AXWAY_REGISTRATION_DOCUMENT_2017

AXWAY GROUP AND ITS BUSINESS ACTIVITIES

CORPORATE RESPONSIBILITY

CORPORATE GOVERNANCE

CONSOLIDATED FINANCIAL STATEMENTS

2017 ANNUAL FINANCIAL STATEMENTS

CAPITAL AND AXWAY SOFTWARE STOCK

INFORMATIONS ADMINISTRATIVES ETbJURIDIQUES

COMBINED GENERAL MEETING OFb6bJUNEb2018

Risk factors

customer’s responsibility to test the software package thoroughly before using it in a real-life environment. However, any claim for damages brought against the Group, even if unsuccessful, may involve protracted litigation and therefore high legal defense costs, with an adverse impact on the Group’s brand image. So as to limit the financial consequences of the risk of errors within its software packages giving rise to damages for customers and third parties, the Group has taken out product liability insurance (see SectionǾ1.13.7, pointǾ1). Nevertheless, although the amount of coverage provided is considerable, it may not be sufficient to offset all costs incurred as a result of errors of technical deficiencies. Security of the software packages The Group operates in a market characterized by the rapid pace of developments in technology and is therefore exposed on a constant basis to the risks of software piracy and industrial espionage, as well as potential attacks by computer viruses or software bugs that may interfere with the proper functioning of its systems and software packages and of those installed on the premises of its customers, which may result in major losses. Apart from the potential for data loss, such circumstances may also have material adverse consequences for the Group’s operations and its brand image. Moreover, the growing use of laptops and mobile phones (in particular via the API technology licensed by the Group) could increase the risk of unauthorized access to customer data. Given the importance of security concerns in the development of software packages, as much in relation to the Group’s own products as to those used by the Group in connection with its operations, the Group has implemented measures to mitigate these potential risks. In spite of all precautions taken, there can be no assurance that the Group will not fall prey to computer viruses, software bugs, piracy or, more generally, that it will not experience any failures in its IT systems or its backup procedures, which may have a material adverse impact on its operations or its business results. Security of cloud services Part of the Group’s business consists in delivering cloud-based services through Axway software packages within the data center. Our offering of cloud-based services often involves the storage and transmission of sensitive customer data in strictly regulated fields such as financial services and medical services. Any security breach in our infrastructures could expose the Group to a risk of unauthorized access to sensitive data and could result in legal proceedings against a Group company (or companies) and the Group’s possible liability. The security measures of our cloud-based services could be discredited by a third-party action, including a deliberate action by hackers, an employee error, or any other action, and result in the possibility for a third party to gain unauthorized access to this type of sensitive customer

● require that the Group stop the sale or use of some of its software packages or technologies; ● require the signature of license agreements which could be difficult to negotiate under acceptable terms, especially financial terms; ● require a review of the design of its software packages, which could be costly and force the Group to defer its initial timetable of releases for the targeted software packages; ● require the Group to disclose information concerning its source codes, something which is possible in open source licenses; ● require the Group to fulfill its indemnity commitments to its customers; ● have a material adverse impact on the Group’s results and financial position. Axway strives to mitigate the risk of legal action for infringement of intellectual property rights by filing patents for its software packages whenever this is authorized by local applicable law, by rolling out a compliance program for its open source software, and by developing a legal method to be implemented as soon as any legal action for copyright infringement is likely. Errors or defects in software packages The Company’s software packages involve complex software engineering methods and often consist of millions of lines of code. For this reason, they may contain errors or technical deficiencies that might lead some customers to bring claims for damages suffered due to the use of a software package and/or business interruption losses or might result in higher costs for maintenance or guarantees. Errors and technical deficiencies might arise within some of the Company’s existing software packages and others it plans to develop in the future and may only be revealed after roll-out, on first use or when new versions and updates are released. Moreover, since the Group’s software packages are often used in complex operating environments processing severalǾmillions of individual transactions, any loss caused by an error or a technical deficiency, particularly one related to performance, might require the customer to take remedial action thereby incurring excess costs (higher costs for maintenance and guarantees, allocation of human and financial resources,Ǿetc.). Furthermore, such defects could tarnish the Group’s reputation and possibly lead to the loss of customers and/or business opportunities, and/or result in legal disputes with the customers concerned. The Group conducts quality assurance tests on all of its new software packages (and on all new versions and updates) so as to ensure, to the extent possible and within reasonable limits, that they are free of errors and defects. In addition, the Group is in the process of adopting a general approach for the tracking and management of non-satisfactory tests (including on performance and reliability criteria). Furthermore, it is the

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AXWAY - 2017 REGISTRATION DOCUMENT