not required.

     Sales to one customer accounted for approximately 9%, 10% and 13% of
revenues for the years ended June 30, 2001, 2000 and 1999 respectively.

  SOFTWARE DEVELOPMENT COSTS

     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, 2001, 2000 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 $824,000, $880,000 and $741,000 received in the
years ended June 30, 2001, 2000 and 1999, has been recorded as reductions to the
related research and development expenses in each such year.

                                       F-8
<PAGE>
                                   ILOG S.A.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (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 $3,589,000, $2,578,000, and $2,763,000 for the years ended June 30,
2001, 2000, and 1999, respectively.

  DERIVATIVE INSTRUMENTS AND HEDGING

     The Company complies with the Financial Accounting Standards Board issued
Statement No. 133, "Accounting for Derivative Instruments and Hedging Activity"
(FAS 133). FAS 133 requires the recognition of all derivatives on the balance
sheet at fair value. Derivatives that are not hedges of underlying transactions
must be adjusted to fair value through income. If the derivative is a hedge,
depending on the nature of the hedge, changes in the fair value of derivatives
will either be offset against the change in fair value of the hedged assets,
liabilities, or firm commitments through earnings or recognized in other
comprehensive income until the hedged item is recognized in earnings. The
ineffective portion of a derivative's change in fair value will be immediately
recognized in earnings. For the years ended June 30, 2001, 2000, and 1999 the
Company did not have any hedging activity.

  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, 2001, the cost of these modifications has not
significantly affected its operating results.

  RECENT ACCOUNTING PRONOUNCEMENTS

     In June 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards (SFAS) No. 141, "Business Combinations," and No.
142, "Goodwill and Other Intangible Assets."

     SFAS No. 141 requires that the purchase method of accounting be used for
all business combinations initiated after June 30, 2001. Use of the
pooling-of-interests method is no longer permitted. SFAS No. 141 also includes
guidance on the initial recognition and measurement of goodwill and other
intangible assets acquired in a business combination that is completed after
June 30, 2001.
                                       F-9
<PAGE>
                                   ILOG S.A.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     SFAS No. 142 no longer permits the amortization of goodwill and
indefinite-lived intangible assets. Instead, these assets must be reviewed
annually (or more frequently under certain conditions) for impairment in
accordance with this statement. The Company is required to adopt SFAS No. 142
effective July 1, 2002. The impact of implementing this standard is not
anticipated to have a significant effect on the Company's results of operations
or financial position.

2.  CASH AND CASH EQUIVALENTS

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

<Table>
<Caption>
                                                                  JUNE 30,
                                                              -----------------
                                                               2001      2000
                                                              -------   -------
                                                               (IN THOUSANDS)
<S>                                                           <C>       <C>
Cash held at bank...........................................  $ 7,224   $ 4,471
Cash equivalents............................................   13,646    15,845
                                                              -------   -------
     Total cash and cash equivalents........................  $20,870   $20,316
                                                              =======   =======
</Table>

     Gross realized gains and losses on sales of available-for-sale securities
during 2001, 2000 and 1999 were immaterial. There was no unrealized holding
gains or losses on available-for-sale securities at June 30, 2001 or 2000.

     As of June 30, 2001 and 2000, all cash equivalents have contractual
maturities of less than three months.

3.  PROPERTY AND EQUIPMENT

     Property and equipment includes:

<Table>
<Caption>
                                                                  JUNE 30,
                                                              -----------------
                                                               2001      2000
                                                              -------   -------
                                                               (IN THOUSANDS)
<S>                                                           <C>       <C>
Computer equipment and purchased software...................  $ 9,476   $ 5,987
Furniture and other equipment...............................    2,494     2,586
Leasehold improvements......................................    1,267       917
                                                              -------   -------
     Total property and equipment...........................   13,237     9,490
Accumulated depreciation and amortization...................   (6,555)   (5,252)
                                                              -------   -------
     Property and equipment, net............................  $ 6,682   $ 4,238
                                                              =======   =======
</Table>

     Equipment purchased under capital leases in the years ended June 30, 2001
and 2000 totaled $415,000 and $507,000, respectively. The cost of such equipment
included in property and equipment at June 30, 2001 and 2000 totaled $1,926,000,
and $1,795,000, respectively. Accumulated amortization of this equipment totaled
$1,318,000 and $1,021,000 at June 30, 2001 and 2000, respectively.

4.  COMPREHENSIVE INCOME (LOSS)

     The Company complies with Financial Accounting Standards Board Statement
No. 130, "Reporting Comprehensive Income" (FAS 130), which provides for the
reporting and display of comprehensive income and its components; however
compliance with this Statement has no impact on the Company's results of
operations or shareholders' equity.

                                       F-10
<PAGE>
                                   ILOG S.A.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The components of comprehensive loss are as follows:

<Table>
<Caption>
                                                                   JUNE 30,
                                                          ---------------------------
                                                           2001      2000      1999
                                                          -------   -------   -------
                                                                (IN THOUSANDS)
<S>                                                       <C>       <C>       <C>
Net income (loss).......................................  $   927   $ 1,180   $(3,170)
Change in cumulative translation adjustment.............   (2,888)   (1,264)     (732)
                                                          -------   -------   -------
     Total comprehensive loss...........................  $(1,961)  $   (84)  $(3,902)
                                                          =======   =======   =======
</Table>

5.  DEBT

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

<Table>
<Caption>
                                                                 JUNE 30,
                                                              ---------------
                                                               2001     2000
                                                              ------   ------
                                                              (IN THOUSANDS)
<S>                                                           <C>      <C>
SHORT-TERM DEBT:
Lines of credit.............................................  $1,303   $1,602
Current portion of interest-free loans from French
  government agencies, denominated in Euros.................      40       47
Current portion of capitalized lease obligations............     320      399
Current portion of notes payable to stockholders............   1,667    1,667
                                                              ------   ------
     Total short-term-debt..................................  $3,330   $3,715
                                                              ======   ======
LONG-TERM DEBT:
Long-term portion of capitalized lease obligations..........     262      302
Notes payable to stockholders...............................      --    1,667
                                                              ------   ------
     Total long-term debt...................................  $  262   $1,969
                                                              ======   ======
</Table>

     The Company has lines of credit with a French bank allowing for a maximum
borrowing of Euro 3,000,000 (approximately $2,700,000) at June 30, 2001 which
expire on May 1, 2002. The lines of credit bear interest at the bank's prime
rate plus 1.5% which corresponded to effective rates of 8.25% and 11% at June
30, 2001 and 2000, respectively. The amounts outstanding under these lines at
June 30, 2001 were denominated in U.S. dollars.

     Notes payable to stockholders were issued in 1997, in connection with an
acquisition. The notes bore interest at a fixed rate of 6.39% per annum and were
repaid in annual installments of approximately $1,667,000.

                                       F-11
<PAGE>
                                   ILOG S.A.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

<Table>
<S>                                                           <C>
2002........................................................  $ 338
2003........................................................    211
2004........................................................     57
                                                              -----
Total minimum lease payments................................    606
Less amount representing interest...........................    (24)
                                                              -----
Present value of net minimum lease payments.................    582
Less current portion........................................   (320)
                                                              -----
Long-term portion...........................................  $ 262
                                                              =====
</Table>

     Interest paid in the years ended June 30, 2001, 2000 and 1999 totaled
$32,000, $38,000 and $47,000 respectively.

6.  SHAREHOLDERS' EQUITY

  GENERAL

     At June 30, 2001, 2000 and 1999, the issued and outstanding share capital
of the Company consisted of 16,152,850, 15,362,179, and 14,096,500 shares,
respectively, with a nominal value of Euro 0.61.

  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 by-laws. The Company has not
distributed any dividends since its inception. The accumulated deficit for
statutory purposes totaled approximately $27,000,000 at June 30, 2001. Dividend
distributions, if any, will be made in Euros.

  STOCK OPTIONS

     Stock options have been granted to employees under the Company's 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, 2001, 2000 and 1999, the Company recorded compensation
expense related to options of $10,000, $24,000 and $102,000, respectively.

                                       F-12
<PAGE>
                                   ILOG S.A.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     A summary of activity under the option plans is as follows:

<Table>
<Caption>
                                           SHARES         OPTIONS     WEIGHTED AVERAGE    WEIGHTED AVERAGE
                                        RESERVED FOR    GRANTED AND   EXERCISE PRICE IN   EXERCISE PRICE IN
                                        FUTURE GRANTS   OUTSTANDING         EUROS           U.S. DOLLARS
                                        -------------   -----------   -----------------   -----------------
<S>                                     <C>             <C>           <C>                 <C>
Balances at June 30, 1998.............      556,866      2,982,137           8.26                9.03
     Options authorized...............    1,000,000             --             --                  --
     Options granted..................   (1,205,977)     1,205,977           7.25                8.08
     Options exercised................           --       (150,106)          4.70                5.24
     Options canceled.................      103,552       (103,552)          7.31                8.15
                                         ----------      ---------          -----               -----
Balances at June 30, 1999.............      454,441      3,934,456           6.94                7.74
     Options authorized...............      900,000             --             --                  --
     Options granted..................   (1,124,850)     1,124,850           9.89                9.93
     Options exercised................           --       (871,801)          4.53                4.54
     Options canceled.................      300,305       (300,305)          7.09                7.10
     Plan termination.................     (138,131)            --             --                  --
                                         ----------      ---------          -----               -----
Balances at June 30, 2000.............      391,765      3,887,200           7.73                7.10
     Options authorized...............    1,250,000             --             --                  --
     Options granted..................   (1,405,490)     1,405,490          40.75               36.70
     Options exercised................           --       (764,891)          6.65                5.99
     Options canceled.................      283,329       (283,329)         18.43               16.60
     Plan termination.................     (128,084)            --             --                  --
                                         ----------      ---------          -----               -----
Balances at June 30, 2001.............      391,520      4,244,470          18.14               15.37
                                         ==========      =========          =====               =====
</Table>

     At June 30, 2001, 2000 and 1999, 1,995,275, 1,675,236, and 1,059,045
respectively, of the outstanding options were exercisable at weighted average
exercise prices of Euro 7.17 ($6.08), Euro 6.61 ($6.63), and Euro 4.86 ($5.41)
respectively. Exercise prices for options outstanding as of June 30, 2001 were
as follows:

<Table>
<Caption>
                                            WEIGHTED
                                            AVERAGE
RANGE OF EXERCISE   OUTSTANDING AS OF      REMAINING
 PRICES IN EURO       JUNE 30, 2001     CONTRACTUAL LIFE
-----------------   -----------------   ----------------
<S>                 <C>                 <C>
 5.15 to 10.30          2,613,350            7.1
36.05 to 41.20          1,005,856            9.2
46.35 to 51.50            313,775            8.9
     Other                311,489        5.4 to 9.6
                        ---------          ----------
                        4,244,470            7.7
                        =========          ==========
</Table>

     The weighted average remaining contractual life of those options is 7.7
years.

  WARRANTS

     Warrants have been granted to non-executive Directors and members of the
Company's Technical Advisory Board. The warrants may be exercised anytime within
5 years of the date of grant.

                                       F-13
<PAGE>
                                   ILOG S.A.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     A summary of warrant activity is as follows:

<Table>
<Caption>
                                             WARRANTS     WEIGHTED AVERAGE    WEIGHTED AVERAGE
                                            GRANTED AND   EXERCISE PRICE IN   EXERCISE PRICE IN
                                            OUTSTANDING         EUROS           U.S. DOLLARS
                                            -----------   -----------------   -----------------
<S>                                         <C>           <C>                 <C>
2000
     Warrants granted.....................     20,000            7.55                7.58
     Warrants exercised...................     (2,500)           7.55                7.58
                                              -------           -----               -----
Balance at June 30, 2000..................     17,500            7.55                7.58
     Warrants granted.....................    112,000           39.06               35.18
     Warrants exercised...................     (9,000)           7.55                6.80
     Warrants canceled....................       (500)           7.55                6.80
                                              -------           -----               -----
Balance at June 30, 2001..................    120,000           36.96               31.32
                                              =======           =====               =====
</Table>

     As allowed under SFAS 123, the Company has elected to continue using APB 25
in accounting for its employee stock options and warrants. 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 and warrants under the fair value method of SFAS 123.
The fair value for these options and warrants was estimated at the date of grant
using a Black-Scholes option pricing model with the following average
assumptions for 2001, 2000 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 1.78, 1.23, and 0.93, for 2001, 2000, 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 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 and warrants 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>
                                                          2001       2000      1999
                                                         -------   --------   -------
<S>                                                      <C>       <C>        <C>
Pro forma net loss.....................................  $(9,917)  $(12,448)  $(8,273)
Pro forma loss per share -- basic......................  $ (0.63)  $  (0.85)  $ (0.59)
Pro forma loss per share -- diluted....................  $ (0.57)  $  (0.70)  $ (0.59)
</Table>

                                       F-14
<PAGE>
                                   ILOG S.A.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The weighted-average value of options and warrants granted during 2001,
2000 and 1999 was as follows:

<Table>
<Caption>
                                                               2001    2000    1999
                                                              ------   -----   -----
<S>                                                           <C>      <C>     <C>
Options and warrants whose exercise price equaled market
  price of the underlying shares on the grant date..........  $33.18   $9.93   $6.16
Options and warrants whose exercise price was more than the
  market price of the underlying shares on the grant date...  $   --   $  --   $  --
Options and warrants whose exercise price was less than the
  market price of the underlying shares on the grant date...  $   --   $  --   $6.08
</Table>

  EMPLOYEE STOCK PURCHASE PLAN

     Under the 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. In September 2001 the Company's
shareholders authorized the issuance of up to 600,000 shares to employees
pursuant to the terms of these Plans. 28,240 shares were issued under the Plans
during the year ended June 30, 2001.

7.  EARNINGS PER SHARE

     The following table sets forth the computation of basic and diluted net
income (loss) per share:

<Table>
<Caption>
                                                              YEAR ENDED JUNE 30,
                                                          ---------------------------
                                                           2001      2000      1999
                                                          -------   -------   -------
                                                                (IN THOUSANDS,
                                                           EXCEPT PER SHARE AMOUNTS)
<S>                                                       <C>       <C>       <C>
Numerator:
     Net income (loss)..................................  $   927   $ 1,180   $(3,170)
                                                          =======   =======   =======
Denominator:
     Weighted average shares outstanding................   15,765    14,628    13,999
     Incremental shares attributable to shares
       exercisable under employee stock plans and
       warrants.........................................    1,782     3,227        --
                                                          -------   -------   -------
Denominator for diluted earnings per share..............   17,547    17,855    13,999
                                                          =======   =======   =======
Net income (loss) per share -- basic....................  $  0.06   $  0.08   $ (0.23)
                                                          =======   =======   =======
Net income (loss) per share -- diluted..................  $  0.05   $  0.07   $ (0.23)
                                                          =======   =======   =======
</Table>

8.  INCOME TAXES

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

<Table>
<Caption>
                                                              YEAR ENDED JUNE 30,
                                                           --------------------------
                                                            2001      2000     1999
                                                           -------   ------   -------
                                                                 (IN THOUSANDS)
<S>                                                        <C>       <C>      <C>
France...................................................  $ 2,812   $2,390   $   748
United States............................................   (3,029)    (189)   (3,784)
Rest of the world........................................    1,933     (455)       (4)
                                                           -------   ------   -------
     Total...............................................  $ 1,716   $1,746   $(3,040)
                                                           =======   ======   =======
</Table>

                                       F-15
<PAGE>
                                   ILOG S.A.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     A reconciliation of income taxes computed at the French statutory rate
(36.4% in 2001, and 37.8% in 2000 and 41.7% in 1999) to the income tax benefit
is as follows:

<Table>
<Caption>
                                                               YEAR ENDED JUNE 30,
                                                              ---------------------
                                                              2001   2000    1999
                                                              ----   ----   -------
                                                                 (IN THOUSANDS)
<S>                                                           <C>    <C>    <C>
Income tax expense (benefit) computed at the French
  statutory rate............................................  $625   $660   $(1,266)
Operating losses not utilized...............................    --     --     1,396
Other.......................................................   164    (94)       --
                                                              ----   ----   -------
     Total income taxes.....................................  $789   $566   $   130
                                                              ====   ====   =======
</Table>

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

<Table>
<Caption>
                                                            YEAR ENDED JUNE 30,
                                                       ------------------------------
                                                         2001       2000       1999
                                                       --------   --------   --------
                                                               (IN THOUSANDS)
<S>                                                    <C>        <C>        <C>
Deferred tax assets:
     Net operating loss carryforwards................  $ 14,716   $  8,816   $  7,404
     Acquired intangibles capitalized and amortized
       for tax purposes..............................     2,190      4,697      8,139
     Provisions and accruals not currently
       deductible....................................       533        158        419
     Other...........................................     1,116        926        665
                                                       --------   --------   --------
                                                         18,555     14,597     16,627
Valuation allowance..................................   (18,555)   (14,597)   (16,627)
                                                       --------   --------   --------
     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, 2001 the Company had net operating loss carryforwards for
French tax purposes of approximately $10,000,000 which have no expiration date.
The Company also has U.S. net operating loss carryforwards for federal and state
tax purposes of approximately $26,000,000 and $12,000,000, respectively, that
expire in the years 2002 through 2021. The Company has U.K. net operating losses
of approximately $3,000,000 which have no expiration date. 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.

9.  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 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, 2001 and 2000 was
immaterial.

                                       F-16
<PAGE>
                                   ILOG S.A.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

10.  OPERATING LEASE COMMITMENTS

     The Company leases its facilities and certain equipment under operating
leases that expire through 2010. Future minimum lease payments under operating
leases due for the fiscal years ending June 30 are as follows (in thousands):

<Table>
<S>                                                            <C>
2002........................................................   $3,192
2003........................................................    2,754
2004........................................................    1,983
2005........................................................    1,791
2006 and thereafter.........................................    3,255
</Table>

     Rental expense for the years ended June 30, 2001, 2000 and 1999 was
approximately $3,234,000, $3,225,000 and $2,496,000, respectively.

11.  SEGMENT AND GEOGRAPHIC INFORMATION

     Segments:  From July 1, 1999, ILOG has been organized into three divisions,
each operating in different markets. They each handle industry marketing, sales,
consulting and some product development. The Value Chain Management Business
Division ("VCM") is focused 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 Communications Business Division ("COM")
is dedicated to the web-enabled network management, and customer management,
service and billing. The Industry Solutions Division ("ISD") focuses on the
e-commerce, finance, transportation and defense industries. "Corporate & other"
includes a segment which does not meet the quantitative threshold for
determining reportable segments, and corporate overhead and other expenses which
are not allocated to reportable segments. In 1999 the Company operated in one
reportable segment and accordingly comparative information is unavailable.

     The Company evaluates performance and allocates resources based on segment
revenues and operating results. The accounting policies of the reportable
segments are the same as those described in the summary of significant
accounting policies. There are no intersegment sales. Assets of the segment
groups are not relevant for management of the business and are thus not
disclosed.

<Table>
<Caption>
                                                                          CORPORATE
                                              VCM       COM       ISD      & OTHER    CONSOLIDATED
                                            -------   -------   -------   ---------   ------------
<S>                                         <C>       <C>       <C>       <C>         <C>
2001
Revenues..................................  $25,196   $18,250   $25,545    $10,165      $79,156
Income (loss) from operations.............    6,580      (888)    2,897     (7,871)         718
2000
Revenues..................................   19,925    20,422    23,911      7,037       71,295
Income (loss) from operations.............    3,617     1,337     2,101     (6,103)         952
</Table>

     Geography:  Operations outside of France consist principally of sales,
marketing, finance, customer support, and to a lesser extent, research and
development activities. Intercompany sales between geographic areas are
accounted for at third party selling price less a discount and are consistent
with the rules and regulations of governing tax authorities. Such transactions
are eliminated in the consolidated financial

                                       F-17
<PAGE>
                                   ILOG S.A.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

statements. Identifiable assets are those assets that can be directly associated
with a particular geographic area. The following is a summary of operations
within geographic area:

<Table>
<Caption>
                                                                  EUROPE,
                                              UNITED             EXCLUDING
                                  FRANCE(1)   STATES     ASIA     FRANCE     ELIMINATION   CONSOLIDATED
                                  ---------   -------   ------   ---------   -----------   ------------
<S>                               <C>         <C>       <C>      <C>         <C>           <C>
2001
Net revenues:
     Customers..................   $23,216    $36,339   $8,754    $10,847           --       $79,156
     Intercompany...............    13,926         --       --         --     $(13,926)           --
                                   -------    -------   ------    -------     --------       -------
                                    37,142     36,339    8,754     10,847      (13,926)       79,156
                                   =======    =======   ======    =======     ========       =======
     Long-lived assets..........     1,935      4,000      595        366           --         6,896

2000
Net revenues:
     Customers..................    22,747     31,989    6,686      9,873           --        71,295
     Intercompany...............    12,055         --       --         --      (12,055)           --
                                   -------    -------   ------    -------     --------       -------
                                    34,802     31,989    6,686      9,873      (12,055)       71,295
                                   =======    =======   ======    =======     ========       =======
     Long-lived assets..........     1,598      1,682      562        416           --         4,258

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
                                   =======    =======   ======    =======     ========       =======
     Long-lived assets..........     1,618      1,991      366        554           --         4,529
</Table>

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

(1) Net revenues related to sales from France made to customers outside of
    France are included within the net revenue related to customers in the
    geographic area of France and totaled $12,996,000, $11,737,000 and
    $8,358,000 for the years ended June 30, 2001, 2000 and 1999, respectively.

12.  RELATED PARTY TRANSACTIONS

     In 1998 SAP A.G. purchased 685,064 shares in the Company for $10.5 million.
In December 1997, SAP and the Company entered into a three-year agreement for
the licensing and support of certain ILOG products. Over the three-year period
of this agreement, ILOG has received approximately $19 million in revenues. In
1999, the agreement was amended to include certain additional ILOG products in
exchange for $0.9 million. In December 2000, the three-year agreement was
extended for an additional year in exchange for additional license and
maintenance fees.

     In 1999 Temposoft S.A. entered into a licensing agreement for the Company's
products. Under the terms of the licensing and other contemporaneous agreements
ILOG receives license fees and royalties for certain ILOG products from
Temposoft and warrants to purchase Temposoft shares. In September 2001 ILOG
exercised the warrants received under the agreement, in full, and participated
in a financing of Temposoft for a total investment of approximately Euros
300,000. As of September 30, 2001 ILOG owned 2.1% of Temposoft. Since 1999 Mr.
Patrick Albert the Company's Chief Technical Officer has been a Director of
Temposoft. Revenues received from Temposoft by ILOG were $778,000, $173,000 and
$24,000 in 2001, 2000 and 1999 respectively.

                                       F-18
<PAGE>
                                   ILOG S.A.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

13.  EVENT SUBSEQUENT TO THE DATE OF AUDITOR'S REPORT -- UNAUDITED

     In September 2001, the Company's shareholders authorized the issuance of an
additional 1,100,000 shares under the terms of the 2001 Stock Option Plan.

                                       F-19
<PAGE>

                                   ILOG S.A.

                 SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS

<Table>
<Caption>
              COL. A                   COL. B               COL. C               COL. D         COL. E
              ------                ------------   ------------------------   -------------   ----------
                                                          ADDITIONAL
                                                   ------------------------
                                                                CHARGED TO
                                     BALANCE AT    CHARGED TO      OTHER                      BALANCE AT
                                    BEGINNING OF   COSTS AND    ACCOUNTS --   DEDUCTIONS --     END OF
           DESCRIPTION                 PERIOD       EXPENSES     DESCRIBE       DESCRIBE        PERIOD
           -----------              ------------   ----------   -----------   -------------   ----------
<S>                                 <C>            <C>          <C>           <C>             <C>
YEAR ENDED JUNE 30, 2001
Reserves and allowances deducted
  from asset accounts:
     Allowance for doubtful
       accounts...................    $691,000      $543,000        --          $160,000      $1,074,000

YEAR ENDED JUNE 30, 2000
Reserves and allowances deducted
  from asset accounts:
     Allowance for doubtful
       accounts...................    $941,000      $206,000        --          $456,000      $  691,000

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-20
<PAGE>

                                   SIGNATURES

     The registrant hereby certifies that it meets all of the requirements for
filing on Form 20-F and has duly caused and authorized the undersigned to sign
this Annual Report on its behalf.

                                          ILOG S.A.

                                          /s/ Roger D. Friedberger
                                          Roger D. Friedberger
                                          Chief Financial Officer

Dated: December 13, 2001
<PAGE>

                                 EXHIBIT INDEX

     The following exhibits are filed as part of this Annual Report:

<Table>
<C>     <S>
3.(ii)  Status (by-laws), of ILOG S.A., as amended (unofficial
        English translation)
    4.  Subscription Agreement, dated as of June 29, 1998, between
        ILOG S.A. and SAP Aktiengesellschaft (incorporated by
        reference as Exhibit 3 on Form 20-F of the Company for the
        fiscal year ended June 30, 1998, Commission file Number
        0-29144)
   21.  Subsidiaries of the Registrant (see "Item 4: Information on
        the Company -- Organizational Structure")
</Table>