<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 10, 1999
REGISTRATION NO. 333-87267
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 7
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
POET HOLDINGS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 7372 94-3221778
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
999 BAKER WAY, SUITE 100
SAN MATEO, CALIFORNIA 94404
(650) 286-4640
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
DIRK BARTELS
PRESIDENT AND CHIEF EXECUTIVE OFFICER
POET HOLDINGS, INC.
999 BAKER WAY, SUITE 100
SAN MATEO, CALIFORNIA 94404
(650) 286-4640
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
<TABLE>
<S> <C> <C>
BRUCE M. MCNAMARA, ESQ. TOBIAS MULLER-DEKU WALTER A. LOONEY, ESQ.
WILSON SONSINI GOODRICH DR. CHRISTOPH L. GLESKE SIMPSON THACHER & BARTLETT
& ROSATI BRUCKHAUS WESTRICK 21ST FLOOR
PROFESSIONAL CORPORATION HELLER LOBER 99 BISHOPSGATE
650 PAGE MILL ROAD TAUNUSANLAGE 11 LONDON EC2M 3YH
PALO ALTO, CALIFORNIA 60329 FRANKFURT AM MAIN ENGLAND
94304-1050 GERMANY (44) 207 422 4000
(650) 493-9300 (49) 69 27 30 80
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
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<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE
MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT
AN OFFER TO SELL THESE SECURITIES, AND IT IS NOT SOLICITING AN OFFER TO BUY
THESE SECURITIES, IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION. DATED NOVEMBER 10, 1999.
3,950,000 SHARES OF
COMMON STOCK
POET HOLDINGS, INC.
POET Holdings, Inc. and the selling stockholders identified on page 60 and
61 of this prospectus are offering an aggregate of 3,950,000 shares of common
stock of POET Holdings, Inc. These shares will be offered in the Federal
Republic of Germany and to investors located in jurisdictions other than the
United States. POET Holdings, Inc. is offering 3,000,000 shares, and the selling
stockholders are offering 950,000 shares. We will not receive any of the
proceeds for the sale of shares by the selling stockholders. We have applied to
list our common stock on the Neuer Markt of the Frankfurt Stock Exchange. Prior
to this offering, there has been no public market for our common stock. It is
currently estimated that the initial public offering price will be between
E10.00 and E12.50 per share, or, based upon the exchange rate reported by The
Wall Street Journal for September 30, 1999, of $1.069 per E1.00, between $10.69
and $13.36 per share.
See "Risk Factors" beginning on page 6 to read about the factors you should
consider before buying shares of our common stock.
NEITHER THE U.S. SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER
REGULATORY BODY HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PER SHARE TOTAL
----------------- -----------------
IN E IN $(1) IN E IN $(1)
------ ------- ------ -------
<S> <C> <C> <C> <C>
Initial public offering price.....................
Underwriting discount.............................
Proceeds, before expenses, to us..................
Proceeds, before expenses, to the selling
stockholders....................................
</TABLE>
- ---------------
(1) Based on an exchange rate of $1.069 per E1.00.
The underwriters may, under certain circumstances, purchase up to an
additional 570,000 shares of common stock from us at the initial public offering
price less the underwriting discount. In addition, one of our founders has
agreed to lend the underwriters up to 570,000 shares of common stock for 30 days
following this offering. For information on this arrangement see "Underwriting."
The underwriters expect to deliver the shares of common stock to investors
on , 1999 in Frankfurt am Main, Germany.
<TABLE>
<S> <C>
DG BANK PARIBAS
DEUTSCHE GENOSSENSCHAFTSBANK -ZWEIGNIEDERLASSUNG FRANKFURT AM MAIN-
</TABLE>
Prospectus dated , 1999.
<PAGE> 3
NO DEALER, SALESPERSON OR OTHER PERSON IS AUTHORIZED TO GIVE ANY
INFORMATION OR TO REPRESENT ANYTHING NOT CONTAINED IN THIS PROSPECTUS. YOU MUST
NOT RELY ON ANY UNAUTHORIZED INFORMATION OR REPRESENTATIONS. THIS PROSPECTUS IS
AN OFFER TO SELL ONLY THE SHARES OFFERED HEREBY, BUT ONLY UNDER CIRCUMSTANCES
AND IN JURISDICTIONS WHERE IT IS LAWFUL TO DO SO. THE INFORMATION CONTAINED IN
THIS PROSPECTUS IS CURRENT ONLY AS OF ITS DATE.
-------------------------
TABLE OF CONTENTS
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PAGE
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<S> <C>
Prospectus Summary.................... 2
Risk Factors.......................... 6
Note Regarding Forward-Looking
Statements.......................... 16
How We Intend to Use the Proceeds From
This Offering....................... 17
Dividend Policy....................... 17
Exchange Rate Information............. 18
Capitalization........................ 19
Dilution.............................. 20
Selected Consolidated Financial
Data................................ 22
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 24
Business.............................. 38
Management............................ 50
</TABLE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Executive Compensation................ 53
Related Party Transactions............ 58
Principal and Selling Stockholders.... 60
Description of Capital Stock.......... 64
Shares Eligible for Future Sale....... 68
The German Equity Market.............. 70
German Tax Matters.................... 71
Statutory Information................. 73
Where You Can Find Additional
Information......................... 74
Legal Matters......................... 74
Experts............................... 74
Underwriting.......................... 75
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
THROUGH AND INCLUDING , 1999 (THE 25TH DAY AFTER THE DATE
OF THIS PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THESE SECURITIES IN
THE UNITED STATES, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE
REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO A DEALER'S OBLIGATION
TO DELIVER A PROSPECTUS WHEN ACTING AS AN UNDERWRITER AND WITH RESPECT TO AN
UNSOLD ALLOTMENT OR SUBSCRIPTION.
PRESENTATION OF FINANCIAL INFORMATION
Unless otherwise indicated, any reference in this prospectus to the
"Consolidated Financial Statements" refers to our Consolidated Financial
Statements, including the notes thereto included in this prospectus. Our
Consolidated Financial Statements, for the years ended December 31, 1996, 1997
and 1998, and with respect to each of the years in the three-year period ended
December 31, 1998 have been audited by Deloitte & Touche LLP, 60 South Market
Street, San Jose, CA 95113. The Consolidated Financial Statements contained in
this prospectus have been prepared in accordance with accounting principles
generally accepted in the United States of America, or U.S. GAAP, with the
United States dollar as the functional currency. Unless otherwise indicated, all
information included in this prospectus refers to POET Holdings, Inc. and its
subsidiaries on a consolidated basis and has been presented in accordance with
U.S. GAAP.
Our fiscal year ends on December 31, and references in this prospectus to
any specific fiscal year are to the twelve-month period ended December 31 of
that year.
POET, the POET Holdings logo and POET FastObject are our registered
trademarks. Each trademark, trade name or service mark of any other company
appearing in this prospectus belongs to its holder. Unless otherwise indicated
in this prospectus, references to POET Holdings, Inc., "we" or "us" include our
wholly owned subsidiaries, POET Software Corporation and POET Software GmbH.
1
<PAGE> 4
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information regarding our common stock being sold in this offering and our
Consolidated Financial Statements contained elsewhere in this prospectus. Unless
otherwise indicated, this prospectus assumes the conversion of all of our
outstanding preferred stock and Series B common stock into shares of our Series
A common stock, which will be redesignated as undesignated common stock prior to
the closing of the offering, but does not assume that the underwriters will
exercise their over-allotment option.
OUR BUSINESS
We are a provider of innovative data management software and solutions that
allow organizations to share, manage and manipulate complex information and to
facilitate effective business-to-business processes and information exchange
over the Internet. Our database management system utilizes and supports complex,
multidimensional data models and standard Internet programming languages. Our
Internet solutions provide our customers with the ability to author, manipulate
and electronically distribute complex business documents based on advanced
exchange protocols that are standard formats for content structure and the
exchange of data using the Internet as a new means to increase customer
relationships, accelerate business processes and reduce costs, thereby
facilitating effective business-to-business information exchange.
The POET product offerings currently consist of the POET Object Server
Suite, our database management system, and two Internet applications that
incorporate the POET Object Server Suite: the POET Content Management System and
the POET eCatalog Suite.
Our objective is to make complex software applications simple and
affordable for a large group of organizations by providing sophisticated, easy
to use and powerful products that leverage the Internet. We intend to use our
substantial experience and know-how in advanced database management systems and
advanced Internet programming languages and exchange protocols to further
enhance our software and applications. We plan to continue to pursue an open
systems approach that allows our customers to rapidly develop applications using
our database products and customize our Internet solutions.
We have developed a strategic relationship with Ariba, Inc. to further
develop, enhance and market our POET eCatalog Suite. We have also established
strategic relationships with a variety of software developers, original
equipment manufacturers and marketing partners, and we intend to capitalize upon
these relationships, as well as develop additional relationships with vendors of
complementary products.
Our principal executive offices and the principal executive offices of our
wholly owned subsidiary POET Software Corporation are located at 999 Baker Way,
Suite 100, San Mateo, California 94404, U.S.A., and our telephone number is
(650) 286-4640. The offices of our wholly owned subsidiary, POET Software GmbH,
are located at Kattjahren 4-8, 22359 Hamburg, Germany, and its telephone number
is (40) 60 99 00. Our website is located at http://www.poet.com. Information
contained on our website does not constitute part of this prospectus.
Unless otherwise indicated in this prospectus, "POET Holdings," "we," "us"
and "our" refer to POET Holdings, Inc. together with its wholly owned
subsidiaries, POET Software Corporation and POET Software GmbH. See "Statutory
Information."
2
<PAGE> 5
THE OFFERING
SHARES OFFERED
Shares of our company offered pursuant to this prospectus include:
- 3,950,000 shares of our common stock, 3,000,000 shares of which will be
newly issued from our authorized capital stock pursuant to a resolution
passed by our board of directors on September 15, 1999 for the purposes
of this offering and 950,000 shares of which will be sold by the selling
stockholders; and
- up to an additional 570,000 shares of our common stock from our
authorized capital stock pursuant to a resolution passed by our board of
directors on September 15, 1999, which will be newly issued by us,
pursuant to an over-allotment option granted to the underwriters to the
extent that option is exercised. In addition, one of our founders has
agreed to lend the underwriters up to 570,000 shares of common stock
during the 30-day period of the over-allotment option. For further
details, see "Underwriting."
PREFERENTIAL ALLOTMENT
We have reserved up to 190,000 of the shares of common stock offered,
excluding the shares included in the over-allotment option, for sale at the
initial public offering price to our employees, and persons or entities who have
business relationships with us, and persons or entities related to them. The
number of shares available for sale to other investors will be reduced to the
extent these persons or entities purchase the reserved shares. For further
details, see "Underwriting."
UNDERWRITERS
The shares to be offered pursuant to this prospectus will initially be
purchased by DG BANK Deutsche Genossenschaftsbank AG and Paribas-
Zweigniederlassung Frankfurt am Main-. For further details, see "Underwriting."
PRICE RANGE, INITIAL PUBLIC OFFERING PRICE AND NUMBER OF SHARES ALLOTTED,
DELIVERY OF SHARES, PAYMENTS
The initial public offering price payable by investors for the shares
offered will be determined in a book-building procedure conducted by the
underwriters according to customary practice in the Federal Republic of Germany.
The price range within which investors may offer to purchase shares has been
determined by us and the underwriters on November 5, 1999. Such price range is
E10.00 to E12.50. We anticipate that the period of time within which investors
may offer to purchase shares will be from November 9, 1999 to November 12, 1999.
We expect to determine, along with the underwriters, the final purchase price
per share on November 12, 1999, and to publish that purchase price in the
Handelsblatt on November 15, 1999. We anticipate that beginning on November 15,
1999, investors who placed orders with an underwriter may inquire from such
underwriter the number of shares allotted to them. It is currently expected that
the purchase price for shares offered will be payable by investors on November
17, 1999, against delivery of such allotted shares in book entry form.
NOTICES
We will publish any notices to stockholders in the German Federal Gazette
(Bundesanzeiger) and in the Borsen-Zeitung.
STOCK EXCHANGE LISTING
In connection with this offering, we have applied for the admission of the
entirety of our issued and outstanding shares of common stock to the regulated
market with trading on the Neuer Markt of the Frankfurt Stock Exchange. We
currently expect that the admission will take place on November 12, 1999. The
first day on which the offered shares will be quoted on Neuer Markt is currently
anticipated to be November 16, 1999.
SECURITIES IDENTIFICATION CODES
The German securities code number (WKN) for the shares of common stock is
928 040, the international securities identification number (ISIN) for the
shares of common stock is US7304471094, and the common code is 102 88622.
3
<PAGE> 6
TRADING SYMBOL FOR NEUER MARKT
The trading symbol for our shares on the Neuer Markt is expected to be
POXA.
DESIGNATED SPONSORS FOR NEUER MARKT
We have retained DG BANK Deutsche Genossenschaftsbank AG and Paribas-
Zweigniederlassung Frankfurt am Main- to act as designated sponsors for the
shares on Neuer Markt. See "The German Securities Market."
-------------------------
Neither we nor the selling stockholders or the underwriters have taken, or
will take any action in any jurisdiction other than the Federal Republic of
Germany and the United States of America that would permit a public offering of
the shares or possession or distribution of a prospectus in any jurisdiction
where action for that purpose is required. No person has been authorized to give
any information or to make any representation other than those contained in this
prospectus, and, if given or made, such information or representation must not
be relied upon as having been authorized.
This prospectus has not been approved as an investment advertisement
pursuant to Section 57 of the U.K. Financial Services Act 1986 and may not be
issued or passed on in the United Kingdom except to a person who is of the kind
described in Article 11(3) of the U.K. Financial Services Act (Investment
Advertisements) (Exemptions) Order 1996 (as amended), or is a person to whom the
prospectus may otherwise lawfully be issued or passed on.
4
<PAGE> 7
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
The following summary consolidated financial information should be read in
conjunction with the Consolidated Financial Statements and the related notes to
these Consolidated Financial Statements. Loss per share is presented on an
actual basis for all periods shown below and on a pro forma basis for 1998 and
the nine months ended September 30, 1999. The information shown below for the
nine months ended September 30, 1998 and 1999 and as of September 30, 1999 is
unaudited. Pro forma loss per share reflects the conversion of all outstanding
shares of our preferred stock and our Series B common stock into shares of
common stock. For more information, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------------------- -----------------
1994 1995 1996 1997 1998 1998 1999
------- ----------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF OPERATIONS DATA:
Total revenues......... $ 2,262 $ 3,747 $ 8,285 $ 7,717 $ 8,917 $ 6,426 $ 7,703
Operating loss....... (845) (1,986) (1,871) (5,864) (3,638) (2,899) (3,471)
Net loss............. (892) (2,054) (2,149) (5,883) (3,990) (3,069) (4,298)
Loss per share, basic
and diluted........ $ (0.63) $ (1.45) $ (1.57) $ (4.17) $ (2.65) $ (2.05) $ (2.70)
Shares used in
calculating basic
and diluted loss
per share.......... 1,411 1,412 1,371 1,412 1,507 1,496 1,589
Pro forma loss per
share, basic and
diluted............ $ (0.74) $ (0.66)
Shares used in
calculating pro
forma basic and
diluted net loss
per share.......... 5,575 6,540
</TABLE>
We have presented below summary consolidated balance sheet data at
September 30, 1999:
- on an actual basis;
- on a pro forma basis to reflect the conversion of all outstanding shares
of our preferred stock and our Series B common stock into shares of
common stock; and
- on a pro forma as adjusted basis to give effect to the sale of shares of
common stock being offered by us at the assumed initial public offering
price of E11.50 per share ($12.29 per share, at an exchange rate of
$1.069 per E1.00, the exchange rate in effect at September 30, 1999),
after deducting underwriting discounts and commissions, our estimated
offering expenses, and the application of the net proceeds as described
in "How We Intend to Use the Proceeds From This Offering."
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1999
------------------------------------
PRO FORMA,
ACTUAL PRO FORMA AS ADJUSTED
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(IN THOUSANDS)
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents, and short-term investments... $ 4,631 $ 4,631 $ 36,074
Working capital...................................... 3,900 3,900 35,343
Total assets......................................... 7,869 7,869 39,312
Long-term obligations................................ 2,216 2,216 419
Redeemable convertible preferred stock............... 16,472 -- --
Stockholders' equity (deficit)....................... (14,011) 2,461 35,701
</TABLE>
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<PAGE> 8
RISK FACTORS
This offering involves a high degree of risk. You should carefully consider
the following risks related to our business, risks related to the Internet and
risks related to this offering before making an investment decision.
RISKS RELATED TO OUR BUSINESS
OUR FAILURE TO INCREASE OUR REVENUES WOULD PREVENT US FROM ACHIEVING AND
MAINTAINING PROFITABILITY.
We have incurred significant net losses since we commenced operations in
1995. We have not achieved profitability, and we expect to incur net losses for
the foreseeable future. Although our revenues have generally grown or remained
stable in recent quarters, we cannot be certain that we can sustain comparable
growth rates or that we will achieve sufficient revenues for profitability. To
date, we have funded our operations from the sale of equity securities and have
not generated cash from operations. As of September 30, 1999, we had an
accumulated deficit of $20.8 million. We expect to continue to incur significant
product development, sales and marketing, and administrative expenses. As a
result, we will need to generate significant revenues to achieve and maintain
profitability. If we do achieve profitability, we cannot be certain that we can
sustain or increase profitability on a quarterly or annual basis in the future.
See "Selected Financial Data" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" for more information.
IF WE FAIL TO EXPAND OUR SALES OPERATIONS, WE MAY NOT BE ABLE TO INCREASE
REVENUES FROM OUR PRODUCTS.
We need to expand our direct and indirect sales operations to increase
market awareness of our products and services in order to increase revenues. The
complexity of our products and their installation require highly trained sales
personnel. The demand for sales personnel is very competitive in our industry
due to the limited number of individuals with the requisite technical skills,
understanding of the Internet and database management systems. We cannot be
certain that we will be successful in our efforts to hire qualified sales
personnel. If we are unable to expand our sales operations, we may not be able
to increase sales of our products and grow our revenues which would in turn,
seriously harm our business, financial condition and results of operations.
IF WE FAIL TO ESTABLISH AND MAINTAIN RELATIONSHIPS WITH INDIRECT SALES PARTNERS,
OUR DISTRIBUTION CAPABILITIES WILL BE SERIOUSLY HARMED, WHICH WOULD HARM OUR
REVENUES.
We rely heavily upon our indirect sales channels, which consist of other
businesses that implement our software into their products. These partners
currently consist of original equipment manufacturers, system integrators,
independent software vendors and other third-party resellers. For the year ended
1998, approximately 85% of our product revenues were derived through these
indirect sales partners. In order to successfully market our products, we need
to maintain relationships with our indirect sales partners as well as establish
new relationships with similar parties. Our failure to maintain existing
relationships or establish a sufficient number of new relationships with
sufficiently qualified indirect sales partners would limit our distribution
capabilities and, in turn, adversely affect our revenues, which would seriously
harm our financial condition and results of operations.
WE DO NOT EXPECT TO DERIVE FURTHER REVENUE FROM A KEY CUSTOMER FROM WHICH WE
PREVIOUSLY DERIVED A SIGNIFICANT PORTION OF OUR REVENUES, AND IF WE ARE UNABLE
TO REPLACE THESE REVENUES OUR RESULTS OF OPERATIONS WILL BE HARMED.
We have derived a significant portion of our revenues over the past three
years from one key customer, Novell, Inc. For each of the years ended 1998, 1997
and 1996, we derived 24% or more of our revenues from Novell. For the nine
months ended September 30, 1999, we derived 21% of our revenues from Novell. We
have completed our delivery, support and maintenance obligations to Novell, and
we do not expect further revenue from Novell after September 1999. If we are
unable to generate revenues at an equivalent level from other customers in the
future, our revenues will decrease, which will harm our results of operations.
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<PAGE> 9
IF WE ARE UNABLE TO MAINTAIN AND DEVELOP STRATEGIC RELATIONSHIPS WITH VENDORS OF
INTERNET-BASED PURCHASING SYSTEMS, OUR LICENSING REVENUES FROM THE POET ECATALOG
SUITE WOULD BE HARMED.
Our ability to maintain and develop strategic relationships with vendors of
Internet-based purchasing systems, such as Ariba, Inc., is fundamental to the
success of our POET eCatalog Suite. Ariba is a leading provider of electronic
purchasing systems for Internet-based purchases of goods. To date, our strategic
business relationship with Ariba is our most significant agreement of this kind,
and the success of the POET eCatalog Suite in its current version is highly
dependent upon the market acceptance of the Ariba Operating Resource Management
System, which has been developed to connect business consumers to business
suppliers and to automate the purchasing process of business consumers. Although
the POET eCatalog Suite can be adapted to complement purchasing systems other
than Ariba's, the process of adapting the POET eCatalog Suite to a new system
could be expensive and time-consuming. If the Ariba Operating Resource
Management System is unsuccessful, or if we are unable to leverage the current
version of the POET eCatalog Suite from the success of the Ariba Operating
Resource Management System, our ability to market the POET eCatalog Suite will
be harmed.
Even if our relationship with Ariba continues and the Ariba Operating
Resource Management System is successful, we cannot be certain that we will be
able to establish and retain business relationships with other developers and
suppliers of Internet-based electronic purchasing systems in the marketing of
the POET eCatalog Suite. If our strategic relationship with Ariba ends or we are
unable to develop additional business relationships of this kind, our prospects
for generating revenues through the licensing of the POET eCatalog Suite would
be harmed.
OUR FUTURE REVENUE IS DEPENDENT UPON OUR ABILITY TO SUCCESSFULLY INCREASE SALES
OF OUR POET CONTENT MANAGEMENT SUITE AND TO INTRODUCE OUR POET ECATALOG SUITE.
We expect that our future financial performance will depend significantly
on revenue from our POET Content Management Suite and POET eCatalog Suite. We
began shipping the POET Content Management Suite to customers in May 1998, which
accounted for 2.0% of our product revenues in the year ended 1998. We released
Version 1.0 of POET eCatalog Suite in September 1999. We face significant risks
inherent in the introduction of these products. Market acceptance of the POET
eCatalog Suite, for example, will depend upon the market for Internet-based
electronic purchasing systems. We cannot predict the success of this market. We
also cannot be certain that the POET Content Management Suite or the POET
eCatalog Suite will meet customers' requirements or expectations or that our
products will be free of significant software defects, which may only become
apparent in longer-term operations. If the POET Content Management Suite or the
POET eCatalog Suite do not meet customers' requirements or expectations,
upgrading or enhancing the product could be costly and time-consuming and may
harm our business, results of operations and financial condition. For more
information regarding these products, see "Business -- Products" and
"-- Services."
THE POET OBJECT SERVER SUITE CURRENTLY ACCOUNTS FOR A SUBSTANTIAL PORTION OF OUR
REVENUES, AND IF IT DOES NOT CONTINUE TO BE COMMERCIALLY SUCCESSFUL, OUR FUTURE
REVENUES WILL BE SIGNIFICANTLY HARMED.
In 1998, we derived 98% of our product revenues of our revenues from
licensing our POET Object Server Suite and from providing professional services
and support for the POET Object Server Suite product line. We expect a
significant portion of our future revenues to continue to depend on the
continued commercial success of our POET Object Server Suite product line. We
cannot be certain that the POET Object Server Suite will continue to receive
market acceptance, or that we will be able to introduce enhanced versions of
POET Object Server Suite on a timely basis to meet the evolving needs of our
customers, maintain compatibility with other third-party systems or remain
competitive. If our POET Object Server Suite is not successful, our revenues
will be negatively impacted, which could harm our business, financial condition
and results of operations. For more information, see "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and
"Business -- Products" and "-- Services."
7
<PAGE> 10
OUR LIMITED OPERATING HISTORY MAKES FORECASTING DIFFICULT.
We commenced operations in March 1995, and, as a result of our limited
operating history, we have limited meaningful historical financial data upon
which to plan revenues and operating expenses. Our ability to forecast
accurately our quarterly revenues is further limited because our software
products have long sales cycles that make it difficult to predict the quarters
in which sales will occur. In addition, the recent launch of two new software
products, the POET Content Management Suite and the POET eCatalog Suite, makes
it difficult to accurately forecast our revenues, as we have no experience with
the purchasing patterns of customers for our new products. We plan our expenses
in part on future revenue projections. Most of our expenses are fixed in the
short-term, and we may not be able to quickly reduce spending if our revenues
are lower than projected. If we do not achieve our expected revenues, our
operating results will be below our expectations and the expectations of
investors and market analysts, which could cause the price of our common stock
to decline.
IF WE ARE UNABLE TO MEET THE RAPID CHANGES IN SOFTWARE TECHNOLOGY, OUR EXISTING
PRODUCTS COULD BECOME OBSOLETE.
The market for our products is characterized by rapid technological change,
frequent new product introductions and technology enhancements, uncertain
product life cycles, changes in customer demands and evolving industry
standards. We cannot be certain that we will be able to enhance our current
products and develop new products on a timely basis to keep pace with
technological developments and to satisfy the increasingly sophisticated
requirements of our customers. New products based on new technologies or new
industry standards can render our existing products obsolete and unmarketable.
Any failure to develop new products or product enhancements will substantially
decrease market acceptance and sales of our present and future products, which
will harm our business and financial results.
IF THE EXTENSIBLE MARKUP LANGUAGE FAILS TO BECOME A STANDARD DATA EXCHANGE
PROTOCOL FOR THE INTERNET, THE MARKETABILITY OF OUR PRODUCTS MAY BE LIMITED.
Our POET Content Management Suite and our POET eCatalog Suite operate with
the eXtensible Markup Language, or XML, which we expect to be a predominant data
exchange protocol, or a standard format for content structure and the method and
means for exchanging data, for e-commerce on the Internet in the future. Should
XML fail to be adopted as a predominant data exchange protocol for e-commerce on
the Internet, it would seriously impede the marketability of our products and
force us to adapt our products to other data exchange protocols, which would be
costly and may not lead to marketable and competitive products. Our failure to
adapt or develop new products would have a negative impact on our revenues,
which would harm our business, financial condition and results of operations.
WE DEPEND ON OUR KEY PERSONNEL TO MANAGE OUR BUSINESS EFFECTIVELY, AND IF WE
LOSE KEY PERSONNEL WE MAY BE UNABLE TO REPLACE THEM, WHICH COULD DISRUPT
OPERATIONS AND HARM OUR FINANCIAL CONDITION.
Our success depends largely upon the skills, experience and performance of
our executive officers and key employees, particularly Dirk Bartels, our Chief
Executive Officer. If we lose one or more of our key employees, our business,
financial condition and results of operations could be harmed. We maintain a key
person life insurance policy covering Mr. Bartels, but not for others of our key
employees. Our executive officers and all of our employees in the United States
are at-will employees, meaning they are not bound by contract to continue
service with us and may terminate their employment with little notice. Our
executive officers and employees in Germany generally have employment agreements
pursuant to which they provide services for us for an unspecified term and agree
to provide six weeks to three months notice prior to terminating their
employment with us. If our officers or employees terminate their employment on
short notice, we may not be able to replace them on a timely basis, which could
disrupt our operations.
Our future success also depends largely on our ability to continue
attracting and
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retaining highly skilled personnel, and we face intense competition from other
software companies for qualified personnel. We have historically experienced
significant difficulties in hiring and retaining qualified personnel in key
management positions. For example, over the past three years, our average annual
workforce turnover rate was approximately 29% in the United States and
approximately 16% in Germany, and we may encounter similar or increased turnover
rates in the future. We cannot be certain that we will be successful in
attracting or retaining qualified personnel in the future, which could harm our
business, financial condition and results of operations.
WE ARE ENGAGED IN AN ARBITRATION PROCEEDING, WHICH COULD BE TIME-CONSUMING AND
COSTLY.
We are currently engaged in an arbitration proceeding regarding an
employment matter. We believe the claims asserted by the plaintiff are without
merit and plan to vigorously defend ourselves in this proceeding. We cannot
guarantee that we will prevail in this proceeding. We may incur additional costs
if we are unable to successfully defend ourselves against the claims. For more
information about this arbitration proceeding, see "Business -- Legal
Proceedings."
IF WE ARE UNABLE TO EXPAND OUR PROFESSIONAL SERVICES AS WE GROW, WE MAY LOSE
CUSTOMERS.
Customers who license our software typically engage our professional
services, including consulting, support and training. We believe that growth in
our product sales depends on our ability to provide our customers with these
services and to educate third-party resellers on how to use our products. We
plan to increase the number of service personnel to meet these needs. However,
hiring new service personnel is competitive, and, once hired, such personnel
require training and education over time to reach full productivity. If our
professional services organization is unable to service our customers as we
grow, customers may become dissatisfied with our services and we may lose
customers, which would harm our business.
OUR QUARTERLY RESULTS OFTEN DEPEND ON A SMALL NUMBER OF LARGE ORDERS, AND OUR
QUARTERLY REVENUES MAY BE HARMED IF WE DO NOT COMPLETE ONE OR MORE OF THESE
ORDERS IN ANY QUARTER.
We derive a significant portion of our software license revenues in each
quarter from a small number of relatively large orders. In each of the last
seven quarters in the period ended September 30, 1999, two customers accounted
for at least 10% of total revenues in each quarter. Although we do not believe
that the loss of any particular customer would materially harm our business, our
quarterly results of operations could be harmed if we were unable to complete
one or more substantial license sales in that quarter.
THE UNPREDICTABILITY AND SEASONALITY OF OUR QUARTERLY RESULTS MAY ADVERSELY
AFFECT THE TRADING PRICE OF OUR COMMON STOCK.
We generally ship our products shortly after receipt of an order and
typically do not have a significant backlog of unfulfilled orders. Our software
license revenues in any quarter are substantially dependent on orders booked and
shipped in that quarter, and we cannot predict them with any degree of
certainty. Our revenues and results of operations will vary significantly from
quarter to quarter due to a number of factors, many of which are outside of our
control and any of which may cause our stock price to fluctuate. The primary
factors that may affect us include the following:
- the timing of sales of our products and services;
- the timing of recognizing revenue and deferred revenue under U.S. GAAP;
- changes in our pricing policies or the pricing policies of our
competitors;
- increases in sales and marketing, product development or administration
expenses;
- the mix of services provided by us and third-party contractors;
- our ability to attain and maintain quality levels for our products; and
- costs related to acquisitions of technology or businesses.
We also expect to experience seasonality in our results of operations. We
expect the growth rate of our sales to be
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adversely affected in the third quarter of each year due to a slowdown in sales
in Europe and other foreign areas during the summer months. In addition, we
expect the growth rate of our sales in the first quarter to be adversely
affected due to our customers' budgeting cycles.
Due to the foregoing factors, you should not rely on quarter-to-quarter
comparisons of our results of operations as an indication of our future
performance. It is likely that in some future quarters, our results of
operations may be below the expectations of public market analysts and
investors. In this event, the price of our common stock may fall.
WE FACE INTENSE COMPETITION THAT COULD REDUCE OUR MARKET SHARE.
The database and e-commerce markets are intensively competitive, subject to
rapid change and significantly affected by new product introductions and other
market activities of industry participants. We expect competition to persist and
intensify in the future. Principal sources of competition include:
- in-house development efforts by potential customers;
- content management companies such as Chrystal Software, Incorporated,
Vignette Corporation, Inso Corporation, Documentum, Inc., Requisite
Technology, Inc., SAQQARA Systems, Inc. and Ondisplay, Inc.; and
- other vendors of software that address the same customer needs, such as
vendors of object-oriented database management systems, like Object
Design Inc., Versant Corporation, and Objectivity Inc.
In the future, we may also face competition from other sources that are
poised to enter the market, including vendors of relational database systems,
such as Microsoft Corporation, IBM, Informix Corporation, Pervasive Software,
Inc. and Oracle Corporation. Many of our current and potential competitors have
longer operating histories and significantly greater financial, technical,
marketing and other resources than we do. They have well-established
relationships with current and potential customers and have the resources to
enable them to more easily adopt aggressive pricing policies to gain market
share or bundle their products in a manner that may discourage users from
purchasing our products. If we are unable to compete successfully against our
current and future competitors, we could experience price reductions, reduced
gross margins and loss of market share, any one of which could materially and
adversely affect our business, operating results and financial condition. See
"Business -- Competition" for more information about our competition.
IF WE FAIL TO MANAGE OUR EXPANSION EFFECTIVELY, WE MAY INCUR SIGNIFICANT LOSSES.
We have recently expanded our operations rapidly and intend to continue
this expansion into the foreseeable future. This rapid growth places significant
demands on management and operational resources. In order to manage growth
effectively, we need to improve our operational systems, procedures and controls
on a timely basis. If we fail to implement scalable key operational systems
integral to our business as our operations expand, we may incur significant
losses, which could harm our business, financial condition and results of
operations.
THE SUCCESS OF OUR INTERNATIONAL OPERATIONS IS DEPENDENT UPON MANY FACTORS WHICH
COULD ADVERSELY AFFECT OUR ABILITY TO SELL OUR PRODUCTS INTERNATIONALLY AND
COULD AFFECT OUR PROFITABILITY.
We market and sell our products in the United States and internationally.
In 1998, we generated 35% of our total revenues through product licenses sold
and services rendered to customers located outside of the United States,
primarily in Germany. We intend to substantially expand our international
operations and enter new international markets. Our international operations
are, and will be, subject to a variety of risks associated with conducting
business internationally, many of which are beyond our control. The following
factors may adversely affect our ability to achieve and maintain profitability
and our ability to sell our products internationally:
- expenses associated with customizing products for foreign countries;
- dependence on local partners who may not be able to meet the needs of a
growing international market;
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- greater difficulty in accounts receivable collection and longer
collection periods;
- difficulties and costs of staffing and managing foreign operations;
- unexpected changes in regulatory requirements related to the Internet;
and
- limited or unfavorable intellectual property protection.
Our international sales growth will be limited if we are unable to
establish additional foreign operations, expand international sales channel
management and support organizations, hire additional personnel, customize
products for local markets and establish relationships with additional
distributors and third-party integrators.
OUR INTERNATIONAL OPERATIONS EXPOSE US TO RISKS ASSOCIATED WITH CURRENCY
FLUCTUATIONS, WHICH MAKES OUR FUTURE RESULTS OF OPERATIONS DIFFICULT TO PREDICT.
To date, a majority of our international revenues and costs have been
denominated in foreign currencies, especially in Deutsche Mark and, since the
Deutsche Mark conversion to the euro in January 1999, in euros. We believe that
an increasing portion of our international revenues and costs will be
denominated in foreign currencies in the future. We cannot predict the potential
consequences to our business as a result of the adoption of the euro as a common
currency in parts of Europe. To date, we have not engaged in any foreign
exchange hedging transactions, and we are, therefore, subject to foreign
currency risk, especially with regard to the U.S. dollar and euro exchange
rates.
The expenses of our subsidiary POET Software GmbH are denominated in
Deutsche Mark. However, the value of Deutsche Mark is tied to the value of the
euro. As a result, appreciation of the euro relative to the U.S. dollar could
adversely affect our results of operations. Even when foreign currency expenses
substantially offset revenues in the same currency, profits may be diminished
when reported in dollars. Fluctuations in the U.S. dollar relative to the euro
will affect comparisons of our reported results of operations. Due to the
constantly changing currency exposures and the volatility of currency exchange
rates, we could experience currency losses in the future, and we cannot predict
the effect of the exchange rate fluctuations upon our future results of
operations. For more information regarding currency fluctuations, see "Exchange
Rate Information."
IF WE ARE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS, COMPETITORS MAY BE
ABLE TO USE OUR TECHNOLOGY OR TRADEMARKS, WHICH COULD WEAKEN OUR COMPETITIVE
POSITION, REDUCE OUR REVENUES AND INCREASE COSTS.
We rely on a combination of copyright, trademark and trade secret laws and
restrictions on disclosure to protect our intellectual property rights. We also
enter into confidentiality or license agreements with our employees, consultants
and customers, and control access to and distribution of our software,
documentation and other proprietary information. Despite our efforts to protect
our proprietary rights, unauthorized parties may attempt to copy or otherwise
obtain and use our products or technology. Monitoring unauthorized use of our
products is difficult, and we cannot be certain that the steps we have taken
will prevent unauthorized use of our technology, particularly in foreign
countries where the laws may not protect our proprietary rights as fully as in
the United States or Germany.
In recent years, there has been significant litigation in the United States
involving patents and other intellectual property rights. Although we have never
been involved in any intellectual property litigation, we may be a party to
litigation in the future to protect our intellectual property or as a result of
alleged infringement of others' intellectual property. These claims and any
resulting lawsuits could subject us to significant liability for damages and
invalidation of our proprietary rights. Any potential intellectual property
litigation also could force us to do one or more of the following:
- stop selling, incorporating or using our products or services that use
the challenged intellectual property;
- obtain from the owner of the infringed intellectual property right a
license to sell or use the relevant technology, which license may not be
available on reasonable terms, or at all; or
- redesign those products or services that use such technology.
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If we are forced to take any of the foregoing actions, we may be unable to
manufacture and sell our products, which would reduce our revenues.
To date, we have not been notified that our products infringe the
proprietary rights of third parties, but there can be no assurance that third
parties will not claim infringement with respect to our current or future
products. We expect that developers of database, content management and
e-commerce software products will increasingly be subject to infringement claims
as the number of products and competitors in our industry segment grows and as
the functionality of products increasingly overlaps. Any such claims, with or
without merit, could be time-consuming to defend, result in costly litigation,
divert management's attention and resources, cause product shipment delays or
require us to enter into royalty or licensing agreements. Such royalty or
licensing agreements, if required, may not be available on terms acceptable to
us or at all. For more information concerning our intellectual property rights,
see "Business -- Proprietary Rights and Licensing."
OUR SOFTWARE PRODUCTS MAY HAVE UNKNOWN DEFECTS, WHICH COULD HARM OUR REPUTATION
OR IMPEDE MARKET ACCEPTANCE OF OUR PRODUCTS.
Despite testing by us, defects have occurred in the past and may occur in
the future in our software. Complex software like ours may be difficult to
integrate with customers' existing systems and may contain errors or defects
when first introduced or when new versions or enhancements are released.
Although we conduct extensive testing, we may not discover software defects that
affect our current or new products until after they are sold. In addition, any
defect in other software or hardware with which our software interacts could be
mistakenly attributed to our software by our customers or their end-users. These
defects or perceptions of defects could cause our customers and their end-users
to experience service interruptions. Service interruptions could damage our
reputation or increase our product development costs, divert our product
development resources, cause us to lose revenue, or delay market acceptance of
our products, any of which could harm our business, financial condition and
results of operations.
WE MAY BE SUBJECT TO PRODUCT LIABILITY CLAIMS THAT COULD RESULT IN SIGNIFICANT
COSTS TO US.
We may be subject to product liability claims for defects in our products.
Although we believe that our product liability coverage is currently adequate,
we did not obtain this insurance until July 1996, and it is limited. A
successful liability claim brought against us in excess of relevant insurance
coverage could be costly, which could harm our business, financial condition and
results of operations.
WE FACE A NUMBER OF UNKNOWN RISKS ASSOCIATED WITH YEAR 2000 ISSUES.
The Year 2000 issue refers generally to the problems that some software or
systems may have in determining the correct century for the year. For example,
software with date sensitive functions that is not Year 2000 compliant may not
be able to distinguish whether "00" means 1900 or 2000, which may result in
failures or the creation of erroneous results. We are subject to potential Year
2000 problems affecting our products, our internal systems and the systems of
our suppliers, customers and other third parties, any of which could harm our
business, results of operations and financial condition. We are also subject to
external forces related to Year 2000 issues that might generally affect industry
and commerce and related service interruptions.
Our products may contain undetected errors or defects associated with Year
2000 date functions. Known or unknown errors or defects in our products could
result in delay or loss of revenue, diversion of development resources, damage
to our reputation, or increased service and warranty costs, any of which could
harm our business, results of operations and financial condition. Some
commentators have predicted significant litigation regarding Year 2000
compliance issues, and we are aware of such lawsuits against other software
vendors. Because of the unprecedented nature of such litigation, it is uncertain
whether or to what extent we may be affected by it.
Our customers may incur significant expenses to achieve Year 2000
compliance. If our customers are not Year 2000 compliant, they may experience
operating difficulties, material costs to remedy problems or litigation, which
could result in delayed payments to us. In either case, Year 2000 issues could
reduce or eliminate the
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budgets that current or potential customers could have for purchases of our
products and services. As a result, our business, financial condition and
results of operations could be harmed. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Year 2000 Compliance" on
page 36.
RISKS RELATED TO THE INTERNET
OUR PERFORMANCE WILL DEPEND ON THE GROWTH OF THE INTERNET FOR E-COMMERCE.
Our future success in marketing our POET Content Management Suite and our
POET eCatalog Suite depends heavily on the acceptance of the Internet and its
widespread use for e-commerce. If the Internet e-commerce does not continue to
grow or grows more slowly than expected, our business, financial condition and
results of operations could be harmed. Consumers and businesses may reject the
Internet as a viable commercial medium for a number of reasons, including
potentially inadequate network infrastructure and security, slow development of
enabling technologies or insufficient commercial support. In addition, the
Internet infrastructure may not be able to support the demands placed on it by
increased usage and bandwidth requirements. Delays in the development or
adoption of new standards and protocols required to handle increased levels of
Internet activity or increased government regulation could cause the Internet to
lose its viability as a commercial medium. Even if the required infrastructure,
standards, protocols or complementary products, services or facilities are
developed, we may incur substantial expenses adapting our products and services
to changing or emerging technologies.
WE COULD FACE ADDITIONAL BURDENS ASSOCIATED WITH GOVERNMENT REGULATION OF AND
LEGAL UNCERTAINTIES RELATED TO THE INTERNET.
New Internet legislation or regulation, or the application of existing laws
and regulations to the Internet and e-commerce, could harm our business,
financial condition and results of operations. We are subject to regulations
applicable to businesses generally and laws or regulations directly applicable
to communications over the Internet and access to e-commerce. Although there are
currently few laws and regulations directly applicable to e-commerce, it is
possible that a number of laws and regulations may be adopted with respect to
the Internet, covering issues such as user privacy, pricing, content,
copyrights, distribution, antitrust, taxation and characteristics and quality of
products and services. For example, the United States Congress recently enacted
Internet laws regarding children's privacy, copyrights and the transmission of
sexually explicit material. In addition, the European Union recently enacted its
own Internet privacy regulations. The burden of compliance with any additional
laws or regulations regarding the Internet may decrease the growth of the
Internet or e-commerce, which could, in turn, decrease the demand for our
products and services and increase our costs of doing business.
RISKS RELATED TO THIS OFFERING
THERE HAS BEEN NO PRIOR MARKET FOR OUR COMMON STOCK AND A PUBLIC MARKET FOR OUR
SECURITIES MAY NOT DEVELOP OR BE SUSTAINED.
Prior to this offering, you could not buy or sell our common stock
publicly. An active public market for our common stock may not develop or be
sustained after the offering. The initial public offering price for our common
stock will be negotiated between us and the underwriters and could decline below
the initial public offering price. The market price of our common stock may
fluctuate significantly in response to the following factors, many of which are
beyond our control:
- changes in financial estimates by securities analysts;
- changes in market valuations of Internet software companies;
- announcements by us or our competitors of significant contracts,
acquisitions, strategic partnerships, joint ventures or capital
commitments;
- loss of a major customer or failure to complete significant product
license transactions;
- additions or departures of key personnel; and
- sales of our common stock in the future.
See "Underwriting" for a discussion of the factors considered in
determining the initial public offering price.
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OUR STOCK PRICE IS SUBJECT TO SIGNIFICANT VOLATILITY.
The price of shares sold in an initial public offering, particularly those
traded on the Neuer Markt, are frequently subject to significant volatility for
a period of time following the initial public offering. Moreover, the stock
markets have from time to time experienced significant price and volume
fluctuations, which have particularly affected the market prices of the stock of
technology and emerging growth companies and which may be unrelated to the
operating performance of such companies. These broad market fluctuations could
adversely affect the price of our common stock.
WE MAY BE UNABLE TO MEET OUR FUTURE CAPITAL REQUIREMENTS.
We expect the net proceeds from this offering, cash on hand, cash
equivalents and commercial credit facilities to meet our working capital and
capital expenditure needs for the foreseeable future. After that time, we may
need to raise additional funds, and we cannot be certain that we would be able
to obtain additional financing on favorable terms, if at all. Further, if we
issue equity securities, stockholders may experience additional dilution or the
new equity securities may have rights, preferences or privileges senior to those
of existing holders of common stock. If we cannot raise required funds on
acceptable terms, we may not be able to develop or enhance our products, take
advantage of future opportunities or respond to competitive pressures or
unanticipated requirements, which could harm our business, financial condition
and results of operations.
INSIDERS WILL CONTINUE TO HAVE SUBSTANTIAL CONTROL OVER OUR COMPANY AFTER THE
OFFERING AND COULD DELAY OR PREVENT A CHANGE IN CORPORATE CONTROL.
We anticipate that the executive officers, directors and entities
affiliated with them will, in the aggregate, beneficially own approximately 43%
of our outstanding common stock following the completion of this offering. If
these stockholders acted together, they would be able to exercise significant
control over all matters requiring approval by our stockholders, including the
election of directors and the approval of mergers or other business combination
transactions, which may have the effect of delaying or preventing a third party
from acquiring control over us. For information regarding stockholdings by our
officers, directors and 5% stockholders, see "Principal and Selling
Stockholders."
PROVISIONS OF OUR CHARTER DOCUMENTS, DELAWARE LAW AND THE GERMAN TAKE-OVER CODE
MAY HAVE ANTI-TAKEOVER EFFECTS THAT COULD PREVENT A CHANGE IN OUR CONTROL AND
COULD DEPRESS THE PRICE OF OUR COMMON STOCK.
Delaware corporate law and our certificate of incorporation and bylaws
contain provisions that could delay, defer or prevent a change in control of our
company or our management, even if doing so would be beneficial to our
stockholders. These provisions could also discourage proxy contests and make it
more difficult for you and other stockholders to elect directors and take other
corporate actions. As a result, these provisions could limit the price that
investors are willing to pay in the future for shares of our common stock. These
provisions include:
- authorizing the board of directors to issue additional preferred stock;
- prohibiting cumulative voting in the election of directors;
- limiting the persons who may call special meetings of stockholders;
- prohibiting stockholder action by written consent; and
- establishing advance notice requirements for nominations for election to
the board of directors or for proposing matters that can be acted on by
stockholders at stockholders' meetings.
We are also subject to provisions of Delaware law that could delay, deter
or prevent us from entering into an acquisition, including Section 203 of the
Delaware General Corporation Law, which prohibits a Delaware corporation from
engaging in a business combination with an interested stockholder unless
specific conditions are met. See "Description of Capital Stock -- Preferred
Stock" and "Delaware Anti-Takeover Law and our Charter and Bylaw Provisions."
In addition, in connection with our listing on the Neuer Markt of the
Frankfurt Stock Exchange, we are required to comply with
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the German Take-Over Code. The Stock Exchange Expert Commission at the German
Federal Ministry of Finance (Borsensachverstandigenkommission beim
Bundesministerium der Finanzen) has issued the German Take-Over Code
(Ubernahmekodex) as a voluntary regulatory framework governing public take-over
bids for domestic stock corporations that are quoted on domestic stock
exchanges. If we intend to merge with and acquire a publicly-traded German stock
corporation, we must do the following:
- notify German regulatory authorities and the public of the offer;
- provide disclosures to the target company's stockholders;
- treat stockholders equally in an offer; and
- comply with other regulatory requirements.
Our compliance with the German Take-Over Code could have the effect of
delaying, deferring or preventing a tender offer or takeover.
YOU WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION BY INVESTING IN OUR
COMMON STOCK.
The initial public offering price is substantially higher than the net
tangible book value of each outstanding share of common stock immediately after
the offering. Purchasers of our common stock in this offering will suffer
immediate and substantial dilution. This dilution will reduce the net tangible
book value of their shares because these investments will be at a substantially
higher per share price than they were for our existing stockholders. The
dilution will be $8.70 per share from the assumed initial public offering price
of E11.50 per share ($12.29 per share at an exchange rate reported by The Wall
Street Journal for September 30, 1999 of $1.069 per E1.00). If additional shares
are sold by the underwriters following exercise of their over-allotment option,
or if outstanding options or warrants to purchase shares of common stock are
exercised, you will incur further dilution. For information regarding the
dilutive effect of this offering on your investment, see "Dilution."
THERE MAY BE SALES OF A SUBSTANTIAL AMOUNT OF OUR COMMON STOCK AFTER THIS
OFFERING THAT COULD CAUSE OUR STOCK PRICE TO FALL.
Our current stockholders hold a substantial number of shares, which they
will be able to sell in the public market beginning six to twelve months after
the offering. Sales of a substantial number of shares of our common stock after
this offering could cause our stock price to fall. In addition, the sale of
these shares could impair our ability to raise capital through the sale of
additional stock. For information regarding the availability of shares for
future sale, see "Shares Eligible for Future Sale."
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NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve risks and
uncertainties. These statements relate to future events or our future financial
perfor-
mance. We use words such as "may," "will," "should," "estimates," "predicts,"
"anticipates," "believes," "plans," "expects," "future," "intends," "potential"
and similar expressions to identify forward-looking statements. These statements
are only predictions. Actual events or results may differ materially. This
prospectus also contains forward-looking statements attributed to third parties
relating to their estimates regarding the growth of Internet use. In evaluating
these statements, you should specifically consider various factors, including
the risks described above and in other parts of this prospectus.
Although we believe that the expectations reflecting the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, neither we nor any other person
assumes responsibility for the accuracy and completeness of such statements. In
addition, these forward-looking statements apply only as of the date of this
prospectus. We are under no duty to update any of the forward-looking statements
after the date of this prospectus or to conform such statements to actual
results or to changes in our expectations.
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HOW WE INTEND TO USE THE PROCEEDS FROM THIS OFFERING
The net proceeds from the sale of the 3,000,000 shares of common stock
offered by us are estimated to be E31,076,183 (approximately $33,240,000 at an
exchange rate of $1.069 per E1.00, the exchange rate in effect on September 30,
1999), or E37,300,583 (approximately $39,897,600 at an exchange rate reported by
The Wall Street Journal for September 30, 1999 of $1.069 per E1.00), if the
underwriters' over-allotment option is exercised in full, at an assumed initial
public offering price of E11.50 per share, after deducting the estimated
underwriting discounts and commissions payable to the underwriters of $1,830,000
($2,178,000 if the underwriters exercise the over-allotment option) as well as
other estimated offering expenses payable by us (approximately $1,800,000).
We expect to use the net proceeds from this offering for working capital
and general corporate purposes, which we expect will include an additional $3.5
million in sales and marketing expenses in fiscal year 2000 for expansion of our
sales and marketing force and related programs, an additional $1.2 million in
research and development efforts in fiscal year 2000, an additional $1.1 million
in general and administrative expenses in fiscal year 2000 to support expanded
sales efforts and capital expenditures consisting primarily of computer related
equipment and software of $1.6 million in fiscal year 2000, as well as for the
repayment of approximately $1.8 million of loans. In addition, we may use a
portion of the net proceeds to acquire complementary products, technologies or
businesses; however, we currently have no commitments or agreements and are not
involved in any negotiations with respect to any such transactions. Pending use
of the net proceeds of this offering, we intend to invest the net proceeds in
interest-bearing, investment-grade securities. We will not receive any proceeds
from the sale of the shares being sold by the selling stockholders. See
"Principal and Selling Stockholders."
DIVIDEND POLICY
We have never declared or paid any dividends on our capital stock. We
currently expect to retain future earnings, if any, for use in the operation and
expansion of our business and do not anticipate paying any cash dividends in the
foreseeable future.
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<PAGE> 20
EXCHANGE RATE INFORMATION
We report our Consolidated Financial Statements in U.S. dollars. However, a
significant portion of our revenues and expenses have historically been
recognized in Deutsche Mark. We expect that a significant portion of our
revenues and expenses will be recognized in Deutsche Mark or, after June 30,
2002, in euros. In addition, portions of our financial information in this
prospectus have been presented in euros. The exchange rate information provided
below is for informational purposes only. No representation is made that the
U.S. dollar amounts referred to herein could be or could have been converted
into Deutsche Mark or euros, as the case may be, at any particular rate or at
all.
The treaty establishing the European Community, as amended by the Treaty on
European Union, or the Maastricht Treaty, to which the Federal Republic of
Germany is a signatory, provided that on January 1, 1999, the euro became the
common currency of those Member States of the European Monetary Union, or EMU,
that satisfied the convergence criteria set forth in the Maastricht Treaty,
including Germany. The conversion rate between the Deutsche Mark, which
continues to have legal tender status through a transition period ending June
30, 2002, at the latest, and the euro was fixed by the Council of the European
Union at DM 1.95583. Prices quoted for the shares on the Neuer Markt will be
quoted in euros.
We do not currently anticipate paying any dividends to stockholders.
However, any dividends we do declare would be in U.S. dollars, and exchange rate
fluctuations would affect the euro equivalent of any cash dividend received by
holders of common shares. For more information, see "Dividend Policy."
The table below sets forth, for the periods and dates indicated,
information concerning the Noon Buying Rate in the city of New York for cable
transfers in foreign currencies certified by the Federal Reserve Bank of New
York for customs purposes, expressed in Deutsche Mark per $1.00 or euros per
$1.00 as the case may be. The columns titled "Average" refer to the average of
the Noon Buying Rates on the last business day of each full calendar month
during the relevant period.
Deutsche Mark Exchange Rate Information
DM/$1.00
<TABLE>
<CAPTION>
CALENDAR YEAR ENDED HIGH LOW AVERAGE PERIOD END
------------------- ------- ------- ------- ----------
<S> <C> <C> <C> <C>
1994..................................... 1.7627 1.4920 1.6216 1.5495
1995..................................... 1.5612 1.3565 1.4321 1.4345
1996..................................... 1.5655 1.4354 1.5051 1.5387
1997..................................... 1.8810 1.5413 1.7347 1.7991
1998..................................... 1.8542 1.6060 1.7597 1.6670
</TABLE>
The table below sets forth, for the period and dates indicated, information
concerning the Noon Buying Rate expressed in euros per $1.00. No representation
is made that the euro or U.S. dollar amounts referred to herein could be or
could have been converted into U.S. dollars or euros, as the case may be, at any
particular rate or at all.
EURO EXCHANGE RATE INFORMATION
EURO/$1.00
<TABLE>
<CAPTION>
CALENDAR YEAR ENDED HIGH LOW AVERAGE PERIOD END
------------------- ------ ------ ------- ----------
<S> <C> <C> <C> <C>
1999 (through September 30, 1999)............ 1.1913 1.0105 1.0757 1.0690
</TABLE>
Accordingly, fluctuations in the price of the Deutsche Mark will also
reflect fluctuations in the value of the euro.
18
<PAGE> 21
CAPITALIZATION
The following table sets forth our actual capitalization as of September
30, 1999:
- On an actual basis;
- On a pro forma basis after giving effect to the conversion of all
outstanding Series B common stock and preferred stock into shares of
common stock; and
- On a pro forma as adjusted basis, after giving effect to the sale of
3,000,000 shares of common stock by us at an assumed initial public
offering price of E11.50 per share ($12.29 at an exchange rate reported
by The Wall Street Journal for September 30, 1999 of $1.069 per E1.00),
less the estimated underwriting discount and estimated expenses we expect
to pay in connection with this offering and the application of the net
proceeds as described in "How We Intend to Use the Proceeds From This
Offering."
You should read this table in conjunction with our Consolidated Financial
Statements included elsewhere in this prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
--------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- ------------ ------------
(IN THOUSANDS, EXCEPT SHARE AND
PER SHARE DATA)
<S> <C> <C> <C>
Long-term obligations, net of current portion......... $ 2,216 $ 2,216 $ 419
Redeemable convertible preferred stock, $0.001 par
value, 5,417,186 shares authorized 4,981,957 shares
issued and outstanding, actual none authorized, none
issued or outstanding, pro forma and pro forma as
adjusted.............................................. 16,472 -- --
Stockholders' equity (deficiency):
Preferred stock, $.001 par value, no shares
authorized, issued or outstanding, actual or
pro forma; 3,000,000 shares authorized, no
shares issued and outstanding, pro forma as
adjusted....................................... -- -- --
Common stock, $.001 par value, 11,411,173 shares
authorized, actual and pro forma; 30,000,000
pro forma as adjusted; common stock 1,968,717
shares issued and outstanding, actual;
6,950,674 shares issued and outstanding, pro
forma; 9,950,674 shares issued and outstanding,
pro forma as adjusted.......................... 2 7 10
Additional Paid-in Capital....................... 7,516 23,983 57,220
Deferred stock compensation...................... (1,114) (1,114) (1,114)
Accumulated deficit.............................. (20,792) (20,792) (20,792)
Accumulated other comprehensive income........... 377 377 377
-------- -------- --------
Stockholders' equity (deficiency)................ (14,011) 2,461 35,701
-------- -------- --------
Total capitalization............................. $ 4,677 $ 4,677 $ 36,120
======== ======== ========
</TABLE>
- -------------------------
In addition to the shares of common stock outstanding after the offering,
we may issue additional shares of common stock under the following plans and
arrangements:
- 489,135 shares of common stock issuable upon exercise of outstanding
options (of which options to purchase 132,777 shares of common stock were
exercisable at September 30, 1999) under our 1995 Stock Plan at a
weighted average exercise price of $2.10 share;
- 628,427 shares available for future issuance under our stock benefit
plans; and
- 107,079 shares issuable upon exercise of outstanding warrants at a
weighted average exercise price of $6.63 per share.
Please read the capitalization table together with the sections of this
prospectus entitled "Selected Consolidated Financial Data" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
with the Consolidated Financial Statements included elsewhere in this
prospectus.
19
<PAGE> 22
DILUTION
If you invest in our common stock, your interest will be diluted to the
extent of the difference between the public offering price per share of our
common stock and the pro forma as adjusted net tangible book value per share of
our common stock after this offering. We calculate net tangible book value per
share by dividing the net tangible book value (total assets less tangible assets
and total liabilities) by the number of outstanding shares of common stock. We
have included amounts in this table in both euros and U.S. dollars based on
exchange rates of $1.069 per E1.00, the exchange rate in effect on September 30,
1999, as reported by The Wall Street Journal.
Our pro forma net tangible book value at September 30, 1999, after giving
effect to the conversion of all outstanding shares of our Series B common stock
and all outstanding shares of preferred stock into 6,343,130 shares of common
stock upon the closing of this offering was E2,302,152 ($2,461,000), or E0.33
($0.35) per share of common stock.
After giving effect to the sale of the 3,000,000 shares of common stock by
us at an assumed initial public offering price of E11.50 ($12.29) per share
(less the underwriting discounts and estimated expenses we expect to pay in
connection with this offering), our pro forma net tangible book value at
September 30, 1999 would be approximately E33,397,000 ($35,701,000), or E3.36
($3.59) per share. This represents an immediate increase in the pro forma net
tangible book value of E3.03 ($3.24) per share to existing stockholders and an
immediate dilution of E8.14 ($8.70) per share to new investors, or approximately
70.8% of the assumed offering price of E11.50 ($12.29) per share.
The following table illustrates this per share dilution:
<TABLE>
<CAPTION>
E U.S. $
--------------- ---------------
<S> <C> <C> <C> <C>
Assumed public offering price per share............. E11.50 $12.29
Pro forma net tangible book value per share at
September 30, 1999.................................. E0.33 $0.35
Increase per share attributable to new
investors...................................... E3.03 $3.24
----- -----
Pro forma net tangible book value per share after
the offering...................................... E 3.36 $ 3.59
------ ------
Dilution per share to new investors................. E 8.14 $ 8.70
====== ======
</TABLE>
The following table shows on a pro forma basis at September 30, 1999, after
giving effect to the automatic conversion of all outstanding shares of our
Series B common stock and all outstanding shares of our preferred stock into a
total of 6,950,674 shares of common stock upon the closing of this offering, the
number of shares of common stock offered by us, the total consideration paid to
us and the average price paid per share by existing stockholders and by new
investors purchasing common stock in this offering:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------------- ------------------------ AVERAGE PRICE
NUMBER PERCENTAGE AMOUNT PERCENTAGE PER SHARE
--------- ------------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders..... 6,950,674 70 $23,990,000 39 $ 3.45
New investors............. 3,000,000 30 36,870,000 61 12.29
--------- --- ----------- ---
Total..................... 9,950,674 100% $60,860,000 100%
========= === =========== ===
</TABLE>
- -------------------------
Sales by the selling stockholders in this offering will reduce the
percentage of outstanding shares of common stock held by existing stockholders
after this offering to 60%, and the number of shares held by new investors will
be increased to 3,950,000, or 40% of the number of shares to be outstanding
after this offering. If the underwriters exercise their option to purchase
additional shares in full, the percentage of shares held by existing
stockholders after this offering will be further reduced to 57%, and the number
of shares held by new investors will be increased to 4,520,000 shares or 43% of
the number of shares to be outstanding after this offering. See "Principal and
Selling Stockholders."
The above information is based on shares outstanding at September 30, 1999.
20
<PAGE> 23
In addition to the shares of common stock outstanding after the offering,
we may issue additional shares of common stock under the following plans and
arrangements:
- 489,135 shares of common stock issuable upon exercise of outstanding
options (of which options to purchase 132,777 shares of common stock were
exercisable at September 30, 1999) under our 1995 Stock Plan at a
weighted average exercise price of $2.10 per share;
- 628,427 shares available for future issuance under our stock benefit
plans; and
- 107,079 shares issuable upon exercise of outstanding warrants at a
weighted average exercise price of $6.63 per share.
Please read the capitalization table together with the sections of this
prospectus entitled "Selected Consolidated Financial Data" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
with the Consolidated Financial Statements included elsewhere in this
prospectus.
21
<PAGE> 24
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements of POET
Holdings, Inc. and its subsidiaries included elsewhere in this prospectus. The
statement of operations data set forth below for the fiscal years ended December
31, 1995, 1996, 1997 and 1998, have been derived from the audited consolidated
financial statements of POET Holdings, Inc. and its subsidiaries included
elsewhere in this prospectus, which have been audited by Deloitte & Touche LLP
independent auditors. The consolidated statement of operations data for the
fiscal years ended December 31, 1994 and for the nine-month periods ended
September 30, 1998 and 1999, and the consolidated balance sheet data as of
December 31, 1994 and September 30, 1998 and 1999, are derived from unaudited
consolidated financial statements. The unaudited consolidated financial
statements have been prepared on the same basis as the audited consolidated
financial statements contained in this prospectus and include all adjustments,
consisting only of normal and recurring adjustments, that we consider necessary
for a fair presentation of such information. The historical results are not
necessarily indicative of results to be expected for any future period. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------------- -----------------
1994 1995 1996 1997 1998 1998 1999
------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenues:
Products......................... $ 1,921 $ 2,612 $ 5,748 $ 5,525 $ 5,668 $ 3,984 $ 5,555
Consulting and training.......... 292 1,023 2,090 1,053 1,819 1,356 1,213
Support and maintenance.......... 49 112 447 1,139 1,430 1,086 935
------- ------- ------- ------- ------- ------- -------
Total revenues................. 2,262 3,747 8,285 7,717 8,917 6,426 7,703
Cost of revenues:
Products......................... 211 421 472 292 295 203 170
Consulting and training.......... 155 476 1,453 703 1,184 860 799
Support and maintenance.......... 132 326 417 936 1,067 793 768
------- ------- ------- ------- ------- ------- -------
Total cost of revenue.......... 498 1,223 2,342 1,931 2,546 1,856 1,737
------- ------- ------- ------- ------- ------- -------
Gross profit....................... 1,764 2,524 5,943 5,786 6,371 4,570 5,966
Operating expenses:
Selling and marketing............ 1,187 2,276 4,935 7,163 5,922 4,487 5,300
Research and development......... 896 1,173 1,555 2,906 2,612 1,895 2,353
General and administrative....... 526 1,061 1,324 1,581 1,428 1,087 1,345
Amortization of deferred stock
compensation................... -- -- -- -- 47 -- 439
------- ------- ------- ------- ------- ------- -------
Total operating expenses....... 2,609 4,510 7,814 11,650 10,009 7,469 9,437
------- ------- ------- ------- ------- ------- -------
Operating loss..................... (845) (1,986) (1,871) (5,864) (3,638) (2,899) (3,471)
Other, net......................... (47) (68) (278) (19) (352) (170) (827)
------- ------- ------- ------- ------- ------- -------
Net loss........................... $ (892) $(2,054) $(2,149) $(5,883) $(3,990) $(3,069) $(4,298)
======= ======= ======= ======= ======= ======= =======
Basic and diluted net loss
per share........................ $ (0.63) $ (1.45) $ (1.57) $ (4.17) $ (2.65) $ (2.70)
======= ======= ======= ======= ======= =======
Shares used in computing basic and
diluted net loss per share....... 1,411 1,412 1,371 1,412 1,507 1,589
======= ======= ======= ======= ======= =======
Pro forma basic and diluted net
loss per share................... $ 0.74 $ 0.66
======= =======
Shares used in computing pro forma
basic and diluted net loss per
share............................ 5,575 6,540
======= =======
</TABLE>
22
<PAGE> 25
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------
1994 1995 1996 1997 1998 SEPTEMBER 30, 1999
------ ------- ------- -------- -------- ------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents, and short-
term investments.................. $ 76 $ 558 $ 7,226 $ 1,525 $ 4,776 $ 4,631
Working capital................... (370) 453 5,708 456 2,809 3,900
Total assets...................... 1,741 2,199 8,902 4,000 7,533 7,869
Long-term obligations............. 1,396 1,272 2,262 2,846 2,906 2,216
Redeemable convertible preferred
stock........................... 836 3,424 9,925 9,925 15,996 16,472
Stockholders' deficiency.......... (1,583) (3,630) (5,661) (11,218) (15,302) (14,011)
</TABLE>
23
<PAGE> 26
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
"Selected Financial Data" and our Consolidated Financial Statements included
elsewhere in this prospectus. See also "Note Regarding Forward-Looking
Statements."
OVERVIEW
We are a provider of innovative data management software and solutions that
allow organizations to share, manage and manipulate complex information and to
facilitate effective business-to-business processes and information exchange
over the Internet. Our database management system utilizes and supports complex,
multidimensional data models and standard Internet programming languages. Our
Internet solutions provide our customers with the ability to author, manipulate
and electronically distribute complex business documents based on advanced
exchange protocols using the Internet as a new means to increase customer
relationships, accelerate business processes and reduce costs, thereby
facilitating effective business-to-business information exchange.
In March 1995, the operation of two entities, POET Software GmbH and POET
Software Corporation were reorganized under our company. Effective on December
13, 1996, BKS Software Entwicklungs GmbH merged with POET Software GmbH. POET
Software GmbH is the surviving entity and has assumed all assets and liabilities
of BKS Software Entwicklungs GmbH. All information included in this Management's
Discussion and Analysis of Financial Condition and Results of Operations refers
to POET Holdings, Inc. and its subsidiaries on a consolidated basis.
From commencement of our operations in March 1995 through June 1999, our
operating activities related primarily to increasing our research and
development capabilities, designing and developing the software products which
we are currently selling and staffing our administrative, sales and marketing
organizations. Since our inception, we have incurred significant losses, and as
of December 31, 1998, we had an accumulated deficit of $16.5 million, and for
the year ended December 31, 1998, our net loss was $4.0 million. As of September
30, 1999, we had an accumulated deficit of $20.8 million, and our net loss for
the nine months ended September 30, 1999, was approximately $4.3 million. We
have not achieved profitability on a quarterly or annual basis and anticipate
that we will incur net losses for the foreseeable future. We expect to continue
to incur significant selling and marketing, product development, professional
services and administrative expenses, and as a result, we will need to generate
significantly higher revenues to achieve and maintain profitability.
We derive our revenue from the sale of software product licenses and
services revenue from professional consulting, training and technical support
and maintenance. The software product license revenue is currently substantially
derived from the sales of our POET Object Server Suite product line, and to a
lesser extent, revenues generated from our POET Content Management Suite.
Product revenue generated from our POET Content Management Suite product line
was $76,000, $127,000 and $486,000 for the nine months ended September 30, 1998,
the year ended December 31, 1998 and the nine months ended September 30, 1999,
respectively. Revenue generated from our POET eCatalog Suite product line was
$20,000 in the quarter ended September 30, 1999. There was no other revenue
generated from sales of the POET eCatalog Suite product line in any other
period.
Substantially all of our customers enter into maintenance and support
agreements upon the commercial release of the customer's application that
includes licensed POET products. Since 1996, we have had an average renewal rate
of maintenance and support contracts of approximately 42%.
Our revenue recognition policy is consistent with the American Institute of
Certified Public Accountants Statement of Position No. 97-2, as amended. License
revenues are comprised of fees for our software products. Revenue from license
fees is recognized when an agreement has been signed, delivery of the product
has occurred, no significant company obligations remain, the fee is fixed or
determinable, collectibility is probable and vendor-specific objective evidence
exists to allocate a portion of the total fee to any undelivered elements of the
arrangement. For electronic delivery,
24
<PAGE> 27
the software is considered to have been delivered when we have provided the
customer with the access codes that allow for immediate possession of the
software. If the fee due from the customer is not fixed or determinable, revenue
is recognized as payments become due from the customer. If collectibility is not
considered probable, revenue is recognized when the fee is collected.
Support and maintenance arrangements do not provide for specified upgrade
rights and provide technical support and the right to unspecified upgrades on an
if-and-when-available basis. Revenues from support arrangements is recognized on
a straight-line basis over the life of the related agreement, which is typically
one year. If support, consulting services or training are included in an
arrangement that includes a license agreement, amounts related to support,
consulting services, training and the licenses are allocated based on
vendor-specific objective evidence. Vendor-specific objective evidence for
support, professional services and license agreements is based on the price when
such elements are sold separately, or, when not sold separately, the price is
established by management having the relevant authority. Where discounts are
offered on multiple element arrangements, a proportionate amount of that
discount is applied to each element included in the arrangement based on each
element's fair value. Consulting and training revenue is recognized when
provided to the customer. Revenues from custom development projects are
recognized on the percentage of completion basis.
We record cash receipts from customers and billed amounts due from
customers in excess of recognized revenue as deferred revenue. The timing and
amount of cash receipts from customers can vary significantly depending on
specific contract terms and can therefore have a significant impact on the
amount of deferred revenue in any given period. As of December 31, 1998, total
deferred revenues were $2.2 million, 75% of which was attributable to sales to
Novell, and, as of September 30, 1999, total deferred revenues were $700,000,
none of which was attributable to sales to Novell.
Over the past several years, we have been dependent on a few key customers.
In 1996, approximately 41% of our net revenues were derived from two customers,
Novell (24%) and Bausparkasse Schwabisch Hall AG (17%). In 1997, approximately
48% of our revenues were derived from two customers, Novell (37%) and another
corporate customer (11%). In 1998, approximately 27% of our revenues came from
Novell. For the nine months ended September 30, 1999, approximately 21% of our
net revenues came from Novell. Since March 1998, the revenues generated from
Novell have been due to the pro-rated amortization of deferred revenues. Novell
is a stockholder of our company. Although we are seeking to diversify our
customer base and expand our net revenues through our product offerings, we
anticipate that our operating results will continue to depend on volume sales to
a relatively small number of customers. As a result of the completion of the
amortization of Novell revenues, our revenues may be lower in the quarter ending
December 31, 1999, and thereafter.
Our cost of product revenues includes the cost of manuals and product
documentation, media used to deliver our products, shipping, fulfillment costs
and royalties due to third parties for technology included in our products, but
does not include research and development costs. Our cost of services revenues
includes salaries and related expenses for our consulting, training and
technical support services organizations, cost of third parties contracted to
provide consulting services to customers and an allocation of our facilities,
communications and depreciation expense.
Amortization of deferred stock compensation represents the difference
between the exercise price of options granted and the estimated fair market
value of the underlying common stock on the date of grant. We have recorded
deferred compensation within stockholders' equity of approximately $1.6 million
through September 30, 1999. We recorded amortization of deferred compensation of
$47,000 and $439,000 during 1998 and the nine months ended September 30, 1999,
respectively. At September 30, 1999, the remaining deferred compensation will be
amortized as follows: $187,000 during 1999, $512,000 during 2000, $268,000
during 2001, $124,000 during 2002 and $23,000 during 2003. The amortization
expense relates to options awarded to employees in all operating expense
categories. The amount of deferred compensation expense to be recorded in
25
<PAGE> 28
future periods could decrease if options for which accrued but unvested
compensation has been recorded are forfeited.
In January 1998, we reduced our labor force by approximately 20% in
response to an unexpected decline in sales in the fourth quarter of 1997.
Through December 31, 1998 and September 30, 1999, all research and
development costs have been expensed as incurred. Capitalization of software
development costs under U.S. Financial Accounting Standards Board Statement of
Financial Accounting Standards No. 86 begins upon the establishment of
technological feasibility. Technological feasibility is established upon the
completion of a working model. The establishment of technological feasibility
and the ongoing assessment of recoverability of capitalized software development
costs require considerable judgment by management with respect to external
factors, including, but not limited to, technological feasibility, anticipated
future gross revenues, estimated economic life, and changes in software and
hardware technologies. Costs incurred by us between completion of a working
model and the point at which the product is ready for general release have been
insignificant.
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
----------------------------- ------------------
1996 1997 1998 1998 1999
------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
Revenues:
Product.......................... $ 5,748 $ 5,525 $ 5,668 $ 3,984 $ 5,555
Consulting and training.......... 2,090 1,053 1,819 1,356 1,213
Support and maintenance.......... 447 1,139 1,430 1,086 935
------- ------- ------- ------- -------
Total revenues................. 8,285 7,717 8,917 6,426 7,703
Cost of revenues:
Product.......................... 472 292 295 203 170
Consulting and training.......... 1,453 703 1,184 860 799
Support and maintenance.......... 417 936 1,067 793 768
------- ------- ------- ------- -------
Total cost of revenues......... 2,342 1,931 2,546 1,856 1,737
------- ------- ------- ------- -------
Gross profit....................... 5,943 5,786 6,371 4,570 5,966
Operating expenses:
Selling and marketing............ 4,935 7,163 5,922 4,487 5,300
Research and development......... 1,555 2,906 2,612 1,895 2,353
General and administrative....... 1,324 1,581 1,428 1,087 1,345
Amortization of deferred stock
compensation................... -- -- 47 -- 439
------- ------- ------- ------- -------
Total operating expenses....... 7,814 11,650 10,009 7,469 9,437
------- ------- ------- ------- -------
Operating loss..................... (1,871) (5,864) (3,638) (2,899) (3,471)
Other, net......................... (278) (19) (352) (170) (827)
------- ------- ------- ------- -------
Net loss........................... $(2,149) $(5,883) $(3,990) $(3,069) $(4,298)
======= ======= ======= ======= =======
</TABLE>
26
<PAGE> 29
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the statements
of operations data as a percentage of total revenues, rounded to the nearest
percentage. Percentages may not add up precisely due to rounding.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------ ---------------
1996 1997 1998 1998 1999
------ ----- ----- ------ -----
<S> <C> <C> <C> <C> <C>
Revenues:
Product................................... 69.4% 71.6% 63.6% 62.0% 72.1%
Consulting and training................. 25.2% 13.6% 20.4% 21.1% 15.7%
Support and maintenance................. 5.4% 14.8% 16.0% 16.9% 12.1%
------ ----- ----- ------ -----
Total revenues.................. 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues:
Product................................. 5.7% 3.8% 3.3% 3.2% 2.2%
Consulting and training................. 17.5% 9.1% 13.3% 13.4% 10.4%
Support and maintenance................. 5.0% 12.1% 12.0% 12.3% 10.0%
------ ----- ----- ------ -----
Total cost of revenues.......... 28.3% 25.0% 28.6% 28.9% 22.6%
------ ----- ----- ------ -----
Gross profit............................ 71.7% 75.0% 71.4% 71.1% 77.5%
Operating expenses:
Selling and marketing................... 59.6% 92.8% 66.4% 69.8% 68.8%
Research and development................ 18.8% 37.7% 29.3% 29.5% 30.5%
General and administrative.............. 16.0% 20.5% 16.0% 16.9% 17.5%
Amortization of deferred stock
compensation......................... --% --% 0.5% --% 5.7%
------ ----- ----- ------ -----
Total operating expenses........ 94.3% 151.0% 112.2% 116.2% 122.5%
------ ----- ----- ------ -----
Operating loss.......................... (22.6)% (76.0)% (40.8)% (45.1)% (45.1)%
Other, net................................ (3.4)% (0.2)% (3.9)% (2.6)% (10.7)%
Net loss.................................. (25.9)% (76.2)% (44.7)% (47.8)% (55.8)%
====== ===== ===== ====== =====
</TABLE>
COMPARISON OF RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
TOTAL REVENUES
Total revenues increased 19.9% to $7.7 million in the nine months ended
September 30, 1999, from $6.4 million in the nine months ended September 30,
1998.
PRODUCT REVENUE. Our product revenues are comprised primarily of sales of
the POET Object Server Suite and POET Content Management Suite. Product revenues
increased 39.4% to $5.6 million, or 72.1% of total revenues, in the nine months
ended September 30, 1999, from $4.0 million, or 62.0% of total revenues, in the
nine months ended September 30, 1998. The increase in product revenues was
primarily attributable to an additional $1.0 million of revenues from sales of
our POET Object Server Suite to Novell, Lucent Technologies and IDS Scheer AG
and an additional $411,000 derived from sales of the POET Content Management
Suite product line.
CONSULTING AND TRAINING REVENUES. Consulting and training revenues
decreased 10.5% to $1.2 million, or 15.7% of total revenues, in the nine months
ended September 30, 1999, from $1.4 million, or 21.1% of total revenues, in the
nine months ended September 30, 1998. The decrease in consulting and training
revenues was primarily attributable to reduced consulting services provided to
Novell.
SUPPORT AND MAINTENANCE REVENUES. Support and maintenance revenues
decreased 13.9% to $935,000, or 12.1% of total revenues, in the nine months
ended September 30, 1999, from $1.1 million, or 16.9% of total revenues, in the
nine months ended September 30, 1998. The decrease is primarily attributable to
a decrease in support revenues derived from Novell of approximately $413,000,
offset by an increase in the overall number of support and maintenance
customers.
27
<PAGE> 30
COST OF REVENUES
COST OF PRODUCT REVENUE. Cost of software product revenues decreased 16.3%,
or $33,000, in the nine months ended September 30, 1999. As a percentage of
product revenues, cost of product revenues decreased to 3.1% in the nine months
ended September 30, 1999, from 5.1% in the nine months ended September 30, 1998.
COST OF CONSULTING AND TRAINING REVENUES. Cost of consulting and training
revenues decreased 7.1% to $799,000 for the nine months ended September 30,
1999, from $860,000 for the nine months ended September 30, 1998. As a
percentage of consulting and training revenues, cost of consulting and training
revenues increased to 65.9% in the nine months ended September 30, 1999, from
63.4% in the nine months ended September 30, 1998, due to a lower utilization of
consulting personnel during the nine months ended September 30, 1999 primarily
due to recently hired personnel who have not achieved full productivity levels.
COST OF SUPPORT AND MAINTENANCE REVENUES. Cost of support and maintenance
revenues decreased 3.2% to $768,000 for the nine months ended September 30,
1999, from $793,000 for the nine months ended September 30, 1998. As a
percentage of support and maintenance revenues, cost of support and maintenance
revenues increased to 82.1% in the nine months ended September 30, 1999, from
73.0% in the nine months ended September 30, 1998. The increase in cost of
support and maintenance revenues as a percentage of support and maintenance
revenues was primarily attributable to the decrease in support and maintenance
revenues.
GROSS PROFIT
Gross profit increased 30.5% to $6.0 million in the nine months ended
September 30, 1999, from $4.6 million in the nine months ended September 30,
1998. As a percentage of total revenues, gross profit increased to 77.5% in the
nine months ended September 30, 1999, from 71.1% in the nine months ended
September 30, 1998. The increase was primarily attributable to an increase in
product revenues, which generates a higher profit margin than services revenues.
OPERATING EXPENSES
SELLING AND MARKETING. Our selling and marketing expenses consist primarily
of salaries and related costs for sales and marketing personnel, selling
commissions, travel, advertising, public relations, marketing materials and
trade shows. Selling and marketing expenses increased 18.1% to $5.3 million in
the nine months ended September 30, 1999, from $4.5 million in the nine months
ended September 30, 1998. Of this increase, $560,000 was attributable to selling
expenses and $258,000 was attributable to marketing expenses. The increase in
the selling related expenses was primarily attributable to an increase in sales
personnel and related compensation. The increase in marketing expenses was
primarily attributable to an increase in spending on public relations and an
increase in marketing, personnel and related compensation. We believe these
expenses will increase significantly in future periods as we expect to continue
to expand our selling and marketing efforts.
RESEARCH AND DEVELOPMENT. Our research and development expenses consist
primarily of personnel and related costs for the development of software
products. Research and development expenses increased 24.2% to $2.4 million in
the nine months ended September 30, 1999, from $1.9 million in the nine months
ended September 30, 1998. The increase in research and development expenses
resulted primarily from increases in the number of research and development
personnel due to new product development including the POET eCatalog Suite.
GENERAL AND ADMINISTRATIVE. Our general and administrative expenses consist
primarily of personnel and related costs for general corporate functions,
including finance, accounting, legal, human resources, facilities and
information system expenses. General and administrative expenses increased 23.7%
to $1.3 million in the nine months ended September 30, 1999, from $1.1 million
in the nine months ended September 30, 1998. The increase was primarily
attributable to an increase in legal expenses.
OTHER, NET. Our other, net consists of interest income earned on commercial
paper and cash deposited on money market accounts, interest expense incurred on
unsecured credit lines, loans, warrants and a
28
<PAGE> 31
capital lease and income taxes. Other, net increased 386.5% to expenses of
$827,000 in the nine months ended September 30, 1999, from expense of $170,000
in the nine months ended September 30, 1998. The increase in expense was
primarily attributable to an interest expense charge of $809,000 made in
conjunction with the conversion of debt to common stock offset by an increase in
interest income as a result of higher average cash and cash equivalent balances
due to the receipt of proceeds from the sale of our Series D convertible
preferred stock in December 1998 and April 1999 and a convertible debt financing
in January 1999.
COMPARISON OF RESULTS FOR THE YEAR ENDED DECEMBER 31, 1998 TO THE YEAR ENDED
DECEMBER 31, 1997
TOTAL REVENUE
Total revenue increased 15.6% to $8.9 million in the year ended December
31, 1998 from $7.7 million in the year ended December 31, 1997.
PRODUCT REVENUE. Our product revenue increased 2.6% to $5.7 million, or
63.6% of total revenue, in the year ended December 31, 1998 from $5.5 million,
or 71.6% of total revenue, in the year ended December 31, 1997. The decrease in
product revenue as a percentage of total revenue was due to the increase in
services revenue.
CONSULTING AND TRAINING REVENUE. Our consulting and training revenue
increased 72.7% to $1.8 million, or 20.4% of total revenue, in the year ended
December 31, 1998, from $1.1 million, or 13.6% of total revenue, in the year
ended December 31, 1997. The increase in consulting and training revenue was
derived principally from three significant customers, Techniker Krankenkasse,
Ericsson and the European Union, for a total of approximately $500,000 and to an
overall increase in customers requiring consulting.
SUPPORT AND MAINTENANCE REVENUE. Support and maintenance revenue increased
25.5% to $1.4 million, or 16.0% of total revenue, in the year ended December 31,
1998, from $1.1 million, or 14.8% of total revenue, in the year ended December
31, 1997. The increase was attributable to an increase in the average amount of
revenue derived from support and maintenance contracts.
COST OF REVENUES
COST OF PRODUCT REVENUE. Our cost of product revenue remained relatively
unchanged at approximately $300,000 for both years. As a percentage of product
revenue, cost of product revenue decreased slightly to 5.2% in the year ended
December 31, 1998, from 5.3% in the year ended December 31, 1997.
COST OF CONSULTING AND TRAINING REVENUE. Our cost of consulting and
training revenue increased 68.4% to $1.2 million for the year ended December 31,
1998, from $703,000 for the year ended December 31, 1997. As a percentage of
consulting and training revenue, cost of consulting and training revenue
decreased to 65.1% in the year ended December 31, 1998, from 66.8% in the year
ended December 31, 1997. The increase was primarily attributable to a larger
number of customers requiring consulting services.
COST OF SUPPORT AND MAINTENANCE REVENUE. Our cost of support and
maintenance revenue increased 14.0% to $1.1 million for the year ended December
31, 1998, from $936,000 for the year ended December 31, 1997. As a percentage of
support and maintenance revenue, cost of support and maintenance revenue
decreased to 74.6% in the year ended December 31, 1998 from 82.2% in the year
ended December 31, 1997. The increase in cost of support and maintenance revenue
was primarily attributable to an increase in personnel and related costs.
GROSS PROFIT
Gross profit increased 10.1% to $6.4 million in the year ended December 31,
1998, from $5.8 million in the year ended December 31, 1997. As a percentage of
total revenue, gross profit decreased to 71.4% in the year ended December 31,
1998 from 75.0% in the year ended December 31, 1997. The decrease as a
percentage of total revenue was primarily attributable to the growth in services
revenue, which has a lower gross profit than product revenue.
OPERATING EXPENSES
SELLING AND MARKETING. Our selling and marketing expense decreased 17.3% to
$5.9 million in the year ended December 31,
29
<PAGE> 32
1998, from $7.2 million in the year ended December 31, 1997. Of this decrease,
$743,000 was attributable to marketing related expenses and $498,000 was related
to selling related expenses. The decrease in marketing expenses resulted from a
reduction of spending on advertising campaigns, and to a lesser extent,
participation in fewer trade shows. The decrease in selling expenses was
primarily attributable to a decrease in personnel and related costs.
RESEARCH AND DEVELOPMENT. Our research and development expenses decreased
10.1% to $2.6 million in year ended December 31, 1998, from $2.9 million in year
ended December 31, 1997. The decrease in research and development expenses was
primarily attributable to a write-off of purchased software in the amount of
approximately $242,000 in the year ended December 31, 1997.
GENERAL AND ADMINISTRATIVE. Our general and administrative expenses
decreased 9.7% to $1.4 million in year ended December 31, 1998, from $1.6
million in the year ended December 31, 1997. The decrease in general and
administrative was primarily attributable to a decrease in personnel and related
costs.
OTHER, NET. Other, net increased to expenses of $352,000 in the year ended
December 31, 1998, from expenses of $19,000 in the year ended December 31, 1997.
This increase in expenses resulted primarily from lower average cash and cash
equivalent balances in the year ended December 31, 1998, compared to the year
ended December 31, 1997, and from approximately $82,000 in interest expenses
incurred as a result of warrants to investors issued in conjunction with a
bridge financing, and approximately $25,000 in interest expenses from this
bridge financing in the year ended December 31, 1998.
COMPARISON OF RESULTS FOR THE YEAR ENDED DECEMBER 31, 1997 TO THE YEAR ENDED
DECEMBER 31, 1996
TOTAL REVENUES
Total revenues decreased 6.9% to $7.7 million in the year ended December
31, 1997, from $8.3 million in the year ended December 31, 1996.
PRODUCT REVENUES. Our product revenues decreased 3.9% to $5.5 million, or
71.6% of total revenues, in the year ended December 31, 1997, from $5.7 million,
or 69.4% of total revenues, in the year ended December 31, 1996. The decrease in
product revenue was primarily attributable to one significant license deal in
the year ended December 31, 1996 not repeated in the year ended December 31,
1997. As a percentage of total revenue, product revenue increased to 71.6% in
the year ended December 31, 1997 from 69.4% in the year ended December 31, 1996.
The increase in product revenues as a percentage of total revenues was primarily
attributable to the decrease in services revenues.
CONSULTING AND TRAINING REVENUES. Consulting and training revenues
decreased 49.6% to $1.1 million, or 13.6% of total revenues, in the year ended
December 31, 1997, from $2.1 million, or 25.2% of total revenues, in the year
ended December 31, 1996. The decrease was primarily attributable to several
significant consulting engagements in the year ended December 31, 1996 not
repeated in the year ended December 31, 1997.
SUPPORT AND MAINTENANCE REVENUES. Support and maintenance revenues
increased 154.8% to $1.1 million, or 14.8% of total revenues, in the year ended
December 31, 1997, from $447,000, or 5.4% of total revenues, in the year ended
December 31, 1996. The increase is primarily attributable to a significant
customer.
COST OF REVENUES
COST OF PRODUCT REVENUES. Cost of product revenues decreased 38.1% to
$292,000 in the year ended December 31, 1997, from $472,000 in the year ended
December 31, 1996. As a percentage of product revenues, cost of software license
revenues decreased to 5.3% in the year ended December 31, 1997, from 8.2% in the
year ended December 31, 1996. The decrease in cost of product revenue was
primarily attributable to a decrease in personnel and related costs.
COST OF CONSULTING AND TRAINING REVENUES. Cost of consulting and training
revenues decreased 51.6% to $703,000 for the year ended December 31, 1997, from
$1.5 million for the year ended December 31, 1996. As a percentage of consulting
and training revenues, cost of
30
<PAGE> 33
consulting and training revenues decreased to 66.8% in the year ended December
31, 1997, from 69.5% in the year ended December 31, 1996. The decrease in cost
of consulting and training revenues was primarily attributable to a decrease in
personnel and related compensation. The decrease in personnel was primarily a
result of several research and development personnel performing consulting and
training services in the year ended December 31, 1996 not repeated in the year
ended December 31, 1997.
COST OF SUPPORT AND MAINTENANCE REVENUES. Cost of support and maintenance
revenues increased 124.5% to $936,000 for the year ended December 31, 1997, from
$417,000 for the year ended December 31, 1996. As a percentage of support and
maintenance revenues, cost of support and maintenance revenues decreased to
82.2% in the year ended December 31, 1997, from 93.3% in the year ended December
31, 1996. The increase in cost of support and maintenance revenues was primarily
attributable to an increase in support and maintenance personnel. The increase
in personnel was primarily a result of the increased requirements of a
significant customer in the year ended December 31, 1997 as compared to the year
ended December 31, 1996 and as a result of strategic hiring to build up the
support and maintenance group.
GROSS PROFIT
Gross profit decreased 2.6% to $5.8 million in the year ended December 31,
1997, from $5.9 million in the year ended December 31, 1996. As a percentage of
total revenues, gross profit increased to 75.0% in the year ended December 31,
1997, from 71.7% in the year ended December 31, 1996. The increase in gross
profit as a percentage of total revenues was primarily attributable to the
increase in product revenues as a percentage of total revenues, which has a
higher gross profit than services revenues.
OPERATING EXPENSES
SELLING AND MARKETING. Our selling and marketing expenses increased 45.1%
to $7.2 million in the year ended December 31, 1997, from $4.9 million in the
year ended December 31, 1996. Of the increase in selling and marketing expenses,
$1.4 million was attributable to selling related expenses and $845,000 was
attributable to marketing related expenses. The increase in selling expenses
resulted primarily from an increase in personnel and related compensation,
travel and recruiting expenses. The increase in marketing expenses was primarily
attributable to increased advertising campaigns and to increased personnel and
related compensation.
RESEARCH AND DEVELOPMENT. Our research and development expenses increased
86.9% to $2.9 million in the year ended December 31, 1997 from $1.6 million in
the year ended December 31, 1996. The increase in research and development
expenses was primarily due to the addition of software engineering and
development research personnel and the engineering requirements of a significant
customer, and a $242,000 write-off of purchased software. The increase as a
percentage of total revenues was primarily attributable to the increase in
research and development expenses.
GENERAL AND ADMINISTRATIVE. Our general and administrative expenses
increased 19.4% to $1.6 million in the year ended December 31, 1997 from $1.3
million in the year ended December 31, 1996. The increase in general and
administrative expenses was primarily attributable to increased personnel and
related compensation.
OTHER, NET. Other income, net decreased 93.2% to expense of $19,000 in the
year ended December 31, 1997 from expenses of $278,000 in the year ended
December 31, 1996. This decrease resulted from higher interest income of
$130,000 as a result of higher average cash and cash equivalent balances in the
year ended December 31, 1997, compared to the year ended December 31, 1996, due
to receipt of proceeds from the sale of our Series C preferred stock in November
1996, and the closing of a significant license agreement with Novell in November
1996, and from a decrease in interest expense from European operations as a
result of exchange rate fluctuations.
31
<PAGE> 34
INVESTMENTS
During 1996, 1997, 1998 and the nine months ended September 30, 1999, we
made the following investments in the acquisition of fixed assets (comprised of
property, furniture and equipment) and the acquisition of financial assets, such
as equity holdings or other investments.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30,
1996 1997 1998 1999
---- ---- ---- ------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Acquisition of fixed assets...................... $630 $854 $199 $318
Acquisition of financial assets.................. -- -- -- --
---- ---- ---- ----
Total.......................................... $630 $854 $199 $318
==== ==== ==== ====
</TABLE>
All of these acquisitions were largely financed through the sale of equity
securities, bank loans and out of our cash flows. For 1999, we currently expect
to make aggregate investments in fixed assets in the amount of approximately
$450,000, which will be financed largely through working capital. Approximately
33% of these investments will be made in the U.S. and 67% in Europe. We
currently have no definite plans for the acquisition of financial assets.
QUARTERLY RESULTS OF OPERATIONS
The following table represents our unaudited quarterly operating results
for the seven quarters ended September 30, 1999, both in dollars and as a
percentage of our total revenues for each quarter. This information has been
derived from our unaudited consolidated financial statements. The unaudited
consolidated financial statements have been prepared on the same basis as the
audited Consolidated Financial Statements contained in this prospectus and
include all adjustments, consisting only of normal and recurring adjustments,
that we consider necessary for a fair presentation of such information. You
should read this information in conjunction with our Consolidated Financial
Statements appearing elsewhere in this prospectus. You should not draw any
conclusions about our future results from the results of operations for any
quarter.
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30,
1998 1998 1998 1998 1999 1999 1999
--------- -------- --------- -------- --------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenues:
Products.................... $ 1,174 $ 1,332 $1,478 $1,684 $ 1,684 $ 1,790 $ 2,081
Consulting and training..... 230 393 733 464 394 444 375
Support and maintenance..... 331 340 415 343 300 304 331
------- ------- ------ ------ ------- ------- -------
Total revenues....... $ 1,735 $ 2,065 $2,626 $2,491 $ 2,378 $ 2,538 2,787
Cost of revenues:
Products.................... 66 58 79 92 39 68 63
Consulting and training..... 249 260 351 324 247 283 269
Support and maintenance..... 246 259 288 274 282 232 254
------- ------- ------ ------ ------- ------- -------
Total cost of
revenues........... 561 577 718 690 568 583 586
------- ------- ------ ------ ------- ------- -------
Gross profit (loss)........... 1,174 1,488 1,908 1,801 1,810 1,955 2,201
Operating expenses:
Selling and marketing....... 1,606 1,551 1,330 1,435 1,646 1,827 1,827
Research and development.... 658 650 587 717 757 869 727
General and
administrative............ 361 415 311 341 352 446 547
Amortization of deferred
stock compensation........ -- -- -- 47 104 125 210
------- ------- ------ ------ ------- ------- -------
Total operating
expenses........... 2,625 2,616 2,228 2,540 2,859 3,267 3,311
------- ------- ------ ------ ------- ------- -------
Operating loss................ (1,451) (1,128) (320) (739) (1,049) (1,312) (1,110)
Other, net.................... (47) (36) (87) (182) 3 (16) (814)
------- ------- ------ ------ ------- ------- -------
Net loss...................... $(1,498) $(1,164) $ (407) $ (921) $(1,046) $(1,328) $(1,924)
======= ======= ====== ====== ======= ======= =======
</TABLE>
32
<PAGE> 35
The following table sets forth, for the periods indicated, the statements
of operations data as a percentage of total revenues.
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30,
1998 1998 1998 1998 1999 1999 1999
--------- -------- --------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues
Product........................ 67.7% 64.5% 56.3% 67.6% 70.8% 70.5% 74.7%
Consulting and training...... 13.2% 19.0% 27.9% 18.6% 16.6% 17.5% 13.4%
Support and maintenance...... 19.1% 16.5% 15.8% 13.8% 12.6% 12.0% 11.9%
----- ----- ----- ----- ----- ----- -----
Total revenues........ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues
Product...................... 3.8% 2.8% 3.0% 3.7% 1.6% 2.7% 2.3%
Consulting and training...... 14.3% 12.6% 13.4% 13.0% 10.4% 11.2% 9.6%
Support and maintenance...... 14.2% 12.5% 11.0% 11.0% 11.9% 9.1% 9.1%
----- ----- ----- ----- ----- ----- -----
Total cost of
revenues............ 32.3% 27.9% 27.4% 27.7% 23.9% 23.0% 21.0%
----- ----- ----- ----- ----- ----- -----
Gross profit................. 67.7% 72.1% 72.6% 72.3% 76.1% 77.0% 79.0%
Operating expenses:
Selling and marketing........ 92.6% 75.1% 50.6% 57.6% 69.2% 72.0% 65.6%
Research and development..... 37.9% 31.5% 22.4% 28.8% 31.8% 34.2% 26.1%
General and administrative... 20.8% 20.1% 11.8% 13.7% 14.8% 17.6% 19.6%
Amortization of deferred
stock compensation......... --% --% --% 1.9% 4.4% 4.9% 7.5%
----- ----- ----- ----- ----- ----- -----
Total operating
expenses............ 151.3% 126.7% 84.8% 102.0% 120.2% 128.7% 118.8%
----- ----- ----- ----- ----- ----- -----
Operating loss................. (83.6)% (54.6)% (12.2)% (29.7)% (44.1)% (51.7)% (39.8)%
Other, net..................... (2.7)% (1.7)% (3.3)% (7.31)% 0.1% (0.6)% (29.2)%
----- ----- ----- ----- ----- ----- -----
Net loss....................... (86.3)% (56.3)% (15.5)% (37.0)% (44.0)% (52.3)% (69.0)%
===== ===== ===== ===== ===== ===== =====
</TABLE>
Our product revenues generally increased or remained stable over the seven
quarter period ended September 30, 1999. Consulting and training revenues was
generally stable with the exception of the quarter ended September 30, 1998,
which increased over $300,000 from the preceding quarter primarily as a result
of two significant consulting engagements which were not repeated. Support and
maintenance revenues remained relatively stable over the seven quarter period
ended September 30, 1999.
Our selling and marketing expenses decreased in dollars over the three
quarter period ended September 30, 1998 due to several factors. Selling expenses
decreased primarily as a result of a reduction in sales personnel. Marketing
expenses in the quarter ended September 30, 1998, decreased due to increased
trade show expenses in the first quarter of the year 1998 and one-time marketing
expenses attributable to a new product launch campaign for the POET Content
Management Suite in the second quarter of 1998. For the three quarters ended
June 30, 1999, selling and marketing expenses increased primarily attributable
to an increase in personnel. We anticipate continued growth in selling and
marketing expenses in subsequent periods primarily due to planned increases in
personnel who support the POET eCatalog Suite and the POET Content Management
Suite, and to a lesser extent, various marketing related programs including a
product launch for our POET eCatalog Suite product line.
Our research and development expenses decreased in the quarter ended
September 30, 1998, due to the transfer of research and development personnel
performing consulting related services. For the three quarters ended June 30,
1999, research and development expenses increased primarily due to planned
increases in personnel who support the POET eCatalog Suite and the POET Content
Management Suite. The decrease in research and development expenses in the
quarter ended September 30, 1999 was primarily attributable to a decrease in
personnel and related costs.
Our general and administrative expenses and consultancy fees remained
generally stable over the five quarter period ended March 31, 1999. In the
quarter ended June 30, 1998, we incurred hiring fees not repeated in the
subsequent quarters. In the two quarters ended September 30, 1999, we incurred
legal fees associated with a legal dispute. This dispute was resolved in
September 1999.
Other, net increased to expenses in the third quarter of 1998 primarily
attributable to
33
<PAGE> 36
a decrease in interest income as a result of lower average cash and cash
equivalent balances. Other, net increased to expenses in the fourth quarter of
1998 primarily attributable to interest expenses for warrants issued and
interest incurred in a bridge financing. Other, net increased to income in the
first quarter of 1999 primarily as a result of higher average cash and cash
equivalent balances due to the receipt of proceeds from the sale of Series D
redeemable convertible preferred stock in December 1998 and a convertible note
in January 1999, and to a decrease in interest expenses related to
renegotiations pertaining to unsecured notes payable.
NET OPERATING LOSSES AND TAX CREDIT CARRYFORWARDS
As of December 31, 1998, we had net operating loss carryforwards of
approximately $8.6 million, $5.0 million and $6.7 million available to offset
future federal, California and foreign taxable income, respectively. Federal
carryforwards expire beginning in 2008 through 2018 and the California
carryforwards expire beginning 1999 through 2003. The extent to which
approximately $3.3 million of federal loss carryforwards and $1.3 million of
California loss carryforwards can be used to offset future taxable income is
limited to approximately $1.0 million annually, due to an ownership change which
occurred during 1996. Our foreign tax losses may be carried forward
indefinitely. A valuation allowance has been established in our financial
statements to reflect the likelihood of realization of future taxable income
required to utilize available tax loss carryforwards and other deferred tax
assets.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have primarily financed our operations through private
sales of redeemable convertible preferred stock, resulting in net proceeds of
$16.4 million. To a lesser extent, we have also financed our operations through
a convertible note financing and lending arrangements in the aggregate amount of
$6.3 million.
As of December 31, 1998, we had $4.8 million in cash and equivalents and
$2.8 million in working capital. As of September 30, 1999, we had $4.6 million
in cash and equivalents and $3.9 million in working capital. The increase in
working capital was primarily due to a convertible note financing of $3.9
million in January 1999 that was converted to common stock in September 1999 and
the sale of shares of our Series D redeemable convertible preferred stock for
$500,000.
Net cash used in operating activities was $133,000 in 1996, $5.7 million in
1997, $2.6 million in 1998 and $3.9 million in the nine months ended September
30, 1999. Net cash used in operating activities in each period reflect the net
losses in each period.
Net cash used in investing activities was $630,000 in 1996, $854,000 in
1997, $199,000 in 1998 and $318,000 for the nine months ended September 30,
1999. Investing activities reflect purchases of property, furniture and
equipment in each period. Since inception, we have generally funded capital
expenditures either through the use of working capital or, to a lesser extent,
through equipment leases.
Net cash provided by financing activities was $7.3 million in 1996,
$755,000 in 1997, $6.2 million in 1998 and $4.1 million for the nine months
ended September 30, 1999. Our financing activities provided cash primarily
through proceeds from the issuance of redeemable convertible preferred stock,
proceeds from a convertible note, credit lines through Technologie
Beteiligungsgesellschaft mbH, or TBG, and IKB Deutsche Industriebank AG and
proceeds from a convertible note to TBG.
In January 1999, we entered into a $3.9 million convertible note agreement
with TBG. Under this agreement, TBG purchased a convertible note in the
aggregate principal amount of $3.9 million maturing on December 31, 2003, and
bearing interest at 6% per year. In September 1999, we entered into an amendment
to the convertible note agreement with TBG which converted the entire
outstanding principal balance of the note, excluding accrued interest, into
275,106 shares of our common stock effective as of September 30, 1999. As a
result of this amendment, we recognized a non-recurring charge in the quarter
ended September 30, 1999 of approximately $809,000.
We have three unsecured loans with TBG through our wholly owned subsidiary,
POET Software GmbH. The first loan allows for borrowing not to exceed DM 1.0
million (approximately $598,000 based on the U.S Dollar/Deutsche Mark exchange
rate at December 31, 1998) bears interest at 5%
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per year and matures on December 31, 2003. Two additional loans of DM 2.1
million (approximately $1,259,000 based on the U.S. Dollar/Deutsche Mark
exchange rate at December 31, 1998) bear interest at 6% per year and mature on
December 31, 2005. In 1997, our subsidiary POET Software GmbH entered into a
loan agreement with IKB Deutsche Industriebank in the amount of DM 1.5 million
(approximately $899,000 based on the U.S. Dollar/Deutsche Mark exchange rate at
December 31, 1998) bearing interest at 7% per year with principal payments due
quarterly of DM 125,000 commencing on June 15, 1999 and ending on March 15,
2002. The principal balance of the IKB Deutsche Industriebank AG loan at
September 30, 1999 was DM 1,250,000 (approximately $683,000 based on the U.S.
Dollar/Deutsche Mark exchange rate at September 30, 1999). We have guaranteed
the payment of principal and interest under this loan.
In September 1998, we entered into a $1.0 million bridge financing note
agreement bearing interest at 10% per year with European Technology Holding, El
Dorado Ventures III, El Dorado Technology IV, El Dorado C&L Fund, Sigma Partners
III, Sigma Associates III, Sigma Investors III, Innovacom, Atlas Venture Europe
Fund and Lawrence Owen Brown, Trustee for the Lawrence Owen Brown Family Trust.
The outstanding principal and accrued interest under this agreement was repaid
through the issuance of preferred stock as of the exchange date in December
1998. In conjunction with the note agreement, we granted the stockholders
warrants to purchase 49,710 shares of Series D preferred stock.
We also have noncancelable operating leases for office space, and to a
lesser extent, equipment and automobiles of approximately $4.4 million at
December 31, 1998 that are payable through 2003.
We expect to experience significant growth in our operating expenses,
particularly as we increase our selling and marketing activities, increase
research and development and professional services spending, and enhance our
operational and financial systems for the foreseeable future in order to execute
our business plan. As a result, we anticipate that such operating expenses, as
well as planned capital expenditures, will constitute a material use of our cash
resources. In addition, we may utilize cash resources to fund acquisitions of,
or investments in, complementary businesses, technologies or product lines and
payoffs of credit lines. We believe that the net proceeds from the sale of the
common stock in this offering, together with funds generated from operations,
will be sufficient to meet our working capital requirements for at least the
next 12 months. Thereafter, we may find it necessary to obtain additional equity
or debt financing. In the event additional financing is required, we may not be
able to raise it on acceptable terms or at all.
YEAR 2000
IMPACT OF THE YEAR 2000 COMPUTER PROBLEM. The Year 2000 computer problem
refers to the potential for system and processing failures of date-related data
as a result of computer-controlled systems using two digits rather than four to
define the applicable year. For example, computer programs that have
time-sensitive software may recognize a date represented as "00" as the year
1900 rather than the year 2000. This could result in a system failure or
miscalculations causing disruptions of operations, including among other things,
a temporary inability to process transactions, send invoices, or engage in
similar normal business activities.
STATE OF READINESS OF OUR PRODUCTS. We have designed our products for use
in the Year 2000 and beyond and believe they are Year 2000 compliant. However,
our products are generally integrated into larger systems involving
sophisticated hardware and software products supplied by other vendors. As a
result, we may face potentially greater litigation risks than companies in other
industries. Many of our customers' systems involve different combinations of
third-party products. We cannot evaluate whether all of their products are Year
2000 compliant. We may face claims based on Year 2000 problems in other
companies' products or based on issues arising from the integration of multiple
products within the overall system. We may in the future be required to defend
our products in legal proceedings which could be expensive regardless of the
merits of such claims.
STATE OF READINESS OF OUR INTERNAL SYSTEMS. Our business may be affected by
Year 2000 issues related to non-compliant internal systems developed by us or by
third-party vendors. Our approach for addressing
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the Year 2000 readiness of our internal systems, both information technology,
IT, and non-information technology, non-IT, consists of the following three
phases:
- testing of our IT and non-IT systems for Year 2000 compliance;
- replacement or renovation of those systems that our testing indicates are
not Year 2000 compliant; and
- validation of those replaced or renovated systems to confirm their Year
2000 compliance.
We have also requested assurances from third-party vendors that all material
systems purchased by us from these vendors are Year 2000 compliant, including
our financial and sales operations systems.
We are not currently aware of any Year 2000 problem relating to any of our
material internal systems. We are in the process of testing all such IT and
non-IT systems for Year 2000 compliance. We have completed approximately 75% of
such testing and plan to complete all such testing before November 30, 1999. We
have replaced or renovated each of our material internal systems that our
testing indicates is not Year 2000 compliant, and upon completion of our testing
phase, we plan to complete any necessary replacement, renovation and validation
of such systems by December 15, 1999. We do not believe that we have any
significant IT or non-IT systems, including those non-IT systems that contain
integrated chips, that are not Year 2000 compliant.
Our internal operations and business are also dependent upon the
computer-controlled systems of third parties such as suppliers, customers and
service providers. We believe that absent a systemic failure outside our
control, such as a prolonged loss of electrical or telephone service, Year 2000
problems at third parties such as suppliers, customers and service providers
will not have a material impact on our operations.
If our suppliers, vendors, major distributors, partners, customers and
service providers fail to correct their Year 2000 problems, these failures could
result in an interruption in, or a failure of, our normal business activities or
operations. If a Year 2000 problem occurs, it may be difficult to determine
which party's products have caused the problem. These failures could interrupt
our operations and damage our relationship with our customers. Due to the
general uncertainty inherent in the Year 2000 problem resulting from the
readiness of third-party suppliers and vendors, we are unable to determine at
this time whether Year 2000 failures could harm our business and our financial
results. Our customers' purchasing plans could be affected by Year 2000 issues
if they need to expend significant resources to fix their existing systems to
become Year 2000 compliant. This situation may reduce funds available to
purchase our products. In addition, some customers may wait to purchase our
products until after the Year 2000, which may reduce our revenue.
COST. We have spent an immaterial amount on Year 2000 readiness to date but
expect to incur an additional $100,000 to $150,000 in connection with
identifying, evaluating and addressing Year 2000 readiness issues. Most of these
expenses are operating costs associated with time spent by employees and
consultants evaluating Year 2000 readiness matters. Such expenses, if higher
than expected, could have a material adverse effect on our business, results of
operations and financial condition. Although we cannot predict with any
certainty the additional costs which we may incur in the event our third party
vendors and service providers are not Year 2000 compliant, such costs may be
substantial and could have a material and adverse effect on our business and
results of operations.
RISKS. Failures of our internal systems to be Year 2000 compliant could
temporarily prevent us from processing orders, issuing invoices and developing
products and could require us to devote significant resources to correcting such
problems. Due to the general uncertainty inherent in the Year 2000 computer
problem, resulting from the uncertainty of the Year 2000 readiness of
third-party suppliers and vendors, we are unable to determine at this time
whether the consequences of Year 2000 failures will have a material impact on
our business, results of operations or financial condition.
We do not have a formal contingency plan to address any unanticipated Year
2000 problems that may occur in our products or our internal systems. If these
problems arise, we expect to make the necessary expenditures to assess and
remedy these problems. We cannot currently estimate the amount or timing of
these potential expenditures. They may be significant and could have an adverse
effect on our business.
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MARKET RISK
We are exposed to market risk related to fluctuations in interest rates and
in foreign currency exchange rates:
Interest Rate Exposure. Our exposure to market risk due to fluctuations in
interest rates relates primarily to cash and cash equivalents, which consists
primarily of investments in commercial paper and money market accounts, and
reported at an aggregate fair market value of $4.6 million as of September 30,
1999. These securities are subject to interest rate risk inasmuch as their fair
value will fall if market interest rates increase. If market interest rates were
to increase immediately and uniformly by 10% from the levels prevailing at
September 30, 1999, for example, the fair value of the portfolio would not
decline by a material amount. We do not use derivative financial instruments to
mitigate the risks inherent in these securities. However, we do attempt to
reduce such risks by generally limiting the maturity date of such securities to
no more than three months, placing investments with high credit quality issuers
and limiting the amount of credit exposure with any one issuer. In addition, we
believe that we currently have the ability to hold these investments until
maturity and, therefore, believe that reductions in the value of such securities
attributable to short-term fluctuations in interest rates would not materially
affect our financial position, results of operations or cash flows.
Foreign Currency Exchange Rate Exposure. Our exposure to market risk due to
fluctuations in foreign currency exchange rates relates primarily to the
intercompany balance with our German subsidiary. Although we transact business
in various foreign countries, settlement amounts are usually based on U.S.
dollars or Deutsche Mark. Transaction gains or losses have not been significant
in the past and there is no hedging activity on Deutsche Mark or other
currencies. Based on the intercompany balance of $2.2 million at September 30,
1999, a hypothetical 10% adverse change in Deutsche Mark against U.S. dollars
would not result in a material foreign exchange loss. Consequently, we do not
expect that reductions in the value of such intercompany balances or of other
accounts denominated in foreign currencies resulting from even a sudden or
significant fluctuation in foreign exchange rates would have a direct material
impact on our financial position, results of operations or cash flows.
Notwithstanding the foregoing, analysis of the direct effects of interest
rate and foreign currency exchange rate fluctuations on the value of our
investments and accounts and the indirect effects of such fluctuations could
have a material adverse effect on our business, financial condition and results
of operations. For example, international demand for our products is affected by
foreign currency exchange rates. In addition, interest rate fluctuations may
affect the buying patterns of our customers. Furthermore, interest rate and
currency exchange rate fluctuations have broad influence on the general
condition of the U.S., foreign and global economies that could have a material
adverse effect on us.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants, issued Statement of Position No.
98-1, "Accounting for the Costs of Computer Software developed or Obtained for
Internal Use," which provides guidance regarding when software developed or
obtained for internal use should be capitalized. This statement is effective for
transactions entered into in fiscal years beginning after December 15, 1998. We
do not expect that the adoption of this statement will have a material impact on
our financial position or results of operations.
In June 1998, the U.S. Financial Accounting Standards Board issued
Statement No. 133, Accounting for Derivative Instruments and Hedging Activities
("U.S. SFAS 133"), which establishes accounting and reporting standards for
derivative instruments, including derivative instruments embedded in other
contracts and for hedging activities. Under U.S. SFAS No. 133, contracts that
were not formerly considered derivatives may now meet the definition of a
derivative. As amended in June 1999 by U.S. SFAS No. 137, this statement is
effective for all fiscal quarters of all fiscal years beginning after June 15,
2000. We have not yet determined the impact that the adoption of U.S. SFAS 133
will have on our earnings or statement of financial position. We are required to
adopt U.S. SFAS 133 on January 1, 2001.
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BUSINESS
OVERVIEW
We are a provider of innovative software infrastructure and solutions that
allow organizations to efficiently share, manage and manipulate complex data and
facilitate effective business-to-business processes and information exchange
over the Internet. Our object database management system utilizes and supports
complex, multidimensional data models, or frameworks within a database for the
organization of information elements and their interrelationships, and standard
Internet programming languages. Our database system allows software vendors and
original equipment manufacturers, or manufacturers who develop and produce
products incorporating another company's product, to build efficient, high
performance applications that are fully integrated, easy to use and cost
efficient. Our Internet solutions provide our customers with the ability to
efficiently author, manipulate and electronically distribute and exchange
complex business documents. Our solutions leverage the Internet as a new means
to increase customer relationships, accelerate business processes and reduce
costs. Our open systems approach, which works with a variety of tools, hardware,
software and networks, allows our customers to rapidly develop applications
using our database products and customize our Internet solutions for work with a
variety of standard application environments and third-party tools without
having to make any significant adjustments to their existing internal
information technology systems. It is our objective to make complex applications
simple and affordable for a large group of organizations by providing
sophisticated, easy to use and powerful software products that leverage the
Internet.
INDUSTRY BACKGROUND
THE GROWTH OF E-COMMERCE
Companies are increasingly seeking to use the Internet in business
processes to communicate, share and exchange information, in the form of, for
instance, transaction records, orders, product descriptions, maintenance
manuals, health care records, marketing and product information, primarily
because they see the Internet as an opportunity to reduce costs, increase the
speed of business processes and improve the quality of their services.
Companies have historically used information technology to integrate
internal workgroups, disseminate information and otherwise automate their
internal processes. However, even companies that are highly automated internally
continue to rely mostly on traditional means of communications such as phone,
fax or mail to obtain quotes, place orders, track shipments and otherwise
conduct business. As a consequence, the Internet has become the main driving
force behind moving business processes and e-commerce to a fully automated and
integrated environment that makes full use of the Internet infrastructure.
THE NEED FOR NEW METHODS OF EXCHANGING INFORMATION
The use of the Internet as a means to conduct business necessitates uniform
and standardized data exchange protocols to enable market participants to
communicate. These exchange protocols are standard formats for content
structure, as well as the methods and means for exchanging data. As new Internet
applications become increasingly dynamic and proactive and are further
integrated with database content, the management of complex information becomes
more important. Moreover, the ability to easily and quickly assemble documents
from multiple sources is critical to applications such as e-commerce, marketing
automation, document publishing and electronic data interchange.
The increasing use of the Internet as a means to conduct business requires
more powerful and flexible database management systems and the utilization of a
uniform exchange protocol to create and deploy Internet applications. The key
requirements of a database management system to be used on the Internet include
methodologies to support complex information, the programming language Java, and
sophisticated searching and manipulation of the database. In addition, to
promote widespread adoption, an ideal database management system should minimize
costs for applications, installation, administration, maintenance and training,
especially for small and medium-sized businesses that typically
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operate without specialized information technology personnel.
SUPPORT FOR COMPLEX, MULTIDIMENSIONAL DATA MODELS
Traditionally, data records have been stored in relational databases that
are comprised of simple character, numeric or date information. The structure of
individual data units has, however, become increasingly sophisticated and has
evolved into complex data models that are characterized by composites of
numerous pieces of information and their relationships. The use of a relational
database for storage, retrieval and manipulation of this type of data requires
tedious programming efforts for meaningful use of the information contained. In
order to make the data useful for a user, the data records must be searched and
retrieved by tracing programmed relationships. In contrast to the data records
stored in relational databases, object databases allow complex data models to be
stored, managed and manipulated through components known as data objects, which
are a compilation of various smaller pieces of information, including their
relationships to other data objects. The individual data objects are then
structured within frameworks known as complex data models, which are
increasingly used as a basis for information exchange on the Internet.
Databases for current and future Internet applications should therefore
support complex data models that go beyond the simple information typically used
in traditional business applications and databases. Internet applications are
characterized by complex relationships among these sets of information objects.
Consequently, the ability to quickly add support for these complex data models
is essential for database management systems used for Internet applications. For
example, interacting with Web pages containing diverse content requires rapid
navigation, search and retrieval of numerous hierarchically structured
collections of data objects. Relational databases were designed to manage
numerical and text data arranged in tabular form and typically cannot provide
support for new data types without a substantial, time-consuming programming
effort.
SUPPORT FOR OBJECT-ORIENTED PROGRAMMING METHODOLOGIES
Object-oriented programming methodologies that recognize and utilize data
objects for complex data models emerged in the 1980s and were developed for
various uses, such as improving software quality and increasing developer
productivity. Object-oriented languages, such as Java, have evolved as standard
languages to build Internet applications. These languages utilize nested,
hierarchically organized structures of data objects as basic building blocks.
When using object-oriented programming languages in conjunction with a
relational database, an extensive programming effort, referred to as "mapping,"
is generally required to "translate" data objects to a two-dimensional tabular
relational model. According to a study by the International Data Corporation
published in August 1997, when using object-oriented languages to develop
applications for use with a relational database, up to 35% of the application
code and development time may be devoted to solving the mapping problem. In
contrast, an object-oriented database that directly stores the software objects
in the database without requiring translation results, in most cases, in faster
development cycles, fewer lines of application code and better application
performance.
SUPPORT FOR JAVA
Java is currently the predominant object-oriented programming language,
particularly for the Internet. The primary reason for the widespread acceptance
of Java is its portability, which allows programs written in Java to be executed
on any computer without regard to the computer's operating system or hardware
platform. Java relies on a so called Java Virtual Machine, or Java VM, an
architecture that executes Java programs on the target machine. The Java VM
allows a "write once, run anywhere" concept that is ideally suited for Internet
applications. This simple fact has eliminated serious portability issues typical
in traditional computing environments where applications are written for a
specific platform. Unlike other programming languages, it allows developers to
build self-contained software components with necessary specifications for data
structures and relationships and small and easy to use applications called
applets, instead of building large, monolithic applications. These
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small components are well suited for being downloaded over the Internet as they
are requested, with no installation required and instant upgradability. Support
for Java is crucial for developers of Internet applications who require tools
such as databases that are Java compliant. In addition, due to the speed of
change of the Internet, Internet applications are also subject to constant
change. Java's component model addresses this rapid change better than any other
programming language.
SUPPORT FOR A UNIFORM EXCHANGE PROTOCOL
HTML, or the Hypertext Markup Language, is a protocol for presenting
information on the World Wide Web that is used today for the majority of Web
pages worldwide, but lacks the support for complex data exchange necessary for
e-commerce. Due to its limitations as solely a presentation language, it became
clear in the mid-1990s that HTML did not have the capability to exchange data
for e-commerce. As a result, in 1998, the World Wide Web Consortium, of which we
are a member, announced the release of the eXtensible Markup Language
specification, or XML, as a uniform protocol for data exchange.
XML additionally provides the ability to capture the meaning of document
content in a format that can be processed by computers. In this format,
documents can be easily composed of smaller XML objects, queried for specific
content, manipulated more intelligently and exchanged with other applications.
XML thus enables a new group of applications that are based on sophisticated
content manipulations and exchange, such as the automation of business
processes. XML has received widespread support in the information technology
industry since inception. Organizations such as Microsoft Corporation, Sun
Microsystems, Inc., IBM, Netscape Communications Corporation, Lotus Development
Corporation, Adobe Systems Incorporated, ArborText, Inc., Ariba, Inc.,
DataChannel, Inc., CommerceOne, Inc., Inso Corporation, Hewlett-Packard Company,
the National Center for Supercomputing Applications, SAP AG, Software AG, Baan
Company N.V., Vignette Corporation and Fuji Xerox, Ltd. are endorsing the XML
standard for e-commerce applications. The International Data Corporation, in a
report dated May 1998, identified XML as "the heir apparent to HTML" and as a
"technology that will fuel the development of a new generation of Internet
applications."
The use, transmission and storage of XML will also have a significant
impact on the usage of database technology in Internet applications. The storage
requirements of XML differ from HTML in many significant ways. Given that XML
objects can be composed of a large number of discrete elements, the interlinking
between these objects and the need to query, share and create different
presentation formats for the content make managing XML in the file system
extremely cumbersome without a more sophisticated form of data management. The
structure and linking of XML makes using an object-oriented database to manage
XML an attractive approach. Object-oriented database management systems
naturally support both navigation and query access to XML data, providing
significant performance advantages over relational databases. In a report dated
May 1998, the International Data Corporation described the integration of
object-oriented database management systems with XML as "a natural fit." We
believe that the reception of XML as a uniform data exchange protocol for
e-commerce will be a major driver of demand for object-oriented database
management systems such as ours. In addition, the implementation of industry-
specific exchange protocols based on XML is not far behind. For instance, cXML,
the commercial eXtended Markup Language, is a form of XML that is specifically
designed for commercial use, which we expect will eventually develop into a
widely accepted e-commerce standard.
LOW COST OF OWNERSHIP
To date, costs of licensing and operations of information systems have been
high due, in part, to expensive database administration, high education and
training costs and expensive software upgrades. These costs can prohibit small
and mid-sized companies from investing in these information systems. With the
proliferation of the Internet and Internet applications into a vast range of
business areas, it has become even more critical that applications require
little training and do not require significant ongoing operational costs.
Applications that access information through the Internet such as Web browsers
and graphical user interfaces are designed to reduce installation and training
costs and, when used with
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efficient database systems, can be even more powerful and cost-effective tools.
We believe that Internet applications and databases supporting these
applications can and should operate with little or no ongoing administration or
maintenance. We believe that designing database management systems with these
concepts in mind reduces the cost of ownership of these products, and
ultimately, the cost of doing business over the Internet. In reducing the cost
of ownership, the key features of a database system should include the
following:
- simple server installation;
- a Web browser-based user interface that does not require client software
installation;
- a self-explanatory user interface to reduce or eliminate training;
- database operation that is fully integrated and not visible to the end-
user and requires little or no administration and maintenance; and
- a scalable software architecture that can evolve with the addition of
software components without requiring a major upgrade of the entire
application.
THE POET SOLUTION
We are a provider of innovative data management software that enables
organizations to efficiently manage and share complex information. Our database
management system, the POET Object Server Suite, together with its database
development and administration tools, provides a powerful object data management
solution to be integrated in Internet and other software applications and an
efficient, high-performance database system with an overall low cost of
ownership. We have developed two Internet applications that incorporate the POET
Object Server Suite, the POET Content Management Suite, which provides our
customers with the ability to efficiently author, manipulate and electronically
distribute complex business documents based on the XML format, and the POET
eCatalog Suite, which allows suppliers of goods and services to exchange product
information such as catalogs with customers over the Internet without having to
make significant adjustments to their existing internal technology systems.
These applications address the specific requirements of our customers who wish
to engage in e-commerce using the XML standard. Our products thus provide unique
business critical solutions for companies looking to utilize XML and the
Internet for e-commerce initiatives.
We are one of the few software companies that provides both a database that
supports XML and applications for storing, manipulating and managing business
documents and related processes. Our customers may benefit greatly from the
synergies resulting from the combination of our proven object-oriented database
management system and these innovative e-commerce applications.
STRATEGY
Our objective is to make complex applications simple and affordable for a
large group of organizations by providing sophisticated, easy to use and
powerful software and applications that leverage the Internet. To this end, we
aspire to become the leading supplier of object-oriented data management
solutions and to capitalize on our substantial experience and know-how in the
area of object-oriented data management systems and XML to develop and market
successfully our Internet e-commerce applications. Key elements of our strategy
include the following:
LEVERAGE DATABASE TECHNOLOGY FOR NEW INTERNET APPLICATIONS. With the
development of our POET Content Management Suite and our POET eCatalog Suite
products we have extended our core competency of object database technology into
software applications to facilitate business-to-business exchange of documents
and related processes. With the advent of data exchange standards such as XML,
we anticipate additional demand for these applications that will foster revenue
growth. We intend to further develop these applications to provide complete
solutions including further enhanced features and functions.
EXPAND SALES AND DISTRIBUTION. We intend to expand our global sales
capabilities by increasing the size of our direct sales force and by expanding
the number of systems integrators, software vendors, value added resellers and
original equipment manufacturers that form our indirect sales channel. We also
plan to extend our sales
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force in Europe beyond the German-speaking countries where we have focused our
marketing efforts to date.
FOSTER STRATEGIC RELATIONSHIPS. We have entered into strategic
relationships with software developers, original equipment manufacturers and
marketing partners in order to accelerate the development and acceptance of our
products. We intend to continue our strategy of partnering with software vendors
who offer complementary products and functions and incorporating those products
and functions into our products. We are fostering existing and new
relationships, similar to our licensing arrangement with Verity, Inc., for a
text search engine, and Simba Technologies Inc. for the creation of an Open
Database Connectivity driver for the POET Object Server Suite. In addition, we
intend to enter into joint marketing partnerships with vendors of complementary
products, such as our existing strategic relationship with Ariba, Inc., the
developer of the Ariba Operating Resource Management System electronic
purchasing software, and with Allaire, Inc., for the marketing of its ColdFusion
product bundled together with our products.
EXTEND DATABASE TECHNOLOGY. We have historically pursued and will continue
to pursue the development of state of the art technology. We intend to extend
our database technology by continuing to enhance the performance and scalability
of our POET Object Server Suite product lines and by providing advanced support
for complex data models and integration with object-oriented programming
languages. In addition, we intend to continue to enhance our development and
administration tools and data access products to make it easier to build, deploy
and use applications based on our POET Object Server Suite.
CONTINUE TO PURSUE OPEN SYSTEMS APPROACH. We intend to continue to pursue
an open systems approach, which allows customers to rapidly develop applications
using our database products and customize our existing Internet solutions. Our
products are designed to work with a variety of standard tools and to take
advantage of existing investments in hardware, software and network
infrastructures. Our products support the programming languages Java and C++,
the data exchange protocols XML and cXML and numerous operating systems such as
Microsoft Windows, Novell Netware, Sun Solaris, HP-UX and Linux. In addition, we
are members of Internet and database standards organizations including the
Object Data Management Group, Java Data Objects and the World Wide Web
Consortium.
PRODUCTS
The core of our product offerings is the object-oriented database
management system POET Object Server Suite. From this product base, we are
leveraging our core competency in the area of object-oriented database systems
by developing and marketing powerful business-to-business e-commerce Internet
applications based on the POET Object Server Suite technology. Our POET Content
Management Suite is a turnkey, or complete, system for the management of complex
business documents, such as technical manuals, and our POET eCatalog Suite
provides a tool for businesses to efficiently manage and exchange electronic
catalogs of supplies over the Internet for electronic purchasing systems such as
the Ariba Operating Resource Management System.
THE POET OBJECT SERVER SUITE
The POET Object Server Suite allows software developers to build standard
applications that require low to zero maintenance and administration. The POET
Object Server Suite supports powerful programing of complex multidimensional
data models, such as those common among Internet applications, without the
performance and programming difficulties often experienced with relational
databases. Since its introduction in 1991 by a predecessor entity, the POET
Object Server Suite has been used by our customers to build high-performance
applications in a variety of challenging programming environments where
relational databases have been unable to provide adequate functionality. Our
customers use the POET Object Server Suite as an integrated data management
engine for a wide variety of products, systems and applications, including
commercial Web sites, telecommunications equipment, production process control,
financial information systems, customer information systems, electronic product
documentation to mobile computing applications and XML-based, Internet business
applications. For more information
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regarding the predecessor entities to our subsidiaries, see "Statutory
Information."
The POET Object Server Suite is currently our core product and continues to
represent the basis of our present operations. The development of the POET
Object Server Suite was started in 1989 by a predecessor entity, which began
marketing POET Object Server Suite Version 1.0 in 1991. Four subsequent versions
were introduced through July 1997. The sixth major version, POET Object Server
Suite 6.0, was released in September 1999. We have licensed our software to more
than 1,000 independent software vendors, original equipment manufacturers and
corporate customers since 1996.
We believe that the POET Object Server Suite delivers the following key
benefits to our customers who build applications:
FASTER TIME TO MARKET. Because data is represented in the POET Object
Server Suite exactly as it is used by the object-oriented programming languages,
such as Java, no translation from other programming languages is necessary.
Using an object-oriented database management system such as the POET Object
Server Suite reduces the total application's source code, as well as the time to
program the source code substantially. The POET Object Server Suite also offers
customers an HTML interface to build Web pages and an interface for other
productivity tools. To further reduce time to market, the POET Object Server
Suite eliminates the need to write database conversion programs for application
upgrades and new applications accessing existing POET databases.
LOW COST OF OWNERSHIP. Because the POET Object Server Suite needs virtually
no administration and maintenance after being installed, the product is well
suited for applications requiring a database that is integrated into the
application and invisible to the end-user. Due to these features, the POET
Object Server Suite may be used in environments with minimal or no
administration, such as applications for mobile computers, telecommunications
equipment, medical devices and large volume end-user software applications. In
addition, because the low to zero administration feature reduces costs
significantly, customers using the POET Object Server Suite can build
applications for end-user markets in which the ongoing costs of a database
administrator would be prohibitive.
PROVIDES DIRECT STORAGE AND MANAGEMENT OF COMPLEX DATA MODELS WITHOUT
ADDITIONAL PROGRAMMING. The POET Object Server Suite provides direct storage of
C++, Java and XML data models without requiring the programmer to write
additional code to map these models from applications into relational databases.
This permits rapid access to and processing of complex data models and
facilitates concurrent use of the database as other transactions may freely
access other stored objects. As a result of these features, applications can be
developed in less time with higher performance and greater reliability and
flexibility.
LOW MEMORY REQUIREMENTS AND HIGH SCALABILITY. The low memory consumption of
the POET Object Server Suite enables deployment in a wide variety of computing
environments, reaching from personal computers and mobile computers to Windows
NT and UNIX server environments. The POET Object Server Suite can overcome
resource limitations associated with laptop computers by scaling down while
maintaining the capability to size up to databases on large server systems. We
are striving to make our powerful database management systems available to even
more limited computing environments such as personal digital assistants, like
3Com Corporation's Palm Pilot, and have, in a research project conducted
together with Ericsson, Inc., developed a Java database with memory requirements
as low as one-tenth of our standard database that can be included in hand-held
devices.
OPEN SYSTEMS APPROACH. The POET Object Server Suite is designed as a
platform-independent product capable of working on numerous standard operating
systems. The POET Object Server Suite is compatible with leading operating
systems such as Microsoft Windows, Novell Netware, Sun Solaris, HP-UX and Linux.
In addition, the POET Object Server Suite is compatible within widely-used
relational database management systems such as those of Oracle and Microsoft. We
intend to continue this open platform approach, which allows our customers to
easily and rapidly deploy applications on these platforms without modification.
THE POET CONTENT MANAGEMENT SUITE
The POET Content Management Suite is a turnkey content management system
based
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on the POET Object Server Suite. The POET Content Management Suite assists
companies with a need to reliably collect, manage, update and concurrently edit
large volumes of structured business documents that must be published
electronically, especially over the Internet and intranets. Traditionally, this
content was managed manually and published via traditional means such as phone,
fax or mail. The POET Content Management Suite increases the quality of service,
preserves the integrity of business documents, decreases production time and
costs and helps to automate business processes. The POET Content Management
Suite is particularly useful for industries such as aerospace, manufacturing and
shipbuilding that work with complex documentation. Other typical users include
publishers of dictionaries and encyclopedias and banks and insurance companies,
which must make internal and external documents electronically accessible.
Our POET Content Management Suite provides customers with the following
benefits:
INCREASED COLLABORATION POTENTIAL. Unlike traditional file system-based
solutions, the POET Content Management Suite manages documents in a database and
increases the reliability and efficiency of the publishing process. The granular
structure of a document in our database that would not be possible using a
relational database allows for selective access to each of the document's
elements and thereby permits a large number of users to concurrently access and
edit different sets of information contained in the same document.
DISTRIBUTION OF BUSINESS CRITICAL INFORMATION OVER THE INTERNET. The use of
XML as an evolving Internet standard for e-commerce facilitates the distribution
and production of business documents over the Internet. The POET Content
Management Suite manages business documents in XML format and is therefore
ideally suited for distributing large volumes of business documents over the
Internet. Using the POET Content Management Suite, Web sites may be easily
administered and updated by manipulating on-line information without the time-
consuming task of repeatedly re-programming in HTML to create the layout to be
applied to the information. The POET Content Management Suite uses formats and
templates to generate HTML layout dynamically from the database as new content
is created or modified. This allows users of the POET Content Management Suite
to focus on the creation and editing of business documents without having to
take into account how these documents will be presented. Moreover, compared to
traditional methods of document exchange that rely on communication by
telephone, e-mail and fax, the POET Content Management Suite provides for
faster, lower cost, higher quality and more accurate communication of business
critical information.
INTEGRATES WITH STANDARD TOOLS. The POET Content Management Suite also
offers integration with Verity Inc.'s Topic Developer Toolkit, allowing for
sophisticated text searches of documents, further facilitating efficient
document management. The POET Content Management Suite is also integrated with
Allaire Corp.'s ColdFusion Web application server which allows users to build
powerful and dynamic Websites based on the POET Content Management Suite. In
addition, the POET Content Management Suite is integrated with two leading XML
editors, Adobe Frame Maker+ SGML and ArborText Adept Editor. The POET Content
Management Suite's software development kit allows further integration into
other software environments such as word processing systems.
EFFICIENTLY MANAGE MULTIPLE LANGUAGE VERSIONS. Users producing documents in
several languages may manage all language versions in a single database using
the POET Content Management Suite because it ensures that the structure of the
derivative translations precisely resembles the current source document content.
Traditionally, this process has been tedious, error-prone and time-consuming.
Version 1.0 of the POET Content Management Suite was released in May 1998,
and we began shipping Version 2.0 of the POET Content Management Suite in June
1999.
THE POET ECATALOG SUITE
Our POET eCatalog Suite is a comprehensive electronic catalog system that
enables companies of all sizes to seamlessly conduct business-to-business
e-commerce. The POET eCatalog Suite provides a turnkey solution to create
electronic catalogs from existing internal information systems and databases and
manages the processes to
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automate customization and distribution of these catalogs. Traditionally,
catalog information has been distributed by paper, phone or email with
infrequent updates, often outdated information and no customization for
particular customers. We believe that the POET eCatalog Suite has the potential
to foster stronger, longer lasting business relationships and, when established,
will lead to significantly higher efficiencies and eventually to greater volumes
of business.
The POET eCatalog Suite provides users with the following benefits:
ENABLES SUPPLIERS TO USE THE INTERNET MORE EFFICIENTLY FOR
BUSINESS-TO-BUSINESS E-COMMERCE. Suppliers typically use traditional electronic
data interchange, or EDI, solutions or conventional paper, fax and telephone to
provide catalog information to their business customers. EDI is often used over
costly private networks primarily by large companies with significant
information technology resources. In contrast, the POET eCatalog Suite uses the
Internet as the transport medium and XML as a uniform exchange protocol to
provide cost-effective and ubiquitous communication with a wide range of
customers.
PROTECTION OF INVESTMENT IN EXISTING INFORMATION SYSTEMS. Many suppliers
currently operate internal information systems that contain at least portions of
relevant catalog data. However, this data is often stored in proprietary formats
inappropriate for electronic distribution, and it would be difficult and
expensive to change the existing internal information systems to reformat this
data into uniform formats for useful e-commerce. The POET eCatalog Suite
complements existing internal information systems by extracting product and
service information from the existing system and by transforming the information
into a standard XML format for a generic master catalog. The master catalog can
then be extended with our tools by adding information such as comprehensive
descriptions and pictures.
AUTOMATICALLY CREATES CUSTOMIZED CATALOGS. The POET eCatalog Suite provides
an intuitive, user-friendly interface for creating and managing customer
catalogs. The POET eCatalog Suite is capable of mass customization, which allows
the creation of customer profiles that are used to maintain information specific
to each business customer, such as special pricing, selection of products and
required data formats. The customer profiles are used to generate customized
catalogs. The catalogs are then transmitted to the business customer and
automatically interact with customer's own purchasing software via the Internet.
Administration of the data exchange is automatic, resulting in a scalable
solution that can easily serve hundreds of customer organizations.
PROVIDES A PLATFORM FOR INTEGRATION WITH PURCHASING SYSTEMS. We expect that
many different and competing XML dialects for catalog data exchange will evolve.
The POET eCatalog Suite provides a flexible platform architecture that can
easily be extended with additional delivery formats. Today, the POET eCatalog
Suite supports cXML and the Catalog Information Format, or CIF. cXML and CIF
support the compatibility with the Ariba Operating Resource Management System
electronic purchasing system. Ariba, Inc. is a leading provider of electronic
purchasing systems for the purchasers of goods. Ariba's Operating Resource
Management System is an e-commerce application that automates the purchasing of
maintenance, repair and operating supplies. We plan to develop future versions
of the POET eCatalog Suite with additional functionalities that will make it
compatible with other leading electronic purchasing systems.
REDUCES COSTS FOR CATALOG MANAGEMENT. Internal information systems are not
designed to provide outbound and customized electronic catalog management. The
conventional distribution of this information via paper, fax or telephone is
slow and expensive, quickly becomes outdated and cannot be customized. The costs
for a proprietary electronic data interchange solution are prohibitive for most
suppliers. The POET eCatalog Suite reduces costs by automating significant
portions of the catalog management process by accelerating the speed of business
processes without requiring additional expensive personnel for administration
and maintenance. In addition, the POET eCatalog Suite has the potential to
establish strong business relationships with the customer by linking the
companies electronically, which may increase business volume.
We began shipping Version 1.0 of the POET eCatalog Suite in September 1999.
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SERVICES
We believe that providing high-quality services is critical to ensuring
customer success and satisfaction. Accordingly, we supplement all of our product
offerings with technical support and consulting services. We offer several
levels of support including software updates, telephone technical support,
services of dedicated support engineers, training and customer specific
workshops. These services are rendered by our Consulting Group, which, as of
September 30, 1999, consisted of a staff of 9 employees, with 2 employees
located in the U.S. and 7 employees located in Europe. As of September 30, 1999,
our Technical Support & Maintenance Group consisted of a staff of 14 employees,
with 5 employees located in the U.S. and 9 employees located in Europe. Our
Consulting Group provides fee-based consulting services designed to allow the
seamless integration of our products into the software systems of our customers.
In addition, the Consulting Group undertakes custom development projects for
customers by which we add additional and customized features and functionality
to our product base. The Support & Maintenance Group provides support for a
software product once it has been approved by our quality control department and
has been made commercially available.
We support customers on a continuous basis through the provision of product
information and software patches over our support Website. In addition,
customers may seek offline support from us via e-mail and facsimile.
CUSTOMERS
We have licensed versions of our products to over 1,000 customers
worldwide. In 1996, 1997 and 1998, Novell, Inc. accounted for more than 24% of
our revenues. In 1997, another corporate customer accounted for 11% of our
revenues, and in 1996, Bausparkasse Schwabisch Hall AG accounted for 17% of our
revenues. Our customers represent a broad spectrum of enterprises within diverse
sectors, including technology, telecommunications, publishing, defense,
transportation, banking and finance.
The following is a representative list of customers from our customer base
who have purchased licenses and/or services from us.
Financial Services and Insurance
Audatex Holdings Ltd
Bankgesellschaft Berlin AG
Bausparkasse Schwabisch Hall AG
DataCard Corporation
Techniker Krankenkasse
HSBC Trinkaus & Burkhardt KGaA
Software, Technology and Internet
ADDISON Software und Service GmbH
BuildNET
CompuServe Incorporated
Cyra Technologies, Inc.
Digital Zone International A/S
Evolve Software, Inc.
The ForeFront Group, Inc.
Ganymede Software Inc.
GSD Software und Datentechnik mbH
IDS Scheer AG
IntelliCorp
ipro Consulting GmbH
Lernout & Hauspie Speech Products N.V.
On Center Software, Inc.
Pixelpark GmbH
Pythia Communication & Computer GmbH
Riverton Software
Tool, S.A.
TurboMed EDV GmbH
Publishing/Technical Documentation
Deutsches Institut fur Medizinische Dokumentation und Information
GiL Group Information Logistics GmbH
juris GmbH
Lockheed Martin Corporation
Mannesmann Datenverarbeitung GmbH
Minolta GmbH
PPS GmbH
Sema Group GmbH
WEKA Baufachverlage GmbH
Telecommunications Equipment and Embedded Systems
AM Communications, Inc.
Beckman Coulter, Inc.
Bosch Telecom GmbH
Echelon Corporation
Ericsson, Inc.
Lucent Technologies Network Systems GmbH
Lucent Technologies, Inc.
Metrohm AG
The Perkin-Elmer Corporation
Rohde & Schwarz International GmbH
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Siemens AG
U S West, Inc.
Wandel & Golterman, Inc.
Other
National Board of Medical Examiners
ARINC Incorporated
SELLING AND MARKETING
We market our products primarily through our direct sales force and
indirect sales channels. As of September 30, 1999, our direct sales force
consisted of 31 sales representatives and sales support personnel, 15 of whom
are based in the U.S. and 16 of whom are based in Europe. We have developed
profiles of target customers for each product. Potential customers in each of
our sales regions are matched against such profiles and ranked by priority. We
use a variety of marketing programs to build market awareness of our company,
our POET brand name, our products and our services. Our activities include
market research, product and strategy updates with industry analysts, public
relations activities, direct mail and relationship marketing programs, seminars,
trade shows, speaking engagements of senior management and Website marketing.
Our marketing organization also produces marketing materials in support of sales
to potential customers including brochures, white papers, presentations and
demonstrations.
In marketing our current core product, the POET Object Server Suite, our
direct sales force focuses on original equipment manufacturers, independent
software vendors and large commercial end-users who maintain their own
development units, all of whom integrate our database into their own systems. In
order to increase the visibility of the POET Object Server Suite to end-users
working with applications into which the product is embedded, we seek agreements
with our original equipment manufacturers, independent software vendors and
large commercial end-user customers to label their products "Powered by POET."
The POET Content Management Suite is targeted at organizations that create,
maintain and publish complex technical manuals, such as ship, aircraft and
railroad manufacturers, as well as publishing houses. We cater to such vertical
markets through our indirect sales channel by using system integrators and value
added resellers who have intimate knowledge of the specific demands of such
vertical markets. In planning and implementing customer specific content
management solutions, our partners may integrate our POET Content Management
Suite into their own products. In the United States, we have approximately 5
such partners, and in Europe, we currently cooperate with approximately 15
partners for sales of the POET Content Management Suite.
The POET eCatalog Suite is targeted at small, medium-sized and large
supplier organizations as well as purchasing software suppliers on the customer
side whose systems communicate based on the XML standard. We intend to sell our
POET eCatalog Suite directly via the Internet and telesales to suppliers.
Indirect sales occur via strategic partners such as centralized customer
organizations and single large customers, as well as Internet service providers.
We have also entered into a strategic partnership with Ariba pursuant to
which Ariba promotes the sale of the POET eCatalog Suite by introducing us to
potential customers, including suppliers and their customers. Accordingly, our
success in marketing version 1.0 of the POET eCatalog Suite is currently highly
dependent upon the market acceptance of Ariba's electronic procurement system
Operating Resource Management System. For risks relating to our relationship
with Ariba, see "Risk Factors -- If we are unable to maintain and develop
strategic relationships with vendors of Internet-based purchasing systems, our
licensing revenues from the POET eCatalog Suite would be harmed."
RESEARCH AND DEVELOPMENT
We have made substantial investments in research and development through
both internal development and, to a lesser extent, technology acquisition.
Although we plan to continue to evaluate externally developed technology for
integration into our products, we expect that most enhancements to existing as
well as new products will be developed by our internal research and development
department. The majority of our research and development activity has been
directed toward future enhancements to our existing products and, as we expand
into new markets, the development of our POET Content Management Suite and our
POET eCatalog Suite.
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The strategic importance which we place on our research and development is
reflected by the size of our Research & Development Group which, as of September
30, 1999, comprised 33 of our 107 total employees. Most of our employees in the
Research & Development Group have university degrees in either information
technology or mathematics. Our Research & Development Group is based entirely in
Hamburg, Germany, where the cost of attracting and retaining highly qualified
research and development staff is considerably lower than in the United States.
Our research and development expenditures, including purchased software,
for fiscal 1996, 1997 and 1998 were approximately $1.6 million, $2.9 million and
$2.6 million. We expect that we will continue to commit significant resources to
research and development in the future, especially for the development of
Internet-related applications. All research and development expenses have been
expensed as incurred.
COMPETITION
The markets for database and e-commerce software are intensely competitive.
Our customers' requirements and the technology available to satisfy those
requirements continually change. We expect competition to persist and intensify
in the future. Not only were we the first database vendor to provide support for
XML, but we also believe that we are a pioneer in building the next generation
of XML-based Internet e-commerce applications. Our sources of principal
competition include:
- In-house development efforts by potential customers or partners;
- Other software vendors that address similar customer needs and that may
have a larger market share or greater name recognition and resources than
us, including vendors of object-oriented database management systems,
such as Object Design Inc., Versant Corporation, and Objectivity, Inc.;
- Other content management companies, such as Chrystal Software,
Incorporated, Vignette Corporation, Inso Corporation, Documentum, Inc.,
Requisite Technology, Inc., SAQQARA Systems, Inc., Interleaf, Inc. and
Ondisplay, Inc.; and
- Potentially, vendors of relational database systems, such as Oracle
Corporation, Microsoft Corporation, Sybase, Inc., Pervasive Software,
Inc., Progress Software Corporation, IBM, and Informix Corporation.
We believe that our competitive advantages over each of these principal
sources of competition are as follows:
- We provide faster time to market and lower cost with our ready solutions
due to the expense and time required to independently develop object-
oriented storage solutions;
- Our products are easily integrated into other software;
- Our product architecture provides for optional performance and
scalability;
- We offer discrete solutions for content and document management as
opposed to competing products that may be offered as part of larger, more
expensive products with multiple purposes; and
- Our object-oriented databases eliminate extra coding and maintenance
required by relational databases offered by other vendors.
PROPRIETARY RIGHTS AND LICENSING
Our success and ability to compete is dependent upon our ability to develop
and maintain the proprietary aspects of our technology and operate without
infringing on the proprietary rights of others. We rely on a combination of
trademark, trade secret and copyright law, and contractual restrictions of our
customers, partners, employees, management contractors and consultants to
protect the proprietary aspects of our technology. We have entered into a
license agreement with Novell with regard to Version 5.0 of our POET Object
Server Suite. For more details, see "Related Party Transactions."
We presently own the U.S. trademark "POET" and the U.S. trademark
application for "FastObject." Our German subsidiary, POET Software GmbH, owns
the trademark "POET" in Germany, Austria, Netherlands, Luxembourg, Belgium,
France, Spain, Italy, Yugoslavia, Switzerland and China. We currently own no
patents and have no patent applications. We are not dependent on any material
licenses. We license our software to
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customers under license agreements that impose restrictions on the licensee's
ability to utilize our software. However, these legal protections afford only
limited protection for our technology.
Despite our efforts to protect our proprietary rights, unauthorized parties
may attempt to copy aspects of our products or to obtain and use information
that we regard as proprietary. We integrate third-party software into our
products. This third-party software may not continue to be available on
commercially reasonable terms. We license the Simba SQL Engine for Open Database
Connectivity from Simba Technologies, Inc. as an open database connectivity
engine, Topic Developer Toolkit from Verity, Inc., a text search engine, which
is an optional function of the POET Object Server Suite and is integrated into
the POET Content Management Suite, and ColdFusion from Allaire Corp., which is
also an optional function of the POET Object Server Suite and is integrated into
the POET Content Management Suite. If we cannot maintain these third-party
software licenses, shipments of our products could be delayed until equivalent
software could be developed or licensed and integrated into our products.
EMPLOYEES
We consider our qualified and highly motivated employees a key factor in
our success. Our future success will depend in part on our ability to attract,
retain and motivate highly qualified technical management personnel for whom
competition is intense. Approximately half of our employees hold a university
degree. The following table shows the average number of employees for each
fiscal period:
<TABLE>
<CAPTION>
AS OF
SEPTEMBER 30,
1996 1997 1998 1999
---- ---- ---- -------------
<S> <C> <C> <C> <C>
Sales & Marketing.... 26 35 34 35
Professional
Services............. 17 19 19 20
Research &
Development........ 21 31 34 33
Finance &
Administration..... 10 14 11 11
----------------------------------
Total.............. 74 99 98 99
==================================
Total employees in
U.S.............. 27 38 36 36
Total employees in
Germany.......... 47 61 62 63
</TABLE>
From time to time, we also employ independent contractors to support our
professional services, research and development, and sales and marketing
organizations. Our employees are not represented by any collective bargaining
unit, and we have never experienced a work stoppage. We believe our relations
with our employees are good.
PROPERTIES
Our headquarters, as well as the headquarters of our subsidiary POET
Software Corporation, are currently located in a leased facility in San Mateo,
California, consisting of approximately 8,025 square feet under a four-year
lease, which expires in December 2002. We have also leased offices in Hamburg,
Germany; Munich, Germany; Boston, Massachusetts; and Chicago, Illinois. We own
no real estate.
LEGAL PROCEEDINGS
We are currently engaged in an arbitration proceeding before the American
Arbitration Association, instituted on May 12, 1999, involving a claim by Elissa
Caldwell. Ms. Caldwell was offered employment in October 1997 as a marketing
development manager, pending her receipt of an H1-B immigration visa. In January
1998, while Ms. Caldwell's immigration visa was in process, we reduced our labor
force by approximately 20% in response to an unexpected decline in sales in the
fourth quarter of 1997. In connection with this reduction in labor force, we
withdrew our offer of employment to Ms. Caldwell. Ms. Caldwell is seeking first
to set aside a severance agreement she signed with us following the withdrawal
of her offer of employment, in which she released us against any and all legal
claims arising on or before the date of the severance agreement and, second, is
seeking $1,500,000 in damages related to the withdrawal of her offer of
employment. We do not believe that these claims have any merit and plan to
vigorously defend ourselves in this proceeding. We cannot guarantee that we will
be able to successfully defend ourselves in this proceeding and may incur
additional costs attempting to do so.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth information regarding our executive officers
and directors as of November 5, 1999:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Dirk Bartels....................... 39 President, Chief Executive Officer and Chairman
of the Board
Carol Curry........................ 42 Vice President of Marketing
David Guinther..................... 40 Vice President of Sales
Michael Hogan...................... 36 Vice President of Corporate Development
Jorg Tewes......................... 35 Vice President of Development and General Manager
Jochen Witte....................... 38 Chief Financial Officer, Executive Vice President
of European Operations and General Manager
Jerry Wong......................... 48 Executive Vice President of U.S. Operations and
Vice President of Finance
Shanda Bahles...................... 43 Director
J. Burgess Jamieson (1)............ 69 Director
Gert Kohler (1)(2)................. 49 Director
Jerome Lecoeur..................... 42 Director
</TABLE>
- -------------------------
(1) Member of audit committee
(2) Member of compensation committee
DIRK BARTELS is a co-founder of POET Holdings and has served as President
and Chief Executive Officer since we commenced our operations in March 1995.
Prior to that time, Mr. Bartels served as a General Manager of our subsidiary
POET Software GmbH. Mr. Bartels has served as a director of our company since
March 1995 and has acted as our Chairman of the Board since December 1996. Mr.
Bartels received a Master of Science in Computer Science from the Technical
University in Berlin, Germany.
CAROL CURRY joined POET Holdings as Vice President of Marketing in August
1997. From May 1996 to August 1997, Ms. Curry served as the Director of Database
Marketing for Informix Corporation, a database software company. Ms. Curry also
held the position of Marketing Manager of Silicon Graphics, Inc. a computer
systems company, from September 1987 to May 1996. Ms. Curry received a Bachelor
of Science in Electrical Engineering and Computer Science from Princeton
University.
DAVID GUINTHER joined POET Holdings in March 1997. He served as our
District Manager of Northern California from March 1997 to December 1998 and as
our Director of Sales from January 1999 to June 1999, and has served as our Vice
President of Sales since July 1999. Prior to joining our company, Mr. Guinther
served as Regional Sales Manager at ONTOS Inc., a component-based technology
solutions provider, from August 1996 to February 1997 and as Manager of
Strategic Initiatives at Sybase, Inc., a software company, from February 1993 to
July 1996. Mr. Guinther received a Bachelor of Business Administration and a
Master of Science in Business from the University of Wisconsin in Madison.
MICHAEL HOGAN has served as our Vice President of Corporate Development
since April 1997. From March 1994 to April 1997, Mr. Hogan served as director of
Business Development at Novell, Inc., a directory-enabled networking software
provider. Mr. Hogan received a Bachelor of Science from the College of Holy
Cross.
JORG TEWES has served as Vice President of Engineering at our subsidiary
POET Software GmbH since January 1995 and as our Vice President of Development
and General Manager since September 1997. Mr. Tewes received a Masters degree in
Computer Science from the Technical University in Berlin, Germany.
JOCHEN WITTE is a co-founder of POET Holdings and has served as our Chief
Financial Officer since we commenced operations in 1995. Mr. Witte has also
served as our Executive Vice President of European Operations since July 1999.
From March 1995 to July 1999, Mr. Witte served
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as one of our directors. Mr. Witte holds a Master of Science in Business
Administration from the Technical University in Berlin, Germany.
JERRY WONG has served as our Vice President of Finance since March 1997 and
has served as our Executive Vice President of U.S. Operations since July 1999.
Mr. Wong also served at our subsidiary POET Software GmbH Corporation as
Controller from July 1995 to January 1996 and as Vice President of Finance from
February 1996 to March 1997. From January 1993 to July 1995, Mr. Wong served as
the Controller at Blyth Software Inc., a software and service provider. Mr. Wong
received a Bachelor of Science in Business Administration from the University of
San Francisco.
SHANDA BAHLES has served as a director of POET Holdings since April 1995.
Ms. Bahles has been a General Partner of El Dorado Ventures, a venture capital
firm, since May 1991. Ms. Bahles also serves on the board of Pilot Network
Services and Sagent Technology, Inc., as well as on the boards of other
privately held companies. Ms. Bahles holds a Bachelor of Science in Electrical
Engineering and a Master of Science in Business Administration from Stanford
University.
J. BURGESS JAMIESON has served as a director of POET Holdings since April
1995 and has served as a member of the audit committee since September 1999. Mr.
Jamieson is the co-founder and has been a General Partner of Sigma Partners, a
venture capital firm, since July 1984. Mr. Jamieson received the S.B. Degree in
Electrical Engineering from the Massachusetts Institute of Technology and
attended the Graduate School of Engineering at Northeastern University.
GERT KOHLER has served as a director of POET Holdings since March 1995 and
has served as a member of the compensation committee since January 1999 and as a
member of the audit committee since September 1999. Dr. Kohler has been a
Managing Director with Technologieholding, a venture capital company, since
October 1987. Dr. Kohler also serves on the boards of Intershop Communications
AG, European Technologies Holding N.V., Advanced European Technologies N.V.,
Strategic European Technologies N.V., Innovationsfonds Schleswig-Holstein &
Hamburg GmbH and Technologieholding Fund GmbH. Dr. Kohler holds Masters degrees
in Solid State Physics and in Mathematics from the University of Tubingen, a
Masters degree in Operational Research from the University of Grenoble, and a
Ph.D. in Mathematics from Institute de Recherche Mathematique Applique in France
and a Master of Science in Business Administration from Institute
d'Administration Enterprise in France.
JEROME LECOEUR has served as a director of POET Holdings since April 1995.
Mr. Lecoeur has been an Investment Manager with INNOVACOM, a venture capital
company, since February 1991. Mr. Lecoeur holds a Masters in Economics and a
graduate degree in Marketing from the University of Paris.
Our executive officers and directors can be reached at our principal
executive offices located at 999 Baker Way, Suite 100, San Mateo, California
94404, USA.
BOARD OF DIRECTORS
Our board of directors currently consists of seven authorized members. Six
of the seven board positions are currently filled, and there is one vacancy. The
term of office for each director is one year. Directors are elected at the
annual meeting of stockholders and hold office until the election and
qualification of their successors at the next annual meeting of stockholders.
Executive officers are appointed by the board of directors on an annual basis
and serve until their successors have been elected and qualified. There are no
family relationships among any of our directors, officers or key employees.
BOARD COMMITTEES
We established an audit committee in September 1999. The audit committee
consists of Dr. Kohler and Mr. Jamieson. The audit committee reviews our
internal accounting procedures and consults with and reviews the services
provided by our independent accountants.
We established a compensation committee in January 1999. The compensation
committee consists of Dr. Kohler. The compensation committee reviews and
recommends to the board of directors the compensation of all of our officers and
directors, including stock compensation and loans, and establishes and reviews
general policies relating to the compensation of our employees.
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COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to establishing the compensation committee, the board of directors as
a whole performed the functions delegated to the compensation committee. No
member of the board of directors or the compensation committee serves as a
member of the board of directors or compensation committee of any entity that
has one or more executive officers serving as a member of our board of directors
or compensation committee.
DIRECTOR COMPENSATION
We do not currently compensate in cash our directors for their service as
members of the board of directors, although they are reimbursed for some of
their expenses in connection with attendance at board and committee meetings. In
August 1995, we issued a stock purchase right to Mr. Brown for 47,500 shares of
our common stock at a purchase price of $0.22 per share. Under our 1995 Stock
Plan, nonemployee directors are eligible to receive stock option grants at the
discretion of the board of directors. See "-- Incentive Stock Plans -- 1995
Stock Plan." In addition, upon and following this offering, non-employee
directors may receive option grants under our 1999 Director Option Plan. See
"Incentive Stock Plans -- 1999 Director Option Plan."
LIMITATIONS ON DIRECTORS' LIABILITY AND INDEMNIFICATION
Our certificate of incorporation limits the liability of directors to the
maximum extent permitted by Delaware law. Delaware law provides that directors
of a corporation will not be personally liable for monetary damages for breach
of their fiduciary duties as directors, except liability for:
- any breach of their duty of loyalty to the corporation or its
stockholders;
- acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- unlawful payments of dividends or unlawful stock repurchases or
redemptions; or
- any transaction from which the director derived an improper personal
benefit. Such limitation of liability does not apply to liabilities
arising under the federal securities laws and does not affect the
availability of equitable remedies such as injunctive relief or
rescission.
Our certificate of incorporation and bylaws provide that we will indemnify
our directors, officers and employees and other agents to the fullest extent
permitted by Delaware law. We believe that indemnification under our bylaws
covers at least negligence and gross negligence on the part of indemnified
parties. Our bylaws also permit us to secure insurance on behalf of any officer,
director, employee or other agent for any liability arising out of his or her
actions in such capacity, regardless of whether the bylaws would permit
indemnification.
We have entered into agreements to indemnify our directors and executive
officers in addition to the indemnification provided for in our bylaws. These
agreements, among other things, provide for indemnification of our directors and
executive officers for any and all expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement (subject to our reasonable
approval) incurred by any such person in any action or proceeding, including any
action by or in the right of us, arising out of their services as our director
or executive officer, including any of our subsidiaries or any other company or
enterprise to which the person provides services at our request. We believe that
these provisions and agreements are necessary to attract and retain qualified
persons as directors and executive officers.
At present, there is no pending litigation or proceeding involving any of
our directors, officers or employees in which indemnification is sought, nor are
we aware of any threatened litigation that may result in claims for
indemnification.
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<PAGE> 55
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE. The following table sets forth the compensation
earned for services rendered to us in all capacities for the fiscal year ended
December 31, 1998 by our chief executive officer and our five next most highly
compensated executive officers during the fiscal year ended December 31, 1998,
referred to as the named executive officers:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION SECURITIES
-------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITIONS SALARY BONUS OPTIONS COMPENSATION
---------------------------- -------- ------- ------------ ------------
<S> <C> <C> <C> <C>
Dirk Bartels.......................... $208,655(a) $ -- -- $ 426(e)
President and Chief Executive Officer
Carol Curry........................... 145,766(b) 27,500 -- 426(e)
Vice President of Marketing
David Guinther........................ 187,713(c) -- 10,500 299(e)
Vice President of Sales
Michael Hogan......................... 120,000 32,500 10,000 426(e)
Vice President of Corporate
Development
Jochen Witte.......................... 126,834(d) -- 14,000(f)
Chief Financial Officer, Executive
Vice President of European
Operations and General Manager
Jerry Wong............................ 135,000 10,000 20,000 426(e)
Executive Vice President of U.S.
Operations and Vice President of
Finance
</TABLE>
- -------------------------
(a) Includes $28,655 converted from Deutsche Mark based on an exchange rate of
DM1.76 to the dollar, the average exchange rate for 1998.
(b) Includes $15,766 earned as commissions.
(c) Includes $107,713 earned as commissions.
(d) Includes $25,660 earned as commissions; entire amount converted from
Deutsche Mark based on an exchange rate of DM1.76 to the dollar, the
average exchange rate for 1998.
(e) Consists of premiums paid by us for term life insurance.
(f) Represents the dollar value of the benefit to the executive officer for a
company-sponsored automobile and of the remainder of a premium paid by us
for term life insurance.
OPTION GRANTS IN LAST FISCAL YEAR. The following table sets forth
information with respect to stock options granted to each of the named executive
officers during the fiscal year ended December 31, 1998. All of these options
were granted under our 1995 Stock Plan and have a term of 10 years, subject to
earlier termination in the event the optionees' services to us cease. See
"-- Incentive Stock Plans" for a description of material terms of these options.
In accordance with the rules of the U.S. Securities and Exchange Commission,
also shown below is the potential realizable value over the term of the option,
the period from the grant date to the expiration date, based on assumed rates of
stock appreciation of 5% and 10%, compounded annually. These amounts are based
on assumed rates of appreciation and do not represent our estimate of our future
stock price. Actual gains, if any, on stock option exercises will be dependent
on the future performance of our common stock.
53
<PAGE> 56
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL
NUMBER OF PERCENT OF TOTAL RATES OF STOCK
SECURITIES OPTIONS GRANTED APPRECIATION
UNDERLYING TO EMPLOYEES EXERCISE FOR OPTION TERM(3)
OPTIONS DURING PRICE EXPIRATION ---------------------
NAME GRANTED(#) PERIOD(1) ($/SHARE)(2) DATE 5% 10%
---- ---------- ---------------- ------------ ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Dirk Bartels......... -- -- -- -- -- --
Carol Curry.......... -- -- -- -- -- --
David Guinther....... 500 0.1% $.55 6/15/08 $ 9,735 $ 15,664
10,000 2.7 .55 10/27/08 194,691 313,271
Michael Hogan........ 10,000 2.7 .55 6/15/08 194,691 313,271
Jochen Witte......... -- -- -- -- -- --
Jerry Wong........... 20,000 5.5 .55 10/27/08 389,382 626,542
</TABLE>
- -------------------------
(1) Based on an aggregate of 366,250 options we granted during the fiscal year
ended December 31, 1998 to employees of and consultants to POET Holdings,
including the named executive officers.
(2) The shares underlying each option granted were valued as of the date of each
individual grant at the fair market value, as determined in good faith by
our board of directors and were based on various factors including our
competitive developments, management team developments, recent stock market
corrections and recovery, benchmark sales of our stock and the rights and
privileges of our preferred stock.
(3) The potential realizable value is calculated based on the ten-year term of
the option at its time of grant. It is calculated based on the assumption
that the assumed initial public offering price of E11.50 (approximately
$12.29 at an exchange rate reported by The Wall Street Journal for September
30, 1999 of $1.069 per E1.00) per share appreciates at the indicated annual
rate compounded annually for the entire term of the option and that the
option is exercised and sold on the last day of its term for the appreciated
stock price.
AGGREGATE OPTION EXERCISES AND OPTION VALUES. The following table sets
forth information with respect to the named executive officers concerning option
exercises for the fiscal year ended December 31, 1998, and exercisable and
unexercisable options held as of December 31, 1998.
OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING
UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1998 DECEMBER 31, 1998($)(1)
-------------------- ------------------------
NAME VESTED UNVESTED VESTED UNVESTED
---- ------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Dirk Bartels.............................. -- -- $ -- $ --
Carol Curry............................... 19,479 35,521 228,683 417,016
David Guinther............................ 2,417 13,083 28,376 153,594
Michael Hogan............................. 24,062 40,938 282,488 480,612
Jochen Witte.............................. -- -- -- --
Jerry Wong................................ 30,625 29,375 370,504 343,796
</TABLE>
- -------------------------
(1) The value of in-the-money options is based on an assumed initial public
offering price of E11.50 (approximately $12.29 at an exchange rate reported
by The Wall Street Journal for September 30, 1999 of $1.069 per E1.00) per
share, minus the per share exercise price, multiplied by the number of
shares underlying the option.
54
<PAGE> 57
INCENTIVE STOCK PLANS
1995 STOCK PLAN
Our 1995 Stock Plan, as amended on January 26, 1999, provides for the grant
of incentive stock options to employees and nonstatutory stock options and stock
purchase rights to employees, directors and consultants. A total of 1,200,000
shares of our common stock have been reserved for issuance under the stock plan.
An annual increase will be added on the first day of our fiscal year, beginning
in 2000, equal to 2% of the outstanding shares on that date, or a lesser amount
determined by the board of directors. As of September 30, 1999, options to
purchase 489,135 shares of common stock were outstanding and 378,427 shares were
available for future grant.
The compensation committee of the board of directors administers the 1995
Stock Plan and determines the terms of options granted, including the exercise
price, the number of shares subject to individual option awards and the vesting
period of such options. No employee may be granted options to purchase more than
200,000 shares. The exercise price under incentive stock options cannot be lower
than 100% of the fair market value of the common stock on the date of grant and,
in the case of incentive stock options granted to holders of more than 10% of
our voting power, not less than 110% of such fair market value. The term of an
incentive stock option cannot exceed 10 years, and the term of an incentive
stock option granted to a holder of more than 10% of our voting power cannot
exceed five years. Stock purchase rights may be issued either alone, in addition
to, or in tandem with other awards granted under the 1995 Stock Plan and/or cash
awards made outside of the 1995 Stock Plan. Options and stock purchase rights
granted under our 1995 Stock Plan generally become exercisable at the rate of
1/4 of the total number of shares subject to the option twelve months after the
date of grant, and 1/48 of the shares subject to the option each month
thereafter. Options assumed or substituted by a successor corporation will
terminate on the closing date of an acquisition of us. The board of directors
may amend, modify or terminate the stock plan at any time as long as such
amendment, modification or termination does not impair the rights of plan
participants previously granted options under the stock plan. Our 1995 Stock
Plan will terminate in August 2005, unless terminated earlier by the board of
directors.
1999 EMPLOYEE STOCK PURCHASE PLAN
Our 1999 Employee Stock Purchase Plan was adopted in September 1999 and
will be effective upon completion of this offering, subject to stockholder
approval. The purchase plan provides our employees with an opportunity to
purchase our common stock through accumulated payroll deductions. A total of
100,000 shares of common stock have been reserved for issuance under the
purchase plan, none of which had been issued as of September 30, 1999. An annual
increase will be added on the first day of our fiscal year, beginning in 2000,
equal to 1% of the outstanding shares on that date, or a lesser amount
determined by the board of directors. The purchase plan will be administered by
our board of directors or by a committee appointed by the board of directors.
The purchase plan will permit eligible employees to purchase common stock
through payroll deductions of up to 15% of an employee's base compensation on
each pay day during the offering period, provided that no employee may purchase
more than 1,000 shares in any offering period, and in no event may an employee
purchase more than $25,000 worth of stock, determined at the fair market value
of the shares at the time such option is granted, in one year. Any employee
employed by us on a given enrollment date is eligible to participate during that
offering period, provided he or she remains employed by us for the duration of
that offering period. Unless our board of directors or its committee determines
otherwise, the purchase plan will be implemented in a series of consecutive
offering periods, each approximately six months in duration. Offering periods
will begin on the first trading day on or after June 1 and December 1 of each
year and terminate on the last trading day in the period six months later.
However, the first offering period shall commence on the date upon which the
registration statement, of which this prospectus is a part, is declared
effective by the U.S. Securities and Exchange Commission and terminate on the
last trading day in the period ending November 30, 2000. In the event we are
acquired, offering and purchase periods then in progress will be shortened and
all options
55
<PAGE> 58
automatically exercised. The price at which common stock will be purchased under
the purchase plan is equal to 85% of the fair market value of our common stock
on the first day of the applicable offering period or the last day of the
applicable purchase period, whichever is lower. Employees may end their
participation in the offering period at any time, and participation
automatically ends on termination of employment. Our board of directors may
amend, modify or terminate the purchase plan at any time as long as such
amendment, modification or termination does not impair vesting rights of plan
participants. The purchase plan will terminate in September 2009, unless
terminated earlier in accordance with its provisions.
1999 DIRECTOR OPTION PLAN
Our 1999 Director Option Plan was adopted by the board of directors in
September 1999 and will be approved by our stockholders. The director option
plan will become effective immediately prior to this offering. A total of
150,000 shares of our common stock have been reserved for issuance under the
director option plan. The option grants under the director option plan are
automatic and non-discretionary. The director option plan provides for an
initial grant of options to purchase 20,000 shares of common stock to each of
our "outside directors" upon the later of the effective date of the director
option plan or the date on which an individual first becomes an outside
director. In addition, each outside director will automatically be granted
subsequent options to purchase 5,000 shares of our common stock on each date on
which such outside director is re-elected by our stockholders, provided that as
of that date the outside director has served on the board of directors for at
least six months. The exercise price of the options is 100% of the fair market
value of the common stock on the grant date, except that with respect to initial
grants to directors on the effective date of the director option plan the
exercise price will be equal to 100% of the initial public offering price per
share of common stock in the offering. The term of each option is ten years.
Each initial option granted to an outside director vests as to 25% of the
optioned stock one year after the date of grant, and as to an additional 25% of
the optioned stock on each anniversary of the date of grant, provided that the
optionee continues to serve as an outside director on such date so that 100% of
the optioned stock may be exercisable 4 years after the date of grant. Each
subsequent option grant to an outside director vests as to 100% of the optioned
stock 4 years after the date of grant. In the event of the sale of all or
substantially all of our assets or the merger of us with or into another
corporation, all outstanding options under the director option plan may either
be assumed or an equivalent option may be substituted by the surviving entity.
Following such assumption or substitution, if the outside director is terminated
other than upon a voluntary resignation, the assumed or substituted options will
vest and become exercisable in full. If no assumption or substitution occurs,
each such option will vest and become exercisable in full. The director option
plan will terminate in September 2009 unless sooner terminated by the board of
directors.
401(k) PLAN
In 1997, we adopted a Retirement Savings and Investment Plan, or 401(k)
plan, covering our full-time employees located in the United States. The 401(k)
plan is intended to qualify under Section 401(k) of the U.S. Internal Revenue
Code of 1986, as amended, so that contributions to the 401(k) plan by employees,
and the investment earnings on the contributions, are not taxable to employees
until withdrawn from the 401(k) plan. Pursuant to the 401(k) plan, employees may
elect to reduce their current compensation by up to the lesser of 15% of their
annual compensation of the statutorily prescribed annual limit ($10,000 in 1998)
and to have the amount of the reduction contributed to the 401(k) plan. The
401(k) plan does permit additional matching contributions to the 401(k) plan by
us on behalf of participants in the 401(k) plan, but we do not currently, nor do
we have plans in the future to, make matching contributions.
EMPLOYMENT AGREEMENTS
We entered into an employment contract with Jorg Tewes on September 29,
1997, which provides that Mr. Tewes will serve as a managing director of POET
Software GmbH for a term ending on the last day of the month in which Mr. Tewes
turns 60 years old. Either Mr. Tewes or we may terminate this agreement at the
end of each calendar quarter by giving at least three months
56
<PAGE> 59
written notice, except that we can terminate Mr. Tewes' employment with us
sooner if he materially breaches his duties under this agreement. As part of his
remuneration, we granted Mr. Tewes options to purchase 20,000 shares of our
common stock, which vest over a four-year period beginning on July 1, 1998.
We entered into an employment contract with Jochen Witte on May 19, 1993,
which, as amended on September 10, 1998, provides that Mr. Witte will serve as
our managing director for a term ending on the last day of the month in which
Mr. Witte turns 60 years old. Either Mr. Witte or we may terminate this
agreement at the end of each calendar quarter by giving at least three months
written notice, except that we can terminate Mr. Witte's employment with us
sooner if he materially breaches his duties under this service agreement.
We entered into a Change of Control Severance Agreement with Michael Hogan
on April 2, 1997, which provides that in the event Mr. Hogan's employment is
terminated within 12 months of a change of control of POET Holdings, the vesting
of his stock options will accelerate as to that number of options equal to that
number of options that would vest over the next 12 months.
We entered into a Change of Control Severance Agreement with Carol Curry on
August 1, 1997, which provides that in the event Ms. Curry's employment is
terminated within 12 months of a change of control of POET Holdings, the vesting
of her stock options will accelerate as to that number of options equal to that
number of options that would vest over the next 12 months.
We entered into a Change of Control Severance Agreement with Jerry Wong on
November 14, 1995, which provides that in the event Mr. Wong's employment is
terminated within 12 months of a change of control of POET Holdings, the vesting
of his stock options will accelerate as to that number of options equal to that
number of options that would vest over the next 12 months.
57
<PAGE> 60
RELATED PARTY TRANSACTIONS
Since commencement of operations in March 1995, there has not been, nor is
there currently proposed, any transaction or series of similar transactions to
which we were or are to be a party in which the amount involved exceeds $60,000
and in which any director, executive officer, holder of more than 5% of our
common stock or any member of the immediate family of any of the foregoing
persons had or will have a direct or indirect material interest other than (1)
compensation agreements and other arrangements, which are described where
required in "Management," and (2) the transactions described below.
TRANSACTIONS WITH DIRECTORS, EXECUTIVE OFFICERS AND 5% STOCKHOLDERS
Common Stock. Since our inception, we have issued 607,544 shares of our
common stock at the fair market value of the stock on each date of issuance, as
determined by our board of directors. On March 31, 1995, we issued 923,206
shares and 487,967 shares of Series B common stock to Dirk Bartels and Jochen
Witte, respectively, as part of the consideration, and in exchange for all of
the outstanding capital stock of POET Software GmbH. On August 17, 1995, we
granted Lawrence Owen Brown, one of our directors at the time, a stock purchase
right to purchase 47,500 shares of common stock at a per share price of $0.22.
The shares are fully vested. On September 13, 1999, TBG converted $3.9 million
in convertible debt owed to us into 275,106 shares of our common stock at a per
share price of $14.18. Additional purchasers of common stock included our
current and former employees.
Series A Preferred Stock. On April 7, 1995, we issued 816,793 shares of
Series A preferred stock to European Technologies Holding and Compaigne
Auxiliare Telecommunication, now INNOVACOM 1, as part of the consideration, and
in exchange for all of the outstanding capital stock of POET Software GmbH.
Series B Preferred Stock. On April 7, 1995, we sold 1,686,049 shares of our
Series B preferred stock at $2.15 per share for a total amount of $3,625,005.35.
The purchasers of such shares included, among others:
<TABLE>
<CAPTION>
SHARES OF SERIES B
PURCHASER PREFERRED STOCK
--------- ------------------
<S> <C>
Lawrence Owen Brown Family LLC............................. 23,256
El Dorado C&L Fund, L.P.................................... 8,148
El Dorado Ventures III, L.P................................ 439,968
El Dorado Technology IV, L.P............................... 17,001
European Technologies Holding N.V.......................... 310,078
INNOVACOM 1................................................ 155,039
Sigma Partners III......................................... 418,356
Sigma Associates III....................................... 40,485
Sigma Investors III........................................ 6,276
</TABLE>
Series C Preferred Stock. On November 18, 1996, we sold 1,143,886 shares of
our Series C preferred stock at $5.72 per share for a total amount of
$6,543,027.92. The purchasers of such shares included, among others:
<TABLE>
<CAPTION>
SHARES OF SERIES C
PURCHASER PREFERRED STOCK
--------- ------------------
<S> <C>
Lawrence Owen Brown Family Trust........................... 13,565
El Dorado C&L Fund, L.P.................................... 3,112
El Dorado Ventures III, L.P................................ 168,036
El Dorado Technology IV, L.P............................... 3,677
European Technologies Holding N.V. ........................ 87,412
INNOVACOM 1................................................ 52,447
Novell, Inc................................................ 576,923
Sigma Associates III....................................... 26,521
Sigma Investors III........................................ 3,147
Sigma Partners III......................................... 145,157
</TABLE>
58
<PAGE> 61
1998 Bridge Financing. On September 23, 1998, in connection with a note and
warrant bridge financing, we issued the following warrants to purchase our
Series D preferred stock at an exercise price of $7.04 per share:
<TABLE>
<CAPTION>
SHARES OF SERIES D
PURCHASER PREFERRED STOCK
--------- ------------------
<S> <C>
European Technologies Holding N.V.......................... 17,567
El Dorado Ventures III, L.P................................ 8,833
El Dorado Technology IV, L.P............................... 193
El Dorado C&L Fund, L.P.................................... 163
Sigma Partners III......................................... 7,207
Sigma Associates III....................................... 1,783
Sigma Investors III........................................ 198
INNOVACOM 1................................................ 8,907
Lawrence Owen Brown........................................ 526
Atlas Venture Europe Fund B.V. ............................ 4,333
</TABLE>
Series D Preferred Stock. On December 23, 1998, December 31, 1998 and April
23, 1999, we sold 571,719 shares, 284,091 shares and 71,022 shares,
respectively, of our Series D preferred stock at $7.04 per share for a total
amount of $6,524,897.28. The purchasers of such shares included, among others:
<TABLE>
<CAPTION>
SHARES OF SERIES D
PURCHASER PREFERRED STOCK
--------- ------------------
<S> <C>
Owen Brown Enterprises..................................... 1,542
El Dorado C&L Fund, L.P. .................................. 479
El Dorado Ventures III, L.P................................ 25,867
El Dorado Technology IV, L.P............................... 566
European Technologies Holding N.V.......................... 51,444
INNOVACOM 1................................................ 26,085
Private Equity Bridge Invest Ltd........................... 426,136
Sigma Partners III......................................... 21,107
Sigma Associates III....................................... 5,223
Sigma Investors III........................................ 581
Atlas Venture Europe Fund B.V. ............................ 12,689
</TABLE>
In all, there are 21 preferred stockholders of record of our company.
Agreements with Novell, Inc. We entered into a software license agreement
with Novell, Inc. on November 14, 1996, which was amended on December 31, 1996,
September 30, 1997, February 26, 1998 and September 30, 1999. Novell owns
576,923 shares representing approximately 9% of our outstanding stock. Pursuant
to the license agreement, as amended, Novell has a nonexclusive, perpetual
license to our POET Object Server Suite Version 5.0, which, at its sole option,
Novell may incorporate for use with Novell's product solutions foundation
product.
INDEMNIFICATION
We plan to enter into indemnification agreements with each of our directors
and officers. Such indemnification agreements will require us to indemnify our
directors and officers to the fullest extent permitted by Delaware law.
All future transactions, including any loans by POET Holdings to our
officers, directors, principal stockholders or affiliates, will be approved by a
majority of the board of directors, including a majority of the independent and
disinterested members of the board of directors or, if required by law, a
majority of disinterested stockholders, and will be on terms no less favorable
to POET Holdings than could be obtained from unaffiliated third parties.
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<PAGE> 62
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth information known to us with respect to the
beneficial ownership of our common stock as of September 30, 1999, and as
adjusted to reflect the sale of our common stock in this offering by:
- each of the named executive officers;
- each director of POET Holdings;
- of our all directors and executive officers as a group;
- each stockholder known by us to own beneficially more than 5% of the
common stock; and
- all other selling stockholders.
The number and percentage of shares beneficially owned are based on the
aggregate of (1) 6,950,674 shares of common stock outstanding as of September
30, 1999, assuming conversion of all outstanding shares of preferred stock and
Series B common stock into shares of common stock, and (2) 9,950,674 shares of
common stock assumed outstanding after the completion of this offering. These
numbers of shares are not identical to the number of shares outstanding as of
the date hereof and as of the date of admission of the shares of common stock to
trading on the Frankfurt Stock Exchange's Neuer Markt.
Beneficial ownership is determined in accordance with the rules of the U.S.
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that person,
shares of common stock subject to options or warrants held by that person that
are currently exercisable or will become exercisable within 60 days after
September 30, 1999, are deemed outstanding. The shares subject to options or
warrants held by a person are not deemed outstanding for purposes of computing
percentage ownership of any other person. Unless otherwise indicated in the
footnotes below, the persons and entities named in the table have sole voting
and investment power with respect to all shares beneficially owned, subject to
community property laws where applicable.
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY OWNED SHARES BENEFICIALLY
BEFORE THIS OWNED AFTER
OFFERING THIS OFFERING(2)
NAMES AND ADDRESSES OF ---------------------- SHARES TO ----------------------
BENEFICIAL OWNERS(1) NUMBER PERCENTAGE BE SOLD(2) NUMBER PERCENTAGE
---------------------- --------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
OFFICERS AND DIRECTORS:
Dirk Bartels(3)............................... 799,836 11.51% -- 799,836 8.04%
Carol Curry(4)................................ 30,937 * -- 30,937 *
David Guinther(5)............................. 6,687 * -- 6,687 *
Michael Hogan(6).............................. 35,521 * -- 35,521 *
Jorg Tewes(7)................................. 60,000 * -- 60,000 *
Jochen Witte(8)............................... 447,946 6.44% -- 447,946 4.50%
Jerry Wong(9)................................. 43,750 * -- *
Shanda Bahles(10)............................. 694,195 9.97% 128,537 565,658 5.68%
c/o El Dorado Ventures
2400 Sand Hill Road, Suite 100
Menlo Park, CA 94025
J. Burgess Jamieson(11)....................... 694,192 9.97% 128,537 565,655 5.68%
c/o Sigma Partners
2884 Sand Hill Road, Suite 121
Menlo Park, CA 94025
Gert Kohler(12)............................... 1,398,297 20.01% 256,289 1,142,008 11.46%
c/o European Technologies Holding N.V.
De Biender 5
NL-1852 ED Heiloo, The Netherlands
Jerome Lecoeur(13)............................ 668,729 9.62% 123,823 544,906 5.47%
c/o INNOVACOM 1
23 Rue Royale
75008 Paris, France
All directors and executive officers as a
group (11 persons)(14)...................... 4,809,068 69.18% 637,186 4,199,154 43.00%
5% STOCKHOLDERS:
European Technologies Holding N.V.(15)........ 1,327,275 19.05% 246,972 1,080,303 10.25%
De Biender 5
NL-1852 ED Heiloo, The Netherlands
INNOVACOM 1(16)............................... 655,278 9.42% 121,331 533,947 5.36%
23 Rue Royale
75008 Paris, France
</TABLE>
60
<PAGE> 63
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY OWNED SHARES BENEFICIALLY
BEFORE THIS OWNED AFTER
OFFERING THIS OFFERING(2)
NAMES AND ADDRESSES OF ---------------------- SHARES TO ----------------------
BENEFICIAL OWNERS(1) NUMBER PERCENTAGE BE SOLD(2) NUMBER PERCENTAGE
---------------------- --------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
El Dorado Ventures(17)........................ 694,195 9.97% 128,537 565,658 5.68%
2400 Sand Hill Road, Suite 100
Menlo Park, CA 94025
Sigma Partners(18)............................ 694,192 9.97% 128,537 565,655 5.68%
2884 Sand Hill Road, Suite 121
Menlo Park, CA 94025
Novell, Inc................................... 576,923 8.30% 106,823 470,100 4.72%
1555 N. Technology Way, A-331
Orem, UT 84057-2399
Technologie-Beteiligungsgesellschaft mBH...... 559,197 8.05% 52,602 506,595 5.09%
Herrn Ernst G. Mayer
Ludwig Erhardt Platz 3
53179 Bonn
Germany
Private Equity Bridge Invest Ltd.(19)......... 426,136 6.13% 78,903 347,233 3.49%
P.O. Box 30864 SMB
Grand Pavilion Commercial Center
West Bay Road, Grand Cayman
Cayman Islands, British West Indies
OTHER SELLING STOCKHOLDERS
Lawrence Owen Brown(20)....................... 87,297 1.26% 7,369 79,928 *
Atlas Venture Europe Fund B.V................. 327,332 4.71% 60,607 266,715 2.68%
Naarderport 1
P.O. Box 5225
1410 AE Naarden
The Netherlands
Francois Scolan............................... 2,788 * 516 2,272 *
89 Boulevard Pasteur
75015 Paris, France
Jacques Meheut................................ 1,349 * 250 1,099 *
34 Rue Rollin
Fonteray Aux Roses, France
Innovationsfonds Schleswig-Holstein & Hamburg
GmbH........................................ 56,818 * 8,425 48,393 *
Grosse Bleichen 8
20354 Hamburg, Germany
TH Fonds VC GmbH.............................. 14,204 * 2,106 12,098 *
Zambachplatz 3
80333 Munich, Germany
Lighthouse Capital Partners, L.P.............. 7,291 * 1,350 5,941 *
100 Drakes Zarding Road
Greenbrae, CA 94904
WS Investments................................ 12,341 * 2,285 10,056 *
650 Page Mill Road
Palo Alto, CA 94304
O'Brien Family Trust U/T/D dated July 1,
1992(21).................................... 4,832 * 895 3,937 *
1655 Bay Laurel Drive
Menlo Park, CA 94025
ALL SELLING STOCKHOLDERS AS A GROUP 6,406,686 92.17% 950,000 5,456,686 54.83%
- -------------------------
Shares Trading on the Neuer Markt............. -- -- -- 3,950,000 39.70%
Thereof: Preferential Allotment............. -- -- -- 190,000 1.91%
</TABLE>
- -------------------------
* Less than 1% of the outstanding shares of common stock.
(1) Unless otherwise indicated, the address of each officer, director or 5%
stockholder is c/o POET Holdings, Inc., 999 Baker Way, Suite 100, San
Mateo, California 94404.
(2) Assumes no exercise of underwriters' over-allotment option. Percentage
ownership figures after the offering do not include shares that may be
purchased by each person in the offering.
(3) Mr. Bartels has agreed to lend the underwriters 570,000 shares of common
stock which the underwriters may sell during the thirty-day period of the
underwriter's over-allotment option.
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<PAGE> 64
(4) Includes 20,937 shares issuable upon exercise of an option held by Ms.
Curry exercisable within 60 days of September 30, 1999.
(5) Includes 6,687 shares issuable upon exercise of options held by Mr.
Guinther exercisable within 60 days of September 30, 1999.
(6) Includes 27,521 shares issuable upon exercise of options held by Mr. Hogan
exercisable within 60 days of September 30, 1999.
(7) Includes 13,750 shares subject to a right of repurchase by us, which lapses
over time.
(8) Includes 150,000 shares held by Mrs. Witte and 229 shares issuable upon
exercise of an option held by Mrs. Witte exercisable within 60 days of
September 30, 1999.
(9) Includes 23,750 shares issuable upon exercise of options held by Mr. Wong
exercisable within 60 days of September 30, 1999.
(10) Comprised of 685,006 shares and warrants to purchase 9,189 shares held by
entities affiliated with El Dorado Ventures. Ms. Bahles is a general
partner of El Dorado Ventures and is a director of POET Holdings. Ms.
Bahles disclaims beneficial ownership of shares held by those entities,
except to the extent of her proportional interest arising from her
partnership interest in El Dorado Ventures.
(11) Comprised of 685,004 shares and warrants to purchase 9,188 shares held by
entities affiliated with Sigma Partners. Mr. Jamieson is a general partner
of Sigma Partners and is a director of POET Holdings. Mr. Jamieson
disclaims beneficial ownership of shares held by those entities, except to
the extent of his proportional interest arising from his partnership
interest in Sigma Partners.
(12) Comprised of 1,309,708 shares and a warrant to purchase 17,567 shares held
by European Technologies Holding N.V., 56,818 shares held by
Innovationsfonds Schleswig-Holstein & Hamburg GmbH and 14,204 shares held
by TH Fonds VC GmbH. Dr. Kohler is a principal of each of European
Technologies Holding N.V., Innovationsfonds Schleswig-Holstein & Hamburg
GmbH and TH Fonds VC GmbH, and is a director of POET Holdings. Dr. Kohler
disclaims beneficial ownership of shares held by European Technologies
Holding N.V., Innovationsfonds Schleswig-Holstein & Hamburg GmbH and TH
Fonds VC GmbH, except to the extent of his proportional interest in those
entities.
(13) Includes 646,371 shares held by INNOVACOM 1 and a warrant to purchase 8,907
shares held by INNOVACOM 1. Mr. Lecoeur is an investment manager with
INNOVACOM 1 and is a director of POET Holdings. Mr. Lecoeur disclaims
beneficial ownership of shares held by INNOVACOM 1, except to the extent of
his proportional interest in INNOVACOM 1.
(14) Includes all shares referenced in notes (3) through (13) above, except that
shares beneficially owned by Ms. Bahles, Mr. Jamieson, Dr. Kohler and Mr.
Lecoeur are counted only once in this calculation.
(15) Comprised of 1,309,708 shares and a warrant to purchase 17,567 shares held
by European Technologies Holding N.V. Mr. Albertus G.J. Lucassen is the
sole managing director of European Technologies Holding N.V. and thus may
be deemed to have an indirect pecuniary interest in an indeterminate
portion of the shares beneficially owned by European Technologies Holding
N.V. Mr. Lucassen disclaims beneficial ownership of such shares except to
the extent of his pecuniary interest therein.
(16) Includes 646,371 shares and a warrant to purchase 8,907 shares held by
INNOVACOM 1. Mr. Denis Champenois is the sole general partner of INNOVACOM
1 and thus may be deemed to have an indirect pecuniary interest in an
indeterminate portion of the shares beneficially owned by INNOVACOM 1. Mr.
Champenois disclaims beneficial ownership of such shares except to the
extent of his pecuniary interest therein.
(17) Includes (i) 651,319 shares and a warrant to purchase 8,833 shares held by
El Dorado Ventures III, L.P., (ii) 21,626 shares and a warrant to purchase
193 shares held by El Dorado Technology IV, L.P., and (iii) 12,061 shares
and a warrant to purchase 163 shares held by El Dorado C&L Fund, L.P. El
Dorado Ventures III, L.P., El Dorado Technology IV, L.P. and El Dorado C&L
Fund are affiliated with El Dorado Ventures. Ms. Bahles is a general
partner of El Dorado Ventures and may be deemed to control El Dorado
Ventures III, L.P., El Dorado Technology IV, L.P. and El Dorado C&L Fund.
62
<PAGE> 65
Accordingly, Ms. Bahles may be deemed to have an indirect pecuniary
interest in an indeterminate portion of the shares beneficially owned by El
Dorado Ventures III, L.P., El Dorado Technology IV, L.P. and El Dorado C&L
Fund. Ms. Bahles disclaims beneficial ownership of such shares except to
the extent of her pecuniary interest therein.
(18) Includes (i) 599,691 shares and a warrant to purchase 7,207 shares held by
Sigma Partners III, (ii) 74,983 shares and a warrant to purchase 1,783
shares held by Sigma Associates III, and (iii) 10,330 shares and a warrant
to purchase 198 shares held by Sigma Investors III. Sigma Partners III,
Sigma Associates III and Sigma Investors III are affiliated with Sigma
Partners. Mr. Jamieson is a general partner of Sigma Partners and may be
deemed to control Sigma Partners III, Sigma Associates III and Sigma
Investors III. Accordingly, Mr. Jamieson may be deemed to have an indirect
pecuniary interest in an indeterminate portion of the shares beneficially
owned by Sigma Partners III, Sigma Associates III and Sigma Investors III.
Mr. Jamieson disclaims beneficial ownership of such shares except to the
extent of his pecuniary interest therein.
(19) The sole director of Private Equity Bridge Invest Ltd. is VBTC Management
Ltd. Mr. John Arnold is the managing director of VBTC Management Ltd. and
may be deemed to control Private Equity Bridge Invest Ltd. Accordingly, Mr.
Arnold may be deemed to have an indirect pecuniary interest in an
indeterminate portion of the shares beneficially owned by Private Equity
Bridge Invest Ltd. Mr. Arnold disclaims beneficial ownership of such shares
except to the extent of his pecuniary interest therein.
(20) Includes 13,565 shares and warrants to purchase 526 shares held in the name
of Lawrence Owen Brown Family Trust of which Lawrence Owen Brown is
trustee, 24,164 shares held in the name of Lawrence Owen Brown Family LLC,
1,542 shares held in the name of Owen Brown Enterprises.
(21) Judith M. O'Brien, trustee of the O'Brien Family Trust U/T/D dated July 1,
1992, serves as the Secretary of our company.
63
<PAGE> 66
DESCRIPTION OF CAPITAL STOCK
GENERAL
We are authorized to issue 11,411,173 shares of common stock, $0.001 par
value, and 5,417,186 shares of undesignated preferred stock, $0.001 par value.
The following description of our capital stock does not purport to be
complete and is subject to and qualified in its entirety by our certificate of
incorporation and bylaws, which are included as exhibits to the registration
statement of which this prospectus forms a part, and by the provisions of
applicable Delaware law. Our board of directors authorized on September 15, 1999
the issuance of the shares to be sold in this offering. Upon consummation of
this offering, our certificate of incorporation will be amended to increase the
total number of our authorized common stock to 30,000,000 shares. In addition,
upon consummation of this offering and after the automatic conversion of our
Series B common stock and preferred stock into shares of Series A common stock,
we will redesignate all of our Series A common stock as undesignated common
stock. Our certificate of incorporation will also be amended to delete all
existing series of preferred stock and to authorize 3,000,000 shares of
undesignated preferred stock.
COMMON STOCK
As of September 30, 1999, there were 607,544 shares of common stock
outstanding, which were held of record by 52 stockholders. As of September 30,
1999, there were 1,361,173 shares of Series B common stock outstanding, which
were held of record by 16 stockholders. Upon consummation of this offering, all
of the Series B common stock will be automatically converted into shares of
common stock on a one-for-one basis.
The holders of common stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. Subject to preferences that may be
applicable to any outstanding preferred stock, the holders of common stock are
entitled to receive ratably such dividends, if any, as may be declared from time
to time by the board of directors out of funds legally available for that
purpose. For more information about dividends, see "Dividend Policy." In the
event of a liquidation, dissolution or winding up of our company, the holders of
common stock are entitled to share ratably in all assets remaining after payment
of liabilities, subject to prior distribution rights of preferred stock, if any,
then outstanding. The common stock has no preemptive or conversion rights or
other subscription rights. There are no redemption or sinking fund provisions
applicable to the common stock. All outstanding shares of common stock are fully
paid and nonassessable, and the shares of common stock to be issued upon the
closing of this offering will be fully paid and nonassessable.
CLEARING AND TRANSFERABILITY OF SHARES
The share certificates representing the offered shares will be deposited by
us and the selling stockholders, respectively, with The Depository Trust Company
of New York. The Depository Trust Company's nominee, Cede & Co., will be the
registered owner of such shares. Upon the execution of the underwriting
agreement, The Depository Trust Company will electronically deposit the shares
in the account of Deutsche Borse Clearing AG with The Depository Trust Company
in book entry form for the benefit of DG BANK Deutsche Genossenschaftsbank AG
acting as custodian for us and the selling stockholders. At the closing, DG BANK
Deutsche Genossenschaftsbank AG will transfer the shares to the account of both
underwriters. Thereafter, DG BANK Deutsche Genossenschaftsbank AG will
electronically transfer, in book entry form, beneficial ownership of the shares
to the purchasers of the shares through their brokers and other financial
institutions that are Deutsche Borse Clearing AG participants. Deutsche Borse
Clearing AG will not hold any certificates for common stock. Certificates
representing shares of common stock held through Deutsche Borse Clearing AG will
not be issued unless such shares are withdrawn from Deutsche Borse Clearing AG,
in which case the shares will not be eligible to trade on a German exchange
unless such shares are re-deposited with The Depository Trust Company for credit
to Deutsche Borse Clearing AG's account with The Depository Trust Company.
Shares transferred from the Depository Trust Company to Deutsche Borse
Clearing AG may be freely transferred among market participants through the
Deutsche Borse
64
<PAGE> 67
Clearing AG clearing system. The shares to be offered and listed for trading on
the Frankfurt Stock Exchange's Neuer Markt are registered shares. Accordingly,
stockholders holding share certificates who desire to transfer their shares
outside The Depository Trust Company/Deutsche Borse Clearing AG clearing system
may effect the transfer by submitting to our transfer agent their share
certificates, and the transfer agent will issue a new certificate in the name of
the transferee. If stockholders holding share certificates wish to transfer
their shares to The Depository Trust Company/Deutsche Borse Clearing AG clearing
system, the stockholders must submit their share certificates to our transfer
agent, and the transfer agent will register the shares in the name of Cede & Co.
These shares will be credited to the account of Deutsche Borse Clearing AG at
The Depository Trust Company. Upon registration of the shares with The
Depository Trust Company for the benefit of Deutsche Borse Clearing AG and
fulfillment of any other requirements of The Depository Trust Company or
Deutsche Borse Clearing AG, beneficial ownership of the shares may be
transferred through the Deutsche Borse Clearing AG system.
TAXPAYER IDENTIFICATION NUMBER
Our U.S. Employer Identification Number is 94-3221778.
TRANSFER AGENT, REGISTRAR AND PAYING AGENT
Our shares of common stock will be registered and transferred via a
transfer agent in the United States who with register shares in the name of Cede
& Co. The name of this transfer agent and registrar for the common stock is
ChaseMellon Shareholder Services. N.A. DG BANK Deutsche Genossenschaftsbank AG,
Frankfurt am Main-, will act as the paying agent in Germany.
PREFERRED STOCK
At September 30, 1999, 1,225,190 shares of our Series A preferred stock,
1,686,049 shares of our Series B preferred stock, 1,143,886 shares of our Series
C preferred stock and 926,832 of our Series D preferred stock were outstanding
and will be automatically converted into shares of common stock on a one-for-one
basis immediately prior to the closing of this offering.
Our board of directors has the authority, without action by the
stockholders, to designate and issue preferred stock in one or more series and
to designate the rights, preferences and privileges of each series, any or all
of which may be greater than the rights of the common stock. It is not possible
to state the actual effect of the issuance of any shares of preferred stock upon
the rights of holders of the common stock until the board of directors
determines the specific rights of the holders of such preferred stock. However,
the effects might include, among other things, restricting dividends on the
common stock, diluting the voting power of the common stock, impairing the
liquidation rights of the common stock and delaying or preventing a change of
our control without further action by the stockholders. We have no present plans
to issue any shares of preferred stock.
WARRANTS
The following table sets forth the warrants outstanding at September 30,
1999, and their expiration dates:
<TABLE>
<CAPTION>
SHARES OF COMMON STOCK
SUBJECT TO WARRANTS EXPIRATION OF WARRANT
---------------------- ---------------------
<S> <C>
43,523........................................ 4/30/04(1)
</TABLE>
<TABLE>
<CAPTION>
SHARES OF PREFERRED STOCK
SUBJECT TO WARRANTS EXPIRATION OF WARRANT
------------------------- ---------------------
<S> <C>
7,291......................................... 5/31/02
6,555......................................... 7/25/03(2)
49,710........................................ 12/23/03
</TABLE>
- ------------------------
(1) A warrant to purchase 8,523 shares of common stock will expire upon the
consummation of this offering, and the remaining warrants to purchase 35,000
shares of common stock will expire on April 30, 2004.
(2) Warrants to purchase 2,185 shares of preferred stock expire on July 25,
2003. Warrants to purchase 4,370 shares of preferred stock will expire on
September 13, 2003.
65
<PAGE> 68
REGISTRATION RIGHTS
The holders of 6,343,131 shares of common stock, as converted, and the
holders of warrants to purchase 49,184 shares of common stock or their permitted
transferees are entitled to rights with respect to registration of such shares
under the U.S. Securities Act at any time beginning 180 days following the
closing of this offering, subject to restrictions on transfer under agreements
between these stockholders and the underwriters. Under the terms of the
agreements between us and the holders of such registrable securities, by written
consent of at least 50% of the registrable securities then outstanding, such
holders may require on one occasion that we, at our expense, file a registration
statement under the U.S. Securities Act, with respect to such registrable
securities, provided that the anticipated public offering price of such
registration would be at least $7,500,000. In addition, holders of at least 20%
of the registrable securities then outstanding may, at our expense request once
per 12-month period, and at least 180 days after the most recent registration of
our common stock, that we register their shares for public resale on Form S-3
under the U.S. Securities Act or similar short-form registration, provided that
we are eligible to use Form S-3 under the U.S. Securities Act or similar
short-form registration and provided further that the value of the securities to
be registered is at least $1,500,000. Furthermore, in the event we elect to
register any of our shares of common stock after this offering for purposes of
effecting any public offering, the holders of registrable securities are
entitled, provided that they pay pro rata all applicable underwriting discounts
and selling commissions, to include their shares of common stock in the
registration, subject to the right of the underwriter to reduce the number of
shares proposed to be registered in view of market conditions.
DELAWARE ANTI-TAKEOVER LAW AND OUR CHARTER AND BYLAW PROVISIONS
Provisions of Delaware law and our certificate of incorporation and bylaws
could make it more difficult to acquire us by means of a tender offer, a proxy
contest or otherwise and the removal of incumbent officers and directors. These
provisions, summarized below, are expected to discourage certain types of
coercive takeover practices and inadequate takeover bids and to encourage
persons seeking to acquire control of us to first negotiate with us. We believe
that the benefits of increased protection of our potential ability to negotiate
with the proponent of an unfriendly or unsolicited proposal to acquire or
restructure us outweigh the disadvantages of discouraging such proposals
because, among other things, negotiation of such proposals could result in an
improvement of their terms.
We are subject to Section 203 of the Delaware General Corporation Law, an
anti-takeover law. In general, Section 203 prohibits a publicly held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years following the date the person became an
interested stockholder, unless (with exceptions) the "business combination" or
the transaction in which the person became an interested stockholder is approved
in a prescribed manner. Generally, a "business combination" includes a merger,
asset or stock sale, or other transaction resulting in a financial benefit to
the interested stockholder. Generally, an interested stockholder is a person
who, together with affiliates and associates, owns, or within three years prior
to the determination of interested stockholder status, did own, 15% or more of a
corporation's voting stock. The existence of this provision would be expected to
have an anti-takeover effect with respect to transactions not approved in
advance by our board of directors, including discouraging attempts that might
result in a premium over the market price for the shares of common stock held by
our stockholders.
Our certificate of incorporation and bylaws require that any action
required or permitted to be taken by our stockholders must be effected at a duly
called annual or special meeting of the stockholders and may not be effected by
a consent in writing. In addition, special meetings of our stockholders may be
called only by the board of directors, the chairman of the board, the president
or the chief executive officer. Our certificate of incorporation and bylaws also
provide that, beginning upon the closing of the offering, certain amendments of
the certificate of incorporation and of the bylaws require the approval of
holders of at least 66 2/3% of the voting power of all outstanding stock. These
provisions may have the effect
66
<PAGE> 69
of deferring hostile takeovers of us or delaying changes in our control or
management.
GERMAN TAKE-OVER CODE
To date, Germany has not enacted legislation concerning public offers for
publicly traded companies. However, the Stock Exchange Expert Commission at the
German Federal Ministry of Finance (Borsensachverstandigenkommission beim
Bundesministerium der Finanzen) has issued the German Take-Over Code
(Ubernahmekodex) as a voluntary regulatory framework governing public take-over
bids for domestic stock corporations that are quoted on domestic stock
exchanges. As a prerequisite to the admission for trading of our shares of
common stock on the Neuer Markt, we are required to comply with the German
Take-Over Code. Consequently, if we intend to merge with and acquire a publicly
traded German stock corporation, we must (i) notify German regulatory
authorities and the public of the offer, (ii) provide disclosures to the target
company's stockholders, (iii) treat stockholders equally in an offer, and (iv)
comply with other regulatory requirements.
67
<PAGE> 70
SHARES ELIGIBLE FOR FUTURE SALE
Immediately prior to this offering, there was no public market for our
common stock. Future sales of substantial amounts of common stock in the public
market could adversely affect the market price of the common stock.
Upon completion of this offering, we will have outstanding 9,960,304 shares
of common stock, assuming the issuance of 3,000,000 shares of common stock
offered hereby and no exercise of options after September 30, 1999. Of these
shares, the 3,950,000 shares sold in the offering will be freely tradable
without restriction or further registration under the U.S. Securities Act;
provided, however, that if shares are purchased by "affiliates" as that term is
defined in Rule 144 under the U.S. Securities Act, their sales of shares would
be subject to limitations and restrictions that are described below.
We issued and sold the remaining 6,010,304 shares of common stock held by
existing stockholders in reliance on exemptions from the registration
requirements of the U.S. Securities Act. All of these shares will be subject to
lock-up agreements described below on the effective date of the offering. On the
date six months after the effective date of this offering, 431,607 shares will
become eligible for sale, subject in most cases to the limitations of Rule 144
under the U.S. Securities Act. On the date 18 months after the effective date of
the offering, 5,579,297 shares will become eligible for sale, subject in most
cases to the limitations of Rule 144 under the U.S. Securities Act. In addition,
holders of stock options could exercise such options and sell the shares issued
upon exercise as described below.
Our officers, directors, stockholders and optionholders have agreed not to
sell or otherwise dispose of any of their shares of common stock for a period of
at least six months after the date on which our shares have been admitted for
trading on the Frankfurt Stock Exchange's Neuer Markt without the prior written
approval of Deutsche Borse AG and DG BANK Deutsche Genossenschaftsbank AG,
Frankfurt am Main, on behalf of the underwriters. Our officers, directors and
significant stockholders have furthermore agreed not to sell or otherwise
dispose of any shares of common stock for a period of at least six months
directly following the aforementioned six months period without the prior
written approval of DG BANK Deutsche Genossenschaftsbank AG, Frankfurt am Main
acting on behalf of the underwriters. When the lock-up agreements expire or, in
the case of approval by either Deutsche Borse AG or DG BANK Deutsche
Genossenschaftsbank AG, Frankfurt am Main, on neither of which we may have
influence, at any point prior to such expiry, these shares and the shares
underlying the options will become eligible for sale. In connection with the
lock-up agreements, we, with the consent of the officers, directors,
stockholders and optionholders, have instructed the registrar and transfer agent
not to effect any share transfers without our consent. As a consequence thereof,
the shares subject to the lock-up agreements may not be recorded in the name of
Cede & Co. and may therefore not be introduced to clearing through The
Depository Trust Company for the time the registrar and transfer agent remains
so instructed.
<TABLE>
<CAPTION>
APPROXIMATE
SHARES ELIGIBLE
FOR FUTURE
DAYS AFTER DATE OF THIS PROSPECTUS SALE(1) COMMENT
- ---------------------------------- ------------------ -------
<S> <C> <C>
On Effectiveness 3,950,000 Shares sold in the offering
Six Months After Effectiveness 431,607 Shares saleable under Rules 144 and
701 under the U.S. Securities Act
Eighteen Months After Effectiveness 5,579,297 All shares subject to lock-up
released; shares saleable under Rules
144, 701 and 904 under the U.S.
Securities Act
</TABLE>
- -------------------------
(1) Shares which the underwriters borrow from one of our two founders and sell
in the open market will be freely tradeable.
As of September 30, 1999, there were a total of 489,135 shares of common
stock subject to outstanding options under our 1995 Stock Plan, 132,777 of which
were vested. Immediately after the completion of the offering, we intend to file
registration statements on Form S-8 under the U.S. Securities Act to register
all of the shares of common stock issued or reserved for future issuance under
our 1995 Stock Plan, as amended. On the date 180 days after the effective date
of the offering, a total of
68
<PAGE> 71
167,667 shares of common stock subject to outstanding options will be vested.
After the effective dates of the registration statements on Form S-8 under the
U.S. Securities Act, shares purchased upon exercise of options granted pursuant
to the 1995 Stock Plan, as amended, generally would be available for resale in
the public market. These optionholders have agreed not to sell or otherwise
dispose of any shares of common stock for a period of at least six months
without the prior written approval of Deutsche Borse AG and DG BANK Deutsche
Genossenschaftsbank AG, Frankfurt am Main, on behalf of the underwriters.
Notwithstanding the expected admission of all of our outstanding shares of
common stock to trade on the Frankfurt Stock Exchange's Neuer Markt, current
holders of shares of our stock not sold in this offering will be subject to
certain selling restrictions under U.S. securities laws, including the following
rules under the U.S. Securities Act:
RULE 144
In general, under Rule 144 of the U.S. Securities Act as currently in
effect, beginning 90 days after the date of this prospectus, a person who has
beneficially owned shares of our common stock for at least one year would be
entitled to sell, within any three-month period, a number of shares that does
not exceed the greater of
- 1% of the number of shares of Common Stock then outstanding, which will
equal approximately 99,507 shares immediately after this offering; or
- the average weekly trading volume of the common stock on the Neuer Markt
during the four calendar weeks preceding the filing of a notice on Form
144 with respect to such sale.
Sales under Rule 144 are also subject to other requirements regarding the
manner of sale, notice filing and the availability of current public information
about us.
RULE 144(K)
Under Rule 144(k) of the U.S. Securities Act, a person who is not deemed to
have been one of our affiliates at any time during the 90 days preceding a sale,
and who has beneficially owned the shares proposed to be sold for at least two
years, including the holding period of any prior owner other than an
"affiliate," is entitled to sell such shares without complying with the manner
of sale, notice filing, volume limitation or notice provisions of Rule 144.
Therefore, unless otherwise restricted, "144(k) shares" may be sold immediately
upon the completion of this offering.
RULE 904
Rule 904 of Regulation S of the U.S. Securities Act provides that shares
owned by any person, other than persons deemed to be affiliates by virtue of
their significant stockholdings in us, may be sold without registration outside
the United States, provided the sale is accomplished in an offshore transaction,
as that term is defined in Regulation S, and no directed selling efforts, as
that term is defined in Regulation S, are made, subject to other conditions. In
general, this means that the shares, including restricted shares and shares of
our common stock held by our directors and officers who do not own a significant
percentage of the shares of common stock, may be sold without registration on
the Neuer Markt of the Frankfurt Stock Exchange or otherwise outside the United
States.
RULE 701
In general, under Rule 701 of the U.S. Securities Act, any of our
employees, directors, officers, consultants or advisors who purchases shares
from us in connection with a compensatory stock or option plan or other written
agreement before the effective date of the offering is entitled to resell such
shares 90 days after the effective date of this offering in reliance on Rule
144, without having to comply with certain restrictions, including the holding
period, contained in Rule 144. However, shares sold pursuant to this offering
will be subject to six to twelve month lock-up agreements that will govern
restricted stock that would have otherwise been subject to Rule 701.
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<PAGE> 72
THE GERMAN EQUITY MARKET
GERMAN SECURITIES LAWS
As a United States company offering securities on a German stock exchange,
we are subject to various laws and regulations in both jurisdictions. Some of
these laws and regulations, in turn, can affect the ability of holders of our
securities to transfer or sell our securities.
At present, Germany does not restrict the export or import of capital,
except for investments in Iraq and Libya in accordance with applicable
resolutions adopted by the United Nations and the European Union. However, for
statistical purposes only, every individual or corporation residing in Germany
must report to the German Central Bank (Deutsche Bundesbank), subject only to
immaterial exceptions, any payment received from or made to an individual or a
corporation not a resident of Germany if such payment exceeds DM5,000 (E2,550 or
the equivalent in a foreign currency). In addition, residents of Germany must
report any claims against or any liabilities payable to non-residents if such
claims or liabilities, in the aggregate, exceed DM3.0 million (E1.53 million, or
the equivalent in a foreign currency) during any one month. Residents must also
report any direct investment outside Germany if such investment exceeds
DM100,000 (E51,000, or the equivalent in a foreign currency).
There are no limitations on the right of non-resident owners to hold or
vote the shares imposed by German law or our certificate of incorporation or
bylaws.
THE FRANKFURT STOCK EXCHANGE AND THE NEUER MARKT
The Frankfurt Stock Exchange is the most significant of the eight German
stock exchanges and accounted for approximately 78% of the turnover in traded
shares in Germany in 1998. The aggregate annual turnover of the Frankfurt Stock
Exchange in 1998 of approximately DM8,338 billion, based on the Frankfurt Stock
Exchange's practice of separately recording the sale and purchase components
involved in any trade, for both equity and debt instruments, made it the fourth
largest stock exchange in the world behind the New York Stock Exchange, London
and Tokyo in terms of turnover.
The Neuer Markt segment of the Frankfurt Stock Exchange is a new trading
segment that was launched in March 1997. It is designed for innovative, small to
mid-size companies in high growth industries or in traditional industries that
have an international orientation and that are willing to provide active
investor relations. Issuers are requested to provide investors on an ongoing
basis with information such as annual and quarterly reports, including cash flow
statements, and a corporate action timetable. This information is required to be
submitted in English and German as well as in electronic form, thus enabling the
stock exchange to disseminate corporate information via the Internet.
TRADING ON THE NEUER MARKT
Trading of shares listed on the Neuer Markt takes place on the floor of the
stock exchange, but is computer-aided. Shares listed on the Neuer Markt can also
be traded on a computer-aided system called Xetra. Trading takes place on every
business day between 8:30 a.m. and 5:00 p.m., Frankfurt time. Trading within the
Xetra system is done by banks and securities dealers who have been admitted to
trading on at least one of Germany's stock exchanges. Xetra is integrated into
the Frankfurt Stock Exchange and is subject to its rules and regulations.
Markets in listed securities are generally of the auction type, but listed
securities also change hands in inter-bank dealer markets off the Frankfurt
Stock Exchange. Price formation is determined by open bid by state-appointed
specialists (amtliche Makler) who are themselves exchange members, but who do
not, as a rule, deal with the public. Prices of shares traded on the Neuer Markt
are displayed continuously during trading hours. At the half-way point of each
trading day, a single standard quotation is determined for all shares. The
members' association of the Frankfurt Stock Exchange publishes a daily list of
prices which contains the standard prices of all traded securities, as well as
their highest and lowest quotations during the past year.
Transactions on the Frankfurt Stock Exchange, including transactions within
the Xetra system, are settled on the second business day following trading.
Transactions off the Frankfurt Stock Exchange, for large
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<PAGE> 73
volumes or if one of the parties is foreign, are generally also settled on the
second business day following trading, unless the parties have agreed upon a
different date. Following a recent amendment to the conditions of German banks
for securities trading (Sonderbedingungen fur Wertpapiergeschafte), customers'
orders to buy or sell listed securities must be executed on a stock exchange,
unless the customer instructs otherwise. Trading can be suspended by the
Frankfurt Stock Exchange if orderly stock exchange trading is temporarily
endangered or if a suspension is in the public interest.
A specific feature of the Neuer Markt is the introduction of the obligatory
"Designated Sponsor" or, an entity admitted for trading at the Frankfurt Stock
Exchange which provides additional liquidity by quoting prices for the buying
and selling of shares on request. Each issuer on the Neuer Markt is required to
nominate at least two Designated Sponsors which will not only ensure that there
is sufficient liquidity for its shares, but also serve as consultants on all
stock market related matters for the issuer.
The shares have been admitted for listing on the Neuer Markt. It is
expected that trading in the Shares on the Neuer Markt under the symbol "POXA"
will commence on or about November 16, 1999. The Neuer Markt is still a
relatively new market. Accordingly, there can be no assurance that an active
trading market for the shares will develop on the Neuer Markt or that the Neuer
Markt will not experience problems in settlement or clearance as trading
develops. Any such delays or problems could adversely affect the market price of
the shares. Persons proposing to trade the shares on the Neuer Markt should
inform themselves about the potential costs of such trading.
GERMAN TAX MATTERS
The following is a summary of certain tax matters arising under German tax
law in force at the date of this prospectus. The summary does not purport to be
a comprehensive description of all of the tax considerations which may be
relevant as to the decision to acquire shares of common stock. The summary is
based on the tax laws of Germany in effect on the date of this prospectus, which
may be subject to changes, possibly with retroactive effect. The summary does
not address aspects of German taxation other than taxation of dividends, capital
gains taxation and gift and inheritance taxation, and does not address all
aspects of such German taxation. The summary does not consider any specific
facts or circumstances that may apply to a particular purchaser. The summary
assumes that the stockholder is subject to unlimited German income taxation and
is referred to as a German holder. Prospective investors should consult their
professional advisors as to the tax consequences of the acquisition, holding and
disposal of the shares of common stock, including in particular, the effect of
tax laws of any other jurisdiction.
INCOME TAXATION OF DIVIDENDS
Any dividends distributed to German holders are, in principle, fully
subject to German income tax (Einkommenssteuer) including a solidarity surcharge
(Solidaritatszuschlag) and possibly church tax (Kirchensteuer). An individual
German holder will be entitled to a deduction of income-related expenses
(Werbungskosten) to be proved to the tax authorities or alternatively to a fixed
allowance of DM100 per calendar year, and a tax exemption known as a savers
exemption of DM6,000 per calendar year in relation to his or her total income
from capital investments including dividends. This savers exemption is reduced
to DM3,000 per calendar year with effect of January 1, 2000.
Dividend withholding tax levied in the United States in accordance with the
U.S./German Double Taxation Treaty of August 29, 1989 can be credited against
the German income tax liability of the German holder. Alternatively, a German
holder may deduct the total amount of U.S. withholding tax from his or her
German taxable income. This tax credit or deduction is not available if the
savers exemption mentioned above is available to the German holder.
A German corporation has beneficial title to at least 10% of the shares in
a U.S. corporation is entitled to a reduction or refund of U.S. tax in excess of
5%, and all other German holders are entitled to a refund or reduction of U.S.
tax in excess of 15% if the treaty applies. If the shares are held by German
holders through a partnership, the
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<PAGE> 74
dividends, including the withholding tax credit are allocated to the partners
according to their interest in the partnership.
German holders that are corporate investors, or a German corporate holder,
holding at least 10% of the outstanding shares of common stock, and to whom the
Treaty applies, are exempt from German corporation tax in relation to dividends
received, and cannot claim any credit for, or deduction of, foreign withholding
taxes in Germany. Such dividends will be placed in the so-called "EK01" equity
basket of the corporate investor. Upon distribution of dividends out of the EK01
equity basket to its stockholders, the German corporate holder does not need to
establish the corporation tax distribution burden, which presently is 30% plus
the solidarity surcharge at a rate of 5.5% of the corporation tax distribution
burden.
In addition, distributions to a German holder are subject to German
withholding tax at a rate of 25%, plus solidarity surcharge at a rate of 5.5%
thereon, resulting in an effective tax rate of 26.37%.
German holders that are corporate investors holding less than 10% of our
shares will be entitled to a tax credit for U.S. withholding taxes.
CAPITAL GAINS TAX
Capital gains on the disposal of shares held as a private asset of a German
holder are only taxable if the disposal is (i) effected within a twelve-month
period after their acquisition or (ii) upon expiration of this speculation
period, if the stockholder at any time during the five years preceding the
disposal, directly or indirectly, held an interest of 10% or above in a company.
Capital gains resulting from the disposal of shares of common stock by a
stockholder who is not tax resident in Germany are not subject to German capital
gains tax unless the shares of common stock are part of the business property of
a permanent establishment or a fixed place of business of the stockholder
located in Germany.
GIFT AND INHERITANCE TAXES
Shares held by a person resident in Germany are subject to German
inheritance and gift tax upon transfer by reason of death or as a gift, based on
the market value at the time of the death or donation, respectively. Transfers
of shares of common stock held by a person who is not a tax resident in Germany
are not subject to German inheritance and gift tax, unless:
- the shares of common stock are part of the business property of a
permanent establishment or a fixed place of business of the stockholder
located in Germany; or
- the heir, donee or beneficiary is tax resident in Germany or, if of
German nationality, has been resident in Germany within the five-year
period prior to the death or the gift (certain public officials resident
abroad are also covered).
TRADE TAX
A holder who is not tax resident in Germany will not be subject to German
trade tax with respect to the shares of common stock, unless the shares of
common stock are part of the business property of a permanent establishment or a
fixed place of business of the stockholder located in Germany. If a German
resident taxpayer elects to deduct the foreign withholding taxes from his
taxable income in Germany such deduction would not be accepted for computing his
taxable income for trade tax purposes.
The trade tax on income is levied at rates varying from 13-20%. Trade tax
qualifies for a deductible business expense for income tax purposes in Germany.
OTHER GERMAN TAXES
There are no German transfer, stamp or other similar taxes which would
apply to the sale or transfer of the shares of common stock.
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<PAGE> 75
STATUTORY INFORMATION
We were incorporated in the United States of America as a holding company
under the laws of the State of Delaware on November 9, 1994 and commenced
operations in March 1995. Our initial stockholders were Dirk Bartels and Jochen
Witte. For information regarding Mr. Bartels and Mr. Witte, see "Management."
INNOVACOM 1 and European Technologies Holding, N.V. became stockholders prior to
the acquisition of POET Software GmbH by POET Holdings, Inc.
The following diagram displays the structure of the POET entities:
[DIAGRAM]
In this group of entities, we act as a holding company with no significant
operations. Our function is to coordinate the business activities of and provide
financing to our two wholly owned subsidiaries, POET Software GmbH and POET
Software Corporation.
- - POET Software GmbH, Hamburg, Germany
POET Software GmbH, a limited liability company organized under the laws of
Germany on May 19, 1993, is our European sales and service organization. In
addition, all of our research and development activities are conducted by this
entity. We acquired POET Software GmbH in March 1995 in consideration of our
issuance of Series A preferred stock. Effective on December 13, 1996, POET
Software GmbH was merged, pursuant to Section 2 no. 1 of the German
Reorganization Act (Umwandlungsgesetz), with BKS Software Entwicklungs GmbH, a
company that was established in 1984 under the laws of Germany and founded in
part by Mr. Bartels. POET Software GmbH is the surviving entity of that merger
and assumed all assets and liabilities of BKS Software Entwicklungs GmbH upon
the merger.
POET Software GmbH currently has a registered share capital of DM 350,000.
We own all of POET Software GmbH's shares, which had a negative book value of
DM1.6 million as of December 31, 1998. As of this date, POET Software GmbH had
no equity reserves. Intercompany loans by us to POET Software GmbH amounted to
approximately $5.1 million and loans from POET Software GmbH to POET Software
Corporation amounted to approximately $6.3 million. In the fiscal year ended
December 31, 1998, POET Software GmbH had generated an annual net loss of $1.4
million and paid no dividends to us for such fiscal year.
- - POET Software Corporation, San Mateo, California, USA
POET Software Corporation, a Massachusetts corporation, is our North
American sales and service organization. POET Software Corporation was
incorporated in the Commonwealth of Massachusetts on November 22, 1991 as BKS
Software Corporation, which was a wholly owned subsidiary of BKS Software
Entwicklungs GmbH, and later changed its name to POET Software Corporation. In
May 1993, POET Software GmbH purchased all shares of POET Software Corporation
from BKS Software Entwicklungs GmbH, making POET Software Corporation a wholly
owned subsidiary of POET Software GmbH. In March 1995, we purchased all of the
shares of POET Software Corporation from POET Software GmbH, making POET
Software Corporation our wholly owned subsidiary.
POET Software Corporation currently has a nominal share capital of $1,000.
We own all of POET Software Corporation's shares which had a book value of $5.7
million as of December 31, 1998. As of December 31, 1998, POET Software
Corporation had equity reserves (capital reserves and retained earnings) of $5.7
million. Intercompany
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loans by us to POET Software Corporation amounted to approximately $6.0 million.
In the fiscal year ended December 31, 1998, POET Software Corporation had
generated an annual net loss of $2.5 million and paid no dividends to us for
that fiscal year.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
Publicly available documents pertaining to this offering and to which we
refer in this prospectus, as well as future annual and interim reports we
prepare, may be inspected during customary business hours at the offices of POET
Software GmbH, Kattjahren 4-8, 22359 Hamburg, Germany and at the offices of DG
BANK Deutsche Genossenschaftsbank AG, Am Platz der Republik, 60265 Frankfurt am
Main, Germany.
We filed with the U.S. Securities and Exchange Commission a registration
statement on Form S-1 under the U.S. Securities Act for the shares of common
stock in this offering. This prospectus does not contain all of the information
in the registration statement and the exhibits and schedule that were filed with
the registration statement. For further information with respect to us and our
common stock, we refer you to the registration statement and the exhibits and
schedule that were filed with the registration statement. Statements contained
in this prospectus about the contents of any contract or any other document that
is filed as an exhibit to the registration statement are not necessarily
complete, and we refer you to the full text of the contract or other document
filed as an exhibit to the registration statement. A copy of the registration
statement and the exhibits and schedule that were filed with the registration
statement may be inspected without charge at the public reference facilities
maintained by the U.S. Securities and Exchange Commission in Room 1024, 450
Fifth Street, N.W., Washington, D.C. 20549, and copies of all or any part of the
registration statement may be obtained from the U.S. Securities and Exchange
Commission upon payment of the prescribed fee. The U.S. Securities and Exchange
Commission maintains a World Wide Web site that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the U.S. Securities and Exchange Commission. The address of
the site is http://www.sec.gov.
Upon completion of this offering, we will become subject to the information
and periodic reporting requirements of the U.S. Securities Exchange Act of 1934,
and, in accordance with the requirements of the U.S. Securities Exchange Act of
1934, will file periodic reports, proxy statements and other information with
the U.S. Securities and Exchange Commission. These periodic reports, proxy
statements and other information will be available for inspection and copying at
the regional offices, public reference facilities and Website of the U.S.
Securities and Exchange Commission referred to above.
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for us
by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo Alto,
California. Certain legal matters will be passed upon for the underwriters by
Bruckhaus Westrick Heller Lober, which is relying upon Simpson Thacher &
Bartlett for U.S. legal matters. As of the date of this prospectus, one current
individual member of Wilson Sonsini Goodrich & Rosati, Professional Corporation,
and two associated investment partnerships beneficially own an aggregate of
17,173 of our common stock.
EXPERTS
The Consolidated Financial Statements as of December 31, 1996, 1997 and
1998 and for each of the three years in the period ended December 31, 1998
included in this prospectus and the related consolidated financial statement
schedule included elsewhere in the registration statement have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their reports
appearing herein and elsewhere in the registration statement, and have been so
included in reliance upon the reports of this firm given upon their authority as
experts in accounting and auditing.
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UNDERWRITING
We, the selling stockholders, DG BANK Deutsche Genossenschaftsbank AG and
Paribas-Zweigniederlassung Frankfurt am Main- have entered into an underwriting
agreement with respect to the shares being offered. Subject to conditions, each
underwriter has severally agreed to purchase the number of shares indicated in
the following table at the initial public offering price less the underwriting
discount of 5%.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------ ---------
<S> <C>
DG BANK Deutsche Genossenschaftsbank AG..................... 1,975,000
Paribas-Zweigniederlassung Frankfurt am Main-............... 1,975,000
---------
Total..................................................... 3,500,000
=========
</TABLE>
If the underwriters sell more shares than the total number set forth in the
table above, the underwriters have an option to buy up to an additional 570,000
shares from us to cover such sales. They may exercise the over-allotment option
for 30 days after the day on which the shares are first quoted on the Neuer
Markt. If any shares are purchased pursuant to the over-allotment option, the
underwriters will severally purchase shares in approximately the same proportion
as set forth in the table above.
The following table shows the per share and total underwriting discounts
and commissions to be paid to the underwriters by us assuming an offer price of
E11.50. Such amounts are shown assuming both no exercise and full exercise of
the over-allotment option.
<TABLE>
<CAPTION>
PAID BY US
----------
NO EXERCISE FULL EXERCISE
----------- -------------
<S> <C> <C>
Per Share............ E 0.58 E 0.58
Total................ E1,740,000 E2,070,600
</TABLE>
<TABLE>
<CAPTION>
PAID BY THE SELLING STOCKHOLDERS
--------------------------------
NO EXERCISE FULL EXERCISE
----------- -------------
<S> <C> <C>
Per Share............ E 0.58 E 0.58
Total................ E 551,000 E 551,000
</TABLE>
We estimate that the total expenses of the offering payable by us,
excluding underwriting discounts and commissions, will be approximately
$1,800,000. Assuming an offer price of E11.50 per share, total expenses of the
offering payable by us, including underwriting discounts and commissions will be
approximately U.S. $3,630,000 or assuming exercise of the over-allotment option,
U.S. $3,977,700.
Shares sold by the underwriters to the public will initially be offered at
the initial public offering price set forth on the cover of this prospectus. If
all the shares are not sold at the initial offering price, the underwriters may
change the offering price and the other selling terms.
Prior to the offering, there has been no public market for the shares. The
initial public offering price will be negotiated among us and the underwriters.
Among the factors to be considered in determining the initial public offering
price of the shares, in addition to prevailing market conditions, will be our
historical performance, estimates of our business potential and earnings
prospects, an assessment of our management and the consideration of the above
factors in relation to market valuation of companies in related businesses.
We, our officers, our board of directors, our stockholders and
optionholders have warranted to the Deutsche Borse AG and have agreed with the
underwriters not to dispose of or hedge any of their common stock or securities
convertible into or exchangeable for shares of common stock during the six
months from the date of this prospectus continuing through the first six months
after the date of admission of the shares of common stock to the regulated
market (Geregelter Markt) with trading on the Neuer Markt of the Frankfurt Stock
Exchange, except with the prior written consent of the Deutsche Borse AG and DG
BANK Deutsche Genossenschaftsbank AG acting on behalf of the underwriters. In
addition, we, our officers, directors and our significant stockholders have
agreed with the underwriters not to dispose of or hedge any common stock or
securities convertible into or exchangeable for shares of common stock during
the six-month period from the end of the first six-month lock-up period, except
with the prior written consent of DG BANK Deutsche Genossenschaftsbank AG acting
on behalf of the underwriters. See "Shares
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<PAGE> 78
Available for Future Sale" for a discussion of certain transfer restrictions.
The underwriters and one of our founders, Dirk Bartels, has entered into a
stock lending arrangement. Under this arrangement Mr. Bartels has agreed to lend
the underwriters 570,000 shares of common stock for the 30-day period during
which the underwriters have an over-allotment option to purchase shares of
common stock from us. The underwriters would be obligated to return these
borrowed shares to Mr. Bartels concurrent with the exercise of the over-
allotment option. No fees or other remuneration will be paid by the underwriters
to Mr. Bartels for the loan of these shares of common stock.
At our request, the underwriters have reserved at the initial public
offering price up to 7% of the shares of common stock for sale to our directors,
officers, employees, business associates and related persons or entities. The
number of shares of common stock available for sale to other investors will be
reduced to the extent these individuals purchase these reserved shares. Any
reserved shares which are not so purchased will be offered by the underwriters
to other investors on the same basis as the other shares offered by this
prospectus.
In connection with the offering, the underwriters may purchase and sell
shares of common stock in the open market. These transactions may include short
sales, stabilizing transactions and purchases to cover positions created by
short sales. Short sales involve the sale by the underwriters of a greater
number of shares than they are required to purchase in the offering. Stabilizing
transactions consist of bids or purchases made for the purpose of preventing or
retarding a decline in the market price of the common stock after the offering.
These activities by the underwriters may stabilize, maintain or otherwise
affect the market price of the common stock. As a result, the price of the
common stock may be higher than the price that otherwise might exist in the open
market. If these activities are commenced, they may be discontinued by the
underwriters at any time. These transactions may be effected on the Neuer Markt,
in the over-the-counter market or otherwise.
We intend to apply for the listing of all of our outstanding shares of
common stock as well as 659,896 shares of common stock reserved for issuance
upon the exercise of options and 107,079 shares of common stock reserved for
issuance upon the exercise of warrants as of September 30,1999 to the regulated
market (Geregelter Markt) with trading on the Neuer Markt of the Frankfurt Stock
Exchange.
We and the selling stockholders have agreed to indemnify the several
underwriters against certain liabilities, including liabilities under the U.S.
Securities Act of 1933.
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<PAGE> 79
POET HOLDINGS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Deloitte & Touche LLP, Independent Auditors....... F-2
Consolidated Balance Sheets................................. F-3
Consolidated Statements of Operations and Comprehensive
Loss...................................................... F-4
Consolidated Statements of Stockholders' Deficiency......... F-5
Consolidated Statements of Cash Flows....................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE> 80
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
POET Holdings, Inc.:
We have audited the accompanying consolidated balance sheets of POET
Holdings, Inc. and its subsidiaries as of December 31, 1996, 1997 and 1998, and
the related consolidated statements of operations and comprehensive loss,
stockholders' deficiency and cash flows for each of the three years in the
period ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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, such consolidated financial statements present fairly, in
all material respects, the financial position of POET Holdings, Inc. and its
subsidiaries at December 31, 1996, 1997 and 1998, and the results of their
operations and their cash flows for the each of the three years in the period
ended December 31, 1998 in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
San Jose, California
September 8, 1999
(September 30, 1999 as to Note 11)
F-2
<PAGE> 81
POET HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PAR VALUE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA
----------------------------- SEPTEMBER 30, SEPTEMBER 30,
1996 1997 1998 1999 1999
------- -------- -------- ------------- -------------
(UNAUDITED) (NOTE 1)
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Current assets:
Cash and equivalents............................ $ 7,226 $ 1,525 $ 4,776 $ 4,631
Accounts receivable:
Trade (net of allowances of $68 in 1996; $57
in 1997; $65 in 1998; $74 in 1999)........ 734 1,160 1,590 1,616
Inventories................................... 5 67 49 59
Other current assets.......................... 119 151 327 786
------- -------- -------- --------
Total current assets................... 8,084 2,903 6,742 7,092
Property, furniture and equipment, net.......... 693 772 538 544
Other assets, net............................... 125 325 253 233
------- -------- -------- --------
Total assets.................................... $ 8,902 $ 4,000 $ 7,533 $ 7,869
======= ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Accounts payable.............................. $ 565 $ 699 $ 518 $ 677
Accrued liabilities........................... 923 727 956 1,496
Deferred revenue ($577, $580 and $1,656 in
1996, 1997 and 1998, respectively, from
related party).............................. 818 946 2,197 717
Current portion of debt (including capital
lease obligations).......................... 70 75 262 302
------- -------- -------- --------
Total current liabilities.............. 2,376 2,447 3,933 3,192
Long-term obligations........................... 2,262 2,846 2,906 2,216
Commitments and contingencies (Note 8)
Redeemable convertible preferred stock, $.001
par value; 5,417,186 shares authorized:
Series A, 1,225,190 shares designated;
1,225,190 shares outstanding (aggregate
liquidation preference of $1,500)........... 836 836 836 836 --
Series B, 1,865,163 shares designated;
1,686,049 shares outstanding (aggregate
liquidation preference of $7,250)........... 2,588 2,588 2,588 2,588 --
Series C, 1,400,000 shares designated;
1,143,886 shares outstanding (aggregate
liquidation preference of $13,086).......... 6,501 6,501 6,501 6,501 --
Series D, 926,832 shares designated; 926,832
shares outstanding: 1998 -- 855,810;
1999 -- 926,832 (aggregate liquidation
preference of $13,050)...................... -- -- 5,988 6,464 --
Warrants...................................... -- -- 83 83
Stockholders' equity (deficiency):
Common stock, $.001 par value; 11,411,173
shares authorized:
Series A, 10,000,000 shares designated;
outstanding: 1996 -- 158,000; 1997 --
144,728; 1998 -- 207,977; 1999 -- 607,544;
pro forma -- 6,950,674.................... -- -- -- 1 7
Series B, 1,411,173 shares designated;
1,361,173 shares outstanding (aggregate
liquidation preference of $1,447); pro
forma no shares outstanding............... 1 1 1 1 --
Additional paid-in capital.................... 989 989 2,287 7,516 23,983
Deferred stock compensation................... -- -- (1,237) (1,114) (1,114)
Accumulated deficit........................... (6,621) (12,504) (16,494) (20,792) (20,792)
Accumulated other comprehensive income
(loss)...................................... (30) 296 141 377 377
------- -------- -------- -------- --------
Total stockholders' equity
(deficiency)......................... (5,661) (11,218) (15,302) (14,011) $ 2,461
======= ======== ======== ======== ========
Total liabilities and stockholders'
deficiency.................................... $ 8,902 $ 4,000 $ 7,533 $ 7,869
======= ======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 82
POET HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE LOSS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED DECEMBER 31, ENDED SEPTEMBER 30,
--------------------------- -------------------
1996 1997 1998 1998 1999
------- ------- ------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Product ($1,576, $2,220 and $1,429 in
1996, 1997 and 1998, respectively, from
a preferred stockholder)................ $ 5,748 $ 5,525 $ 5,668 $ 3,984 $ 5,555
Consulting and training ($311, $7 and
$180 in 1996, 1997 and 1998,
respectively, from a preferred
stockholder)....................... 2,090 1,053 1,819 1,356 1,213
Support and maintenance ($111, $654
and $756 in 1996, 1997 and 1998,
respectively, from a preferred
stockholder)....................... 447 1,139 1,430 1,086 935
------- ------- ------- ------- -------
Total revenues................ 8,285 7,717 8,917 6,426 7,703
------- ------- ------- ------- -------
Operating expenses:
Cost of product....................... 472 292 295 203 170
Cost of consulting and training....... 1,453 703 1,184 860 799
Cost of support and maintenance....... 417 936 1,067 793 768
Selling and marketing................. 4,935 7,163 5,922 4,487 5,300
Research and development.............. 1,555 2,906 2,612 1,895 2,353
General and administrative............ 1,324 1,581 1,428 1,087 1,345
Amortization of deferred stock
compensation....................... -- -- 47 -- 439
------- ------- ------- ------- -------
Total operating expenses...... 10,156 13,581 12,555 9,325 11,174
------- ------- ------- ------- -------
Operating loss.......................... (1,871) (5,864) (3,638) (2,899) (3,471)
------- ------- ------- ------- -------
Other income (expense):
Interest expense...................... (347) (254) (382) (203) (1,079)
Interest income and other, net........ 72 241 45 33 244
------- ------- ------- ------- -------
Total other expense, net...... (275) (13) (337) (170) (835)
------- ------- ------- ------- -------
Loss before income taxes................ (2,146) (5,877) (3,975) (3,069) (4,306)
Income taxes............................ (3) (6) (15) -- 8
------- ------- ------- ------- -------
Net loss................................ (2,149) (5,883) (3,990) (3,069) (4,298)
Other comprehensive income (loss) --
foreign currency translation
adjustment............................ 94 326 (155) (162) (47)
------- ------- ------- ------- -------
Comprehensive loss...................... $(2,055) $(5,557) $(4,145) $(2,907) $(4,345)
======= ======= ======= ======= =======
Basic and diluted net loss per share.... $ (1.57) $ (4.17) $ (2.65) $ (2.05) $ (2.70)
======= ======= ======= ======= =======
Shares used in calculating basic and
diluted net loss per share............ 1,371 1,412 1,507 1,496 1,589
======= ======= ======= ======= =======
Pro forma basic and diluted net loss per
share (Note 1)........................ $ 0.74 $ 0.66
======= =======
Shares used in calculating pro forma
basic and diluted net loss per share
(Note 1).............................. 5,575 6,540
======= =======
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 83
POET HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK
------------------------------------- ACCUMULATED
SERIES A SERIES B DEFERRED OTHER
---------------- ------------------ PAID-IN STOCK ACCUMULATED COMPREHENSIVE
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION DEFICIT INCOME (LOSS)
------- ------ --------- ------ ------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at January 1,
1996................... 47,500 $ 1,361,173 $1 $ 965 $ -- $ (4,472) $(124)
Exercise of Series A
common stock options..... 110,500 24
Net loss................. (2,149)
Foreign currency
translation
adjustment............. 94
------- -- --------- -- ------ ------- -------- -----
Balances at December 31,
1996................... 158,000 1,361,173 1 989 -- (6,621) (30)
Repurchase of Series A
common stock........... (25,000) (6)
Exercise of Series A
common stock options... 11,728 6
Net loss................. (5,883)
Foreign currency
translation
adjustment............. 326
------- -- --------- -- ------ ------- -------- -----
Balances at December 31,
1997................... 144,728 1,361,173 1 989 -- (12,504) 296
Exercise of Series A
common stock options... 63,249 14
Deferred stock
compensation........... 1,284 (1,284)
Amortization of deferred
stock compensation..... 47
Net loss................. (3,990)
Foreign currency
translation
adjustment............. (155)
------- -- --------- -- ------ ------- -------- -----
Balances at December 31,
1998................... 207,977 1,361,173 1 2,287 (1,237) (16,494) 141
Exercise of Series A
common stock
options*............... 124,461 58
Common stock issued upon
conversion of debt..... 275,106 1 4,507
Imputed loan discount*... 348
Deferred stock
compensation*.......... 316 (316)
Amortization of deferred
stock compensation*.... 439
Net loss *............... (4,298)
Foreign currency
translation adjustment*... 236
------- -- --------- -- ------ ------- -------- -----
Balances at September 30,
1999*.................. 607,544 $1 1,361,173 $1 $7,516 $(1,114) $(20,792) $ 377
======= == ========= == ====== ======= ======== =====
<CAPTION>
TOTAL
STOCKHOLDERS'
DEFICIENCY
-------------
<S> <C>
Balances at January 1,
1996................... $ (3,630)
Exercise of Series A
common stock options..... 24
Net loss................. (2,149)
Foreign currency
translation
adjustment............. 94
--------
Balances at December 31,
1996................... (5,661)
Repurchase of Series A
common stock........... (6)
Exercise of Series A
common stock options... 6
Net loss................. (5,883)
Foreign currency
translation
adjustment............. 326
--------
Balances at December 31,
1997................... (11,218)
Exercise of Series A
common stock options... 14
Deferred stock
compensation...........
Amortization of deferred
stock compensation..... 47
Net loss................. (3,990)
Foreign currency
translation
adjustment............. (155)
--------
Balances at December 31,
1998................... (15,302)
Exercise of Series A
common stock
options*............... 58
Common stock issued upon
conversion of debt..... 4,508
Imputed loan discount*... 348
Deferred stock
compensation*.......... --
Amortization of deferred
stock compensation*.... 439
Net loss *............... (4,298)
Foreign currency
translation adjustment* 236
--------
Balances at September 30,
1999*.................. $(14,011)
========
</TABLE>
- -------------------------
* Unaudited
See notes to consolidated financial statements.
F-5
<PAGE> 84
POET HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------- -----------------
1996 1997 1998 1998 1999
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss................................ $(2,149) $(5,883) $(3,990) $(3,069) $(4,298)
Adjustments to reconcile net loss to
net cash used for operating
activities:
Depreciation and amortization...... 379 618 585 340 1,243
Amortization of deferred stock
compensation..................... -- -- 47 -- 439
Loss on disposal of property,
furniture and equipment.......... 7 245 -- -- --
Changes in assets and liabilities:
Trade accounts receivable........ 169 (426) (430) (52) (99)
Inventories...................... 25 (63) 19 29 (12)
Other current assets............. (23) (32) (177) (160) (472)
Other assets..................... 14 (269) 37 47 --
Accounts payable and accrued
liabilities................... 781 (61) 73 (136) 761
Deferred revenues................ 664 128 1,251 1,742 (1,468)
------- ------- ------- ------- -------
Net cash used for operating
activities.................. (133) (5,743) (2,585) (1,259) (3,906)
------- ------- ------- ------- -------
Cash flows from investing activities --
purchases of property, furniture and
equipment............................. (630) (854) (199) (146) (318)
------- ------- ------- ------- -------
Cash flows from financing activities:
Borrowings............................ 1,610 825 1,338 1,063 3,912
Repayment of debt..................... (839) (70) (91) (34) (391)
Borrowings from related party......... 150 -- -- -- --
Repayment of debt to related party.... (150) -- -- -- --
Preferred stock issued................ 6,501 -- 4,964 -- 475
Common stock issued................... 24 -- 14 12 59
------- ------- ------- ------- -------
Net cash provided by financing
activities.................. 7,296 755 6,225 1,041 4,055
------- ------- ------- ------- -------
Effect of exchange rate changes on cash
and equivalents....................... 135 141 (190) 48 24
------- ------- ------- ------- -------
Increase (decrease) in cash and
equivalents........................... 6,668 (5,701) 3,251 (316) (145)
Cash and equivalents -- beginning of
year.................................. 558 7,226 1,525 1,525 4,776
------- ------- ------- ------- -------
Cash and equivalents -- end of year..... $ 7,226 $ 1,525 $ 4,776 $ 1,209 $ 4,631
======= ======= ======= ======= =======
Supplemental disclosure of cash flow
information:
Interest paid......................... $ -- $ 10 $ 28 $ 140 $ 129
======= ======= ======= ======= =======
Taxes paid............................ $ -- $ 7 $ 11 $ 19 $ 14
======= ======= ======= ======= =======
Noncash financing and investment
activities:
Deferred stock compensation........... $ -- $ -- $ 1,284 $ -- $ 316
======= ======= ======= ======= =======
Property acquired under capital
leases............................. $ 49 $ 41 $ -- $ -- $ --
======= ======= ======= ======= =======
Conversion of notes payable into
Series D preferred stock........... $ -- $ -- $ 1,025 $ -- $ --
======= ======= ======= ======= =======
Conversion of note payable into Series
A common stock..................... $ -- $ -- $ -- $ -- $ 3,900
======= ======= ======= ======= =======
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE> 85
POET HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998 AND
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999 (UNAUDITED)
1. BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Business -- The principal business activities of POET Holdings, Inc. (the
Company) and its subsidiaries are the design and marketing of database
management system software products and consulting services related to such
software. The Company was incorporated in the state of Delaware in November
1994.
Prior to March 1995, the Company was dormant and had no assets or
outstanding stock. In March 1995, in connection with a reorganization, the
Company acquired POET Software GmbH (POET GmbH), a German corporation, and POET
GmbH's wholly-owned subsidiary, POET Software Corporation, located in California
in exchange for 1,225,190 shares of Series A convertible preferred stock and
1,411,173 shares of Series B common stock. Following this reorganization the
stockholders of Poet GmbH became stockholders of the Company in the same
proportion. As a result of the continuing control by the Poet GmbH stockholders
the reorganization was recorded on an "as-if-pooled" basis. Subsequent to the
reorganization, the Company issued 1,689,049 shares of Series B preferred stock
for net proceeds of $2,588,219 to a new group of investors.
In June 1995, the Company acquired, in a purchase transaction, certain
assets and assumed certain liabilities of BKS Entwicklungs Software GmbH (BKS)
for approximately $199,000 in cash. BKS provided consulting services for object
data-based programming. In connection with this acquisition, the Company
recorded goodwill of $208,000, which is amortized over three years.
In December 1996, the Company merged Poet GmbH and BKS Entwicklungs
Software GmbH into one entity now referred to as Poet GmbH.
Consolidation -- The accompanying consolidated financial statements include
the accounts of the Company and its wholly-owned subsidiaries. All significant
intercompany balances and transactions are eliminated in consolidation.
Cash Equivalents -- The Company considers all highly liquid debt
instruments purchased with a maturity of three months or less to be cash
equivalents.
Inventories -- Inventories, consisting primarily of manuals and magnetic
media, are stated at the lower of cost (first-in, first-out (FIFO) basis), or
market value.
Property, Furniture and Equipment -- Property, furniture and equipment are
stated at cost. Depreciation is computed generally on a straight-line basis over
the estimated useful lives of the assets which range from three-to-seven years.
Leasehold improvements and assets acquired under capital lease are amortized on
a straight-line basis over the shorter of the lease term or the estimated useful
lives of the asset.
Other Assets -- The Company recorded goodwill of $208,000 in connection
with the BKS acquisition, which is amortized over three years. At December 31,
1996, 1997 and 1998, accumulated amortization was $104,000, $173,000 and
$208,000, respectively.
Impairment of Long-Lived Assets and Long-Lived Assets To Be Disposed
Of -- The Company evaluates its long-lived assets for impairment whenever events
or changes in circumstances indicate that the carrying amount of such assets or
intangibles may not be recoverable. Recoverability of assets to be held and used
is measured by a comparison of the carrying amount of an asset to future
undiscounted net cash flows expected to be generated by the asset. If such
assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceeds the
fair value of the assets. Assets to be disposed of are reported at the lower of
the carrying amount or fair value less costs to sell.
F-7
<PAGE> 86
POET HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998 AND
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999 (UNAUDITED)
Software Development Costs -- Costs for the development of new software
products and substantial enhancements to existing software products are expensed
as incurred until technological feasibility has been established, at which time
any additional development costs would be capitalized in accordance with
Statement of Financial Accounting Standards (SFAS) No. 86, Computer Software To
Be Sold, Leased, or Otherwise Marketed. Because the Company believes its current
process for developing software is essentially completed concurrently with the
establishment of technological feasibility, no costs have been capitalized to
date.
Revenue Recognition -- The Company's revenue recognition policy is
consistent with Statement of Position No. 97-2, as amended. License revenues are
comprised of fees for the Company's software products. Revenue from license fees
is recognized when an agreement has been signed, delivery of the product has
occurred, no significant Company obligations remain, the fee is fixed or
determinable, collectibility is probable and vendor-specific objective evidence
exists to allocate a portion of the total fee to any undelivered elements of the
arrangement. For electronic delivery, the software is considered to have been
delivered when the Company has provided the customer with the access codes that
allow for immediate possession of the software. If the fee due from the customer
is not fixed or determinable, revenue is recognized as payments become due from
the customer. If collectibility is not considered probable, revenue is
recognized when the fee is collected.
Support and maintenance arrangements do not provide for specified upgrade
rights and provide technical support and the right to unspecified upgrades on an
if-and-when-available basis. Revenue from support arrangements is recognized on
a straight-line basis over the life of the related agreement, which is typically
one year. If support, consulting services or training are included in an
arrangement that includes a license agreement, amounts related to support,
consulting services, training and the licenses are allocated based on
vendor-specific objective evidence. Vendor-specific objective evidence for
support, professional services and license agreements is based on the price when
such elements are sold separately, or, when not sold separately, the price is
established by management having the relevant authority. Where discounts are
offered on multiple element arrangements, a proportionate amount of that
discount is applied to each element included in the arrangement based on each
element's fair value. Consulting and training revenue is recognized when
provided to the customer. Revenues from custom development projects are
recognized on the percentage of completion basis. Customer advances and billed
amounts due from customers in excess of revenue recognized are recorded as
deferred revenue.
Cost of Revenues -- Cost of product revenues includes cost of production
and related materials. Cost of support and maintenance revenues includes payroll
and other costs associated with product maintenance and escrow services. Costs
of consulting and training principally includes payroll and related costs.
Financial Statement Estimates -- The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect reported amounts of assets,
liabilities, revenues, and expenses as of the date and for the period presented.
Actual amounts could differ from those estimates.
Concentrations of Credit Risk -- Financial instruments which potentially
subject the Company to a concentration of credit risk principally consist of
accounts receivable. The Company sells the majority of its products to companies
in North America and Europe. To reduce credit risk, management performs ongoing
credit evaluations of its significant customers' financial condition and
maintains reserves for potential credit losses.
Financial Instruments -- The Company's financial instruments include cash
and equivalents and long-term debt. At December 31, 1996, 1997 and 1998, the
fair value of these financial instruments approximated their financial statement
carrying amounts.
F-8
<PAGE> 87
POET HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998 AND
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999 (UNAUDITED)
Income Taxes -- Income taxes are accounted for using an asset and liability
approach to account for deferred income taxes. Valuation allowances are
established when necessary to reduce deferred tax assets to the amounts expected
to be realized.
Foreign Currency Translation -- All assets and liabilities of operations
outside the United States are translated into U.S. dollars from their functional
currency, which is the local currency, at year-end exchange rates. Income and
expense items are translated at the average exchange rate for the year. Gains
and losses resulting from translation are included in other comprehensive
income. Gains and losses on foreign currency transactions have been reflected in
the statements of operations and were not material in 1996, 1997 and 1998.
Certain Significant Risks and Uncertainties -- The Company operates in the
software industry, and accordingly, can be affected by a variety of factors. For
example, management of the Company believes that changes in any of the following
areas could have a significant negative effect on the Company in terms of its
future financial position, results of operations or cash flows; ability to
increase revenues, the hiring, training and retention of key employees;
development of sales distribution capabilities; market acceptance of the
Company's products under development; fundamental changes in the technology
underlying the Company's software products; litigation or other claims against
the Company; adverse changes in international market conditions; year 2000
compliance issues; successful and timely completion of product development
efforts; product introductions by competitors and the ability to obtain
additional financing.
Stock-Based Compensation -- The Company accounts for stock-based awards to
employees using the intrinsic value method in accordance with APB No. 25,
Accounting for Stock Issued to Employees.
Reclassifications -- The accompanying financial statements include certain
reclassifications in the statement of stockholders deficiency from previously
issued financial statements to record as deferred compensation the intrinsic
value of options principally granted on October 28, 1998 which were forfeited on
July 17, 1999.
Net Loss per Common Share -- Basic net loss per common share excludes
dilution and is computed by dividing net loss by the weighted average number of
common shares outstanding for the period (excluding shares subject to
repurchase). Diluted net loss per common share was the same as basic net loss
per common share for all periods presented since the effect of any potentially
dilutive securities is excluded as they are anti-dilutive because of the
Company's net losses.
Pro Forma Net Loss per Common Share -- Pro forma basic and diluted net loss
per common share is computed by dividing net loss by the weighted average number
of common shares outstanding for the period (excluding shares subject to
repurchase) and the weighted average number of common shares resulting from the
automatic conversion of outstanding shares of convertible redeemable preferred
stock, which will occur upon the closing of the planned initial public offering
as if it had occurred at January 1, 1998.
Unaudited Pro Forma Information -- Upon the closing of the planned initial
public offering, each of the outstanding shares of redeemable convertible
preferred stock will automatically convert into one share of common stock.
Unaudited Interim Financial Information -- The interim financial
information as of September 30, 1999 and for the nine months ended September 30,
1998 and 1999 is unaudited and has been prepared on the same basis as the
audited financial statements. In the opinion of management, such unaudited
financial information includes all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of the interim
information. Operating results for the nine months ended September 30, 1999 are
not
F-9
<PAGE> 88
POET HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998 AND
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999 (UNAUDITED)
necessarily indicative of the results that may be expected for the year ending
December 31, 1999.
Effects of Recent Accounting Pronouncements -- In March 1998, the American
Institute of Certified Public Accountants issued SOP 98-1, Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use. This standard
requires companies to capitalize qualifying computer software costs incurred
during the application development stage and amortize them over the software's
estimated useful life. SOP 98-1 is effective for fiscal years beginning after
December 15, 1998. The Company is currently evaluating the impact of SOP 98-1 on
its financial statements and related disclosures.
In June 1998, the Financial Accounting Standards Board issued Statement No.
133, Accounting for Derivative Instruments and Hedging Activities ("SFAS 133"),
which establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts and for
hedging activities. Under SFAS No. 133, certain contracts that were not formerly
considered derivatives may now meet the definition of a derivative. As amended
in June 1999 by SFAS No. 137, this statement is effective for all fiscal
quarters of all fiscal years beginning after June 15, 2000. The Company has not
yet determined the impact that the adoption of SFAS 133 will have on its
earnings or statement of financial position. The Company is required to adopt
SFAS 133 on January 1, 2001.
2. PROPERTY, FURNITURE AND EQUIPMENT
Property, furniture and equipment consist of (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1996 1997 1998
------ ------ -------
<S> <C> <C> <C>
Computer equipment and software............................ $ 505 $ 900 $ 1,185
Office equipment, furniture and fixtures................... 823 821 868
Leasehold improvements..................................... 22 22 22
------ ------ -------
Total............................................ 1,350 1,743 2,075
Accumulated depreciation and amortization.................. (657) (971) (1,537)
------ ------ -------
Property, furniture and equipment -- net................... $ 693 $ 772 $ 538
====== ====== =======
</TABLE>
The Company had acquired rights to certain software in 1996 that was being
used in a product development effort. During 1997 the Company identified certain
essential missing technological functionalities and lower than anticipated
customer interest. This required a revaluation of the future cash flows that
were not expected to recover the carrying value of such asset. Accordingly, the
Company included a charge of $242,000 for the write-off of such asset in
research and development expenses in 1997.
3. ACCRUED LIABILITIES
Accrued liabilities consist of (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Compensation................................................ $374 $267 $305
Payroll tax accruals........................................ 106 133 274
Other....................................................... 443 327 377
---- ---- ----
$923 $727 $956
==== ==== ====
</TABLE>
F-10
<PAGE> 89
POET HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998 AND
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999 (UNAUDITED)
4. LONG-TERM OBLIGATIONS
Long-term debt consists of (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- SEPTEMBER 30,
1996 1997 1998 1999
------ ------ ------ -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Borrowings from foreign government agency.... $2,191 $1,970 $2,202 $1,797
Term bank loan............................... -- 834 899 692
Capital lease obligations (see Note 8)....... 141 117 67 29
------ ------ ------ ------
2,332 2,921 3,168 2,518
Current portion.............................. (70) (75) (262) (302)
------ ------ ------ ------
Total long-term obligations.................. $2,262 $2,846 $2,906 $2,216
====== ====== ====== ======
</TABLE>
The Company's subsidiary, POET Software GmbH, has three separate term notes
with Technologie Beteilgungsgesellschaft (TBG), a foreign government agency. The
first note of 1,000,000 Deutsche Marks (DM) (approximately $598,000 at December
31, 1998) matures on December 31, 2003. The note bears interest at 5% per year
with interest payments due semiannually.
Two additional notes with the same agency for total borrowings of 2,100,000
DM (approximately $1,259,000 at December 31, 1998), mature on December 31, 2005.
The notes bear interest at 6% per year on the amount outstanding with interest
payments due semiannually.
The term notes include a prohibition on entering into contracts which
contain a single annual lump sum payment by POET Software GmbH in excess of
100,000 DM or 10,000 DM on a monthly basis, without the consent of the agency.
The term notes contain discretionary prepayment penalties. Should the term
notes be repaid in part or in full by the Company before maturity, a prepayment
penalty could be assessed by the agency, at its discretion, up to 30% of the
amount of the principal balance outstanding. Such decision would be based upon
the agency's judgment of the Company's financial condition at the date of
prepayment.
There are also contingent payments that could be required at the maturity
of the term notes which are at the agency's discretion. Such contingencies would
require POET GmbH to make additional payments to the agency equal up to 75% of
the principal amount advanced. The contingent payments for the 2,100,000 DM
lines, if made, would be reduced by any amounts previously paid for the
"additional" interest charged. The decision by the agency on whether or not to
charge such amounts would be based upon the agency's judgment of the Company's
financial condition at the end of the notes' term.
The financial statements at December 31, 1996, 1997 and 1998 include
additions to long-term obligations of $92,000, $89,000 and $95,000,
respectively, for payments that in the Company's judgment might result from the
discretionary actions of the foreign government agency.
In 1997, POET Software GmbH entered into a long-term loan agreement with
IKB Deutsche Industriebank of 1,500,000 DM (approximately $899,000 at December
31, 1998). The note bears interest at 7% per year on the amount outstanding.
Repayments are due quarterly at 125,000 DM starting on June 15, 1999 and ending
on March 15, 2002. The loan is secured by a guarantee from the Company.
In 1998, the Company received bridge financing from certain stockholders of
the Company. The outstanding financing and accrued interest was repaid by
issuing 145,583 shares of Series D preferred stock amounting to $7.04 per share
to the various lenders. Total bridge
F-11
<PAGE> 90
POET HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998 AND
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999 (UNAUDITED)
financing and accrued interest converted totaled $1,025,000 as of the exchange
date. See Note 5 for significant terms of the Series D preferred stock.
The Company received $3.9 million from the issuance of a convertible note
to TBG in January 1999. The amount is due on December 31, 2003 and the interest
rate is 6% per annum. The holder may convert the entire principal amount of the
note at approximately $19 per share, excluding accrued interest, into Series A
common stock. No interest will accrue until June 30, 2000. The imputed interest
of $348,000 has been amortized to interest expense over the term of the note. In
connection with this loan, TBG agreed not to charge the Company any
discretionary prepayment penalties or contingent payments at the end of the
terms of the three notes. This note was subsequently amended, see Note 11.
5. REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
Redeemable Convertible Preferred Stock
Significant terms of the Series A, Series B, Series C and Series D
preferred stock are as follows:
- Each share is convertible into one share of Series A common stock,
subject to adjustments for events of dilution. Shares will automatically
be converted upon a public offering.
- The holders are entitled to receive non-cumulative dividends prior and in
preference to any declaration or payment of any dividend on any common
stock of the Company at a rate of $0.06122, $0.215, $0.572 and $0.704 per
share per annum, on each outstanding share of Series A, Series B, Series
C and Series D preferred stock, respectively.
- In the event of liquidation, dissolution or winding up of the Company,
distribution shall be made to the holders of the Company's capital stock
as follows: The Series B, Series C and Series D preferred stockholders
would receive $2.15, $5.72 and $7.04, respectively, per share prior to
any distributions to the Series A preferred stockholders and the common
stockholders. Secondly, if any assets remain, Series A preferred
stockholders would receive $0.6122 per share. Thirdly, if any assets
remain, Series B common stockholders would receive $0.5315 per share.
Afterwards, any remaining assets shall be distributed ratably to the
holders of the Series A, Series B, Series C and Series D preferred
stockholders and the Series B common stockholders on an as-if-converted
to Series A common basis until such time as such holders have received an
aggregate amount equal to $1.2244, $4.30, $11.44, $14.08 and $1.063,
respectively. Lastly, after consideration of the above rights, any
remaining assets would be distributed ratably to the holders of the
Series A common stock. All such distributions are subject to adjustment
for dilution.
- Each share has the same voting rights as the number of shares of Series A
common stock into which it is convertible.
- The Company must redeem the convertible preferred stock upon a vote at
any time after November 30, 2003 in favor of redemption by at least
66 2/3% of the Series B, Series C and Series D preferred stockholders,
voting as one class, hereafter referred to as the "redemption call date."
Afterwards, the then outstanding preferred shares would be redeemable as
follows: one-third within six months of the redemption call date,
one-third within 18 months of the redemption call date, and the remainder
within 30 months of the redemption call date. The redemption price per
share is equal to $0.6122, $2.15, $5.72 and $7.04 per share of Series A,
Series B, Series C and Series D preferred stock, respectively, plus the
aggregate amount of dividends or other distributions paid with respect to
such shares after November 30, 2003.
F-12
<PAGE> 91
POET HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998 AND
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999 (UNAUDITED)
- If there has not been a public offering under which the gross proceeds
exceed $10,000,000 at a price of at least $11.44 per share before
December 31, 2000, and net income for the year ended December 31, 2000
does not exceed $2 million, then the conversion price solely for the
Series D preferred stock then outstanding will be reduced to $5.44 per
share.
Warrants
In connection with a capital lease agreement in 1995, the Company granted a
warrant to purchase up to 7,291 shares of Series B preferred stock at $2.15 per
share. Such warrant allows for a net exercise by the holder. The warrant expires
on May 31, 2002. In connection with a line of credit in 1996, the Company
granted warrants to purchase up to 6,555 shares of Series C preferred stock at
$5.72 per share. The warrants expire on July 25, 2003 and September 13, 2003.
The value of these warrants has been estimated using the Black-Scholes option
pricing model with the following assumptions: expected life, the term of the
option, risk-free interest rate of 6.8% in 1995, and 6.5% and 6.6% in 1996, 50%
volatility and no dividend during the expected term. The fair value of such
warrants at the date of issuance was insignificant.
During 1998, warrants to purchase 49,710 shares of Series D preferred stock
at an exercise price of $7.04 per share were issued to current investors in the
Company in connection with the Company's bridge financing. The estimated fair
value of the warrants of $82,639 has been recorded as interest expense in 1998.
The warrants expire September 2003. The value of these warrants has been
estimated using the Black-Scholes option pricing model with the following
assumptions: expected life, the term of the option, risk-free interest rate of
5.5%, 50% volatility and no dividend during the expected term. See Note 11.
Common Stock
At December 31, 1998, the Company has reserved shares of Series A common
stock for issuance as follows:
<TABLE>
<S> <C>
Conversion of outstanding preferred stock................... 4,910,935
Conversion of outstanding Series B common stock to Series A
common stock................................................ 1,361,173
Issuance under stock option plan............................ 592,023
Conversion of preferred stock issuable under warrants....... 63,556
---------
6,927,687
=========
</TABLE>
The Company has two series of common stock, Series A and Series B. Series B
has liquidation rights as stated above. Each Series B common share may be
converted into one share of Series A common stock, subject to adjustment for
dilution. Each Series B common share has the same voting rights as the number of
shares of Series A common stock into which it is convertible. Series B common
stock will automatically convert into Series A common stock upon a public
offering.
Stock Option Plan
The Company's 1995 Stock Option Plan (the Plan) authorizes the grant of
options to purchase up to 825,000 shares (including 50,000 shares approved in
1998) of Series A common stock. Incentive stock options may be granted to
employees and nonstatutory stock options to employees, consultants, and
directors. Stock options are granted with an exercise price at fair market value
(as determined by the Board of Directors) at the date of grant.
F-13
<PAGE> 92
POET HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998 AND
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999 (UNAUDITED)
Options generally vest over a four year period and expire ten years from the
date of the grant, see Note 11.
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
OPTIONS EXERCISE
OUTSTANDING PRICE
----------- --------
<S> <C> <C>
ACTIVITY UNDER THE PLAN IS AS FOLLOWS:
Balances, January 1, 1996................................... 246,500 $0.22
Granted (Weighted average fair value of $0.07).............. 187,900 $0.25
Exercised................................................... (110,500) $0.22
Canceled.................................................... (4,000) $0.22
--------
Balances, December 31, 1996................................. 319,900 $0.24
Granted (Weighted average fair value of $0.14).............. 261,400 $0.55
Exercised................................................... (11,728) $0.50
Canceled.................................................... (120,744) $0.31
--------
Balances, December 31, 1997................................. 448,828 $0.39
Granted (Weighted average fair value of $0.13).............. 366,250 $0.55
Exercised................................................... (63,249) $0.22
Canceled.................................................... (180,491) $0.38
--------
Balances, December 31, 1998................................. 571,338 $0.51
Granted (Weighted average fair value of $1.52).............. 253,500 $3.73
Exercised................................................... (124,461) $0.47
Canceled.................................................... (211,242) $0.71
-------- -----
Balances, September 30, 1999 (Unaudited).................... 489,135 $2.10
========
</TABLE>
Additional information regarding options outstanding as of December 31,
1998 is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-------------------------------------- OPTIONS VESTED
WEIGHTED ------------------
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
RANGE OF NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING LIFE (YEARS) PRICE VESTED PRICE
--------------- ----------- ------------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
$0.22 64,423 7.47 $0.22 31,861 $0.22
0.55 506,915 9.42 0.55 86,296 0.55
------- -------
$0.22 - 0.55 571,338 9.2 $0.51 118,157 0.46
======= =======
</TABLE>
The weighted average contractual life of options outstanding as of December
31, 1998 was 9.2 years and the weighted average exercise price was $0.51. At
December 31, 1998, 63,250 stock options with a weighted average exercise price
of $0.55 and a weighted average fair value of $5.78 were issued at less than the
estimated fair value at grant date.
At December 31, 1996, 1997 and 1998, options to purchase 104,684, 198,666
and 118,157 shares, respectively, were vested and exercisable with a weighted
average price of $0.22, $0.24 and $0.52. At December 31, 1998, options of 45,685
shares were available for future grant under the Plan. Unvested common shares
issued under the Plan of 113,105 shares, 59,021 shares, 20,771 and 48,271
(unaudited) shares are subject to repurchase at the original issuance price by
the Company at December 31, 1996, 1997 and 1998, and September 30, 1999
respectively. This repurchase right terminates upon an initial public offering
by the Company.
F-14
<PAGE> 93
POET HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998 AND
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999 (UNAUDITED)
Deferred Stock Compensation
In connection with grants of certain stock options in 1998 and in the nine
months ended September 30, 1999, the Company recorded deferred stock
compensation of $1,284,000 and $316,000, respectively, for the difference
between the estimated fair value for accounting purposes and the stock price as
determined by the Board of Directors on the date of grant. This amount is being
amortized to expense over the vesting period of the related stock options,
generally four years. Amortization of deferred stock compensation for the year
ended December 31, 1998 and nine-month period ended September 30, 1999 was
$47,000 and $439,000, respectively.
Additional Stock Purchase Information
Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation, (SFAS 123) requires the disclosure of pro forma net
loss as if the Company had adopted the fair value method as of the beginning of
fiscal 1995. Under SFAS 123, the fair value of stock-based awards by private
companies to employees is calculated using the minimum value method. This method
requires subjective assumptions, including expected time to exercise, which
greatly affect the calculated values. The Company's calculations were made using
the minimum value option pricing model with the following weighted average
assumptions: expected life, 12 months following vesting; risk free interest
rates, 6.5% in 1996, 6.0% in 1997 and 5.3% to 5.6% in 1998; and no dividends
during the expected term. The Company's calculations are based on a single
option valuation approach and forfeitures are recognized as they occur. If the
computed fair value of the 1996, 1997 and 1998 awards had been amortized to
expense over the vesting period of the awards, pro forma net loss would have
been $2,154,000 in 1996, $5,902,000 in 1997 and $4,003,000 in 1998.
6. NET LOSS PER SHARE
The following is a reconciliation of the numerators and denominators used
in computing basic and diluted net loss per share (in thousands):
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, PROFORMA SEPTEMBER 30, PROFORMA
--------------------------- DECEMBER 31, ----------------- SEPTEMBER 30,
1996 1997 1998 1998 1998 1999 1999
------- ------- ------- ------------ ------- ------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net loss (numerator),
basic and diluted.. $(2,149) $(5,883) $(3,990) $(3,990) $(3,069) $(4,298) $(4,298)
Shares (denominator):
Weighted average
common shares
outstanding...... 1,423 1,497 1,547 5,615 1,540 1,611 6,562
Weighted average
common shares
outstanding
subject to
repurchase....... (52) (85) (40) (40) (44) (22) (22)
------- ------- ------- ------- ------- ------- -------
Shares used in
computation, basic
and diluted........ 1,371 1,412 1,507 5,575 1,496 1,589 6,540
======= ======= ======= ======= ======= ======= =======
Net loss per share,
basic and diluted.. $ (1.57) $ (4.17) $ (2.65) $ (0.74) $ (2.05) $ (2.70) $ (0.66)
======= ======= ======= ======= ======= ======= =======
</TABLE>
F-15
<PAGE> 94
POET HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998 AND
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999 (UNAUDITED)
For the above mentioned periods, the Company had securities outstanding
which could potentially dilute basic earnings per share in the future, but were
excluded from the computation of diluted net loss per share in the periods
presented, as their effect would have been antidilutive. Such outstanding
securities consist of the following:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------ -----------------------
1996 1997 1998 1998 1999
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Redeemable convertible
preferred stock....... 4,055,125 4,055,125 4,910,935 4,055,125 4,981,957
Shares of common stock
subject to repurchase... 113,105 59,021 20,771 29,083 48,271
Outstanding options..... 319,900 448,828 571,338 372,425 489,135
Warrants................ 13,846 13,846 63,556 63,556 107,079
---------- ---------- ---------- ---------- ----------
Total................... 4,501,976 4,576,820 5,566,600 4,520,189 5,600,632
========== ========== ========== ========== ==========
Weighted average
exercise price of
options............... $ 0.24 $ 0.39 $ 0.51 $ 0.52 $ 2.10
========== ========== ========== ========== ==========
Weighted average
exercise price of
warrants.............. $ 3.84 $ 3.84 $ 6.34 $ 6.34 $ 6.63
========== ========== ========== ========== ==========
</TABLE>
7. INCOME TAXES
The Company's net deferred tax assets are comprised of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Net deferred tax assets and liabilities:
Net operating loss carryforwards......................... $ 1,502 $ 4,085 $ 6,457
Other temporary timing differences..................... (2) 78 283
------- ------- -------
1,500 4,163 6,740
Valuation allowance...................................... (1,500) (4,163) (6,740)
------- ------- -------
Net deferred tax assets.................................. $ -- $ -- $ --
======= ======= =======
</TABLE>
Deferred income taxes reflect the tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes, as well as net operating
loss and tax credit carryforwards. Due to an evaluation of the likelihood of the
realization of its deferred tax assets, as of December 31, 1996, 1997 and 1998,
the Company has fully reserved its net deferred tax assets of $1,500,000,
$4,163,000 and $6,740,000, respectively.
F-16
<PAGE> 95
POET HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998 AND
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999 (UNAUDITED)
The Company's effective tax rate differs from the expected benefit at the
federal statutory tax rate as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1996 1997 1998
----- ----- -----
<S> <C> <C> <C>
Federal statutory tax rate.................................. (35.0)% (35.0)% (35.0)%
State taxes, net of federal benefit......................... (6.0) (6.0) (6.0)
Other....................................................... 0.7 0.8 1.5
Change in valuation allowance............................... 40.3 40.2 39.5
----- ----- -----
Effective tax rate.......................................... --% --% --%
===== ===== =====
</TABLE>
At December 31, 1998, the Company has net operating loss carryforwards of
approximately $8,581,000, $4,960,000 and $6,675,000 available to offset future
federal, California and foreign taxable income, respectively. Federal
carryforwards expire beginning in 2008 through 2018 and the California
carryforwards expire beginning 1999 through 2003. The extent to which
approximately $3,321,000 and $1,331,000 of federal and California loss
carryforwards can be used to offset future taxable income is limited to
approximately $1,000,000 annually, due to an ownership change which occurred
during 1996. The extent to which the loss and credit carryforwards since 1996
that can be used to offset future taxable income and tax liabilities,
respectively, may be limited, depending on the extent of ownership changes
within any subsequent three-year period. The Company's foreign tax losses may be
carried forward indefinitely. Foreign losses before income taxes for the years
ended December 31, 1996, 1997 and 1998 were $325,000, $2,441,000 and $1,434,000,
respectively.
8. COMMITMENTS AND CONTINGENCIES
Leases
The Company leases certain equipment under capital leases and its
facilities under noncancelable operating lease agreements. Equipment under
capital leases had a net book value of $111,000, $51,000 and $49,000 at December
31, 1996, 1997 and 1998, respectively (net of accumulated amortization of
$135,000, $165,000 and 211,000, respectively.
Future minimum rental commitments under capital leases and noncancelable
operating leases as of December 31, 1998 are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING CAPITAL OPERATING
DECEMBER 31, LEASES LEASES
------------ ------- ---------
<S> <C> <C>
1999........................................................ $40 $1,067
2000........................................................ 27 1,005
2001........................................................ 5 970
2002........................................................ -- 929
2003........................................................ -- 453
--- ------
Total minimum lease payments...................... 72 $4,424
======
Amounts representing interest............................... (5)
---
Present value of net minimum capital lease payments......... 67
Current portion of obligations under capital leases......... 37
---
Obligations under capital leases, excluding current
portion................................................... $30
===
</TABLE>
9. SEGMENT INFORMATION, OPERATIONS BY GEOGRAPHIC AREA AND SIGNIFICANT CUSTOMERS
The Company operates in one reportable segment, the development and
marketing of software products that allow businesses to share and manage complex
information enabled by
F-17
<PAGE> 96
POET HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998 AND
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999 (UNAUDITED)
the Company's database management system. The Company principally operates in
the U.S. and Germany. The following is a summary of operations within geographic
areas (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
-------------------------- ------------------
1996 1997 1998 1998 1999
------ ------ ------ ------- -------
<S> <C> <C> <C> <C> <C>
Revenues (1):
United States......................... $4,591 $5,981 $5,768 $4,179 $4,610
Germany............................. 3,694 1,736 3,149 2,247 3,093
------ ------ ------ ------ ------
$8,285 $7,717 $8,917 $6,426 $7,703
====== ====== ====== ====== ======
</TABLE>
- -------------------------
(1) Revenues are broken out geographically by the ship-to location of the
customer.
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
-------------------- --------------
1996 1997 1998 1998 1999
---- ---- ---- ----- -----
<S> <C> <C> <C> <C> <C>
Long-lived assets:
United States................................... $373 $399 $246 $273 $225
Germany....................................... 320 373 292 328 319
---- ---- ---- ---- ----
Total........................................... $693 $772 $538 $601 $544
==== ==== ==== ==== ====
</TABLE>
During 1996 the Company entered into product licensing and service
agreements with Novell, Inc. a preferred stockholder. Revenues from the
preferred stockholder are detailed on the consolidated statements of operations.
The Company does not specifically identify and account for the related costs of
revenues by customer. The Company believes that costs and the related gross
margin of its revenues to the preferred stockholder are similar to costs and
gross margin to unaffiliated customers. The following table summarizes revenues
from this preferred stockholder and other significant customers as a percentage
of total revenues and accounts receivable as a percentage of total accounts
receivable.
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
--------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Revenue:
Preferred stockholder....................................... 24% 37% 27%
Customer A................................................ 17% -- --
Customer B................................................ -- 11% --
Accounts Receivable:
Customer A................................................ 16% -- --
Customer B................................................ 10 -- --
Customer C................................................ -- -- 23%
Customer D................................................ -- -- 12%
</TABLE>
10. LEGAL MATTERS
The Company is involved in arbitration proceedings. Management, after
reviewing these proceedings with legal counsel, believes the ultimate liability,
if any, will not materially affect the combined financial condition or results
of operations.
11. SUBSEQUENT EVENTS
During 1999, warrants to purchase 35,000 and 8,523 shares, respectively, of
Series A common stock at an exercise price of $7.04 per share were issued to a
strategic partner and a service provider for services rendered, respectively.
The warrants expire on April 30, 2004 and upon the closing of the Company's
initial public offering, respectively. The value of these
F-18
<PAGE> 97
POET HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998 AND
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999 (UNAUDITED)
warrants has been estimated using the Black-Scholes option pricing model with
the following assumptions: expected life, the term of the option, risk-free
interest rate of 4.7%, 80% volatility and no dividend during the expected term.
The fair value of such warrants at the date of issuance was insignificant.
In January of 1999, the board of directors approved an increase of
authorized shares under the 1995 stock plan to 1,000,000 shares.
On September 10, 1999, the board of directors approved, subject to
stockholder approval, the following:
- Amend the Company's existing Stock Option Plan (the "Plan"). The Plan
amendment becomes effective upon the closing of the Company's initial
public offering. The number of shares reserved under the plan will
automatically be increased on January 1 of each year, in an amount equal
to two percent of the shares outstanding on that date.
- The Company's 1999 Employee Stock Purchase Plan (the "ESPP") and the 1999
Directors' Stock Option Plan (the "Directors' Plan"). The ESPP and
Directors' Plans become effective upon the closing of the Company's
initial public offering. Under the ESPP, eligible employees may purchase
common stock through payroll deductions, which may not exceed 15% of any
employee's compensation, nor more than 1,000 shares in any new purchase
period. A total of 100,000 shares of common stock will be reserved for
issuance under the ESPP. The number of shares reserved for issuance under
the ESPP will automatically increase on January 1 of each year by an
amount equal to one percent of the total shares outstanding on that date.
Under the Directors' Plan, a total of 20,000 shares of common stock will
be reserved for the grant of stock options to nonemployee directors of
the Company. Options granted under the Directors' Plan shall vest over
four years and the number of shares reserved for issuance under the
Directors' Plan will automatically increase on January 1 of each year by
an amount equal to .5% of the total shares outstanding on that date.
- An increase of authorized shares of common stock to 30,000,000 shares and
creation of newly undesignated preferred stock totaling 3,000,000 shares,
contingent upon the approval of the amended and restated articles of
incorporation of the Company in Delaware and the closing of the Company's
initial public offering.
On September 13, 1999 the Company and TBG executed an amendment to the TBG
loan agreement (see Note 4) whereby the principal debt amount of $3.9 million
was converted into 275,106 shares of Series A common stock. The result of this
conversion was a reduction in debt of $3.7 million and a non-recurring charge of
$809,000 to operations during the quarter ended September 30, 1999. The
non-recurring charge represents the fair value of the securities transferred in
the conversion in excess of the fair value of the securities issued pursuant to
the original conversion date.
On September 30, 1999 the Company and Novell, Inc. ("Novell") amended their
licensing agreement whereby the Company has no further obligations to Novell to
deliver any additional products or services or refund monies previously paid and
Novell has no obligations to make any further payments to the Company. As a
result of this amendment previously deferred revenues of $309,000 were
recognized as revenue.
In September of 1999, the board of directors approved an increase of
authorized shares under the 1995 stock plan to 1,200,000 shares.
F-19
<PAGE> 98
[INSIDE FRONT COVER]
A logo of POET Holdings, Inc. accompanied by the following phrases and
statement, "Because the Internet Changes Your Business," "POET Holdings, Inc. is
a provider of innovative data management software that enables businesses to
dynamically manage and share complex information and processes," and "Data
Management for the Internet Age."
[INSIDE BACK COVER]
A diagram showing three interconnected building blocks representing the three
product offerings of POET Holdings, Inc. The lower block is labeled "POET
Object Server Suite MANAGEMENT OF COMPLEX MULTIDIMENSIONAL DATA." The other two
blocks are placed on top of the foundation block and are labeled as follows:
the top left block is labeled "POET eCatalog Suite THE SUPPLIER LINK TO THE
INTERNET MARKET," and the top right block is labeled "POET Content Management
Suite THE SOLUTION FOR STRUCTURED CONTENT AND DOCUMENT MANAGEMENT." In the
upper left hand corner of the page is a logo of POET Holdings, Inc. and the
slogan, "POWERED BY POET."
<PAGE> 99
PRELIMINARY OFFERING CIRCULAR OF NOVEMBER 5, 1999
for 3,000,000 Shares of Common Stock with a par value of US $ 0.001 per share to
be newly issued by POET Holdings Inc.
and
950,000 Shares of Common Stock with a par value of US $ 0.001 per share to be
sold by certain selling shareholders
as well as
up to 570,000 Shares of Common Stock with a par value of US $ 0.001 per share to
be newly issued by POET Holdings Inc., pursuant to an over-allotment option
granted to DG BANK Deutsche Genossenschaftsbank AG and Paribas
each such offered Share of Common Stock eligible to receive dividends, if any,
for fiscal 1999
German Securities Identification Number (WKN) 928 040
of
POET HOLDINGS, INC.
Wilmington, Delaware, U.S.A.
A-1
<PAGE> 100
as well as
COMPANY REPORT 1999
for the admission of
9,960,904 SHARES OF COMMON STOCK
with a par value of US $ 0.001 per share (all Shares of Common Stock outstanding
at the point of time of admission),
and
659,896 SHARES OF COMMON STOCK
with a par value of US $ 0.001 per share (reserved for the issuance upon the
exercise of options granted to and available for grant to officers, directors
and employees)
and
103,114 SHARES OF COMMON STOCK
with a par value of US $ 0.001 per share (reserved for the issuance upon the
exercise of warrants)
German Securities Identification Number (WKN) 928 040
of
POET HOLDINGS, INC.
Wilmington, Delaware, USA
to the Regulated Market (Geregelter Markt) with trading on the Neuer Markt of
the Frankfurt Stock Exchange
A-2
<PAGE> 101
GENERAL INFORMATION
SUBJECT OF THIS PROSPECTUS
This prospectus will be filed with the U.S. Securities and Exchange
Commission but will not be used as a sales or listing prospectus in the United
States, except for limited numbers of sales to directors, officers, employees or
persons or entities who have business relationships with us, and persons or
entities related to them. In the Federal Republic of Germany, this prospectus
will be filed with the Frankfurt Stock Exchange and will serve (i) as a
preliminary sales prospectus (Verkaufsprospekt) in relation to the sale of the
3,000,000 shares of common stock being offered by us, each share having a par
value of $0.001, $3,000 in the aggregate, 570,000 shares of common stock under
the terms of an over-allotment option we have granted to the underwriters, each
share having a par value of $0.001, $570 in the aggregate, and the 950,000
shares of common stock being offered by the selling stockholders, each share
having a par value of $0.001, $950 in the aggregate, and (ii) as a company
report (Unternehmensbericht) that will be used to list on the Frankfurt Stock
Exchange's Neuer Markt our share capital of 9,960,904 shares of common stock
issued and outstanding after the issuance of the 3,000,000 new shares offered
hereunder and 659,896 shares of common stock reserved for issuance upon the
exercise of options granted to officers, directors and employees as of September
30, 1999, and 103,114 shares of common stock reserved for the issuance upon the
exercise of warrants, each share having a par value of $0.001, $10,723.879 in
the aggregate.
The shares of common stock offered by us will be new shares, each with a
par value of $0.001, issued pursuant to a resolution of our board of directors
passed on September 15, 1999, subject to approval by our pricing committee,
which is expected to take place immediately prior to the offering. As a result
of this offering, the number of our issued and outstanding shares of common
stock will be increased from 6,960,904 shares, assuming conversion of all
outstanding shares of preferred stock and Series B common stock into shares of
common stock, to 9,960,904 shares through the issuance of new shares. Our
current stockholders will have no preemptive or other subscription rights to the
newly issued shares of common stock. All of the shares offered by the selling
stockholders will come into existence as a result of a conversion of our Series
B common stock and preferred stock into shares of Series A common stock, which
will be redesignated as undesignated common stock. The conversion and
redesignation will occur immediately prior to the consummation of this offering.
See "Description of Capital Stock."
RESPONSIBILITY FOR THE CONTENTS OF THIS PROSPECTUS
Pursuant to Section 13 of the German Securities Selling Prospectus Act
(Verkaufsprospektgesetz), and in connection with Section 45, 77 of the German
Stock Exchange Act (Borsengesetz), we, together with the underwriters, DG BANK
Deutsche Genossenschaftsbank AG, Frankfurt am Main and
Paribas-Zweigniederlassung Frankfurt am Main-, take responsibility for the
contents of this preliminary prospectus and company report and hereby state
that, to the best of our knowledge, the information contained in this
preliminary prospectus and company report is correct, and no material
information has been omitted. In making an investment decision, you must rely on
your own examination of our company and the terms of the offering, including the
merits and risks involved. See "Business" and "Risk Factors."
Pursuant to Section 10 of the German Securities Selling Prospectus Act,
this prospectus is published on a preliminary basis and will be supplemented in
the future. Any supplements and terms of the offering that have been omitted in
this preliminary prospectus will be published in Germany in conformity with the
provisions of the German Selling Securities Prospectus Act. The company report
will also be published in supplemented form after admission of the shares to
exchange trading in the Federal Republic of Germany.
A-3
<PAGE> 102
Pursuant to the above company report, we have applied to admit
9,960,904 shares of common stock,
US $0.001 par value,
(entire share capital issued at the point of time of admission)
and the
659,896 shares of common stock
with a par value of US $0.001 per share
(reserved for issuance upon the exercise of options granted to and available for
grant to officers, directors and employees)
and
103,114 shares of common stock
with a par value of US $0.001 per share
(reserved for the issuance upon the exercise of warrants)
German Security Code No. (WKN): 928 040
of
POET HOLDINGS, INC.,
San Mateo, California, USA
to the Regulated Market (Geregelter Markt)
with trading on the Neuer Markt of the Frankfurt Stock Exchange
Frankfurt am Main, November 1999
<TABLE>
<S> <C>
DG BANK PARIBAS
DEUTSCHE GENOSSENSCHAFTSBANK AG -ZWEIGNIEDERLASSUNG FRANKFURT AM MAIN-
</TABLE>
A-4
<PAGE> 103
RECENT DEVELOPMENTS AND OUTLOOK
We believe that license sales of the POET Object Server Suite will continue
to grow and hope that sales of the POET Content Management Suite and POET
eCatalog Suite become more significant sources of revenue beginning in the
fourth quarter of fiscal 1999. If this belief materializes, the Company may
increase the product license revenues as a percentage of total revenue. However,
as the POET Content Management Suite and the POET eCatalog Suite are new
products, we have no meaningful financial data on which to base these beliefs.
As our business expands, we may encounter significantly increasing
operating expenses in the areas of sales and marketing, research and
development, and general and administration. We may also incur significant
operating losses for the foreseeable future. If necessary, we may expand the
sales organization and increase marketing programs, in particular for our
Internet-oriented product lines. We may also increase in research and
development expenses for product development of our Internet-based products, if
appropriate. As a publicly traded company, we may face an increase in general
and administration expenses due to the additional costs for accounting and
reporting and to prepare the internal systems for further growth. We also plan
to expand our business in Western European countries outside of Germany, such as
the United Kingdom and Scandinavia.
Our future operating results will depend on many factors, including,
without limitation, the success of our new Internet-based products, the use and
continuous growth of the Internet to conduct business-to-business commerce, the
commercial success of the of e-commerce market, such as our relationship with
the electronic purchasing systems vendor Ariba, Inc. and other electronic
purchasing systems vendors, our ability to hire additional qualified personnel
in all major areas of our business, such as sales, marketing and research and
development and our ability to establish and grow our business in Germany, the
U.S. and other geographic areas.
San Mateo, November 1999
POET Holdings, Inc.
A-5
<PAGE> 104
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable POET Holdings in connection with
the sale of common stock being registered. All amounts are estimates except the
SEC registration fee.
<TABLE>
<S> <C>
SEC registration fee........................................ $ 18,736
Printing and engraving costs................................ 150,000
Legal fees and expenses..................................... 400,000
Accounting fees and expenses................................ 300,000
Neuer Markt Listing Fee..................................... 11,000
Blue Sky fees and expenses.................................. 50,000
Transfer Agent and Registrar fees........................... 20,000
Directors and officers insurance............................ 150,000
Reimbursed expenses of underwriters......................... 475,000
Listing fee paid to underwriters............................ 134,000
Miscellaneous expenses...................................... 91,264
----------
Total $1,800,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law permits a corporation
to include in its charter documents, and in agreements between the corporation
and its directors and officers, provisions expanding the scope of
indemnification beyond that specifically provided by the current law.
Article Ninth of POET Holdings' restated certificate of incorporation
provides for the indemnification of directors to the fullest extent permissible
under Delaware law.
Article VI of POET Holdings' bylaws provides for the indemnification of
officers, directors and third parties acting on behalf of POET Holdings to the
fullest extent permissible under Delaware law.
POET Holdings intends to enter into indemnification agreements with its
directors and executive officers, in addition to the indemnification provided
for in POET Holdings' bylaws, and intends to enter into indemnification
agreements with any new directors and executive officers in the future.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
During the past three years, POET Holdings has issued unregistered
securities to a limited number of persons as described below.
1. On March 31, 1995, we issued 923,206 shares and 487,967 shares of
Series B common stock to Dirk Bartels and Jochen Witte, respectively, and
816,793 shares and 408,397 shares of Series A preferred stock to European
Technologies Holding and Compagnie Auxiliare Telecommunication (now
INNOVACOM), respectively, in exchange for all of the outstanding capital
stock of POET Software GmbH.
2. On April 7, 1995, we sold 1,686,049 shares of Series B preferred
stock for $2.15 per share to the following investors for an aggregate
purchase price of $3,625,005.35: Atlas Venture Europe Fund B.V., Lawrence
Owen Brown Family Trust (later transferred to Lawrence Owen Brown Family
LLC), El Dorado C&L Fund, L.P., El Dorado Ventures III, L.P., El Dorado
Technology IV, L.P., European Technologies Holding N.V., GC&H Investments,
Compagnie Auxiliare Telecommunications S.A., O'Brien Family Trust U/T/D
dated July 1, 1992, Sigma Associates III, Sigma Partners III, Sigma
Investors III and WS Investment Company 95A.
II-1
<PAGE> 105
3. From inception through September 30, 1999, we granted stock options
to purchase 1,363,050 shares of our common stock at exercise prices ranging
from $0.22 to $11.50 per share to employees, consultants, directors and
other service providers pursuant to our 1995 Stock Plan.
4. From inception through September 30, 1999, we issued and sold an
aggregate of 332,438 shares of our Series A common stock to employees,
consultants, directors and other service providers for an aggregate
purchase price of approximately $124,270 pursuant to exercises of options
granted under our 1995 Stock Plan.
5. On June 19, 1995, in connection with an equipment lease, we issued
a warrant to Lighthouse Capital Partners, L.P. to purchase 7,291 shares of
our Series B preferred stock at an exercise price of $2.15 per share.
6. On July 25, 1996, in connection with a loan, we issued a warrant to
Venture Lending, a division of Cupertino National Bank & Trust, to purchase
2,185 shares of Series C preferred stock at $5.72 per share.
7. On September 13, 1996, in connection with a loan, we issued a
warrant to Venture Lending, a division of Cupertino National Bank & Trust,
to purchase 4,370 shares of Series C preferred stock at $5.72 per share.
8. On November 8, 1996, we sold 1,143,886 shares of Series C preferred
stock for $5.72 per share to the following investors for an aggregate
purchase price of $6,543,027.92: Atlas Venture Europe Fund B.V., Lawrence
Owen Brown Family Trust, El Dorado C&L Fund, L.P., El Dorado Ventures III,
L.P., El Dorado Technology IV, L.P., European Technologies Holding N.V.,
GC&H Investments, Innovacom, Sigma Associates III, Sigma Partners III,
Sigma Investors III, WS Investment Company 96B and Novell, Inc.
9. On September 23, 1998, in connection with a note and warrant bridge
financing, we issued warrants to purchase an aggregate of 49,710 shares of
our Series D preferred stock at an exercise price of $7.04 per share to the
following investors: Atlas Venture Europe Fund B.V., the Lawrence Owen
Brown Family Trust, El Dorado C&L Fund, L.P., El Dorado Ventures III, L.P.,
El Dorado Technology IV, L.P., European Technologies Holding N.V.,
Innovacom, Sigma Associates III, Sigma Partners III and Sigma Investors
III.
10. On December 23, 1998, December 31, 1998 and April 23, 1999, we
sold an aggregate of 926,832 shares of Series D preferred stock for $7.04
per share to the following investors for an aggregate purchase price of
$6,524,897.28: Atlas Venture Europe Fund B.V., Lawrence Owen Brown Family
Trust, El Dorado C&L Fund, L.P., El Dorado Ventures III, L.P., El Dorado
Technology IV, L.P., European Technologies Holding N.V., Innovacom, Sigma
Associates III, Sigma Partners III, Sigma Investors III, Private Equity
Bridge Invest Ltd., Technologie Beteiligungsgesellschaft mbH,
Innovationsfonds Schleswig-Holstein & Hamburg GmbH and TH Fonds VC GmbH.
11. On January 20, 1999, in connection with a loan for $3,900,000 from
Technologie-Beteiligungsgesellschaft mbH der Deutschen Ausgleichsbank, we
issued a convertible subordinated promissory note, convertible into shares
of our Series A common stock.
12. On February 16, 1999, we issued a warrant to purchase up to 8,423
shares of our Series A common stock at an exercise price of $7.04 per share
to a technology search firm as in consideration for recruiting services.
13. On April 30, 1999, we issued a warrant to purchase up to 35,000
shares of our Series A common stock at an exercise price of $7.04 per share
to Ariba Technologies.
Except as indicated above, none of the foregoing transactions involved any
underwriters, underwriting discounts or commissions, or any public offering, and
POET Holdings believes that each transaction was exempt from the registration
requirements of the U.S. Securities Act by virtue of Section 4(2) thereof,
Regulation D promulgated thereunder or Rule 701 promulgated thereunder pursuant
to compensatory benefit plans and contracts relating to compensation as provided
under such Rule 701. The recipients in such transaction represented their
intention to acquire the securities for investment only and not with a view to
or for sale in connection with
II-2
<PAGE> 106
any distribution thereof, and appropriate legends were affixed to the share
certificates and instruments issued in such transactions. All recipients had
adequate access, through their relationships with POET Holdings and its
predecessor entities, to information about POET Holdings.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- --------- -----------------------
<S> <C>
1.1** Form of Underwriting Agreement.
3.1 Amended and Restated Certificate of Incorporation of the
Registrant, to be filed and become effective upon the
closing of this offering.
3.2 Amended and Restated Bylaws of the Registrant, to become
effective upon the closing of this offering.
4.1 Form of Registrant's common stock certificate.
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation.
10.1** Change of Control Severance Agreement by and between the
Registrant and Jerry Wong, dated November 14, 1995.
10.2** Change of Control Severance Agreement by and between the
Registrant and Michael Hogan, dated April 2, 1997.
10.3** Change of Control Severance Agreement by and between the
Registrant and Carol Curry, dated August 1, 1997.
10.4.1** Employment Contract between POET Software GmbH and Jorg
Tewes, dated September 29, 1997.
10.4.2** English Summary of Exhibit 10.4.1.
10.5.1** Employment Contract between POET Software GmbH and Jochen
Witte, dated May 19, 1993.
10.5.2** English Summary of Exhibit 10.5.1.
10.6 1995 Stock Plan.
10.7 1999 Director Option Plan.
10.8 1999 Employee Stock Purchase Plan.
10.9 Form of Indemnification Agreement between the Registrant and
each of its directors and executive officers.
10.10** Second Amended and Restated Stockholder Rights Agreement,
dated December 23, 1998.
10.11** Warrant to purchase shares of Series A common stock of the
Registrant issued to Ariba, Inc., dated April 30, 1999.
10.12** Form of warrant to purchase shares of Series D preferred
stock of the Registrant.
10.13** Lease Agreement, dated November 23, 1998, between Spieker
Properties, L.P., and the Registrant's wholly owned
subsidiary POET Software Corporation.
10.14.1** Office Lease Agreement between the Registrant's wholly owned
subsidiary POET Software GmbH and GBR
Petersen/Schroeder/Schmiel-Vemieter for office space in
Hamburg, Germany, dated May 29, 1997.
10.14.2** English Summary of Exhibit 10.14.1.
10.15+ Agreement between POET Software Corporation and Ariba, Inc.,
dated April 30, 1999.
22.1** Subsidiaries of Registrant.
23.1 Consent of Deloitte & Touche LLP, independent auditors.
23.2* Consent of Counsel. Reference is made to Exhibit 5.1.
24.1** Power of Attorney (see page II-5).
27.1** Financial Data Schedule.
</TABLE>
- -------------------------
* To be filed by amendment.
** Previously filed.
+ Certain portions of this exhibit have been omitted pursuant to a request for
confidential treatment.
II-3
<PAGE> 107
(b) FINANCIAL STATEMENT SCHEDULES
Schedule II -- Valuation and Qualifying Accounts
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.
ITEM 17. UNDERTAKINGS
We hereby undertake to provide to the underwriters at the closing specified
in the Underwriting Agreement certificates in such denominations and registered
in such names as required by the underwriters to permit prompt delivery to each
purchaser.
Insofar as indemnification by us for liabilities arising under the U.S.
Securities Act may be permitted to our directors, officers and controlling
persons of us pursuant to the provisions referenced in Item 14 of this
registration statement or otherwise, we have been advised that in the opinion of
the U.S. Securities and Exchange Commission such indemnification is against
public policy as expressed in the U.S. Securities Act, and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by us of expenses incurred or paid by a
director, officer, or controlling person of POET Holdings in the successful
defense of any action, suit or proceeding) is asserted by a director, officer or
controlling person in connection with the securities being registered hereunder,
we will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the U.S. Securities Act and will be governed by the final
adjudication of such issue.
We hereby undertake that:
(1) For purposes of determining any liability under the U.S.
Securities Act, the information omitted from the form of prospectus filed
as part of this registration statement in reliance upon Rule 430A under the
U.S. Securities Act and contained in a form of prospectus filed by us
pursuant to Rule 424(b)(1) or (4) or 497(h) under the U.S. Securities Act
shall be deemed to be part of this registration statement as of the time it
was declared effective.
(2) For the purpose of determining any liability under the U.S.
Securities Act, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 108
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANT HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF SAN MATEO,
STATE OF CALIFORNIA, ON THE 10TH DAY OF NOVEMBER, 1999.
POET HOLDINGS, INC.
By: *
------------------------------------
Dirk Bartels
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* President and Chief Executive November 10, 1999
- --------------------------------------------- Officer and Chairman of the
Dirk Bartels Board
(Principal Executive Officer)
* Chief Financial Officer November 10, 1999
- --------------------------------------------- (Principal Financial Officer)
Jochen Witte
/s/ JERRY WONG (Principal Accounting Officer) November 10, 1999
- ---------------------------------------------
Jerry Wong
* Director November 10, 1999
- ---------------------------------------------
Shanda Bahles
* Director November 10, 1999
- ---------------------------------------------
J. Burgess Jamieson
* Director November 10, 1999
- ---------------------------------------------
Gert Kohler
* Director November 10, 1999
- ---------------------------------------------
Jerome Lecoeur
*By: /s/ JERRY WONG Attorney-in-fact November 10, 1999
--------------------------------------
Jerry Wong
</TABLE>
II-5
<PAGE> 109
INDEPENDENT AUDITORS' REPORT ON SCHEDULE
To the Board of Directors and Stockholders of Poet Holdings, Inc.:
We have audited the consolidated financial statements of Poet Holdings,
Inc. and its subsidiaries (the Company) as of December 31, 1996, 1997, and 1998,
and for each of the three years in the period ended December 31, 1998, and have
issued our report thereon dated September 8, 1999 (September 30, 1999 as to Note
11) (included elsewhere in this Registration Statement). Our audits also
included the consolidated financial statement schedule listed in Item 16(b) of
this Registration Statement. The consolidated financial statement schedule is
the responsibility of the Company's management. Our responsibility is to express
an opinion based on our audits. In our opinion, such consolidated financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.
Deloitte & Touche LLP
San Jose, California
September 8, 1999
S-1
<PAGE> 110
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE CHARGED BALANCE
AT TO COST AT
BEGINNING AND END OF
OF PERIOD EXPENSES WRITE-OFFS PERIOD
--------- -------- ---------- -------
<S> <C> <C> <C> <C>
Year ended December 31, 1996
Allowance for doubtful accounts................. 122 60 (114) 68
=== == ==== ==
Year ended December 31, 1997
Allowance for doubtful accounts............... 68 35 (46) 57
=== == ==== ==
Year ended December 31, 1998
Allowance for doubtful accounts............... 57 28 (20) 65
=== == ==== ==
</TABLE>
S-2
<PAGE> 111
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ---------- -----------------------
<S> <C>
1.1** Form of Underwriting Agreement.
3.1 Amended and Restated Certificate of Incorporation of the
Registrant, to be filed and become effective upon the
closing of this offering.
3.2 Amended and Restated Bylaws of the Registrant, to become
effective upon the closing of this offering.
4.1 Form of Registrant's common stock certificate.
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation.
10.1** Change of Control Severance Agreement by and between the
Registrant and Jerry Wong, dated November 14, 1995.
10.2** Change of Control Severance Agreement by and between the
Registrant and Michael Hogan, dated April 2, 1997.
10.3** Change of Control Severance Agreement by and between the
Registrant and Carol Curry, dated August 1, 1997.
10.4.1** Employment Contract between POET Software GmbH and Jorg
Tewes, dated September 29, 1997.
10.4.2** English Summary of Exhibit 10.4.1.
10.5.1** Employment Contract between POET Software GmbH and Jochen
Witte, dated May 19, 1993.
10.5.2** English Summary of Exhibit 10.5.1.
10.6 1995 Stock Plan.
10.7 1999 Director Option Plan.
10.8 1999 Employee Stock Purchase Plan.
10.9 Form of Indemnification Agreement between the Registrant and
each of its directors and executive officers.
10.10** Second Amended and Restated Stockholder Rights Agreement,
dated December 23, 1998.
10.11** Warrant to purchase shares of Series A common stock of the
Registrant issued to Ariba, Inc., dated April 30, 1999.
10.12** Form of warrant to purchase shares of Series D preferred
stock of the Registrant.
10.13** Lease Agreement, dated November 23, 1998, between Spieker
Properties, L.P., and the Registrant's wholly owned
subsidiary POET Software Corporation.
10.14.1** Office Lease Agreement between the Registrant's wholly owned
subsidiary POET Software GmbH and GBR
Petersen/Schroeder/Schmiel-Vemieter for office space in
Hamburg, Germany, dated May 29, 1997.
10.14.2** English Summary of Exhibit 10.14.1.
10.15+ Agreement between POET Software Corporation and Ariba, Inc.,
dated April 30, 1999.
22.1** Subsidiaries of Registrant.
23.1 Consent of Deloitte & Touche LLP, independent auditors.
23.2* Consent of Counsel. Reference is made to Exhibit 5.1.
24.1** Power of Attorney (see page II-5).
27.1** Financial Data Schedule.
</TABLE>
- -------------------------
* To be filed by amendment.
** Previously filed.
+ Certain portions of this exhibit have been omitted pursuant to a request for
confidential treatment.
<PAGE> 1
EXHIBIT 3.1
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
POET HOLDINGS, INC.
POET Holdings, Inc., a corporation organized and existing under the laws
of the State of Delaware (the "Corporation"), hereby certifies as follows:
A. The name of the Corporation is POET Holdings, Inc. The date of filing
of the Corporation's original Certificate of Incorporation with the Secretary of
State of the State of Delaware was November 9, 1994.
B. This Certificate of Incorporation has been duly adopted in accordance
with the provisions of the General Corporation Law of Delaware by the Board of
Directors and the Stockholders of the Corporation.
C. Pursuant to Sections 242 and 245 of the General Corporation Law of
the State of Delaware, this Amended and Restated Certificate of Incorporation
restates, integrates and amends the provisions of the Corporation's Certificate
of Incorporation.
D. The text of the Certificate of Incorporation is hereby amended and
restated in its entirety to read as follows:
FIRST: The name of the Corporation is POET Holdings, Inc.
SECOND: The address of the Corporation's registered office in the State
of Delaware is 1209 Orange Street, City of Wilmington, County of New Castle,
Delaware 19801. The name of its registered agent at such address is The
Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Delaware.
FOURTH: The Corporation is authorized to issue two classes of shares, to
be designated, respectively, Common Stock and Preferred Stock. The total number
of shares of Common Stock which the Corporation is authorized to issue is
30,000,000, $0.001 par value per share, and the total number of shares of
Preferred Stock which the Corporation is authorized to issue is 3,000,000,
$0.001 par value per share.
The Preferred Stock may be issued from time to time in one or more
series pursuant to a resolution or resolutions providing for such issue duly
adopted by the Board of Directors (authority to do so being hereby expressly
vested in the Board). The Board of Directors is further authorized to determine
or alter the rights, preferences, privileges and restrictions granted to or
imposed upon any wholly unissued series of Preferred Stock and, to fix the
number of shares of any such series of Preferred Stock and the designation of
any such series of Preferred Stock. The Board of Directors is authorized, within
the limits and restrictions stated in any resolution or resolutions of the Board
of
<PAGE> 2
Directors originally fixing the number of shares constituting any series, to
increase or decrease (but not below the number of shares thereof then
outstanding) the number of shares of any such series subsequent to the issue of
shares of that series, to determine the designation of any series, and to fix
the number of shares of any series.
Upon the effective time of this Amended and Restated Certificate of
Incorporation under the General Corporation Law of the State of Delaware, each
outstanding share of the Corporation's Series A Common Stock shall be
redesignated as one share of the Corporation's Common Stock, and each
outstanding share of the Corporation's Series B Common Stock shall be
redesignated as one share of the Corporation's Common Stock.
FIFTH: The Corporation is to have perpetual existence.
SIXTH: A. The management of the business and the conduct of the affairs
of the Corporation shall be vested in its Board of Directors. The number of
directors which shall constitute the whole Board of Directors shall be
designated in the Bylaws of the Corporation.
B. Each director shall serve until such director's successor is
duly elected and qualified or until such director's earlier death, resignation,
or removal. No decrease in the number of directors constituting the Board of
Directors shall shorten the term of any incumbent director.
C. Any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal, or other causes shall be filled by
either (i) the affirmative vote of the holders of a majority of the voting power
of the then outstanding shares of voting stock of the Corporation entitled to
vote generally in the election of directors (the "Voting Stock") voting together
as a single class; or (ii) by the affirmative vote of a majority of the
remaining directors then in office, even though less than a quorum of the Board
of Directors. Newly created directorships resulting from any increase in the
number of directors shall, unless the Board of Directors determines by
resolution that any such newly created directorship shall be filled by the
stockholders, be filled only by the affirmative vote of the directors then in
office, even though less than a quorum of the Board of Directors.
D. The affirmative vote of sixty-six and two-thirds percent
(66-2/3%) of the voting power of the then outstanding shares of Voting Stock,
voting together as a single class, shall be required for the adoption, amendment
or repeal of the following sections of the Corporation's Bylaws by the
stockholders of the Corporation: 2.2 (Annual Meeting) and 2.3 (Special Meeting).
E. No action shall be taken by the stockholders of the
Corporation except at an annual or special meeting of the stockholders called in
accordance with the Bylaws.
F. Any director, or the entire Board of Directors, may be removed
from office at any time (i) with cause by the affirmative vote of the holders of
at least a majority of the voting power of all of the then outstanding shares of
the Voting Stock, voting together as a single
-2-
<PAGE> 3
class, or (ii) without cause by the affirmative vote of the holders of at least
sixty-six and two-thirds percent (66-2/3%) of the voting power of all of the
then outstanding shares of the Voting Stock.
SEVENTH: In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to adopt, amend or
repeal the Bylaws of the Corporation.
EIGHTH: Elections of directors need not be by written ballot except to
the extent provided in the Bylaws of the Corporation.
NINTH: A. To the fullest extent permitted by the General Corporation Law
of Delaware as the same exists or as may hereafter be amended, a director of the
Corporation or any subsidiary of the Corporation shall not be personally liable
to the Corporation or its stockholders and shall otherwise be indemnified by the
Corporation for monetary damages for breach of fiduciary duty as a director of
the Corporation, any predecessor of the Corporation or any subsidiary of the
Corporation.
B. The Corporation shall indemnify to the fullest extent
permitted by law any person made or threatened to be made a party to an action
or proceeding, whether criminal, civil, administrative or investigative, by
reason of the fact that he or she, his or her testator or intestate is or was a
director or officer of the Corporation, any predecessor of the Corporation or
any subsidiary of the Corporation or serves or served at any other enterprise as
a director or officer at the request of the Corporation, any predecessor to the
Corporation or any subsidiary of the Corporation.
C. Neither any amendment nor repeal of this Article NINTH, nor
the adoption of any provision of the Corporation's Certificate of Incorporation
inconsistent with this Article NINTH, shall eliminate or reduce the effect of
this Article NINTH, in respect of any matter occurring, or any action or
proceeding accruing or arising or that, but for this Article NINTH, would accrue
or arise, prior to such amendment, repeal, or adoption of an inconsistent
provision.
TENTH: Notwithstanding any other provisions of this Restated Certificate
of Incorporation or any provision of law which might otherwise permit a lesser
vote or no vote, but in addition to any affirmative vote of the holders of any
particular class or series of the Voting Stock required by law, this Amended and
Restated Certificate of Incorporation or any rights of designation of Preferred
Stock conferred on the Board of Directors pursuant to Article FOURTH, the
affirmative vote of the holders of at least sixty-six and two-thirds percent
(66-2/3%) of the voting power of all of the then outstanding shares of the
Voting Stock, voting together as a single class, shall be required to alter,
amend or repeal Article SIXTH or this Article TENTH.
ELEVENTH: The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Amended and Restated Certificate of
Incorporation, in the manner now or hereafter prescribed by statute, except as
provided in Article TENTH hereof, and all rights conferred upon the stockholders
herein are granted subject to this right.
TWELFTH: Meetings of stockholders may be held within or without the
State of Delaware, as the Bylaws may provide. The books of the Corporation may
be kept (subject to any
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<PAGE> 4
provision contained in the statutes) outside of the State of Delaware at such
place or places as may be designated from time to time by the Board of Directors
or in the Bylaws of the Corporation.
THIRTEENTH: Advance written notice of new business and stockholder
nominations for the election of directors shall be given in the manner and to
the extent provided in the Bylaws of the Corporation.
FOURTEENTH: Stockholders shall not be entitled to cumulative voting
rights for the election of directors.
IN WITNESS WHEREOF, POET Holdings, Inc. has caused this Amended and
Restated Certificate of Incorporation to be signed by Dirk Bartels, its
President, and attested by Judith M. O'Brien, its Secretary, this ____ day of
__________, 1999.
POET HOLDINGS, INC.
------------------------------------
Dirk Bartels, President
Attested:
- ------------------------------------
Judith M. O'Brien, Secretary
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<PAGE> 1
EXHIBIT 3.2
BYLAWS
OF
POET HOLDINGS, INC.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE I CORPORATE OFFICES..................................................................... 1
1.1 REGISTERED OFFICE................................................................ 1
1.2 OTHER OFFICES.................................................................... 1
ARTICLE II MEETINGS OF STOCKHOLDERS............................................................. 1
2.1 PLACE OF MEETINGS................................................................ 1
2.2 ANNUAL MEETING................................................................... 1
2.3 SPECIAL MEETING.................................................................. 1
2.4 NOTICE OF STOCKHOLDERS' MEETINGS................................................. 2
2.5 ADVANCE NOTICE OF STOCKHOLDER NOMINEES AND STOCKHOLDER BUSINESS.................. 2
2.6 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE..................................... 3
2.7 QUORUM........................................................................... 3
2.8 ADJOURNED MEETING; NOTICE........................................................ 4
2.9 VOTING........................................................................... 4
2.10 WAIVER OF NOTICE................................................................. 4
2.11 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING.......................... 5
2.12 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS...................... 5
2.13 PROXIES.......................................................................... 6
2.14 LIST OF STOCKHOLDERS ENTITLED TO VOTE............................................ 6
ARTICLE III DIRECTORS........................................................................... 7
3.1 POWERS........................................................................... 7
3.2 NUMBER OF DIRECTORS.............................................................. 7
3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS.......................... 7
3.4 RESIGNATION AND VACANCIES........................................................ 7
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE......................................... 8
3.6 REGULAR MEETINGS................................................................. 9
3.7 SPECIAL MEETINGS; NOTICE......................................................... 9
3.8 QUORUM........................................................................... 9
3.9 WAIVER OF NOTICE................................................................. 9
3.10 ADJOURNED MEETING; NOTICE........................................................10
3.11 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING................................10
3.12 FEES AND COMPENSATION OF DIRECTORS...............................................10
3.13 APPROVAL OF LOANS TO OFFICERS....................................................10
3.14 REMOVAL OF DIRECTORS.............................................................10
ARTICLE IV COMMITTEES...........................................................................11
4.1 COMMITTEES OF DIRECTORS..........................................................11
</TABLE>
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<PAGE> 3
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C>
4.2 COMMITTEE MINUTES................................................................11
4.3 MEETINGS AND ACTION OF COMMITTEES................................................11
ARTICLE V OFFICERS..............................................................................12
5.1 OFFICERS.........................................................................12
5.2 ELECTION OF OFFICERS.............................................................12
5.3 SUBORDINATE OFFICERS.............................................................12
5.4 REMOVAL AND RESIGNATION OF OFFICERS..............................................12
5.5 VACANCIES IN OFFICES.............................................................13
5.6 CHAIRMAN OF THE BOARD............................................................13
5.7 PRESIDENT........................................................................13
5.8 VICE PRESIDENT...................................................................13
5.9 SECRETARY........................................................................13
5.10 TREASURER........................................................................14
5.11 ASSISTANT SECRETARY..............................................................14
5.12 ASSISTANT TREASURER..............................................................14
5.13 AUTHORITY AND DUTIES OF OFFICERS.................................................15
ARTICLE VI INDEMNITY............................................................................15
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS........................................15
6.2 INDEMNIFICATION OF OTHERS........................................................15
6.3 INSURANCE........................................................................15
ARTICLE VII RECORDS AND REPORTS.................................................................16
7.1 MAINTENANCE AND INSPECTION OF RECORDS............................................16
7.2 INSPECTION BY DIRECTORS..........................................................16
7.3 ANNUAL STATEMENT TO STOCKHOLDERS.................................................17
7.4 REPRESENTATION OF SHARES OF OTHER CORPORATIONS...................................17
ARTICLE VIII GENERAL MATTERS....................................................................17
8.1 CHECKS...........................................................................17
8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS.................................17
8.3 STOCK CERTIFICATES; PARTLY PAID SHARES...........................................17
8.4 SPECIAL DESIGNATION ON CERTIFICATES..............................................18
8.5 LOST CERTIFICATES................................................................18
8.6 CONSTRUCTION; DEFINITIONS........................................................19
8.7 DIVIDENDS........................................................................19
8.8 FISCAL YEAR......................................................................19
8.9 SEAL.............................................................................19
8.10 TRANSFER OF STOCK................................................................19
</TABLE>
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<PAGE> 4
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C>
8.11 STOCK TRANSFER AGREEMENTS........................................................19
8.12 REGISTERED STOCKHOLDERS..........................................................20
ARTICLE IX AMENDMENTS...........................................................................20
ARTICLE X DISSOLUTION...........................................................................20
ARTICLE XI CUSTODIAN............................................................................21
11.1 APPOINTMENT OF A CUSTODIAN IN CERTAIN CASES......................................21
11.2 DUTIES OF CUSTODIAN..............................................................21
</TABLE>
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<PAGE> 5
BYLAWS
OF
POET HOLDINGS, INC.
ARTICLE I
CORPORATE OFFICES
1.1 REGISTERED OFFICE
The registered office of the corporation shall be in the City of
Wilmington, County of New Castle, State of Delaware. The name of the registered
agent of the corporation at such location is The Corporation Trust Company.
1.2 OTHER OFFICES
The board of directors may at any time establish other offices at any
place or places where the corporation is qualified to do business.
ARTICLE II
MEETINGS OF STOCKHOLDERS
2.1 PLACE OF MEETINGS
Meetings of stockholders shall be held at any place, within or outside
the State of Delaware, designated by the board of directors. In the absence of
any such designation, stockholders' meetings shall be held at the registered
office of the corporation.
2.2 ANNUAL MEETING
The annual meeting of stockholders shall be held each year on a date and
at a time designated by the board of directors. At the meeting, directors shall
be elected and any other proper business may be transacted.
2.3 SPECIAL MEETING
A special meeting of the stockholders may be called at any time by the
(i) board of directors, (ii) the chairman of the board or (iii) the chief
executive officer. In addition, prior to the Effective Date (as defined in
Section 2.11 hereof), stockholders owning 10% or more of the outstanding shares
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<PAGE> 6
entitled to vote in elections for the board of directors may call a special
meeting of the stockholders. Only such business shall be considered at a special
meeting as shall have been stated in the notice for such meeting.
If a special meeting is called by any person other than the board of
directors, the request shall be in writing, specifying the time of such meeting
and the general nature of the business proposed to be transacted, and shall be
delivered personally or sent by registered mail or by telegraphic or other
facsimile transmission to the chairman of the board, the chief executive
officer, the president, any vice president, or the secretary of the corporation.
No business may be transacted at such special meeting otherwise than specified
in such notice. The officer receiving the request shall cause notice to be
promptly given to the stockholders entitled to vote, in accordance with the
provisions of Sections 2.4 and 2.5 of this Article II, that a meeting will be
held at the time requested by the person or persons who called the meeting, not
less than thirty-five (35) nor more than sixty (60) days after the receipt of
the request. If the notice is not given within twenty (20) days after the
receipt of the request, the person or persons requesting the meeting may give
the notice. Nothing contained in this paragraph of this Section 2.3 shall be
construed as limiting, fixing, or affecting the time when a meeting of
stockholders called by action of the board of directors may be held.
2.4 NOTICE OF STOCKHOLDERS' MEETINGS
All notices of meetings with stockholders shall be in writing and shall
be sent or otherwise given in accordance with Section 2.6 of these Bylaws not
less than twenty (20) nor more than sixty (60) days before the date of the
meeting to each stockholder entitled to vote at such meeting. The notice shall
specify the place, date, and hour of the meeting, and, in the case of a special
meeting, the purpose or purposes for which the meeting is called.
2.5 ADVANCE NOTICE OF STOCKHOLDER NOMINEES AND STOCKHOLDER BUSINESS
To be properly brought before an annual meeting or special meeting,
nominations for the election of director or other business must be (i) specified
in the notice of meeting (or any supplement thereto) given by or at the
direction of the board of directors, (ii) otherwise properly brought before the
meeting by or at the direction of the board of directors, or (iii) otherwise
properly brought before the meeting by a stockholder. For such nominations or
other business to be considered properly brought before the meeting by a
stockholder, such stockholder must have given timely notice and in proper form
of his intent to bring such business before such meeting. To be timely, such
stockholder's notice must be delivered to or mailed and received by the
secretary of the corporation at the corporation's principal executive offices on
the date one year later which is not less than 120 calendar days nor more than
150 calendar days before the date of the corporation's proxy statement released
to stockholders in connection with the prior year's annual meeting. However, if
no annual meeting was held in the previous year, or if the date of the
applicable annual meeting has been changed by more than 30 days from the date
contemplated at the time of the previous year's proxy statement, a stockholder's
notice must be received by the secretary of the corporation at the corporation's
principal executive offices not later than 60 days before the date the
corporation commences mailing of its proxy materials in connection with the
applicable annual
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meeting. Notwithstanding the foregoing provisions of this Section 2.5, a
stockholder who seeks to have any proposal included in the corporation's proxy
materials shall comply with the requirements of Rule 14a-8 under Regulation 14A
of the Securities Exchange Act of 1934, as amended. To be in proper form, a
stockholder's notice to the secretary shall set forth:
(i) the name and address of the stockholder who intends to make the
nominations, propose the business, and, as the case may be, the name and address
of the person or persons to be nominated or the nature of the business to be
proposed;
(ii) a representation that the stockholder is a holder of record of
stock of the corporation entitled to vote at such meeting and, if applicable,
intends to appear in person or by proxy at the meeting to nominate the person or
persons specified in the notice or introduce the business specified in the
notice;
(iii) if applicable, a description of all arrangements or
understandings between the stockholder and each nominee and any other person or
persons (naming such person or persons) pursuant to which the nomination or
nominations are to be made by the stockholder;
(iv) such other information regarding each nominee or each matter of
business to be proposed by such stockholder as would be required to be included
in a proxy statement filed pursuant to the proxy rules of the Securities and
Exchange Commission had the nominee been nominated, or intended to be nominated,
or the matter been proposed, or intended to be proposed by the board of
directors; and
(v) if applicable, the consent of each nominee to serve as director
of the corporation if so elected.
The chairman of the meeting may refuse to acknowledge the nomination of
any person or the proposal of any business not made in compliance with the
foregoing procedure.
2.6 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE
Notice of any meeting of stockholders shall be given by telecopier, if
the corporation shall have the stockholder's current telecopier number, and
mail, postage prepaid, First Class mail. Written notice of any meeting of
stockholders, if sent by telecopier, is given when sent by telecopier and, if
only sent by mail, deposited in the United States mail, postage prepaid,
directed to the stockholder at his address as it appears on the records of the
corporation. An affidavit of the secretary or an assistant secretary or of the
transfer agent of the corporation that the notice has been given shall, in the
absence of fraud, be prima facie evidence of the facts stated therein.
2.7 QUORUM
The holders of a majority of the stock issued and outstanding and
entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum at all meetings of the stockholders for the transaction of
business except as otherwise provided by statute or by the
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<PAGE> 8
Certificate of Incorporation. If, however, such quorum is not present or
represented at any meeting of the stockholders, then the stockholders entitled
to vote thereat, present in person or represented by proxy, shall have power to
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum is present or represented. At such adjourned meeting
at which a quorum is present or represented, any business may be transacted that
might have been transacted at the meeting as originally noticed.
2.8 ADJOURNED MEETING; NOTICE
When a meeting is adjourned to another time or place, unless these
Bylaws otherwise require, notice need not be given of the adjourned meeting if
the time and place thereof are announced at the meeting at which the adjournment
is taken. At the adjourned meeting the corporation may transact any business
that might have been transacted at the original meeting. If the adjournment is
for more than thirty (30) days, or if after the adjournment a new record date is
fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at the meeting.
2.9 VOTING
The stockholders entitled to vote at any meeting of stockholders shall
be determined in accordance with the provisions of Section 2.12 of these Bylaws,
subject to the provisions of Sections 217 and 218 of the General Corporation Law
of Delaware (relating to voting rights of fiduciaries, pledgors and joint owners
of stock and to voting trusts and other voting agreements).
Except as provided in the last paragraph of this Section 2.9, or as may
be otherwise provided in the Certificate of Incorporation, each stockholder
shall be entitled to one vote for each share of capital stock held by such
stockholder.
At a stockholders' meeting at which directors are to be elected, or at
elections held under special circumstances, a stockholder shall be entitled to
cumulate votes (i.e., cast for any candidate a number of votes greater than the
number of votes which such stockholder normally is entitled to cast). Each
holder of stock, or of any class or classes or of a series or series thereof,
who elects to cumulate votes shall be entitled to as many votes as equals the
number of votes which (absent this provision as to cumulative voting) he would
be entitled to cast for the election of directors with respect to his shares of
stock multiplied by the number of directors to be elected by him, and he may
cast all of such votes for a single director or may distribute them among the
number to be voted for, or for any two or more of them, as he may see fit.
2.10 WAIVER OF NOTICE
Whenever notice is required to be given under any provision of the
General Corporation Law of Delaware or of the Certificate of Incorporation or
these Bylaws, a written waiver thereof, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the
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<PAGE> 9
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened. Neither the business to be transacted at,
nor the purpose of, any regular or special meeting of the stockholders need be
specified in any written waiver of notice unless so required by the Certificate
of Incorporation or these Bylaws.
2.11 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Except as otherwise provided in this Section 2.11, any action required
to be taken at any annual or special meeting of stockholders of a corporation,
or any action that may be taken at any annual or special meeting of such
stockholders, may be taken without a meeting, without prior notice, and without
a vote if a consent in writing, setting forth the action so taken, is signed by
the holders of outstanding stock having not less than the minimum number of
votes that would be necessary to authorize or take such action at a meeting at
which all shares entitled to vote thereon were present and voted.
Prompt notice of the taking of the corporate action without a meeting by
less than unanimous written consent shall be given to those stockholders who
have not consented in writing. If the action which is consented to is such as
would have required the filing of a certificate under any section of the General
Corporation Law of Delaware if such action had been voted on by stockholders at
a meeting thereof, then the certificate filed under such section shall state, in
lieu of any statement required by such section concerning any vote of
stockholders, that written notice and written consent have been given as
provided in Section 228 of the General Corporation Law of Delaware.
Notwithstanding the foregoing, effective upon the listing of the common
stock of the corporation on a stock exchange within or outside the United States
and the registration of any class of securities of the corporation pursuant to
the requirements of the Securities Exchange Act of 1934, as amended (the
"Effective Date"), the stockholders of the corporation may not take action by
written consent without a meeting but must take any such actions at a duly
called annual or special meeting.
2.12 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS
In order that the corporation may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders or any adjournment thereof,
or entitled to express consent to corporate action in writing without a meeting,
or entitled to receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock or for the purpose of any other lawful
action, the board of directors may fix, in advance, a record date, which shall
not be more than sixty (60) nor less than twenty (20) days before the date of
such meeting, nor more than sixty (60) days prior to any other action.
If the board of directors does not so fix a record date:
(i) The record date for determining stockholders entitled to notice
of or to vote at a meeting of stockholders shall be at the close of business on
the day next preceding the day on
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which notice is given, or, if notice is waived, at the close of business on the
day next preceding the day on which the meeting is held.
(ii) The record date for determining stockholders entitled to
express consent to corporate action in writing without a meeting, when no prior
action by the board of directors is necessary or has been taken to such
corporate action, shall be the day on which the first written consent is
expressed.
(iii) The record date for determining stockholders for any other
purpose shall be at the close of business on the day on which the board of
directors adopts the resolution relating thereto.
A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the board of directors may fix a new record date for the
adjourned meeting.
2.13 PROXIES
Each stockholder entitled to vote at a meeting of stockholders or to
express consent or dissent to corporate action in writing without a meeting may
authorize another person or persons to act for him by a written proxy, signed by
the stockholder and filed with the secretary of the corporation, but no such
proxy shall be voted or acted upon after three (3) years from its date, unless
the proxy provides for a longer period. A proxy shall be deemed signed if the
stockholder's name is placed on the proxy (whether by manual signature,
typewriting, telegraphic transmission or otherwise) by the stockholder or the
stockholder's attorney-in-fact. The revocability of a proxy that states on its
face that it is irrevocable shall be governed by the provisions of Section
212(c) of the General Corporation Law of Delaware.
2.14 LIST OF STOCKHOLDERS ENTITLED TO VOTE
The officer who has charge of the stock ledger of the corporation shall
prepare and make, at least twenty (20) days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
twenty (20) days prior to the meeting, either at a place within the city where
the meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present.
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ARTICLE III
DIRECTORS
3.1 POWERS
Subject to the provisions of the General Corporation Law of Delaware and
any limitations in the Certificate of Incorporation or these Bylaws relating to
action required to be approved by the stockholders or by the outstanding shares,
the business and affairs of the corporation shall be managed and all corporate
powers shall be exercised by or under the direction of the board of directors.
3.2 NUMBER OF DIRECTORS
The number of directors of the corporation shall be not less than three
(3) nor more than seven (7). The exact number of directors shall be seven (7)
until changed, within the limits specified above, by a bylaw amending this
Section 3.2, duly adopted by the board of directors or by the stockholders. The
indefinite number of directors may be changed, or a definite number may be fixed
without provision for an indefinite number, by a duly adopted amendment to the
Certificate of Incorporation or by an amendment to this bylaw duly adopted by
the vote or written consent of the holders of a majority of the outstanding
shares entitled to vote or by resolution of a majority of the board of
directors.
No reduction of the authorized number of directors shall have the effect
of removing any director before that director's term of office expires.
3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS
Except as provided in Section 3.4 of these Bylaws, directors shall be
elected at each annual meeting of stockholders to hold office until the next
annual meeting. Directors need not be stockholders unless so required by the
Certificate of Incorporation or these Bylaws, wherein other qualifications for
directors may be prescribed. Each director, including a director elected to fill
a vacancy, shall hold office until his successor is elected and qualified or
until his earlier resignation or removal.
Elections of directors need not be by written ballot.
3.4 RESIGNATION AND VACANCIES
Any director may resign at any time upon written notice to the
corporation. When one or more directors so resigns and the resignation is
effective at a future date, a majority of the directors then in office,
including those who have so resigned, shall have power to fill such vacancy or
vacancies, the vote thereon to take effect when such resignation or resignations
shall become effective, and each director so chosen shall hold office as
provided in this section for the filling of other vacancies.
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Unless otherwise provided in the Certificate of Incorporation or these
Bylaws:
(i) Vacancies and newly created directorships resulting from any
increase in the authorized number of directors elected by all of the
stockholders having the right to vote as a single class may be filled by a
majority of the directors then in office, although less than a quorum, or by a
sole remaining director.
(ii) Whenever the holders of any class or classes of stock or series
thereof are entitled to elect one or more directors by the provisions of the
Certificate of Incorporation, vacancies and newly created directorships of such
class or classes or series may be filled by a majority of the directors elected
by such class or classes or series thereof then in office, or by a sole
remaining director so elected.
If at any time, by reason of death or resignation or other cause, the
corporation should have no directors in office, then any officer or any
stockholder or an executor, administrator, trustee or guardian of a stockholder,
or other fiduciary entrusted with like responsibility for the person or estate
of a stockholder, may call a special meeting of stockholders in accordance with
the provisions of the Certificate of Incorporation or these Bylaws, or may apply
to the Court of Chancery for a decree summarily ordering an election as provided
in Section 211 of the General Corporation Law of Delaware.
If, at the time of filling any vacancy or any newly created
directorship, the directors then in office constitute less than a majority of
the whole board (as constituted immediately prior to any such increase), then
the Court of Chancery may, upon application of any stockholder or stockholders
holding at least ten (10) percent of the total number of the shares at the time
outstanding having the right to vote for such directors, summarily order an
election to be held to fill any such vacancies or newly created directorships,
or to replace the directors chosen by the directors then in office as aforesaid,
which election shall be governed by the provisions of Section 211 of the General
Corporation Law of Delaware as far as applicable.
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE
The board of directors of the corporation may hold meetings, both
regular and special, either within or outside the State of Delaware.
Unless otherwise restricted by the Certificate of Incorporation or these
Bylaws, members of the board of directors, or any committee designated by the
board of directors, may participate in a meeting of the board of directors, or
any committee, by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and such participation in a meeting shall constitute presence in
person at the meeting.
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3.6 REGULAR MEETINGS
Regular meetings of the board of directors may be held without notice at
such time and at such place as shall from time to time be determined by the
board but in any event shall be held at least once every three months in
California, U.S.A.
3.7 SPECIAL MEETINGS; NOTICE
Special meetings of the board of directors for any purpose or purposes
may be called at any time by the chairman of the board, the president, any vice
president, the secretary or any two (2) directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail or
telegram, charges prepaid, addressed to each director at that director's address
as it is shown on the records of the corporation. If the notice is mailed, it
shall be deposited in the United States mail at least four (4) days before the
time of the holding of the meeting. If the notice is delivered personally or by
telephone or by telegram, it shall be delivered personally or by telephone or to
the telegraph company at least forty-eight (48) hours before the time of the
holding of the meeting. Any oral notice given personally or by telephone may be
communicated either to the director or to a person at the office of the director
who the person giving the notice has reason to believe will promptly communicate
it to the director. The notice need not specify the purpose or the place of the
meeting, if the meeting is to be held at the principal executive office of the
corporation.
3.8 QUORUM
At all meetings of the board of directors, a majority of the authorized
number of directors shall constitute a quorum for the transaction of business
and the act of a majority of the directors present at any meeting at which there
is a quorum shall be the act of the board of directors, except as may be
otherwise specifically provided by statute or by the Certificate of
Incorporation. If a quorum is not present at any meeting of the board of
directors, then the directors present thereat may adjourn the meeting from time
to time, without notice other than announcement at the meeting, until a quorum
is present.
3.9 WAIVER OF NOTICE
Whenever notice is required to be given under any provision of the
General Corporation Law of Delaware or of the Certificate of Incorporation or
these Bylaws, a written waiver thereof, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the directors, or members of a committee of directors, need be specified in
any written waiver of notice unless so required by the Certificate of
Incorporation or these Bylaws.
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3.10 ADJOURNED MEETING; NOTICE
If a quorum is not present at any meeting of the board of directors,
then the directors present thereat may adjourn the meeting from time to time,
without notice other than announcement at the meeting, until a quorum is
present.
3.11 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Unless otherwise restricted by the Certificate of Incorporation or these
Bylaws, any action required or permitted to be taken at any meeting of the board
of directors, or of any committee thereof, may be taken without a meeting if all
members of the board or committee, as the case may be, consent thereto in
writing and the writing or writings are filed with the minutes of proceedings of
the board or committee.
3.12 FEES AND COMPENSATION OF DIRECTORS
Unless otherwise restricted by the Certificate of Incorporation or these
Bylaws or changed by an amendment to this bylaw duly adopted by a vote or
written consent of the holders of a majority of the outstanding shares entitled
to vote or by resolution of a majority of the board of directors, the board of
directors shall have the authority to fix the compensation of directors and to
determine whether the corporation shall pay each director's reasonable costs and
expenses of attending any meeting of the board of directors.
3.13 APPROVAL OF LOANS TO OFFICERS
The corporation may lend money to, or guarantee any obligation of, or
otherwise assist any officer or other employee of the corporation or of its
subsidiary, including any officer or employee who is a director of the
corporation or its subsidiary, whenever, in the judgment of the directors, such
loan, guaranty or assistance may reasonably be expected to benefit the
corporation. The loan, guaranty or other assistance may be with or without
interest and may be unsecured, or secured in such manner as the board of
directors shall approve, including, without limitation, a pledge of shares of
stock of the corporation. Nothing in this section contained shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation at
common law or under any statute.
3.14 REMOVAL OF DIRECTORS
Unless otherwise restricted by statute, by the Certificate of
Incorporation or by these Bylaws, any director or the entire board of directors
may be removed, with or without cause, by the holders of a majority of the
shares then entitled to vote at an election of directors.
No reduction of the authorized number of directors shall have the effect
of removing any director prior to the expiration of such director's term of
office.
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ARTICLE IV
COMMITTEES
4.1 COMMITTEES OF DIRECTORS
The board of directors may, by resolution passed by a majority of the
whole board, designate one or more committees, with each committee to consist of
one or more of the directors of the corporation. The board may designate one or
more directors as alternate members of any committee, who may replace any absent
or disqualified member at any meeting of the committee. In the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the board of
directors to act at the meeting in the place of any such absent or disqualified
member. Any such committee, to the extent provided in the resolution of the
board of directors or in the Bylaws of the corporation, shall have and may
exercise all the powers and authority of the board of directors in the
management of the business and affairs of the corporation, and may authorize the
seal of the corporation to be affixed to all papers that may require it; but no
such committee shall have the power or authority to (i) amend the Certificate of
Incorporation (except that a committee may, to the extent authorized in the
resolution or resolutions providing for the issuance of shares of stock adopted
by the board of directors as provided in Section 151(a) of the General
Corporation Law of Delaware, fix any of the preferences or rights of such shares
relating to dividends, redemption, dissolution, any distribution of assets of
the corporation or the conversion into, or the exchange of such shares for,
shares of any other class or classes or any other series of the same or any
other class or classes of stock of the corporation), (ii) adopt an agreement of
merger or consolidation under Sections 251 or 252 of the General Corporation Law
of Delaware, (iii) recommend to the stockholders the sale, lease or exchange of
all or substantially all of the corporation's property and assets, (iv)
recommend to the stockholders a dissolution of the corporation or a revocation
of a dissolution, or (v) amend the Bylaws of the corporation; and, unless the
board resolution establishing the committee, the Bylaws or the Certificate of
Incorporation expressly so provide, no such committee shall have the power or
authority to declare a dividend, to authorize the issuance of stock, or to adopt
a certificate of ownership and merger pursuant to Section 253 of the General
Corporation Law of Delaware.
4.2 COMMITTEE MINUTES
Each committee shall keep regular minutes of its meetings and report the
same to the board of directors when required.
4.3 MEETINGS AND ACTION OF COMMITTEES
Meetings and actions of committees shall be governed by, and held and
taken in accordance with, the provisions of Article III of these Bylaws, Section
3.5 (place of meetings and meetings by telephone), Section 3.6 (regular
meetings), Section 3.7 (special meetings and notice), Section 3.8 (quorum),
Section 3.9 (waiver of notice), Section 3.10 (adjournment and notice of
adjournment), and Section 3.11 (action without a meeting), with such changes in
the context of those Bylaws as are
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necessary to substitute the committee and its members for the board of directors
and its members; provided, however, that the time of regular meetings of
committees may also be called by resolution of the board of directors and that
notice of special meetings of committees shall also be given to all alternate
members, who shall have the right to attend all meetings of the committee. The
board of directors may adopt rules for the government of any committee not
inconsistent with the provisions of these Bylaws.
ARTICLE V
OFFICERS
5.1 OFFICERS
The officers of the corporation shall be a president, one or more vice
presidents, a secretary, and a treasurer. The corporation may also have, at the
discretion of the board of directors, a chairman of the board, one or more
assistant vice presidents, assistant secretaries, assistant treasurers, and any
such other officers as may be appointed in accordance with the provisions of
Section 5.3 of these Bylaws. Any number of offices may be held by the same
person.
5.2 ELECTION OF OFFICERS
The officers of the corporation, except such officers as may be
appointed in accordance with the provisions of Sections 5.3 or 5.5 of these
Bylaws, shall be chosen by the board of directors, subject to the rights, if
any, of an officer under any contract of employment.
5.3 SUBORDINATE OFFICERS
The board of directors may appoint, or empower the president to appoint,
such other officers and agents as the business of the corporation may require,
each of whom shall hold office for such period, have such authority, and perform
such duties as are provided in these Bylaws or as the board of directors may
from time to time determine.
5.4 REMOVAL AND RESIGNATION OF OFFICERS
Subject to the rights, if any, of an officer under any contract of
employment, any officer may be removed, either with or without cause, by an
affirmative vote of the majority of the board of directors at any regular or
special meeting of the board or, except in the case of an officer chosen by the
board of directors, by any officer upon whom such power of removal may be
conferred by the board of directors.
Any officer may resign at any time by giving written notice to the
corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless otherwise
specified in that notice, the acceptance of the resignation shall not
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be necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the corporation under any contract to which the officer is a
party.
5.5 VACANCIES IN OFFICES
Any vacancy occurring in any office of the corporation shall be filled
by the board of directors.
5.6 CHAIRMAN OF THE BOARD
The chairman of the board, if such an officer be elected, shall, if
present, preside at meetings of the board of directors and exercise and perform
such other powers and duties as may from time to time be assigned to him by the
board of directors or as may be prescribed by these Bylaws. If there is no
president, then the chairman of the board shall also be the chief executive
officer of the corporation and shall have the powers and duties prescribed in
Section 5.7 of these Bylaws.
5.7 PRESIDENT
Subject to such supervisory powers, if any, as may be given by the board
of directors to the chairman of the board, if there be such an officer, the
president shall be the chief executive officer of the corporation and shall,
subject to the control of the board of directors, have general supervision,
direction, and control of the business and the officers of the corporation. He
shall preside at all meetings of the shareholders and, in the absence or
nonexistence of a chairman of the board, at all meetings of the board of
directors. He shall have the general powers and duties of management usually
vested in the office of president of a corporation and shall have such other
powers and duties as may be prescribed by the board of directors or these
Bylaws.
5.8 VICE PRESIDENT
In the absence or disability of the president, the vice presidents, if
any, in order of their rank as fixed by the board of directors or, if not
ranked, a vice president designated by the board of directors, shall perform all
the duties of the president and when so acting shall have all the powers of, and
be subject to all the restrictions upon, the president. The vice presidents
shall have such other powers and perform such other duties as from time to time
may be prescribed for them respectively by the board of directors, these Bylaws,
the president or the chairman of the board.
5.9 SECRETARY
The secretary shall keep or cause to be kept, at the principal executive
office of the corporation or such other place as the board of directors may
direct, a book of minutes of all meetings and actions of directors, committees
of directors, and shareholders. The minutes shall show the time and place of
each meeting, whether regular or special (and, if special, how authorized and
the notice given), the names of those present at directors' meetings or
committee meetings, the number of shares present or represented at shareholders'
meetings, and the proceedings thereof.
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The secretary shall keep, or cause to be kept, at the principal
executive office of the corporation or at the office of the corporation's
transfer agent or registrar, as determined by resolution of the board of
directors, a share register, or a duplicate share register, showing the names of
all shareholders and their addresses, the number and classes of shares held by
each, the number and date of certificates evidencing such shares, and the number
and date of cancellation of every certificate surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all meetings
of the shareholders and of the board of directors required to be given by law or
by these Bylaws. She shall keep the seal of the corporation, if one be adopted,
in safe custody and shall have such other powers and perform such other duties
as may be prescribed by the board of directors or by these Bylaws.
5.10 TREASURER
The treasurer shall keep and maintain, or cause to be kept and
maintained, adequate and correct books and records of accounts of the properties
and business transactions of the corporation, including accounts of its assets,
liabilities, receipts, disbursements, gains, losses, capital, retained earnings,
and shares. The books of account shall at all reasonable times be open to
inspection by any director.
The treasurer shall deposit all money and other valuables in the name
and to the credit of the corporation with such depositaries as may be designated
by the board of directors. He shall disburse the funds of the corporation as may
be ordered by the board of directors, shall render to the president and
directors, whenever they request it, an account of all of his transactions as
treasurer and of the financial condition of the corporation, and shall have such
other powers and perform such other duties as may be prescribed by the board of
directors or these Bylaws.
5.11 ASSISTANT SECRETARY
The assistant secretary, or, if there is more than one, the assistant
secretaries in the order determined by the stockholders or board of directors
(or if there be no such determination, then in the order of their election)
shall, in the absence of the secretary or in the event of his or her inability
or refusal to act, perform the duties and exercise the powers of the secretary
and shall perform such other duties and have such other powers as the board of
directors or the stockholders may from time to time prescribe.
5.12 ASSISTANT TREASURER
The assistant treasurer, or, if there is more than one, the assistant
treasurers, in the order determined by the stockholders or board of directors
(or if there be no such determination, then in the order of their election),
shall, in the absence of the treasurer or in the event of his or her inability
or refusal to act, perform the duties and exercise the powers of the treasurer
and shall perform such other duties and have such other powers as the board of
directors or the stockholders may from time to time prescribe.
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5.13 AUTHORITY AND DUTIES OF OFFICERS
In addition to the foregoing authority and duties, all officers of the
corporation shall respectively have such authority and perform such duties in
the management of the business of the corporation as may be designated from time
to time by the board of directors or the stockholders.
ARTICLE VI
INDEMNITY
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS
The corporation shall, to the maximum extent and in the manner permitted
by the General Corporation Law of Delaware, indemnify each of its directors and
officers against expenses (including attorneys' fees), judgments, fines,
settlements, and other amounts actually and reasonably incurred in connection
with any proceeding, arising by reason of the fact that such person is or was an
agent of the corporation. For purposes of this Section 6.1, a "director" or
"officer" of the corporation includes any person (i) who is or was a director or
officer of the corporation, (ii) who is or was serving at the request of the
corporation as a director or officer of another corporation, partnership, joint
venture, trust or other enterprise, or (iii) who was a director or officer of a
corporation which was a predecessor corporation of the corporation or of another
enterprise at the request of such predecessor corporation.
6.2 INDEMNIFICATION OF OTHERS
The corporation shall have the power, to the extent and in the manner
permitted by the General Corporation Law of Delaware, to indemnify each of its
employees and agents (other than directors and officers) against expenses
(including attorneys' fees), judgments, fines, settlements, and other amounts
actually and reasonably incurred in connection with any proceeding, arising by
reason of the fact that such person is or was an agent of the corporation. For
purposes of this Section 6.2, an "employee" or "agent" of the corporation (other
than a director or officer) includes any person (i) who is or was an employee or
agent of the corporation, (ii) who is or was serving at the request of the
corporation as an employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, or (iii) who was an employee or agent of a
corporation which was a predecessor corporation of the corporation or of another
enterprise at the request of such predecessor corporation.
6.3 INSURANCE
The corporation may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of the corporation,
or is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against him and incurred by him
in any such capacity, or arising out of his status as such, whether or not the
corporation would have the
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power to indemnify him against such liability under the provisions of the
General Corporation Law of Delaware.
ARTICLE VII
RECORDS AND REPORTS
7.1 MAINTENANCE AND INSPECTION OF RECORDS
The corporation shall, either at its principal executive office or at
such place or places as designated by the board of directors, keep a record of
its shareholders listing their names and addresses and the number and class of
shares held by each shareholder, a copy of these Bylaws as amended to date,
accounting books, and other records.
Any stockholder of record, in person or by attorney or other agent,
shall, upon written demand under oath stating the purpose thereof, have the
right during the usual hours for business to inspect for any proper purpose the
corporation's stock ledger, a list of its stockholders, and its other books and
records and to make copies or extracts therefrom. A proper purpose shall mean a
purpose reasonably related to such person's interest as a stockholder. In every
instance where an attorney or other agent is the person who seeks the right to
inspection, the demand under oath shall be accompanied by a power of attorney or
such other writing that authorizes the attorney or other agent to so act on
behalf of the stockholder. The demand under oath shall be directed to the
corporation at its registered office in Delaware or at its principal place of
business.
The officer who has charge of the stock ledger of a corporation shall
prepare and make, at least twenty (20) days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
twenty (20) days prior to the meeting, either at a place within the city where
the meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present.
7.2 INSPECTION BY DIRECTORS
Any director shall have the right to examine the corporation's stock
ledger, a list of its stockholders, and its other books and records for a
purpose reasonably related to his position as a director. The Court of Chancery
is hereby vested with the exclusive jurisdiction to determine whether a director
is entitled to the inspection sought. The Court may summarily order the
corporation to permit the director to inspect any and all books and records, the
stock ledger, and the stock list and to make copies or extracts therefrom. The
Court may, in its discretion, prescribe any
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limitations or conditions with reference to the inspection, or award such other
and further relief as the Court may deem just and proper.
7.3 ANNUAL STATEMENT TO STOCKHOLDERS
The board of directors shall present at each annual meeting, and at any
special meeting of the stockholders when called for by vote of the stockholders,
a full and clear statement of the business and condition of the corporation.
7.4 REPRESENTATION OF SHARES OF OTHER CORPORATIONS
The chairman of the board, the president, any vice president, the
treasurer, the secretary or assistant secretary of this corporation, or any
other person authorized by the board of directors or the president or a vice
president, is authorized to vote, represent, and exercise on behalf of this
corporation all rights incident to any and all shares of any other corporation
or corporations standing in the name of this corporation. The authority granted
herein may be exercised either by such person directly or by any other person
authorized to do so by proxy or power of attorney duly executed by such person
having the authority.
ARTICLE VIII
GENERAL MATTERS
8.1 CHECKS
From time to time, the board of directors shall determine by resolution
which person or persons may sign or endorse all checks, drafts, other orders for
payment of money, notes or other evidences of indebtedness that are issued in
the name of or payable to the corporation, and only the persons so authorized
shall sign or endorse those instruments.
8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS
The board of directors, except as otherwise provided in these Bylaws,
may authorize any officer or officers, or agent or agents, to enter into any
contract or execute any instrument in the name of and on behalf of the
corporation; such authority may be general or confined to specific instances.
Unless so authorized or ratified by the board of directors or within the agency
power of an officer, no officer, agent or employee shall have any power or
authority to bind the corporation by any contract or engagement or to pledge its
credit or to render it liable for any purpose or for any amount.
8.3 STOCK CERTIFICATES; PARTLY PAID SHARES
The shares of a corporation shall be represented by certificates,
provided that the board of directors of the corporation may provide by
resolution or resolutions that some or all of any or all
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classes or series of its stock shall be uncertificated shares. Any such
resolution shall not apply to shares represented by a certificate until such
certificate is surrendered to the corporation. Notwithstanding the adoption of
such a resolution by the board of directors, every holder of stock represented
by certificates and upon request every holder of uncertificated shares shall be
entitled to have a certificate signed by, or in the name of the corporation by
the chairman or vice-chairman of the board of directors, or the president or
vice-president, and by the treasurer or an assistant treasurer, or the secretary
or an assistant secretary of such corporation representing the number of shares
registered in certificate form. Any or all of the signatures on the certificate
may be a facsimile. In case any officer, transfer agent or registrar who has
signed or whose facsimile signature has been placed upon a certificate has
ceased to be such officer, transfer agent or registrar before such certificate
is issued, it may be issued by the corporation with the same effect as if he
were such officer, transfer agent or registrar at the date of issue.
The corporation may issue the whole or any part of its shares as partly
paid and subject to call for the remainder of the consideration to be paid
therefor. Upon the face or back of each stock certificate issued to represent
any such partly paid shares, upon the books and records of the corporation in
the case of uncertificated partly paid shares, the total amount of the
consideration to be paid therefor and the amount paid thereon shall be stated.
Upon the declaration of any dividend on fully paid shares, the corporation shall
declare a dividend upon partly paid shares of the same class, but only upon the
basis of the percentage of the consideration actually paid thereon.
8.4 SPECIAL DESIGNATION ON CERTIFICATES
If the corporation is authorized to issue more than one class of stock
or more than one series of any class, then the powers, the designations, the
preferences, and the relative, participating, optional or other special rights
of each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate that the corporation shall
issue to represent such class or series of stock; provided, however, that,
except as otherwise provided in Section 202 of the General Corporation Law of
Delaware, in lieu of the foregoing requirements there may be set forth on the
face or back of the certificate that the corporation shall issue to represent
such class or series of stock a statement that the corporation will furnish
without charge to each stockholder who so requests the powers, the designations,
the preferences, and the relative, participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights.
8.5 LOST CERTIFICATES
Except as provided in this Section 8.5, no new certificates for shares
shall be issued to replace a previously issued certificate unless the latter is
surrendered to the corporation and cancelled at the same time. The corporation
may issue a new certificate of stock or uncertificated shares in the place of
any certificate theretofore issued by it, alleged to have been lost, stolen or
destroyed, and the corporation may require the owner of the lost, stolen or
destroyed certificate, or his legal representative, to give the corporation a
bond sufficient to indemnify it against any claim
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that may be made against it on account of the alleged loss, theft or destruction
of any such certificate or the issuance of such new certificate or
uncertificated shares.
8.6 CONSTRUCTION; DEFINITIONS
Unless the context requires otherwise, the general provisions, rules of
construction, and definitions in the Delaware General Corporation Law shall
govern the construction of these Bylaws. Without limiting the generality of this
provision, the singular number includes the plural, the plural number includes
the singular, and the term "person" includes both a corporation and a natural
person.
8.7 DIVIDENDS
The directors of the corporation, subject to any restrictions contained
in the Certificate of Incorporation, may declare and pay dividends upon the
shares of its capital stock pursuant to the General Corporation Law of Delaware.
Dividends may be paid in cash, in property, or in shares of the corporation's
capital stock.
The directors of the corporation may set apart out of any of the funds
of the corporation available for dividends a reserve or reserves for any proper
purpose and may abolish any such reserve. Such purposes shall include but not be
limited to equalizing dividends, repairing or maintaining any property of the
corporation, and meeting contingencies.
8.8 FISCAL YEAR
The fiscal year of the corporation shall be fixed by resolution of the
board of directors and may be changed by the board of directors.
8.9 SEAL
The corporation may adopt a corporate seal, which shall be adopted and
which may be altered by the board of directors, and may use the same by causing
it or a facsimile thereof to be impressed or affixed or in any other manner
reproduced.
8.10 TRANSFER OF STOCK
Upon surrender to the corporation or the transfer agent of the
corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignation or authority to transfer, it shall be the
duty of the corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate, and record the transaction in its books.
8.11 STOCK TRANSFER AGREEMENTS
The corporation shall have power to enter into and perform any agreement
with any number of shareholders of any one or more classes of stock of the
corporation to restrict the transfer of
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shares of stock of the corporation of any one or more classes owned by such
stockholders in any manner not prohibited by the General Corporation Law of
Delaware.
8.12 REGISTERED STOCKHOLDERS
The corporation shall be entitled to recognize the exclusive right of a
person registered on its books as the owner of shares to receive dividends and
to vote as such owner, shall be entitled to hold liable for calls and
assessments the person registered on its books as the owner of shares, and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of another person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
ARTICLE IX
AMENDMENTS
Except as provided in these bylaws, the original or other Bylaws of the
corporation may be adopted, amended or repealed by the stockholders entitled to
vote; provided, however, that the corporation may, in its Certificate of
Incorporation, confer the power to adopt, amend or repeal Bylaws upon the
directors. The fact that such power has been so conferred upon the directors
shall not divest the stockholders of the power, nor limit their power to adopt,
amend or repeal Bylaws.
ARTICLE X
DISSOLUTION
If it should be deemed advisable in the judgment of the board of
directors of the corporation that the corporation should be dissolved, the
board, after the adoption of a resolution to that effect by a majority of the
whole board at any meeting called for that purpose, shall cause notice to be
mailed to each stockholder entitled to vote thereon of the adoption of the
resolution and of a meeting of stockholders to take action upon the resolution.
At the meeting a vote shall be taken for and against the proposed
dissolution. If a majority of the outstanding stock of the corporation entitled
to vote thereon votes for the proposed dissolution, then a certificate stating
that the dissolution has been authorized in accordance with the provisions of
Section 275 of the General Corporation Law of Delaware and setting forth the
names and residences of the directors and officers shall be executed,
acknowledged, and filed and shall become effective in accordance with Section
103 of the General Corporation Law of Delaware. Upon such certificate's becoming
effective in accordance with Section 103 of the General Corporation Law of
Delaware, the corporation shall be dissolved.
Whenever all the stockholders entitled to vote on a dissolution consent
in writing, either in person or by duly authorized attorney, to a dissolution,
no meeting of directors or stockholders shall
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be necessary. The consent shall be filed and shall become effective in
accordance with Section 103 of the General Corporation Law of Delaware. Upon
such consent's becoming effective in accordance with Section 103 of the General
Corporation Law of Delaware, the corporation shall be dissolved. If the consent
is signed by an attorney, then the original power of attorney or a photocopy
thereof shall be attached to and filed with the consent. The consent filed with
the Secretary of State shall have attached to it the affidavit of the secretary
or some other officer of the corporation stating that the consent has been
signed by or on behalf of all the stockholders entitled to vote on a
dissolution; in addition, there shall be attached to the consent a certification
by the secretary or some other officer of the corporation setting forth the
names and residences of the directors and officers of the corporation.
ARTICLE XI
CUSTODIAN
11.1 APPOINTMENT OF A CUSTODIAN IN CERTAIN CASES
The Court of Chancery, upon application of any stockholder, may appoint
one or more persons to be custodians and, if the corporation is insolvent, to be
receivers, of and for the corporation when:
(i) at any meeting held for the election of directors the
stockholders are so divided that they have failed to elect successors to
directors whose terms have expired or would have expired upon qualification of
their successors; or
(ii) the business of the corporation is suffering or is threatened
with irreparable injury because the directors are so divided respecting the
management of the affairs of the corporation that the required vote for action
by the board of directors cannot be obtained and the stockholders are unable to
terminate this division; or
(iii) the corporation has abandoned its business and has failed
within a reasonable time to take steps to dissolve, liquidate or distribute its
assets.
11.2 DUTIES OF CUSTODIAN
The custodian shall have all the powers and title of a receiver
appointed under Section 291 of the General Corporation Law of Delaware, but the
authority of the custodian shall be to continue the business of the corporation
and not to liquidate its affairs and distribute its assets, except when the
Court of Chancery otherwise orders and except in cases arising under Sections
226(a)(3) or 352(a)(2) of the General Corporation Law of Delaware.
-21-
<PAGE> 1
EXHIBIT 4.1
NUMBER SHARES
POE
[POET LOGO]
POET HOLDINGS, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
CUSIP 730447 10 9
THIS CERTIFIES that SEE REVERSE FOR ABBREVIATIONS
AND A STATEMENT OF RIGHTS
GRANTED TO EACH CLASS
OF SHARES
is the record holder of
FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK, $.001 PAR VALUE, OF
POET HOLDINGS, INC.
transferable on the share register of the Corporation in person or by duly
authorized attorney upon surrender of this Certificate properly endorsed. This
Certificate is not valid unless countersigned by the Transfer Agent and
registered by the Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.
Dated:
/s/ JUDITH M. O'BRIEN [POET HOLDINGS SEAL] /s/ DIRK BARTELS
SECRETARY PRESIDENT AND CHIEF EXECUTIVE OFFICER
COUNTERSIGNED AND REGISTERED:
CHASEMELLON SHAREHOLDER SERVICES, LLC.
TRANSFER AGENT AND REGISTRAR
BY
AUTHORIZED SIGNATURE
AMERICAN BANK NOTE COMPANY NOV 9, 1999 fm
3504 ATLANTIC AVENUE
SUITE 12 063998fc
LONG BEACH, CA 90807
(562) 989-2333
(FAX) (562) 420-7450 12MX Proof /s/ [SIGNATURE ILLEGIBLE] REV 2
-------------------------
<PAGE> 2
POET HOLDINGS, INC.
A statement of the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights as established, from time to time, by the Certificate of
Incorporation of the Corporation and by any certificate of determination, the
number of shares constituting each class and series, and the designations
thereof, may be obtained by the holder hereof upon request and without charge at
the principal office of the Corporation.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM -- as tenants in common
TEN ENT -- as tenants by the entireties
JT TEN -- as joint tenants with right of
survivorship and not as tenants
in common
UNIF GIFT MIN ACT -- _____________________ Custodian ______________________
(Cust) (Minor)
under Uniform Gifts to Minors
Act __________________________________________________
(State)
UNIF TRF MIN ACT -- ______________________ Custodian (until age___________)
(Cust)
_______________________________ under Uniform Transfers
(Minor)
to Minors Act _________________________________________
(State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, ______________________ hereby sell, assign and
transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
______________________________________
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
________________________________________________________________________________
________________________________________________________________________________
_________________________________________________________________________ Shares
of the common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
_______________________________________________________________________ Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated ___________________________
X ________________________________________
X ________________________________________
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME(S) AS
WRITTEN UPON THE FACE OF THE CERTIFICATE
IN EVERY PARTICULAR, WITHOUT ALTERATION
OR ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed
By ___________________________________
THE SIGNATURE(S) MUST BE GUARANTEED
BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND
LOAN ASSOCIATIONS AND CREDIT UNIONS
WITH MEMBERSHIP IN AN APPROVED
SIGNATURE GUARANTEE MEDALLION PROGRAM),
PURSUANT TO S.E.C. RULE 17Ad-15.
[AMERICAN BANK NOTE COMPANY STAMP]
<PAGE> 1
EXHIBIT 10.6
POET HOLDINGS, INC.
1995 STOCK PLAN
(AMENDED AND RESTATED JANUARY 26, 1999)
1. Purposes of the Plan. The purposes of this 1995 Stock Plan are to
attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to Employees, Directors and
Consultants of the Company and its Parent or Subsidiaries and to promote the
success of the Company's business. Options granted under the Plan may be
Incentive Stock Options or Nonstatutory Stock Options, as determined by the
Administrator at the time of grant of an Option and subject to the applicable
provisions of Section 422 of the Code and the regulations promulgated
thereunder. Stock Purchase Rights may also be granted under the Plan.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Administrator" means the Board or any of its Committees
appointed pursuant to Section 4 of the Plan.
(b) "Applicable Laws" means the legal requirements relating to
the administration of stock option plans under United States state corporate
laws, federal and state securities laws, the Code any stock exchange or
quotation system on which the Common Stock is listed or quoted and the
applicable laws of any foreign country or jurisdiction where Options or Stock
Purchase Rights will be granted under the Plan.
(c) "Board" means the Board of Directors of the Company.
(d) "Code" means the Internal Revenue Code of 1986, as amended.
(e) "Committee" means a Committee appointed by the Board of
Directors in accordance with Section 4 of the Plan.
(f) "Common Stock" means the Series A Common Stock of the
Company.
(g) "Company" means POET Holdings, Inc., a Delaware corporation.
(h) "Consultant" means any person who is engaged by the Company
or any Parent or Subsidiary to render services to such entity.
(i) "Continuous Status as an Employee or Consultant" means that
the employment or consulting relationship with the Company, any Parent or
Subsidiary is not interrupted or terminated. Continuous Status as an Employee or
Consultant shall not be considered interrupted in the case of (i) any leave of
absence approved by the Company or (ii) transfers between locations of the
Company or between the Company, its Parent, any Subsidiary, or any successor. A
leave of absence approved by the Company shall include sick leave, military
leave, or any other personal leave approved by an authorized representative of
the Company. For purposes of Incentive Stock Options, no such leave may exceed
90 days, unless reemployment upon expiration of such
<PAGE> 2
leave is guaranteed by statute or contract, including Company policies. If
reemployment upon expiration of a leave of absence approved by the Company is
not so guaranteed, on the 91st day of such leave any Incentive Stock Option held
by the Optionee shall cease to be treated as an Incentive Stock Option and shall
be treated for tax purposes as a Nonstatutory Stock Option.
(j) "Director" means a member of the Board of Directors of the
Company.
(k) "Employee" means any person, including Officers and
Directors, employed by the Company or any Parent or Subsidiary of the Company.
The payment of a Director's fee by the Company shall not be sufficient to
constitute "employment" by the Company.
(l) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(m) "Fair Market Value" means, as of any date, the value of
Common Stock determined as follows:
(i) If the Common Stock is listed on any established
stock exchange or a national market system, including without limitation the
Nasdaq National Market of the National Association of Securities Dealers, Inc.
Automated Quotation ("NASDAQ") System, its Fair Market Value shall be the
closing sales price for such stock (or the closing bid, if no sales were
reported) as quoted on such exchange or system for the last market trading day
prior to the time of determination and reported in The Wall Street Journal or
such other source as the Administrator deems reliable;
(ii) If the Common Stock is quoted on the NASDAQ System
(but not on the Nasdaq National Market thereof) or regularly quoted by a
recognized securities dealer but selling prices are not reported, its Fair
Market Value shall be the mean between the high bid and low asked prices for the
Common Stock on the last market trading day prior to the day of determination;
or
(iii) In the absence of an established market for the
Common Stock, the Fair Market Value thereof shall be determined in good faith by
the Administrator.
(n) "Incentive Stock Option" means an Option intended to qualify
as an incentive stock option within the meaning of Section 422 of the Code.
(o) "Nonstatutory Stock Option" means an Option not intended to
qualify as an Incentive Stock Option.
(p) "Officer" means a person who is an officer of the Company
within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.
(q) "Option" means a stock option granted pursuant to the Plan.
(r) "Option Agreement" means an agreement between the Company
and an Optionee evidencing the terms and conditions of an individual Option
grant. The Option Agreement is subject to the terms and conditions of the Plan.
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<PAGE> 3
(s) "Optioned Stock" means the Common Stock subject to an Option
or a Stock Purchase Right.
(t) "Optionee" means an Employee or Consultant who receives an
Option or Stock Purchase Right.
(u) "Parent" means a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(v) "Plan" means this 1995 Stock Plan.
(w) "Restricted Stock" means shares of Common Stock acquired
pursuant to a grant of a Stock Purchase Right under Section 11 below.
(x) "Restricted Stock Purchase Agreement" means a written
agreement between the Company and the Optionee evidencing the terms and
restrictions applying to stock purchased under a Stock Purchase Right. The
Restricted Stock Purchase Agreement is subject to the terms and conditions of
the Plan and the Notice of Grant.
(y) "Section 16(b)" means Section 16(b) of the Securities
Exchange Act of 1934, as amended.
(z) "Share" means a share of the Series A Common Stock, as
adjusted in accordance with Section 12 below.
(aa) "Stock Purchase Right" means a right to purchase Series A
Common Stock pursuant to Section 11 below.
(bb) "Sub-Plan" means a Sub-Plan created under and subject to
the terms of this Plan, pursuant to which Options and/or Stock Purchase Rights
which qualify for preferred tax treatment under foreign tax laws may be granted
to Employees and Consultants of the Company or any Parent or Subsidiary of the
Company.
(cc) "Subsidiary" means a "subsidiary corporation," whether now
or hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 12 of
the Plan, the maximum aggregate number of Shares which may be subject to option
and sold under the Plan is one million (1,000,000) Shares, plus an annual
increase will be added on the first day of the fiscal year beginning in 2000,
equal to (i) 230,889 shares, (ii) 2% of the outstanding shares on that date,
(ii) or a lesser amount determined by the board of directors. The Shares may be
authorized but unissued, or reacquired Common Stock.
If an Option or Stock Purchase Right expires or becomes
unexercisable without having been exercised in full, or is surrendered pursuant
to an option exchange program, the unpurchased Shares which were subject thereto
shall become available for future grant or sale under
-3-
<PAGE> 4
the Plan (unless the Plan has terminated). However, Shares that have actually
been issued under the Plan, upon exercise of either an Option or Stock Purchase
Right, shall not be returned to the Plan and shall not become available for
future distribution under the Plan, except that if Shares of Restricted Stock
are repurchased by the Company at their original purchase price, and the
original purchaser of such Shares did not receive any benefits of ownership of
such Shares, such Shares shall become available for future grant under the Plan.
For purposes of the preceding sentence, voting rights shall not be considered a
benefit of Share ownership.
4. Administration of the Plan.
(a) Multiple Administrative Bodies. If permitted by Rule 16b-3,
the Plan may be administered by different bodies with respect to Directors,
Officers and Employees who are neither Directors nor Officers.
(b) Administration With Respect to Directors and Officers. With
respect to grants of Options and Stock Purchase Rights to Employees who are also
Officers or Directors of the Company, the Plan shall be administered by (A) the
Board if the Board may administer the Plan in compliance with the rules under
Rule 16b-3 promulgated under the Exchange Act or any successor thereto ("Rule
16b-3") relating to the disinterested administration of employee benefit plans
under which Section 16(b) exempt discretionary grants and awards of equity
securities are to be made and any other Applicable Laws, or (B) a Committee
designated by the Board to administer the Plan, which Committee shall be
constituted to comply with the rules under Rule 16b-3 relating to the
disinterested administration of employee benefit plans under which Section 16(b)
exempt discretionary grants and awards of equity securities are to be made and
any other Applicable Laws. Once appointed, such Committee shall continue to
serve in its designated capacity until otherwise directed by the Board. From
time to time the Board may increase the size of the Committee and appoint
additional members thereof, remove members (with or without cause) and appoint
new members in substitution therefor, fill vacancies, however caused, and remove
all members of the Committee and thereafter directly administer the Plan, all to
the extent permitted by the rules under Rule 16b-3 relating to the disinterested
administration of employee benefit plans under which Section 16(b) exempt
discretionary grants and awards of equity securities are to be made.
(c) Administration With Respect to Other Employees and
Consultants. With respect to grants of Options and Stock Purchase Rights to
Employees or Consultants who are neither Directors nor Officers of the Company,
the Plan shall be administered by (A) the Board or (B) a Committee designated by
the Board, which committee shall be constituted in such a manner as to satisfy
the Applicable Laws, and the requirements of any stock exchange upon which the
Company's Common Stock is listed. Once appointed, such Committee shall continue
to serve in its designated capacity until otherwise directed by the Board. From
time to time the Board may increase the size of the Committee and appoint
additional members thereof, remove members (with or without cause) and appoint
new members in substitution therefor, fill vacancies, however caused, and remove
all members of the Committee and thereafter directly administer the Plan, all to
the extent permitted by the Applicable Laws.
-4-
<PAGE> 5
(d) Powers of the Administrator. Subject to the provisions of
the Plan and, in the case of a Committee, the specific duties delegated by the
Board to such Committee, and subject to the approval of any relevant
authorities, including the approval, if required, of any stock exchange upon
which the Common Stock is listed, the Administrator shall have the authority in
its discretion:
(i) to determine the Fair Market Value of the Common
Stock, in accordance with Section 2(m) of the Plan;
(ii) to select the Consultants and Employees to whom
Options and Stock Purchase Rights may from time to time be granted hereunder;
(iii) to determine whether and to what extent Options
and Stock Purchase Rights or any combination thereof are granted hereunder;
(iv) to determine the number of Shares to be covered by
each such Option or Stock Purchase Right granted hereunder;
(v) to approve forms of agreement for use under the
Plan;
(vi) to determine the terms and conditions of any Option
or Stock Purchase Right granted hereunder;
(vii) to determine whether and under what circumstances
an Option may be settled in cash under subsection 9(f) instead of Common Stock;
(viii) to reduce the exercise price of any Option to the
then current Fair Market Value if the Fair Market Value of the Common Stock
covered by such Option has declined since the date the Option was granted;
(ix) to prescribe, amend and rescind rules and
regulations relating to the Plan, including rules and regulations relating to
Sub-Plans established for the purpose of qualifying Options or Stock Purchase
Rights for preferred tax treatment under foreign tax laws;
(x) to provide for early exercise of Options for the
purchase of unvested Shares, subject to such terms and conditions as the
Administrator may determine; and
(xi) to construe and interpret the terms of the Plan and
Options or Stock Purchase Rights granted pursuant to the Plan.
(e) Effect of Administrator's Decision. All decisions,
determinations and interpretations of the Administrator shall be final and
binding on all Optionees and any other holders of any Options or Stock Purchase
Rights.
-5-
<PAGE> 6
5. Eligibility and Limitations.
(a) Nonstatutory Stock Options and Stock Purchase Rights may be
granted to Employees and Consultants. Incentive Stock Options may be granted
only to Employees. An Employee or Consultant who has been granted an Option or
Stock Purchase Right may, if otherwise eligible, be granted additional Options
or Stock Purchase Rights.
(b) Each Option shall be designated in the written option
agreement as either an Incentive Stock Option or a Nonstatutory Stock Option.
However, notwithstanding such designations, to the extent that the aggregate
Fair Market Value of Shares subject to an Optionee's Incentive Stock Options
granted by the Company, any Parent or Subsidiary, which become exercisable for
the first time during any calendar year (under all plans of the Company or any
Parent or Subsidiary) exceeds $100,000, such excess Options shall be treated as
Nonstatutory Stock Options. For purposes of this Section 5(b), Incentive Stock
Options shall be taken into account in the order in which they were granted. The
Fair Market Value of the Shares shall be determined as of the time the Option
with respect to such Shares is granted.
(c) Neither the Plan nor any Option or Stock Purchase Right
shall confer upon any Optionee any right with respect to continuation of his or
her employment or consulting relationship with the Company, nor shall it
interfere in any way with his or her right or the Company's right to terminate
his or her employment or consulting relationship at any time, with or without
cause. Options under the Plan are granted in a discretionary fashion, and the
grant of one or more Options and/or Stock Purchase Rights under the Plan shall
not give rise to a right in any Employee or Consultant to receive additional
Option and/or Stock Purchase Right grants in the future. Further, the Board
retains the right, in its sole discretion, to terminate the Plan for any reason,
or no reason, at any time.
(d) Upon the Company or a successor corporation issuing any
class of common equity securities required to be registered under Section 12 of
the Exchange Act or upon the Plan being assumed by a corporation having a class
of common equity securities required to be registered under Section 12 of the
Exchange Act, the following limitations shall apply to grants of Options and
Stock Purchase Rights to Employees:
(i) No Employee shall be granted, in any fiscal year of
the Company, Options and Stock Purchase Rights to purchase more than 200,000
Shares.
(ii) The foregoing limitation shall be adjusted
proportionately in connection with any change in the Company's capitalization as
described in Section 12.
(iii) If an Option or Stock Purchase Right is canceled
in the same fiscal year of the Company in which it was granted (other than in
connection with a transaction described in Section 12), the canceled Option or
Stock Purchase Right shall be counted against the limit set forth in Section
5(d)(i). For this purpose, if the exercise price of an Option or Stock Purchase
Right is reduced, such reduction will be treated as a cancellation of the Option
or Stock Purchase Right and the grant of a new Option or Stock Purchase Right.
-6-
<PAGE> 7
6. Term of Plan. The Plan shall become effective upon the earlier to
occur of its adoption by the Board or its approval by the stockholders of the
Company, as described in Section 18 of the Plan. The Plan shall continue in
effect for a term of ten (10) years unless sooner terminated pursuant to Section
14 thereof.
7. Term of Option. The term of each Option shall be the term stated in
the Option Agreement; provided, however, that the term shall be no more than ten
(10) years from the date of grant thereof. In the case of an Incentive Stock
Option granted to an Optionee who, at the time the Option is granted, owns stock
representing more than ten percent (10%) of the voting power of all classes of
stock of the Company or any Parent or Subsidiary, the term of the Option shall
be five (5) years from the date of grant thereof or such shorter term as may be
provided in the Option Agreement.
8. Option Exercise Price and Consideration.
(a) The per Share exercise price for the Shares to be issued
upon exercise of an Option shall be such price as is determined by the
Administrator, but shall be subject to the following:
(i) In the case of an Incentive Stock Option
(1) granted to an Employee who, at the time of
grant of such Option, owns stock representing more than ten percent (10%) of the
voting power of all classes of stock of the Company or any Parent or Subsidiary,
the per Share exercise price shall be no less than one hundred ten percent
(110%) of the Fair Market Value per Share on the date of grant.
(2) granted to any other Employee, the per Share
exercise price shall be no less than one hundred percent (100%) of the Fair
Market Value per Share on the date of grant.
(ii) In the case of a Nonstatutory Stock Option
(1) granted to a person who, at the time of
grant of such Option, owns stock representing more than ten percent (10%) of the
voting power of all classes of stock of the Company or any Parent or Subsidiary,
the per Share exercise price shall be no less than one hundred ten percent
(110%) of the Fair Market Value per Share on the date of the grant.
(2) granted to any other person, the per Share
exercise price shall be no less than eighty-five percent (85%) of the Fair
Market Value per Share on the date of grant.
(b) The consideration to be paid for the Shares to be issued
upon exercise of an Option, including the method of payment, shall be determined
by the Administrator (and, in the case of an Incentive Stock Option, shall be
determined at the time of grant). Such consideration may consist of (1) cash,
(2) check, (3) wire transfer, (4) promissory note, (5) other Shares which (x) in
the case of Shares acquired upon exercise of an Option, have been owned by the
Optionee for more than six months on the date of surrender, and (y) have a Fair
Market Value on the date of surrender equal
-7-
<PAGE> 8
to the aggregate exercise price of the Shares as to which such Option shall be
exercised, (6) delivery of a properly executed exercise notice together with
such other documentation as the Administrator and a broker, if applicable, shall
require to effect a 'cashless' exercise of the Option and delivery to the
Company of the sale or loan proceeds required to pay the exercise price, or (7)
any combination of the foregoing methods of payment. In making its determination
as to the type of consideration to accept, the Administrator shall consider if
acceptance of such consideration may be reasonably expected to benefit the
Company.
9. Exercise of Option.
(a) Procedure for Exercise; Rights as a Stockholder. Any Option
granted hereunder shall be exercisable at such times and under such conditions
as determined by the Administrator, including performance criteria with respect
to the Company and/or the Optionee, and as shall be permissible under the terms
of the Plan, but in no case at a rate of less than twenty percent (20%) per year
over five (5) years from the date the Option is granted. An Option may not be
exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written
notice of such exercise (in such form as the Board approves, including the form
attached hereto as Exhibit A) has been given to the Company in accordance with
the terms of the Option by the person entitled to exercise the Option and full
payment for the Shares with respect to which the Option is exercised has been
received by the Company. Full payment may, as authorized by the Administrator,
consist of any consideration and method of payment allowable under Section 8(b)
hereof. Until the issuance (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company) of the
stock certificate evidencing such Shares, no right to vote, receive dividends or
any other rights as a stockholder shall exist with respect to the Optioned
Stock, notwithstanding the exercise of the Option. The Company shall issue (or
cause to be issued) such stock certificate promptly upon exercise of the Option.
No adjustment shall be made for a dividend or other right for which the record
date is prior to the date the stock certificate is issued, except as provided in
Section 12 hereof.
Exercise of an Option in any manner shall result in a
decrease in the number of Shares which thereafter may be available, both for
purposes of the Plan and the Option, by the number of Shares as to which the
Option is exercised.
(b) Termination of Employment or Consulting Relationship. In the
event of termination of an Optionee's Continuous Status as an Employee or
Consultant (but not in the event of an Optionee's change of status from Employee
to Consultant (in which case an Employee's Incentive Stock Option shall
automatically convert to a Nonstatutory Stock Option on the date three (3)
months and one (1) day following such change of status) or from Consultant to
Employee), such Optionee may, but only within such period of time as is
determined by the Administrator, of at least thirty (30) days, with such
determination in the case of an Incentive Stock Option not exceeding three (3)
months after the date of such termination (but in no event later than the
expiration date of the term of such Option as set forth in the Option
Agreement), exercise his or her Option to the extent that the Optionee was
entitled to exercise it at the date of such termination. To the extent that
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<PAGE> 9
the Optionee was not entitled to exercise the Option at the date of such
termination, or if the Optionee does not exercise such Option to the extent so
entitled within the time specified herein, the Option shall terminate.
(c) Disability of Optionee. In the event of termination of an
Optionee's Continuous Status as an Employee or Consultant as a result of his or
her disability, the Optionee may, but only within twelve (12) months from the
date of such termination (and in no event later than the expiration date of the
term of such Option as set forth in the Option Agreement), exercise the Option
to the extent otherwise entitled to exercise it at the date of such termination.
If such disability is not a "disability" as such term is defined in Section
22(e)(3) of the Code, in the case of an Incentive Stock Option such Incentive
Stock Option shall automatically cease to be treated as an Incentive Stock
Option and shall be treated for tax purposes as a Nonstatutory Stock Option on
the day three (3) months and one (1) day following such termination. To the
extent that the Optionee was not entitled to exercise the Option at the date of
termination, or if the Optionee does not exercise such Option to the extent so
entitled within the time specified herein, the Option shall terminate, and the
Shares covered by such Option shall revert to the Plan.
(d) Death of Optionee. In the event of the death of an Optionee,
the Option may be exercised at any time within twelve (12) months following the
date of death (but in no event later than the expiration of the term of such
Option as set forth in the Notice of Grant) by the Optionee's estate or by a
person who acquired the right to exercise the Option by bequest or inheritance,
but only to the extent that the Optionee was entitled to exercise the Option on
the date of death. If, at the time of death, the Optionee was not entitled to
exercise his or her entire Option, the Shares covered by the unexercisable
portion of the Option shall immediately revert to the Plan. If, after the
Optionee's death, the Optionee's estate or a person who acquires the right to
exercise the Option by bequest or inheritance does not exercise the Option
within the time specified herein, the Option shall terminate, and the Shares
covered by such Option shall revert to the Plan.
(e) Rule 16b-3. Options granted to persons subject to Section
16(b) of the Exchange Act must comply with Rule 16b-3 and shall contain such
additional conditions or restrictions as may be required thereunder to qualify
for the maximum exemption from Section 16 of the Exchange Act with respect to
Plan transactions.
(f) Buyout Provisions. The Administrator may at any time offer
to buy out for a payment in cash or Shares, an Option previously granted, based
on such terms and conditions as the Administrator shall establish and
communicate to the Optionee at the time that such offer is made.
10. Non-Transferability of Stockholder Rights. Options and Stock
Purchase Rights may not be sold, pledged, assigned, hypothecated, transferred,
or disposed of in any manner other than by will or by the laws of descent or
distribution and may be exercised, during the lifetime of the Optionee, only by
the Optionee.
-9-
<PAGE> 10
11. Stock Purchase Rights.
(a) Rights to Purchase. Stock Purchase Rights may be issued
either alone, in addition to, or in tandem with other Options or Stock Purchase
Rights granted under the Plan and/or cash awards made outside of the Plan. After
the Administrator determines that it will offer Stock Purchase Rights under the
Plan, it shall advise the offeree in writing of the terms, conditions and
restrictions related to the offer, including the number of Shares that such
person shall be entitled to purchase, the price to be paid, and the time within
which such person must accept such offer, which shall in no event exceed ninety
(90) days from the date upon which the Administrator makes the determination to
grant the Stock Purchase Right. The offer shall be accepted by execution of a
Restricted Stock purchase agreement in the form determined by the Administrator.
(b) Repurchase Option. Unless the Administrator determines
otherwise, the Restricted Stock purchase agreement shall grant the Company a
repurchase option exercisable upon the voluntary or involuntary termination of
the purchaser's employment with the Company for any reason (including death or
disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock purchase agreement shall be the original price paid by the
purchaser and may be paid by cancellation of any indebtedness of the purchaser
to the Company. This repurchase option shall lapse at such rate as the
Administrator may determine, but in no case at a rate of less than twenty
percent (20%) per year over five years from the date of purchase.
(c) Other Provisions. The Restricted Stock purchase agreement
shall contain such other terms, provisions and conditions not inconsistent with
the Plan as may be determined by the Administrator in its sole discretion. In
addition, the provisions of Restricted Stock purchase agreements need not be the
same with respect to each purchaser.
(d) Rights as a Stockholder. Once the Stock Purchase Right is
exercised, the purchaser shall have rights equivalent to those of a stockholder
and shall be a stockholder when his or her purchase is entered upon the records
of the duly authorized transfer agent of the Company. No adjustment shall be
made for a dividend or other right for which the record date is prior to the
date the Stock Purchase Right is exercised, except as provided in Section 12 of
the Plan.
12. Adjustments Upon Changes in Capitalization or Merger.
(a) Changes in Capitalization. Subject to any required action by
the stockholders of the Company, the number of shares of Common Stock covered by
each outstanding Option or Stock Purchase Right, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options or Stock Purchase Rights have yet been granted or which have
been returned to the Plan upon cancellation or expiration of an Option or Stock
Purchase Right, as well as the price per Share of Common Stock covered by each
such outstanding Option or Stock Purchase Right, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without receipt
of consideration by the Company. The conversion of any convertible securities of
the Company shall not be deemed to have
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<PAGE> 11
been "effected without receipt of consideration." Such adjustment shall be made
by the Administrator, whose determination in that respect shall be final,
binding and conclusive. Except as expressly provided herein, no issuance by the
Company of shares of stock of any class, or securities convertible into shares
of stock of any class, shall affect, and no adjustment by reason thereof shall
be made with respect to, the number or price of shares of Common Stock subject
to an Option or Stock Purchase Right.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Administrator shall notify the
Optionee at least fifteen (15) days prior to such proposed action. In addition,
the Administrator may provide that any Company repurchase option applicable to
any Shares purchased upon exercise of an Option or Stock Purchase Right shall
lapse as to all such Shares, provided the proposed dissolution or liquidation
takes place at the time and in the manner contemplated. To the extent it has not
been previously exercised, an Option or Stock Purchase Right will terminate
immediately prior to the consummation of such proposed action. To the extent it
has not been previously exercised, the Option or Stock Purchase Right shall
terminate immediately prior to the consummation of such proposed action.
(c) Merger. In the event of a merger of the Company with or into
another corporation, each outstanding Option or Stock Purchase Right may be
assumed or an equivalent option or right may be substituted by such successor
corporation or a parent or subsidiary of such successor corporation. If, in such
event, an Option or Stock Purchase Right is not assumed or substituted, the
Option or Stock Purchase Right shall terminate as of the date of the closing of
the merger. For the purposes of this paragraph, the Option or Stock Purchase
Right shall be considered assumed if, following the merger, the Option or Stock
Purchase Right confers the right to purchase or receive, for each Share of
Optioned Stock subject to the Option or Stock Purchase Right immediately prior
to the merger, the consideration (whether stock, cash, or other securities or
property) received in the merger by holders of Common Stock for each Share held
on the effective date of the transaction (and if the holders are offered a
choice of consideration, the type of consideration chosen by the holders of a
majority of the outstanding Shares). If such consideration received in the
merger is not solely common stock of the successor corporation or its Parent,
the Administrator may, with the consent of the successor corporation, provide
for the consideration to be received upon the exercise of the Option or Stock
Purchase Right, for each Share of Optioned Stock subject to the Option or Stock
Purchase Right, to be solely common stock of the successor corporation or its
Parent equal in fair market value to the per share consideration received by
holders of Common Stock in the merger.
(d) Shares Subject to Repurchase Option. Any Shares subject to a
repurchase option of the Company shall be exchanged for the consideration
(whether stock, cash, or other securities or property) received in the merger or
asset sale by the holders of Common Stock for each Share held on the effective
date of the transaction, as described in the preceding paragraph. If the
Optionee receives shares of stock of the successor corporation or a parent or
subsidiary of such successor corporation in exchange for Shares subject to a
repurchase option, and exchanged shares shall continue to be subject to the
repurchase option as provided in the Restricted Stock Purchase Agreement.
-11-
<PAGE> 12
13. Time of Granting Options and Stock Purchase Rights. The date of
grant of an Option or Stock Purchase Right shall, for all purposes, be the date
on which the Administrator makes the determination granting such Option or Stock
Purchase Right, or such other date as is determined by the Administrator. Notice
of the determination shall be given to each Employee or Consultant to whom an
Option or Stock Purchase Right is so granted within a reasonable time after the
date of such grant.
14. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may at any time amend,
alter, suspend or discontinue the Plan, but no amendment, alteration, suspension
or discontinuation shall be made which would impair the rights of any Optionee
under any grant theretofore made, without his or her consent. Such consent must
be in writing and signed by the Optionee. In addition, to the extent necessary
and desirable to comply with Rule 16b-3 under the Exchange Act or with Section
422 of the Code (or any other applicable law or regulation, including the
requirements of the NASD or an established stock exchange), the Company shall
obtain stockholder approval of any Plan amendment in such a manner and to such a
degree as required.
(b) Effect of Amendment or Termination. Any such amendment or
termination of the Plan shall not affect Options or Stock Purchase Rights
already granted, and such Options and Stock Purchase Rights shall remain in full
force and effect as if this Plan had not been amended or terminated, unless
mutually agreed otherwise between the Optionee and the Administrator, which
agreement must be in writing and signed by the Optionee and the Company.
15. Conditions Upon Issuance of Shares. Shares shall not be issued
pursuant to the exercise of an Option or Stock Purchase Right unless the
exercise of such Option or Stock Purchase Right and the issuance and delivery of
such Shares pursuant thereto shall comply with all relevant provisions of law,
including, without limitation, the Securities Act of 1933, as amended, the
Exchange Act, the rules and regulations promulgated thereunder, and the
requirements of any stock exchange upon which the Shares may then be listed, and
shall be further subject to the approval of counsel for the Company with respect
to such compliance.
As a condition to the exercise of an Option or Stock Purchase
Right, the Company may require the person exercising such Option or Stock
Purchase Right to represent and warrant at the time of any such exercise that
the Shares are being purchased only for investment and without any present
intention to sell or distribute such Shares if, in the opinion of counsel for
the Company, such a representation is required by any of the aforementioned
relevant provisions of law.
16. Reservation of Shares. The Company, during the term of this Plan,
shall at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
The inability of the Company to obtain authority from any
regulatory body having jurisdiction, which authority is deemed by the Company's
counsel to be necessary to the lawful issuance and sale of any Shares hereunder,
shall relieve the Company of any liability in respect of
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<PAGE> 13
the failure to issue or sell such Shares as to which such requisite authority
shall not have been obtained.
17. Agreements. Options and Stock Purchase Rights shall be evidenced by
written agreements in such form as the Administrator shall approve from time to
time.
18. Stockholder Approval. Continuance of the Plan shall be subject to
approval by the stockholders of the Company within twelve (12) months before or
after the date the Plan is adopted. Such stockholder approval shall be obtained
in the degree and manner required under Applicable Laws and the rules of any
stock exchange upon which the Common Stock is listed.
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<PAGE> 14
POET HOLDINGS, INC.
1995 STOCK PLAN
(AMENDED AND RESTATED JANUARY 26, 1999)
STOCK OPTION AGREEMENT
Unless otherwise defined herein, the terms defined in the Plan shall
have the same defined meanings in this Option Agreement.
I. NOTICE OF STOCK OPTION GRANT
[Optionee's Name and Address]
You have been granted an option to purchase Common Stock of the Company,
subject to the terms and conditions of the Plan and this Option Agreement, as
follows:
<TABLE>
<S> <C>
Grant Number _________________________
Date of Grant _________________________
Vesting Commencement Date _________________________
Exercise Price per Share $________________________
Total Number of Shares Granted _________________________
Total Exercise Price __ $________________________
Type of Option: __ Incentive Stock Option
Nonstatutory Stock Option
Term/Expiration Date: _________________________
</TABLE>
Vesting Schedule:
This Option may be exercised, in whole or in part, in accordance with
the following schedule:
Twelve forty-eighths (12/48) of the Shares subject to the Option shall
vest on the last day of the twelfth month after the Vesting Commencement Date,
and one forty-eighth (1/48) of the Shares
<PAGE> 15
subject to the Option shall vest on the last day of each month thereafter, so
that all of the shares subject to the Option will be fully vested on the date
four (4) years from the date of grant; provided, however, in each case that the
Optionee's Continuous Status as an Employee or Consultant has not terminated
prior such date of vesting.
Termination Period:
This Option may be exercised for three (3) months after termination of
your employment or consulting relationship, or such longer period as may be
applicable upon death or disability of Optionee as provided in the Plan. In the
event of the Optionee's change in status from Employee to Consultant or
Consultant to Employee, this Option Agreement shall remain in effect. In no
event shall this Option be exercised later than the Term/Expiration Date as
provided above.
II. AGREEMENT
1. Grant of Option. POET Holdings, Inc., a Delaware corporation (the
"Company"), hereby grants to the Optionee named in the Notice of Grant (the
"Optionee"), an option (the "Option") to purchase the total number of shares of
Series A Common Stock (the "Shares") set forth in the Notice of Grant, at the
exercise price per share set forth in the Notice of Grant (the "Exercise Price")
subject to the terms, definitions and provisions of the 1995 Stock Plan as
amended and restated January 26, 1999 (the "Plan") adopted by the Company, which
is incorporated herein by reference. Unless otherwise defined herein, the terms
defined in the Plan shall have the same defined meanings in this Option
Agreement.
If designated in the Notice of Grant as an Incentive Stock
Option ("ISO"), this Option is intended to qualify as an Incentive Stock Option
as defined in Section 422 of the Code. Nevertheless, to the extent that it
exceeds the $100,000 rule of Code Section 422(d), this Option shall be treated
as a Nonstatutory Stock Option ("NSO").
2. Exercise of Option.
(a) Right to Exercise. This Option shall be exercisable during
its term in accordance with the Vesting Schedule set out in the Notice of Grant
and with the applicable provisions of the Plan and this Option Agreement. In the
event of Optionee's death, disability or other termination of the employment or
consulting relationship, this Option shall be exercisable in accordance with the
applicable provisions of the Plan and this Option Agreement.
(b) Method of Exercise. This Option shall be exercisable by
written notice (in such form as the Board approves, including the form attached
hereto as Exhibit A) which shall state the election to exercise the Option, the
number of Shares in respect of which the Option is being exercised, and such
other representations and agreements as to the holder's investment intent with
respect to such shares of Series A Common Stock as may be required by the
Company pursuant to the provisions of the Plan. Such written notice shall be
signed by the Optionee and shall be delivered in person or by certified mail to
the Secretary of the Company. The written notice shall be
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<PAGE> 16
accompanied by payment of the Exercise Price. This Option shall be deemed to be
exercised upon receipt by the Company of such written notice accompanied by the
Exercise Price.
No Shares will be issued pursuant to the exercise of an Option
unless such issuance and such exercise shall comply with all relevant provisions
of law and the requirements of any stock exchange upon which the Shares may then
be listed. Assuming such compliance, for income tax purposes the Shares shall be
considered transferred to the Optionee on the date on which the Option is
exercised with respect to such Shares.
3. Method of Payment. Payment of the Exercise Price shall be by any of
the following, or a combination thereof, at the election of the Optionee:
(a) cash;
(b) check; or
(c) surrender of other shares of Common Stock of the Company
which (A) in the case of Shares acquired pursuant to the exercise of a Company
option, have been owned by the Optionee for more than six (6) months on the date
of surrender, and (B) have a Fair Market Value on the date of surrender equal to
the Exercise Price of the Shares as to which the Option is being exercised.
4. Restrictions on Exercise. This Option may not be exercised until such
time as the Plan has been approved by the stockholders of the Company, or if the
issuance of such Shares upon such exercise or the method of payment of
consideration for such Shares would constitute a violation of any applicable
federal or state securities or other law or regulation, including any rule under
Part 207 of Title 12 of the Code of Federal Regulations ("Regulation G") as
promulgated by the Federal Reserve Board.
5. Termination of Relationship. In the event an Optionee's Continuous
Status as an Employee or Consultant terminates, Optionee may, to the extent
otherwise so entitled at the date of such termination (the "Termination Date"),
exercise this Option during the Termination Period set out in the Notice of
Grant. To the extent that Optionee was not entitled to exercise this Option at
the date of such termination, or if Optionee does not exercise this Option
within the time specified herein, the Option shall terminate.
6. Disability of Optionee. Notwithstanding the provisions of Section 6
above, in the event of termination of an Optionee's consulting relationship or
Continuous Status as an Employee as a result of his or her disability, Optionee
may, but only within twelve (12) months from the date of such termination (and
in no event later than the expiration date of the term of such Option as set
forth in the Option Agreement), exercise the Option to the extent otherwise
entitled to exercise it at the date of such termination; provided, however, that
if such disability is not a "disability" as such term is defined in Section
22(e)(3) of the Code, in the case of an Incentive Stock Option such Incentive
Stock Option shall cease to be treated as an Incentive Stock Option and shall be
treated for tax purposes as a Nonstatutory Stock Option on the day three (3)
months and one (1) day following
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<PAGE> 17
such termination. To the extent that Optionee was not entitled to exercise the
Option at the date of termination, or if Optionee does not exercise such Option
to the extent so entitled within the time specified herein, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.
7. Death of Optionee. In the event of termination of Optionee's
Continuous Status as an Employee or Consultant as a result of the death of
Optionee, the Option may be exercised at any time within twelve (12) months
following the date of death (but in no event later than the date of expiration
of the term of this Option as set forth in Section 10 below), by Optionee's
estate or by a person who acquired the right to exercise the Option by bequest
or inheritance, but only to the extent the Optionee could exercise the Option at
the date of death.
8. Repurchase Option. Unless the Administrator determines otherwise,
the Restricted Stock Purchase Agreement shall grant the Company a repurchase
option exercisable upon the voluntary or involuntary termination of the
purchaser's service with the Company for any reason (including death or
Disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock Purchase Agreement shall be the original price paid by the
purchaser and may be paid by cancellation of any indebtedness of the purchaser
to the Company. The repurchase option shall lapse at a rate determined by the
Administrator.
9. Non-Transferability of Option. This Option may not be transferred in
any manner otherwise than by will or by the laws of descent or distribution and
may be exercised during the lifetime of Optionee only by Optionee. The terms of
this Option shall be binding upon the executors, administrators, heirs,
successors and assigns of the Optionee.
10. Term of Option. This Option may be exercised only within the term
set out in the Notice of Grant, and may be exercised during such term only in
accordance with the Plan and the terms of this Option. The limitations set out
in Section 7 of the Plan regarding Options designated as Incentive Stock Options
and Options granted to more than ten percent (10%) stockholders shall apply to
this Option.
11. Tax Consequences. Set forth below is a brief summary as of the date
of this Option of some of the federal and state tax consequences of exercise of
this Option and disposition of the Shares. THIS SUMMARY IS NECESSARILY
INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. OPTIONEE
SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE
SHARES.
(a) Exercise of ISO. If this Option qualifies as an ISO, there
will be no regular federal income tax liability or state income tax liability
upon the exercise of the Option, although the excess, if any, of the Fair Market
Value of the Shares on the date of exercise over the Exercise Price will be
treated as an adjustment to the alternative minimum tax for federal tax purposes
and may subject the Optionee to the alternative minimum tax in the year of
exercise.
(b) Exercise of ISO Following Disability. If the Optionee's
Continuous Status as an Employee or Consultant terminates as a result of
disability that is not total and permanent
-4-
<PAGE> 18
disability as defined in Section 22(e)(3) of the Code, to the extent permitted
on the date of termination, the Optionee must exercise an ISO within ninety (90)
days of such termination for the ISO to be qualified as an ISO.
(c) Exercise of Nonstatutory Stock Option. There may be a
regular federal and state income tax liability upon the exercise of a
Nonstatutory Stock Option. The Optionee will be treated as having received
compensation income (taxable at ordinary income tax rates) equal to the excess,
if any, of the Fair Market Value of the Shares on the date of exercise over the
Exercise Price. If Optionee is an Employee or a former Employee, the Company
will be required to withhold from Optionee's compensation or collect from
Optionee and pay to the applicable taxing authorities an amount in cash equal to
a percentage of this compensation income at the time of exercise, and may refuse
to honor the exercise and refuse to deliver Shares if such withholding amounts
are not delivered at the time of exercise.
(d) Disposition of Shares. In the case of an NSO, if Shares are
held for at least one year, any gain realized on disposition of the Shares will
be treated as long-term capital gain for federal and state income tax purposes.
In the case of an ISO, if Shares transferred pursuant to the Option are held for
at least one year after exercise and are disposed of at least two years after
the Date of Grant, any gain realized on disposition of the Shares will also be
treated as long-term capital gain for federal and state income tax purposes. If
Shares purchased under an ISO are disposed of within such one-year period or
within two years after the Date of Grant, any gain realized on such disposition
will be treated as compensation income (taxable at ordinary income rates) to the
extent of the difference between the Exercise Price and the lesser of (1) the
Fair Market Value of the Shares on the date of exercise, or (2) the sale price
of the Shares.
(e) Notice of Disqualifying Disposition of ISO Shares. If the
Option granted to Optionee herein is an ISO, and if Optionee sells or otherwise
disposes of any of the Shares acquired pursuant to the ISO on or before the
later of (1) the date two years after the Date of Grant, or (2) the date one
year after the date of exercise, the Optionee shall immediately notify the
Company in writing of such disposition. Optionee agrees that Optionee may be
subject to income tax withholding by the Company on the compensation income
recognized by the Optionee.
-5-
<PAGE> 19
12. Entire Agreement; Governing Law. The Plan is incorporated herein by
reference. The Plan, this Option Agreement, the Exercise Notice and the Stock
Purchase Agreement constitute the entire agreement of the parties with respect
to the subject matter hereof and supersede in their entirety all prior
undertakings and agreements of the Company and Optionee with respect to the
subject matter hereof, and may not be modified adversely to the Optionee's
interest except by means of a writing signed by the Company and Optionee. This
agreement is governed by Delaware law except for that body of law pertaining to
conflict of laws.
POET HOLDINGS, INC.
a Delaware corporation
By: ________________________________
OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO
THE OPTION HEREOF IS EARNED ONLY BY CONTINUING CONSULTANCY OR EMPLOYMENT AT THE
WILL OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS
OPTION OR ACQUIRING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES
THAT NOTHING IN THIS AGREEMENT, NOR IN THE COMPANY'S STOCK OPTION PLAN WHICH IS
INCORPORATED HEREIN BY REFERENCE, SHALL CONFER UPON OPTIONEE ANY RIGHT WITH
RESPECT TO CONTINUATION OF EMPLOYMENT OR CONSULTANCY BY THE COMPANY, NOR SHALL
IT INTERFERE IN ANY WAY WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO
TERMINATE OPTIONEE'S EMPLOYMENT OR CONSULTANCY AT ANY TIME, WITH OR WITHOUT
CAUSE. OPTIONS UNDER THE PLAN ARE GRANTED IN A DISCRETIONARY FASHION, AND THE
GRANT OF ONE OR MORE OPTIONS UNDER THE PLAN SHALL NOT GIVE RISE TO A RIGHT IN
ANY EMPLOYEE OR CONSULTANT TO RECEIVE ADDITIONAL OPTION GRANTS IN THE FUTURE.
FURTHER, THE BOARD RETAINS THE RIGHT, IN ITS SOLE DISCRETION, TO TERMINATE THE
PLAN FOR ANY REASON, OR NO REASON, AT ANY TIME.
-6-
<PAGE> 20
Optionee acknowledges receipt of a copy of the Plan and represents
that he is familiar with the terms and provisions thereof, and hereby accepts
this Option subject to all of the terms and provisions thereof. Optionee has
reviewed the Plan and this Option in their entirety, has had an opportunity to
obtain the advice of counsel prior to executing this Option and fully
understands all provisions of the Option. Optionee hereby agrees to accept as
binding, conclusive and final all decisions or interpretations of the
Administrator upon any questions arising under the Plan or this Option. Optionee
further agrees to notify the Company upon any change in the residence address
indicated below.
Dated: _______________ ____________________________________
Optionee
Residence Address:
____________________________________
____________________________________
____________________________________
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<PAGE> 21
EXHIBIT A
1995 STOCK PLAN
(AMENDED AND RESTATED JANUARY 26, 1999)
EXERCISE NOTICE
POET Holdings, Inc.
999 Baker Way
Suite 100
San Mateo, CA 94404
Attention: Secretary
1. Exercise of Option. Effective as of today, ____________________, the
undersigned ("Optionee") hereby elects to exercise Optionee's option to purchase
_________ shares of the Series A Common Stock (the as amended and restated
January 26, 1999 "Shares") of POET Holdings, Inc. (the "Company") under and
pursuant to the 1995 Stock Plan, as amended (the "Plan") and the [ ] Incentive [
] Nonstatutory Stock Option Agreement dated ____________________ (the "Option
Agreement").
2. Representations of Optionee. Optionee acknowledges that Optionee has
received, read and understood the Plan and the Option Agreement and agrees to
abide by and be bound by their terms and conditions.
3. Rights as Stockholder. Until the stock certificate evidencing such
Shares is issued (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company), no right to vote
or receive dividends or any other rights as a stockholder shall exist with
respect to the Optioned Stock, notwithstanding the exercise of the Option. The
Company shall issue (or cause to be issued) such stock certificate promptly
after the Option is exercised. No adjustment will be made for a dividend or
other right for which the record date is prior to the date the stock certificate
is issued, except as provided in Section 12 of the Plan.
Optionee shall enjoy rights as a stockholder until such time as
Optionee disposes of the Shares or the Company and/or its assignee(s) exercises
the Right of First Refusal or Repurchase Option contained in this Exercise
Notice. Upon such exercise, Optionee shall have no further rights as a holder of
the Shares so purchased except the right to receive payment for the Shares so
purchased in accordance with the provisions of the Stock Purchase Agreement, and
Optionee shall forthwith cause the certificate(s) evidencing the Shares so
purchased to be surrendered to the Company for transfer or cancellation.
<PAGE> 22
4. Tax Consultation. Optionee understands that Optionee may suffer
adverse tax consequences as a result of Optionee's purchase or disposition of
the Shares. Optionee represents that Optionee has consulted with any tax
consultants Optionee deems advisable in connection with the purchase or
disposition of the Shares and that Optionee is not relying on the Company for
any tax advice.
5. Entire Agreement. The Plan, Notice of Grant/Option Agreement and
Stock Purchase Agreement are incorporated herein by reference. This Agreement,
the Plan, the Option Agreement, the Stock Purchase Agreement and the Investment
Representation Statement constitute the entire agreement of the parties with
respect to the subject matter hereof and supersede in their entirety all prior
undertakings and agreements of the Company and Purchaser with respect to the
subject matter hereof, and may not be modified adversely to the Purchaser's
interest except by means of a writing signed by the Company and Purchaser.
Submitted by: Accepted by:
OPTIONEE: POET HOLDINGS, INC.
By:________________________________
Its:_______________________________
__________________________________
(Signature)
Address: Address:
___________________________ 999 Baker Way
Suite 100
San Mateo, CA 94404
___________________________
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<PAGE> 23
CONSENT OF SPOUSE
I, _____________________________, spouse of __________________________,
have read and approve the foregoing Agreement. In consideration of granting of
the right to my spouse to purchase shares of POET Holdings, Inc., as set forth
in the Agreement, I hereby appoint my spouse as my attorney-in-fact in respect
to the exercise of any rights under the Agreement and agree to be bound by the
provisions of the Agreement insofar as I may have any rights in said Agreement
or any shares issued pursuant thereto under the community property laws or
similar laws relating to marital property in effect in the state of our
residence as of the date of the signing of the foregoing Agreement.
Dated: __________________________
____________________________________
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<PAGE> 1
EXHIBIT 10.7
POET HOLDINGS, INC.
1999 DIRECTOR OPTION PLAN
1. Purposes of the Plan. The purposes of this 1999 Director Option Plan
are to attract and retain the best available personnel for service as Outside
Directors (as defined herein) of the Company, to provide additional incentive to
the Outside Directors of the Company to serve as Directors, and to encourage
their continued service on the Board.
All options granted hereunder shall be nonstatutory stock
options.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Board" means the Board of Directors of the Company.
(b) "Code" means the Internal Revenue Code of 1986, as amended.
(c) "Common Stock" means the common stock of the Company.
(d) "Company" means POET Holdings, Inc., a Delaware corporation.
(e) "Director" means a member of the Board.
(f) "Disability" means total and permanent disability as defined
in section 22(e)(3) of the Code.
(g) "Employee" means any person, including officers and
Directors, employed by the Company or any Parent or Subsidiary of the Company.
The payment of a Director's fee by the Company shall not be sufficient in and of
itself to constitute "employment" by the Company.
(h) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(i) "Fair Market Value" means, as of any date, the value of
Common Stock determined as follows:
(i) If the Common Stock is listed on any established
stock exchange or a national market system, including without limitation the
Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market,
its Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system on
the day of determination, as reported in The Wall Street Journal or such other
source as the Administrator deems reliable;
<PAGE> 2
(ii) If the Common Stock is regularly quoted by a
recognized securities dealer but selling prices are not reported, the Fair
Market Value of a Share of Common Stock shall be the mean between the high bid
and low asked prices for the Common Stock on the day of determination, as
reported in The Wall Street Journal or such other source as the Board deems
reliable; or
(iii) In the absence of an established market for the
Common Stock, the Fair Market Value thereof shall be determined in good faith by
the Board.
(j) "Inside Director" means a Director who is an Employee.
(k) "Option" means a stock option granted pursuant to the Plan.
(l) "Optioned Stock" means the Common Stock subject to an
Option.
(m) "Optionee" means a Director who holds an Option.
(n) "Outside Director" means a Director who is not an Employee
and who is not the "beneficial owner" (as defined in Rule 13d-3 of the Exchange
Act) directly or indirectly, of securities of the Company representing more than
one percent (1%) of the total voting power represented by the Company's
outstanding voting securities on the date of any grant hereunder.
(o) "Parent" means a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(p) "Plan" means this 1999 Director Option Plan.
(q) "Share" means a share of the Common Stock, as adjusted in
accordance with Section 10 of the Plan.
(r) "Subsidiary" means a "subsidiary corporation," whether now
or hereafter existing, as defined in Section 424(f) of the Internal Revenue Code
of 1986.
3. Stock Subject to the Plan. Subject to the provisions of Section 10 of
the Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan is 150,000 Shares (the "Pool"). The Shares may be authorized, but
unissued, or reacquired Common Stock.
If an Option expires or becomes unexercisable without having
been exercised in full, the unpurchased Shares which were subject thereto shall
become available for future grant or sale under the Plan (unless the Plan has
terminated). Shares that have actually been issued under the Plan shall not be
returned to the Plan and shall not become available for future distribution
under the Plan.
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4. Administration and Grants of Options under the Plan.
(a) Procedure for Grants. All grants of Options to Outside
Director under this Plan shall be automatic in accordance with the following
provisions:
(i) Each Outside Director shall be automatically granted
an Option to purchase 20,000 Shares (the "First Option") on the later of the
effective date of the Plan or on the date on which such person first becomes an
Outside Director, whether through election by the stockholders of the Company or
appointment by the Board to fill a vacancy; provided, however, that an Inside
Director who ceases to be an Inside Director but who remains a Director shall
not receive a First Option.
(ii) Each Outside Director shall be automatically
granted an Option to purchase 5,000 Shares (a "Subsequent Option") on the date
of each of annual meeting of the stockholders held after the effective date of
this Plan, provided he or she is then an Outside Director and if as of such
date, he or she shall have served on the Board for at least the preceding six
(6) months.
(iii) Notwithstanding the provisions of subsections (i)
and (ii) hereof, any exercise of an Option granted before the Company has
obtained stockholder approval of the Plan in accordance with Section 16 hereof
shall be conditioned upon obtaining such stockholder approval of the Plan in
accordance with Section 16 hereof.
(iv) The terms of each First Option granted under this
Section 4 shall be as follows:
(A) the term of the First Option shall be ten
(10) years.
(B) the First Option shall be exercisable only
while the Outside Director remains a Director of the Company, except as set
forth in Sections 8 and 10 hereof.
(C) the exercise price per Share shall be 100%
of the initial public offering price per Share of Common Stock in the offering.
(D) subject to Section 10 hereof, the First
Option shall become exercisable as to twenty five percent (25%) of the Shares
subject to the First Option on each monthly anniversary of its date of grant,
provided that the Optionee continues to serve as a Director on such dates.
(E) the First Option shall be a nonstatutory
stock option.
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<PAGE> 4
(v) The terms of a Subsequent Option granted hereunder
shall be as follows:
(A) the term of the Subsequent Option shall be
ten (10) years.
(B) the Subsequent Option shall be exercisable
only while the Outside Director remains a Director of the Company, except as set
forth in Sections 8 and 10 hereof.
(C) the exercise price per Share shall be 100%
of the Fair Market Value per Share on the date of grant of the Subsequent
Option.
(D) subject to Section 10 hereof, the Subsequent
Option shall become exercisable as to 100% of the Shares subject to the
Subsequent Option on the fourth (4) anniversary of its date of grant, provided
that the Optionee continues to serve as a Director on such date,
(E) the Subsequent Option shall be a
nonstatutory stock option.
(vi) In the event that any Option granted under the Plan
would cause the number of Shares subject to outstanding Options plus the number
of Shares previously purchased under Options to exceed the Pool, then the
remaining Shares available for Option grant shall be granted under Options to
the Outside Directors on a pro rata basis. No further grants shall be made until
such time, if any, as additional Shares become available for grant under the
Plan through action of the Board or the stockholders to increase the number of
Shares which may be issued under the Plan or through cancellation or expiration
of Options previously granted hereunder.
5. Eligibility. Options may be granted only to Outside Directors. All
Options shall be automatically granted in accordance with the terms set forth in
Section 4 hereof.
The Plan shall not confer upon any Optionee any right with
respect to continuation of service as a Director or nomination to serve as a
Director, nor shall it interfere in any way with any rights which the Director
or the Company may have to terminate the Director's relationship with the
Company at any time.
6. Term of Plan. The Plan was adopted by the Board in August 1999, and
is subject to stockholder approval as described in Section 16 of the Plan. The
Plan shall become effective immediately upon the effective date of the initial
public offering of the Company's common stock pursuant to a registration
statement filed under Section 12 of the Exchange Act. The Plan shall continue in
effect for a term of ten (10) years unless sooner terminated under Section 11 of
the Plan.
7. Form of Consideration. The consideration to be paid for the Shares to
be issued upon exercise of an Option, including the method of payment, shall
consist of (i) cash, (ii) check, (iii) other shares which (x) in the case of
Shares acquired upon exercise of an option, have been owned by the Optionee for
more than six (6) months on the date of surrender, and (y) have a Fair
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<PAGE> 5
Market Value on the date of surrender equal to the aggregate exercise price of
the Shares as to which said Option shall be exercised, (iv) consideration
received by the Company under a cashless exercise program implemented by the
Company in connection with the Plan, or (v) any combination of the foregoing
methods of payment.
8. Exercise of Option.
(a) Procedure for Exercise; Rights as a Stockholder. Any Option
granted hereunder shall be exercisable at such times as are set forth in Section
4 hereof; provided, however, that no Options shall be exercisable until
stockholder approval of the Plan in accordance with Section 16 hereof has been
obtained.
An Option may not be exercised for a fraction of a
Share.
An Option shall be deemed to be exercised when notice of
such exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may consist of any consideration and method of payment
allowable under Section 7 of the Plan. Until the issuance (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company) of the stock certificate evidencing such Shares, no right
to vote or receive dividends or any other rights as a stockholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the Option.
A share certificate for the number of Shares so acquired shall be issued to the
Optionee as soon as practicable after exercise of the Option. No adjustment
shall be made for a dividend or other right for which the record date is prior
to the date the stock certificate is issued, except as provided in Section 10 of
the Plan.
Exercise of an Option in any manner shall result in a
decrease in the number of Shares which thereafter may be available, both for
purposes of the Plan and for sale under the Option, by the number of Shares as
to which the Option is exercised.
(b) Termination of Continuous Status as a Director. Subject to
Section 10 hereof, in the event an Optionee's status as a Director terminates
(other than upon the Optionee's death or Disability), the Optionee may exercise
his or her Option, but only within three (3) months following the date of such
termination, and only to the extent that the Optionee was entitled to exercise
it on the date of such termination (but in no event later than the expiration of
its ten (10) year term). To the extent that the Optionee was not entitled to
exercise an Option on the date of such termination and to the extent that the
Optionee does not exercise such Option (to the extent otherwise so entitled)
within the time specified herein, the Option shall terminate.
(c) Disability of Optionee. In the event Optionee's status as a
Director terminates as a result of Disability, the Optionee may exercise his or
her Option, but only within twelve (12) months following the date of such
termination, and only to the extent that the Optionee was entitled
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<PAGE> 6
to exercise it on the date of such termination (but in no event later than the
expiration of its ten (10)-year term). To the extent that the Optionee was not
entitled to exercise an Option on the date of termination, or if he or she does
not exercise such Option (to the extent otherwise so entitled) within the time
specified herein, the Option shall terminate.
(d) Death of Optionee. In the event of an Optionee's death, the
Optionee's estate or a person who acquired the right to exercise the Option by
bequest or inheritance may exercise the Option, but only within twelve (12)
months following the date of death, and only to the extent that the Optionee was
entitled to exercise it on the date of death (but in no event later than the
expiration of its ten (10) year term). To the extent that the Optionee was not
entitled to exercise an Option on the date of death, and to the extent that the
Optionee's estate or a person who acquired the right to exercise such Option
does not exercise such Option (to the extent otherwise so entitled) within the
time specified herein, the Option shall terminate.
9. Non-Transferability of Options. The Option may not be sold, pledged,
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution and may be exercised, during the
lifetime of the Optionee, only by the Optionee.
10. Adjustments Upon Changes in Capitalization, Dissolution, Merger or
Asset Sale.
(a) Changes in Capitalization. Subject to any required action by
the stockholders of the Company, the number of Shares covered by each
outstanding Option, the number of Shares which have been authorized for issuance
under the Plan but as to which no Options have yet been granted or which have
been returned to the Plan upon cancellation or expiration of an Option, as well
as the price per Share covered by each such outstanding Option, and the number
of Shares issuable pursuant to the automatic grant provisions of Section 4
hereof shall be proportionately adjusted for any increase or decrease in the
number of issued Shares resulting from a stock split, reverse stock split, stock
dividend, combination or reclassification of the Common Stock, or any other
increase or decrease in the number of issued Shares effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of Shares
subject to an Option.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, to the extent that an Option has not
been previously exercised, it shall terminate immediately prior to the
consummation of such proposed action.
(c) Merger or Asset Sale. In the event of a merger of the
Company with or into another corporation or the sale of substantially all of the
assets of the Company, outstanding Options may be assumed or equivalent options
may be substituted by the successor corporation or a Parent or Subsidiary
thereof (the "Successor Corporation"). If an Option is assumed or substituted
for, the
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<PAGE> 7
Option or equivalent option shall continue to be exercisable as provided in
Section 4 hereof for so long as the Optionee serves as a Director or a director
of the Successor Corporation. Following such assumption or substitution, if the
Optionee's status as a Director or director of the Successor Corporation, as
applicable, is terminated other than upon a voluntary resignation by the
Optionee, the Option shall become fully exercisable, including as to Shares for
which it would not otherwise be exercisable. Thereafter, the Option or option
shall remain exercisable in accordance with Sections 8(b) through (d) above.
If the Successor Corporation does not assume an outstanding Option or
substitute for it an equivalent option, the Option shall become fully vested and
exercisable, including as to Shares for which it would not otherwise be
exercisable. In such event the Board shall notify the Optionee that the Option
shall be fully exercisable for a period of thirty (30) days from the date of
such notice, and upon the expiration of such period the Option shall terminate.
For the purposes of this Section 10(c), an Option shall be considered
assumed if, following the merger or sale of assets, the Option confers the right
to purchase or receive, for each Share of Optioned Stock subject to the Option
immediately prior to the merger or sale of assets, the consideration (whether
stock, cash, or other securities or property) received in the merger or sale of
assets by holders of Common Stock for each Share held on the effective date of
the transaction (and if holders were offered a choice of consideration, the type
of consideration chosen by the holders of a majority of the outstanding Shares).
If such consideration received in the merger or sale of assets is not solely
common stock of the Successor Corporation or its Parent, the Administrator may,
with the consent of the Successor Corporation, provide for the consideration to
be received upon the exercise of the Option, for each Share of Optioned Stock
subject to the Option, to be solely common stock of the Successor Corporation or
its Parent equal in fair market value to the per share consideration received by
holders of Common Stock in the merger or sale of assets.
11. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may at any time amend,
alter, suspend, or discontinue the Plan, but no amendment, alteration,
suspension, or discontinuation shall be made which would impair the rights of
any Optionee under any grant theretofore made, without his or her consent. In
addition, to the extent necessary and desirable to comply with any applicable
law, regulation or stock exchange rule, the Company shall obtain stockholder
approval of any Plan amendment in such a manner and to such a degree as
required.
(b) Effect of Amendment or Termination. Any such amendment or
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated.
12. Time of Granting Options. The date of grant of an Option shall, for
all purposes, be the date determined in accordance with Section 4 hereof.
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<PAGE> 8
13. Conditions Upon Issuance of Shares. Shares shall not be issued
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, state securities laws, and the requirements of any stock exchange
upon which the Shares may then be listed, and shall be further subject to the
approval of counsel for the Company with respect to such compliance.
As a condition to the exercise of an Option, the Company may
require the person exercising such Option to represent and warrant at the time
of any such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares, if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned relevant provisions of law.
Inability of the Company to obtain authority from any regulatory
body having jurisdiction, which authority is deemed by the Company's counsel to
be necessary to the lawful issuance and sale of any Shares hereunder, shall
relieve the Company of any liability in respect of the failure to issue or sell
such Shares as to which such requisite authority shall not have been obtained.
14. Reservation of Shares. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
15. Option Agreement. Options shall be evidenced by written option
agreements in such form as the Board shall approve.
16. Stockholder Approval. The Plan shall be subject to approval by the
stockholders of the Company within twelve (12) months after the date the Plan is
adopted. Such stockholder approval shall be obtained in the degree and manner
required under applicable state and federal law and any stock exchange rules.
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<PAGE> 1
EXHIBIT 10.8
POET HOLDINGS, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
1. Purpose. The purpose of the Plan is to provide employees of the
Company with an opportunity to purchase Common Stock of the Company through
accumulated payroll deductions. It is the intention of the Company to have the
Plan qualify as an "Employee Stock Purchase Plan" under Section 423 of the
Internal Revenue Code of 1986, as amended. The provisions of the Plan,
accordingly, shall be construed so as to extend and limit participation in a
manner consistent with the requirements of that section of the Code.
2. Definitions.
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(c) "Common Stock" shall mean the Common Stock of the Company.
(d) "Company" shall mean POET Holdings, Inc., a Delaware
corporation, and any Designated Subsidiary of the Company.
(e) "Compensation" shall mean all base straight time gross
earnings and commissions, exclusive of payments for overtime, shift premium,
incentive compensation, incentive payments, bonuses and other compensation.
(f) "Designated Subsidiary" shall mean any Subsidiary that has
been designated by the Board from time to time in its sole discretion as
eligible to participate in the Plan.
(g) "Employee" shall mean any individual who is an Employee of
the Company for tax purposes whose customary employment with the Company is at
least twenty (20) hours per week and more than five (5) months in any calendar
year. For purposes of the Plan, the employment relationship shall be treated as
continuing intact while the individual is on sick leave or other leave of
absence approved by the Company. Where the period of leave exceeds 90 days and
the individual's right to reemployment is not guaranteed either by statute or by
contract, the employment relationship shall be deemed to have terminated on the
91st day of such leave.
(h) "Enrollment Date" shall mean the first day of each Offering
Period.
(i) "Exercise Date" shall mean the last day of each Offering
Period.
<PAGE> 2
(j) "Fair Market Value" shall mean, as of any date, the value of
Common Stock determined as follows:
(1) If the Common Stock is listed on any established
stock exchange or a national market system, including without limitation the
Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market,
its Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day on the date of such determination, as reported in
The Wall Street Journal or such other source as the Board deems reliable, or;
(2) If the Common Stock is regularly quoted by a
recognized securities dealer but selling prices are not reported, its Fair
Market Value shall be the mean of the closing bid and asked prices for the
Common Stock on the date of such determination, as reported in The Wall Street
Journal or such other source as the Board deems reliable, or;
(3) In the absence of an established market for the
Common Stock, the Fair Market Value thereof shall be determined in good faith by
the Board;
(4) For purposes of the Enrollment Date of the first
Offering Period under the Plan, the Fair Market Value shall be the initial price
to the public as set forth in the final prospectus included within the
registration statement in Form S-1 filed with the Securities and Exchange
Commission for the initial public offering of the Company's Common Stock (the
"Registration Statement").
(k) "Offering Period" shall mean a period of approximately six
(6) months during which an option granted pursuant to the Plan may be exercised,
commencing on the first Trading Day on or after June 1 and terminating on the
last Trading Day in the period ending the following November 30, or commencing
on the first Trading Day on or after December 1 and terminating on the last
Trading Day in the period ending the following May 31; provided, however, that
the first Offering Period under the Plan shall commence with the first Trading
Day on or after the date on which the Securities and Exchange Commission
declares the Company's Registration Statement effective and ending on the last
Trading Day on or before November 30, 2000. The duration of Offering Periods may
be changed pursuant to Section 4 of this Plan.
(l) "Plan" shall mean this Employee Stock Purchase Plan.
(m) "Purchase Price" shall mean an amount equal to 85% of the
Fair Market Value of a share of Common Stock on the Enrollment Date or on the
Exercise Date, whichever is lower; provided, however, that the Purchase Price
may be adjusted by the Board pursuant to Section 20.
(n) "Reserves" shall mean the number of shares of Common Stock
covered by each option under the Plan which have not yet been exercised and the
number of shares of Common Stock which have been authorized for issuance under
the Plan but not yet placed under option.
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(o) "Subsidiary" shall mean a corporation, domestic or foreign,
of which not less than 50% of the voting shares are held by the Company or a
Subsidiary, whether or not such corporation now exists or is hereafter organized
or acquired by the Company or a Subsidiary.
(p) "Trading Day" shall mean a day on which national stock
exchanges and the Nasdaq System are open for trading.
3. Eligibility.
(a) Any Employee who shall be employed by the Company on a given
Enrollment Date shall be eligible to participate in the Plan.
(b) Any provisions of the Plan to the contrary notwithstanding,
no Employee shall be granted an option under the Plan (i) to the extent that,
immediately after the grant, such Employee (or any other person whose stock
would be attributed to such Employee pursuant to Section 424(d) of the Code)
would own capital stock of the Company and/or hold outstanding options to
purchase such stock possessing five percent (5%) or more of the total combined
voting power or value of all classes of the capital stock of the Company or of
any Subsidiary, or (ii) to the extent that his or her rights to purchase stock
under all employee stock purchase plans of the Company and its subsidiaries
accrues at a rate which exceeds Twenty-Five Thousand Dollars ($25,000) worth of
stock (determined at the fair market value of the shares at the time such option
is granted) for each calendar year in which such option is outstanding at any
time.
4. Offering Periods. The Plan shall be implemented by consecutive
Offering Periods with a new Offering Period commencing on the first Trading Day
on or after June 1 and December 1 each year, or on such other date as the Board
shall determine, and continuing thereafter until terminated in accordance with
Section 20 hereof; provided, however, that the first Offering Period under the
Plan shall commence with the first Trading Day on or after the date on which the
Securities and Exchange Commission declares the Company's Registration Statement
effective and ending on the last Trading Day on or before November 30, 2000. The
Board shall have the power to change the duration of Offering Periods (including
the commencement dates thereof) with respect to future offerings without
stockholder approval if such change is announced at least five (5) days prior to
the scheduled beginning of the first Offering Period to be affected thereafter.
5. Participation.
(a) An eligible Employee may become a participant in the Plan by
completing a subscription agreement authorizing payroll deductions in the form
of Exhibit A to this Plan and filing it with the Company's payroll office prior
to the applicable Enrollment Date.
(b) Payroll deductions for a participant shall commence on the
first payroll following the Enrollment Date and shall end on the last payroll in
the Offering Period to which such authorization is applicable, unless sooner
terminated by the participant as provided in Section 10 hereof.
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<PAGE> 4
6. Payroll Deductions.
(a) At the time a participant files his or her subscription
agreement, he or she shall elect to have payroll deductions made on each pay day
during the Offering Period in an amount not exceeding fifteen percent (15%) of
the Compensation which he or she receives on each pay day during the Offering
Period.
(b) All payroll deductions made for a participant shall be
credited to his or her account under the Plan and shall be withheld in whole
percentages only. A participant may not make any additional payments into such
account.
(c) A participant may discontinue his or her participation in
the Plan as provided in Section 10 hereof, or may increase or decrease the rate
of his or her payroll deductions during the Offering Period by completing or
filing with the Company a new subscription agreement authorizing a change in
payroll deduction rate. The Board may, in its discretion, limit the number of
participation rate changes during any Offering Period. The change in rate shall
be effective with the first full payroll period following five (5) business days
after the Company's receipt of the new subscription agreement unless the Company
elects to process a given change in participation more quickly. A participant's
subscription agreement shall remain in effect for successive Offering Periods
unless terminated as provided in Section 10 hereof.
(d) Notwithstanding the foregoing, to the extent necessary to
comply with Section 423(b)(8) of the Code and Section 3(b) hereof, a
participant's payroll deductions may be decreased to zero percent (0%) at any
time during an Offering Period. Payroll deductions shall recommence at the rate
provided in such participant's subscription agreement at the beginning of the
first Offering Period which is scheduled to end in the following calendar year,
unless terminated by the participant as provided in Section 10 hereof.
(e) At the time the option is exercised, in whole or in part, or
at the time some or all of the Company's Common Stock issued under the Plan is
disposed of, the participant must make adequate provision for the Company's
federal, state, or other tax withholding obligations, if any, which arise upon
the exercise of the option or the disposition of the Common Stock. At any time,
the Company may, but shall not be obligated to, withhold from the participant's
compensation the amount necessary for the Company to meet applicable withholding
obligations, including any withholding required to make available to the Company
any tax deductions or benefits attributable to sale or early disposition of
Common Stock by the Employee.
7. Grant of Option. On the Enrollment Date of each Offering Period, each
eligible Employee participating in such Offering Period shall be granted an
option to purchase on the Exercise Date of such Offering Period (at the
applicable Purchase Price) up to a number of shares of the Company's Common
Stock determined by dividing such Employee's payroll deductions accumulated
prior to such Exercise Date and retained in the Participant's account as of the
Exercise Date by the applicable Purchase Price; provided that in no event shall
an Employee be permitted to purchase during
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<PAGE> 5
each Offering Period more than 1,000 shares (subject to any adjustment pursuant
to Section 19), and provided further that such purchase shall be subject to the
limitations set forth in Sections 3(b) and 12 hereof. Exercise of the option
shall occur as provided in Section 8 hereof, unless the participant has
withdrawn pursuant to Section 10 hereof. The Option shall expire on the last day
of the Offering Period.
8. Exercise of Option. Unless a participant withdraws from the Plan as
provided in Section 10 hereof, his or her option for the purchase of shares
shall be exercised automatically on the Exercise Date, and the maximum number of
full shares subject to option shall be purchased for such participant at the
applicable Purchase Price with the accumulated payroll deductions in his or her
account. No fractional shares shall be purchased; any payroll deductions
accumulated in a participant's account which are not sufficient to purchase a
full share shall be retained in the participant's account for the subsequent
Offering Period, subject to earlier withdrawal by the participant as provided in
Section 10 hereof. Any other monies left over in a participant's account after
the Exercise Date shall be returned to the participant. During a participant's
lifetime, a participant's option to purchase shares hereunder is exercisable
only by him or her.
9. Delivery. As promptly as practicable after each Exercise Date on
which a purchase of shares occurs, the Company shall arrange the delivery to
each participant, as appropriate, the shares purchased upon exercise of his or
her option.
10. Withdrawal.
(a) A participant may withdraw all but not less than all the
payroll deductions credited to his or her account and not yet used to exercise
his or her option under the Plan at any time by giving written notice to the
Company in the form of Exhibit B to this Plan. All of the participant's payroll
deductions credited to his or her account shall be paid to such participant
promptly after receipt of notice of withdrawal and such participant's option for
the Offering Period shall be automatically terminated, and no further payroll
deductions for the purchase of shares shall be made for such Offering Period. If
a participant withdraws from an Offering Period, payroll deductions shall not
resume at the beginning of the succeeding Offering Period unless the participant
delivers to the Company a new subscription agreement.
(b) A participant's withdrawal from an Offering Period shall not
have any effect upon his or her eligibility to participate in any similar plan
which may hereafter be adopted by the Company or in succeeding Offering Periods
which commence after the termination of the Offering Period from which the
participant withdraws.
11. Termination of Employment. Upon a participant's ceasing to be an
Employee for any reason, he or she shall be deemed to have elected to withdraw
from the Plan and the payroll deductions credited to such participant's account
during the Offering Period but not yet used to exercise the option shall be
returned to such participant or, in the case of his or her death, to the person
or persons entitled thereto under Section 15 hereof, and such participant's
option shall be automatically terminated. The preceding sentence
notwithstanding, a participant who receives payment in lieu of notice of
termination
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<PAGE> 6
of employment shall be treated as continuing to be an Employee for the
participant's customary number of hours per week of employment during the period
in which the participant is subject to such payment in lieu of notice.
12. Interest. No interest shall accrue on the payroll deductions of a
participant in the Plan.
13. Stock.
(a) Subject to adjustment upon changes in capitalization of the
Company as provided in Section 19 hereof, the maximum number of shares of the
Company's Common Stock which shall be made available for sale under the Plan
shall be one hundred thousand (100,000) shares, plus an annual increase to be
added on the first day of the Company's fiscal year beginning in 2000 equal to
the lesser of (i) 131,936 shares, (ii) 1% of the outstanding shares on such date
or (iii) a lesser amount determined by the Board. If, on a given Exercise Date,
the number of shares with respect to which options are to be exercised exceeds
the number of shares then available under the Plan, the Company shall make a pro
rata allocation of the shares remaining available for purchase in as uniform a
manner as shall be practicable and as it shall determine to be equitable.
(b) The participant shall have no interest or voting right in
shares covered by his option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan shall
be registered in the name of the participant or in the name of the participant
and his or her spouse.
14. Administration. The Plan shall be administered by the Board or a
committee of members of the Board appointed by the Board. The Board or its
committee shall have full and exclusive discretionary authority to construe,
interpret and apply the terms of the Plan, to determine eligibility and to
adjudicate all disputed claims filed under the Plan. Every finding, decision and
determination made by the Board or its committee shall, to the full extent
permitted by law, be final and binding upon all parties.
15. Designation of Beneficiary.
(a) A participant may file a written designation of a
beneficiary who is to receive any shares and cash, if any, from the
participant's account under the Plan in the event of such participant's death
subsequent to an Exercise Date on which the option is exercised but prior to
delivery to such participant of such shares and cash. In addition, a participant
may file a written designation of a beneficiary who is to receive any cash from
the participant's account under the Plan in the event of such participant's
death prior to exercise of the option. If a participant is married and the
designated beneficiary is not the spouse, spousal consent shall be required for
such designation to be effective.
(b) Such designation of beneficiary may be changed by the
participant at any time by written notice. In the event of the death of a
participant and in the absence of a beneficiary validly designated under the
Plan who is living at the time of such participant's death, the Company shall
deliver
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<PAGE> 7
such shares and/or cash to the executor or administrator of the estate of the
participant, or if no such executor or administrator has been appointed (to the
knowledge of the Company), the Company, in its discretion, may deliver such
shares and/or cash to the spouse or to any one or more dependents or relatives
of the participant, or if no spouse, dependent or relative is known to the
Company, then to such other person as the Company may designate.
16. Transferability. Neither payroll deductions credited to a
participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 15 hereof) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat such act as an election to withdraw
funds from an Offering Period in accordance with Section 10 hereof.
17. Use of Funds. All payroll deductions received or held by the Company
under the Plan may be used by the Company for any corporate purpose, and the
Company shall not be obligated to segregate such payroll deductions.
18. Reports. Individual accounts shall be maintained for each
participant in the Plan. Statements of account shall be given to participating
Employees at least annually, which statements shall set forth the amounts of
payroll deductions, the Purchase Price, the number of shares purchased and the
remaining cash balance, if any.
19. Adjustments Upon Changes in Capitalization, Dissolution,
Liquidation, Merger or Asset Sale.
(a) Changes in Capitalization. Subject to any required action by
the stockholders of the Company, the Reserves, the maximum number of shares each
participant may purchase per Offering Period (pursuant to Section 7), as well as
the price per share and the number of shares of Common Stock covered by each
option under the Plan which has not yet been exercised shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an option.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Offering Period then in progress
shall be shortened by setting a new Exercise Date (the "New Exercise Date"), and
shall terminate immediately prior to the consummation of such proposed
dissolution or liquidation, unless provided otherwise by the Board. The New
Exercise
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<PAGE> 8
Date shall be before the date of the Company's proposed dissolution or
liquidation. The Board shall notify each participant in writing, at least ten
(10) business days prior to the New Exercise Date, that the Exercise Date for
the participant's option has been changed to the New Exercise Date and that the
participant's option shall be exercised automatically on the New Exercise Date,
unless prior to such date the participant has withdrawn from the Offering Period
as provided in Section 10 hereof.
(c) Merger or Asset Sale. In the event of a proposed sale of all
or substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, the Offering Period then in progress shall be
shortened by setting a new Exercise Date (the "New Exercise Date"). The New
Exercise Date shall be before the date of the Company's proposed sale or merger.
The Board shall notify each participant in writing, at least ten (10) business
days prior to the New Exercise Date, that the Exercise Date for the
participant's option has been changed to the New Exercise Date and that the
participant's option shall be exercised automatically on the New Exercise Date,
unless prior to such date the participant has withdrawn from the Offering Period
as provided in Section 10 hereof.
20. Amendment or Termination.
(a) The Board of Directors of the Company may at any time and
for any reason terminate or amend the Plan. Except as provided in Section 19
hereof, no such termination can affect options previously granted, provided that
an Offering Period may be terminated by the Board of Directors on any Exercise
Date if the Board determines that the termination of the Offering Period or the
Plan is in the best interests of the Company and its stockholders. Except as
provided in Section 19 and Section 20 hereof, no amendment may make any change
in any option theretofore granted which adversely affects the rights of any
participant. To the extent necessary to comply with Section 423 of the Code (or
any other applicable law, regulation or stock exchange rule), the Company shall
obtain shareholder approval in such a manner and to such a degree as required.
(b) Without stockholder consent and without regard to whether
any participant rights may be considered to have been "adversely affected," the
Board (or its committee) shall be entitled to change the Offering Periods, limit
the frequency and/or number of changes in the amount withheld during an Offering
Period, establish the exchange ratio applicable to amounts withheld in a
currency other than U.S. dollars, permit payroll withholding in excess of the
amount designated by a participant in order to adjust for delays or mistakes in
the Company's processing of properly completed withholding elections, establish
reasonable waiting and adjustment periods and/or accounting and crediting
procedures to ensure that amounts applied toward the purchase of Common Stock
for each participant properly correspond with amounts withheld from the
participant's Compensation, and establish such other limitations or procedures
as the Board (or its committee) determines in its sole discretion advisable
which are consistent with the Plan.
(c) In the event the Board determines that the ongoing operation
of the Plan may result in unfavorable financial accounting consequences, the
Board may, in its discretion and, to the extent necessary or desirable, modify
or amend the Plan to reduce or eliminate such accounting consequence including,
but not limited to:
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<PAGE> 9
(1) altering the Purchase Price for any Offering Period
including an Offering Period underway at the time of the change in Purchase
Price;
(2) shortening any Offering Period so that Offering
Period ends on a new Exercise Date, including an Offering Period underway at the
time of the Board action; and
(3) allocating shares.
Such modifications or amendments shall not require stockholder approval
or the consent of any Plan participants.
21. Notices. All notices or other communications by a participant to the
Company under or in connection with the Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.
22. Conditions Upon Issuance of Shares. Shares shall not be issued with
respect to an option unless the exercise of such option and the issuance and
delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange upon which the shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
As a condition to the exercise of an option, the Company may require the
person exercising such option to represent and warrant at the time of any such
exercise that the shares are being purchased only for investment and without any
present intention to sell or distribute such shares if, in the opinion of
counsel for the Company, such a representation is required by any of the
aforementioned applicable provisions of law.
23. Term of Plan. The Plan shall become effective upon the earlier to
occur of its adoption by the Board of Directors or its approval by the
stockholders of the Company. It shall continue in effect for a term of ten (10)
years unless sooner terminated under Section 20 hereof.
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EXHIBIT A
POET HOLDINGS, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
_____ Original Application Enrollment Date: __________
_____ Change in Payroll Deduction Rate
_____ Change of Beneficiary(ies)
1. _____________________________________ hereby elects to participate in
the POET Holdings, Inc. 1999 Employee Stock Purchase Plan (the "Employee
Stock Purchase Plan") and subscribes to purchase shares of the Company's
Common Stock in accordance with this Subscription Agreement and the
Employee Stock Purchase Plan.
2. I hereby authorize payroll deductions from each paycheck in the amount
of ____% of my Compensation on each payday (from 1 to _____%) during the
Offering Period in accordance with the Employee Stock Purchase Plan.
(Please note that no fractional percentages are permitted.)
3. I understand that said payroll deductions shall be accumulated for the
purchase of shares of Common Stock at the applicable Purchase Price
determined in accordance with the Employee Stock Purchase Plan. I
understand that if I do not withdraw from an Offering Period, any
accumulated payroll deductions will be used to automatically exercise my
option.
4. I have received a copy of the complete Employee Stock Purchase Plan. I
understand that my participation in the Employee Stock Purchase Plan is
in all respects subject to the terms of the Plan. I understand that my
ability to exercise the option under this Subscription Agreement is
subject to stockholder approval of the Employee Stock Purchase Plan.
5. Shares purchased for me under the Employee Stock Purchase Plan should be
issued in the name(s) of (Employee or Employee and Spouse only): .
6. I understand that if I dispose of any shares received by me pursuant to
the Plan within 2 years after the Enrollment Date (the first day of the
Offering Period during which I purchased such shares), I will be treated
for federal income tax purposes as having received ordinary income at
the time of such disposition in an amount equal to the excess of the
fair market value of the shares at the time such shares were purchased
by me over the price which I paid for the shares. I hereby agree to
notify the Company in writing within 30 days after the date of any
disposition
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<PAGE> 11
of shares and I will make adequate provision for Federal, state or other
tax withholding obligations, if any, which arise upon the disposition of
the Common Stock. The Company may, but will not be obligated to,
withhold from my compensation the amount necessary to meet any
applicable withholding obligation including any withholding necessary to
make available to the Company any tax deductions or benefits
attributable to sale or early disposition of Common Stock by me. If I
dispose of such shares at any time after the expiration of the 2-year
holding period, I understand that I will be treated for federal income
tax purposes as having received income only at the time of such
disposition, and that such income will be taxed as ordinary income only
to the extent of an amount equal to the lesser of (1) the excess of the
fair market value of the shares at the time of such disposition over the
purchase price which I paid for the shares, or (2) 15% of the fair
market value of the shares on the first day of the Offering Period. The
remainder of the gain, if any, recognized on such disposition will be
taxed as capital gain.
7. I hereby agree to be bound by the terms of the Employee Stock Purchase
Plan. The effectiveness of this Subscription Agreement is dependent upon
my eligibility to participate in the Employee Stock Purchase Plan.
8. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due me under the
Employee Stock Purchase Plan:
NAME: (Please print) ____________________________________
(First) (Middle) (Last)
____________________________ ____________________________________
Relationship
____________________________________
(Address)
Employee's Social
Security Number: ____________________________________
Employee's Address: ____________________________________
____________________________________
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<PAGE> 12
I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT
SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME.
Dated: ___________________ ____________________________________
Signature of Employee
____________________________________
Spouse's Signature (If beneficiary
other than spouse)
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<PAGE> 13
EXHIBIT B
POET HOLDINGS, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
The undersigned participant in the Offering Period of the POET Holdings,
Inc. 1999 Employee Stock Purchase Plan which began on ___________, ______ (the
"Enrollment Date") hereby notifies the Company that he or she hereby withdraws
from the Offering Period. He or she hereby directs the Company to pay to the
undersigned as promptly as practicable all the payroll deductions credited to
his or her account with respect to such Offering Period. The undersigned
understands and agrees that his or her option for such Offering Period will be
automatically terminated. The undersigned understands further that no further
payroll deductions will be made for the purchase of shares in the current
Offering Period and the undersigned shall be eligible to participate in
succeeding Offering Periods only by delivering to the Company a new Subscription
Agreement.
Name and Address of Participant:
____________________________________
____________________________________
____________________________________
Signature:
____________________________________
Date: ______________________________
<PAGE> 1
EXHIBIT 10.9
POET HOLDINGS, INC.
INDEMNIFICATION AGREEMENT
This Indemnification Agreement (the "Agreement") is effective as of
____________, 1999, by and between POET Holdings, Inc., a Delaware corporation
(the "Company"), and ________________ (the "Indemnitee").
WHEREAS, the Company desires to attract and retain the services of
highly qualified individuals, such as Indemnitee, to serve the Company and its
related entities;
WHEREAS, in order to induce Indemnitee to continue to provide
services to the Company, the Company wishes to provide for the indemnification
of, and advancement of expenses to, Indemnitee to the maximum extent permitted
by law;
WHEREAS, Indemnitee does not regard the current protection available
as adequate under the present circumstances, and the Indemnitee and other
directors, officers, employees, agents and fiduciaries of the Company may not be
willing to continue to serve in such capacities without additional protection;
WHEREAS, the Company and Indemnitee recognize the continued
difficulty in obtaining liability insurance for the Company's directors,
officers, employees, agents and fiduciaries, the significant increases in the
cost of such insurance and the general reductions in the coverage of such
insurance;
WHEREAS, the Company and Indemnitee further recognize the substantial
increase in corporate litigation in general, subjecting directors, officers,
employees, agents and fiduciaries to expensive litigation risks at the same time
as the availability and coverage of liability insurance has been severely
limited; and
WHEREAS, in view of the considerations set forth above, the Company
desires that Indemnitee shall be indemnified by the Company as set forth herein;
NOW, THEREFORE, the Company and Indemnitee hereby agree as set forth
below.
1. Certain Definitions.
(a) "Change in Control" shall mean, and shall be deemed to
have occurred if, on or after the date of this Agreement, (i) any "person" (as
such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of
1934, as amended), other than a trustee or other fiduciary holding securities
under an employee benefit plan of the Company acting in such capacity or a
corporation owned directly or indirectly by the stockholders of the Company in
substantially the same proportions as their ownership of stock of the Company,
becomes the "beneficial owner" (as defined
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<PAGE> 2
in Rule 13d-3 under said Act), directly or indirectly, of securities of the
Company representing more than 50% of the total voting power represented by the
Company's then outstanding Voting Securities, (ii) during any period of two
consecutive years, individuals who at the beginning of such period constitute
the Board of Directors of the Company and any new director whose election by the
Board of Directors or nomination for election by the Company's stockholders was
approved by a vote of at least two thirds (2/3) of the directors then still in
office who either were directors at the beginning of the period or whose
election or nomination for election was previously so approved, cease for any
reason to constitute a majority thereof, or (iii) the stockholders of the
Company approve a merger or consolidation of the Company with any other
corporation other than a merger or consolidation which would result in the
Voting Securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into Voting Securities of the surviving entity) at least 80% of the total voting
power represented by the Voting Securities of the Company or such surviving
entity outstanding immediately after such merger or consolidation, or the
stockholders of the Company approve a plan of complete liquidation of the
Company or an agreement for the sale or disposition by the Company of (in one
transaction or a series of related transactions) all or substantially all of the
Company's assets.
(b) "Claim" shall mean any threatened, pending or completed
action, suit, proceeding or alternative dispute resolution mechanism, or any
hearing, inquiry or investigation that Indemnitee in good faith believes might
lead to the institution of any such action, suit, proceeding or alternative
dispute resolution mechanism, whether civil, criminal, administrative,
investigative or other.
(c) References to the "Company" shall include, in addition to
POET Holdings, Inc., any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger to which POET Holdings, Inc.
(or any of its wholly owned subsidiaries) is a party, which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, employees, agents or fiduciaries, so that if Indemnitee is
or was a director, officer, employee, agent or fiduciary of such constituent
corporation, or is or was serving at the request of such constituent corporation
as a director, officer, employee, agent or fiduciary of another corporation,
partnership, joint venture, employee benefit plan, trust or other enterprise,
Indemnitee shall stand in the same position under the provisions of this
Agreement with respect to the resulting or surviving corporation as Indemnitee
would have with respect to such constituent corporation if its separate
existence had continued.
(d) "Expenses" shall mean any and all expenses (including
attorneys' fees and all other costs, expenses and obligations incurred in
connection with investigating, defending, being a witness in or participating in
(including on appeal), or preparing to defend, to be a witness in or to
participate in, any action, suit, proceeding, alternative dispute resolution
mechanism, hearing, inquiry or investigation), judgments, fines, penalties and
amounts paid in settlement (if such settlement is approved in advance by the
Company, which approval shall not be unreasonably withheld) of any Claim
regarding any Indemnifiable Event and any federal, state, local or foreign
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<PAGE> 3
taxes imposed on the Indemnitee as a result of the actual or deemed receipt of
any payments under this Agreement.
(e) "Expense Advance" shall mean an advance payment of
Expenses to Indemnitee pursuant to Section 3(a).
(f) "Indemnifiable Event" shall mean any event or occurrence
related to the fact that Indemnitee is or was a director, officer, employee,
agent or fiduciary of the Company, or any subsidiary of the Company, or is or
was serving at the request of the Company as a director, officer, employee,
agent or fiduciary of another corporation, partnership, joint venture, trust or
other enterprise, or by reason of any action or inaction on the part of
Indemnitee while serving in such capacity.
(g) "Independent Legal Counsel" shall mean an attorney or firm
of attorneys, selected in accordance with the provisions of Section 2(c) hereof,
who shall not have otherwise performed services for the Company or Indemnitee
within the last three years (other than with respect to matters concerning the
rights of Indemnitee under this Agreement, or of other indemnitees under similar
indemnity agreements).
(h) References to "other enterprises" shall include employee
benefit plans; references to "fines" shall include any excise taxes assessed on
Indemnitee with respect to an employee benefit plan; and references to "serving
at the request of the Company" shall include any service as a director, officer,
employee, agent or fiduciary of the Company which imposes duties on, or involves
services by, such director, officer, employee, agent or fiduciary with respect
to an employee benefit plan, its participants or its beneficiaries; and if
Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to
be in the interest of the participants and beneficiaries of an employee benefit
plan, Indemnitee shall be deemed to have acted in a manner "not opposed to the
best interests of the Company" as referred to in this Agreement.
(i) "Reviewing Party" shall mean any appropriate person or
body consisting of a member or members of the Company's Board of Directors or
any other person or body appointed by the Board of Directors who is not a party
to the particular Claim for which Indemnitee is seeking indemnification, or
Independent Legal Counsel.
(j) "Voting Securities" shall mean any securities of the
Company that vote generally in the election of directors.
2. Indemnification.
(a) Indemnification of Expenses. The Company shall indemnify
Indemnitee to the fullest extent permitted by law if Indemnitee was or is or
becomes a party to or witness or other participant in, or is threatened to be
made a party to or witness or other participant in, any Claim by reason of (or
arising in part out of) any Indemnifiable Event against Expenses, including all
interest,
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<PAGE> 4
assessments and other charges paid or payable in connection with or in respect
of such Expenses. Such payment of Expenses shall be made by the Company as soon
as practicable but in any event no later than five (5) business days after
written demand by Indemnitee therefor is presented to the Company.
(b) Reviewing Party. Notwithstanding the foregoing, (i) the
obligations of the Company under Section 2(a) shall be subject to the condition
that the Reviewing Party shall not have determined (in a written opinion, in any
case in which the Independent Legal Counsel referred to in Section 2(c) hereof
is involved) that Indemnitee would not be permitted to be indemnified under
applicable law, and (ii) the obligation of the Company to make an Expense
Advance shall be subject to the condition that, if, when and to the extent that
the Reviewing Party determines that Indemnitee would not be permitted to be so
indemnified under applicable law, the Company shall be entitled to be reimbursed
by Indemnitee (who hereby agrees to reimburse the Company) for all such amounts
theretofore paid; provided, however, that if Indemnitee has commenced or
thereafter commences legal proceedings in a court of competent jurisdiction to
secure a determination that Indemnitee should be indemnified under applicable
law, any determination made by the Reviewing Party that Indemnitee would not be
permitted to be indemnified under applicable law shall not be binding and
Indemnitee shall not be required to reimburse the Company for any Expense
Advance until a final judicial determination is made with respect thereto (as to
which all rights of appeal therefrom have been exhausted or lapsed).
Indemnitee's obligation to reimburse the Company for any Expense Advance shall
be unsecured and no interest shall be charged thereon. If there has not been a
Change in Control, the Reviewing Party shall be selected by the Board of
Directors, and if there has been such a Change in Control (other than a Change
in Control which has been approved by a majority of the Company's Board of
Directors who were directors immediately prior to such Change in Control), the
Reviewing Party shall be the Independent Legal Counsel. If there has been no
determination by the Reviewing Party or if the Reviewing Party determines that
Indemnitee substantively would not be permitted to be indemnified in whole or in
part under applicable law, Indemnitee shall have the right to commence
litigation seeking an initial determination by the court or challenging any such
determination by the Reviewing Party or any aspect thereof, including the legal
or factual bases therefor, and the Company hereby consents to service of process
and to appear in any such proceeding. Absent such litigation, any determination
by the Reviewing Party shall be conclusive and binding on the Company and
Indemnitee.
(c) Change in Control. The Company agrees that if there is a
Change in Control of the Company (other than a Change in Control which has been
approved by a majority of the Company's Board of Directors who were directors
immediately prior to such Change in Control), then with respect to all matters
thereafter arising concerning the rights of Indemnitee to payments of Expenses
and Expense Advances under this Agreement or any other agreement or under the
Company's Certificate of Incorporation or Bylaws as now or hereafter in effect,
Independent Legal Counsel, if desired by Indemnitee, shall be selected by
Indemnitee and approved by the Company (which approval shall not be unreasonably
withheld). Such counsel, among other things, shall render its written opinion to
the Company and Indemnitee as to whether and to what extent Indemnitee
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<PAGE> 5
would be permitted to be indemnified under applicable law, and the Company
agrees to abide by such opinion. The Company agrees to pay the reasonable fees
of the Independent Legal Counsel referred to above and to indemnify fully such
counsel against any and all expenses (including attorneys' fees), claims,
liabilities and damages arising out of or relating to this Agreement or its
engagement pursuant hereto. Notwithstanding any other provision of this
Agreement, the Company shall not be required to pay Expenses of more than one
Independent Legal Counsel in connection with all matters concerning a single
Indemnitee, and such Independent Legal Counsel shall be the Independent Legal
Counsel for any or all other Indemnitees unless (i) the Company otherwise
determines or (ii) any Indemnitee shall provide a written statement setting
forth in detail a reasonable objection to such Independent Legal Counsel
representing other Indemnitees.
(d) Mandatory Payment of Expenses. Notwithstanding any other
provision of this Agreement other than Section 10 hereof, to the extent that
Indemnitee has been successful on the merits or otherwise, including, without
limitation, the dismissal of an action without prejudice, in defense of any
Claim regarding any Indemnifiable Event, Indemnitee shall be indemnified against
all Expenses incurred by Indemnitee in connection therewith.
3. Expenses; Indemnification Procedure.
(a) Advancement of Expenses. The Company shall advance all
Expenses incurred by Indemnitee. The advances to be made hereunder shall be paid
by the Company to Indemnitee as soon as practicable but in any event no later
than seven (7) business days after written demand by Indemnitee therefor to the
Company. Expenses incurred in defending any proceeding may be advanced by the
Company prior to the final disposition of the proceeding upon receipt of an
undertaking by or on behalf of Indemnitee to repay the Expenses incurred, if it
shall be determined ultimately that Indemnitee is not entitled to be
indemnified.
(b) Notice/Cooperation by Indemnitee. Indemnitee shall, as a
condition precedent to Indemnitee's right to be indemnified under this
Agreement, give the Company notice in writing as soon as practicable of any
Claim made against Indemnitee for which indemnification will or could be sought
under this Agreement. Notice to the Company shall be directed to the Chief
Executive Officer of the Company at the address shown on the signature page of
this Agreement (or such other address as the Company shall designate in writing
to Indemnitee). In addition, Indemnitee shall give the Company such information
and cooperation as it may reasonably require and as shall be within Indemnitee's
power.
(c) No Presumptions; Burden of Proof. For purposes of this
Agreement, the termination of any Claim by judgment, order, settlement (whether
with or without court approval) or conviction, or upon a plea of nolo
contendere, or its equivalent, shall not create a presumption that Indemnitee
did not meet any particular standard of conduct or have any particular belief or
that a court has determined that indemnification is not permitted by applicable
law. In addition, neither the failure of the Reviewing Party to have made a
determination as to whether Indemnitee has met any particular standard of
conduct or had any particular belief, nor an actual determination by the
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<PAGE> 6
Reviewing Party that Indemnitee has not met such standard of conduct or did not
have such belief, prior to the commencement of legal proceedings by Indemnitee
to secure a judicial determination that Indemnitee should be indemnified under
applicable law, shall be a defense to Indemnitee's claim or create a presumption
that Indemnitee has not met any particular standard of conduct or did not have
any particular belief.
(d) Notice to Insurers. If, at the time of the receipt by the
Company of a notice of a Claim pursuant to Section 3(b) hereof, the Company has
liability insurance in effect which may cover such Claim, the Company shall give
prompt notice of the commencement of such Claim to the insurers in accordance
with the procedures set forth in the respective policies. The Company shall
thereafter take all necessary or desirable action to cause such insurers to pay,
on behalf of the Indemnitee, all amounts payable as a result of such Claim in
accordance with the terms of such policies.
(e) Selection of Counsel. In the event the Company shall be
obligated hereunder to pay the Expenses of any Claim the Company, if
appropriate, shall be entitled to assume the defense of such Claim with counsel
approved by Indemnitee (not to be unreasonably withheld) upon the delivery to
Indemnitee of written notice of the Company's election so to do. After delivery
of such notice, approval of such counsel by Indemnitee and the retention of such
counsel by the Company, the Company will not be liable to Indemnitee under this
Agreement for any fees of counsel subsequently incurred by Indemnitee with
respect to the same Claim; provided that, (i) Indemnitee shall have the right to
employ Indemnitee's separate counsel in any such Claim at Indemnitee's expense
and (ii) if (A) the employment of separate counsel by Indemnitee has been
previously authorized by the Company, (B) Indemnitee shall have reasonably
concluded that there may be a conflict of interest between the Company and
Indemnitee in the conduct of any such defense, or (C) the Company shall not
continue to retain such counsel to defend such Claim, then the fees and expenses
of Indemnitee's separate counsel shall be at the expense of the Company.
4. Additional Indemnification Rights; Nonexclusivity.
(a) Scope. The Company hereby agrees to indemnify the
Indemnitee to the fullest extent permitted by law, notwithstanding that such
indemnification is not specifically authorized by the other provisions of this
Agreement, the Company's Certificate of Incorporation, the Company's Bylaws or
by statute. In the event of any change after the date of this Agreement in any
applicable law, statute or rule which expands the right of a Delaware
corporation to indemnify a member of its board of directors or an officer,
employee, agent or fiduciary, it is the intent of the parties hereto that
Indemnitee shall enjoy by this Agreement the greater benefits afforded by such
change. In the event of any change in any applicable law, statute or rule which
narrows the right of a Delaware corporation to indemnify a member of its board
of directors or an officer, employee, agent or fiduciary, such change, to the
extent not otherwise required by such law, statute or rule to be applied to this
Agreement, shall have no effect on this Agreement or the parties' rights and
obligations hereunder except as set forth in Section 9(a) hereof.
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<PAGE> 7
(b) Nonexclusivity. The indemnification provided by this
Agreement shall be in addition to any rights to which Indemnitee may be entitled
under the Company's Certificate of Incorporation, its Bylaws, any other
agreement, any vote of stockholders or disinterested directors, the General
Corporation Law of the State of Delaware, or otherwise. The indemnification
provided under this Agreement shall continue as to Indemnitee for any action
taken or not taken while serving in an indemnified capacity even though
Indemnitee may have ceased to serve in such capacity.
5. No Duplication of Payments. The Company shall not be liable under
this Agreement to make any payment in connection with any Claim made against
Indemnitee to the extent Indemnitee has otherwise actually received payment
(under any insurance policy, provision of the Company's Certificate of
Incorporation, bylaw or otherwise) of the amounts otherwise indemnifiable
hereunder.
6. Partial Indemnification. If Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of Expenses incurred in connection with any Claim, but not, however, for
all of the total amount thereof, the Company shall nevertheless indemnify
Indemnitee for the portion of such Expenses to which Indemnitee is entitled.
7. Mutual Acknowledgment. Both the Company and Indemnitee acknowledge
that in certain instances, federal law or applicable public policy may prohibit
the Company from indemnifying its directors, officers, employees, agents or
fiduciaries under this Agreement or otherwise. Indemnitee understands and
acknowledges that the Company has undertaken or may be required in the future to
undertake with the Securities and Exchange Commission to submit the question of
indemnification to a court in certain circumstances for a determination of the
Company's right under public policy to indemnify Indemnitee.
8. Liability Insurance. To the extent the Company maintains liability
insurance applicable to directors, officers, employees, agents or fiduciaries,
Indemnitee shall be covered by such policies in such a manner as to provide
Indemnitee the same rights and benefits as are provided to the most favorably
insured of the Company's directors, if Indemnitee is a director; or of the
Company's officers, if Indemnitee is not a director of the Company but is an
officer; or of the Company's key employees, agents or fiduciaries, if Indemnitee
is not an officer or director but is a key employee, agent or fiduciary.
9. Exceptions. Notwithstanding any other provision of this Agreement,
the Company shall not be obligated pursuant to the terms of this Agreement:
(a) Excluded Action or Omissions. To indemnify Indemnitee for
acts, omissions or transactions from which Indemnitee may not be indemnified
under applicable law.
(b) Claims Initiated by Indemnitee. To indemnify or advance
expenses to Indemnitee with respect to Claims initiated or brought voluntarily
by Indemnitee and not by way of defense, except (i) with respect to actions or
proceedings brought to establish or enforce a right to
-7-
<PAGE> 8
indemnification under this Agreement or any other agreement or insurance policy
or under the Company's Certificate of Incorporation or Bylaws now or hereafter
in effect relating to Claims for Indemnifiable Events, (ii) in specific cases if
the Board of Directors has approved the initiation or bringing of such Claim, or
(iii) as otherwise required under Section 145 of the Delaware General
Corporation Law, regardless of whether Indemnitee ultimately is determined to be
entitled to such indemnification, advance expense payment or insurance recovery,
as the case may be.
(c) Lack of Good Faith. To indemnify Indemnitee for any
expenses incurred by the Indemnitee with respect to any proceeding instituted by
Indemnitee to enforce or interpret this Agreement, if a court of competent
jurisdiction determines that each of the material assertions made by the
Indemnitee in such proceeding was not made in good faith or was frivolous.
(d) Claims Under Section 16(b). To indemnify Indemnitee for
expenses and the payment of profits arising from the purchase and sale by
Indemnitee of securities in violation of Section 16(b) of the Securities
Exchange Act of 1934, as amended, or any similar successor statute.
10. Period of Limitations. No legal action shall be brought and no
cause of action shall be asserted by or in the right of the Company against
Indemnitee, Indemnitee's estate, spouse, heirs, executors or personal or legal
representatives after the expiration of two years from the date of accrual of
such cause of action, and any claim or cause of action of the Company shall be
extinguished and deemed released unless asserted by the timely filing of a legal
action within such two-year period; provided, however, that if any shorter
period of limitations is otherwise applicable to any such cause of action, such
shorter period shall govern.
11. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original.
12. Binding Effect; Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of and be enforceable by the parties
hereto and their respective successors, assigns (including any direct or
indirect successor by purchase, merger, consolidation or otherwise to all or
substantially all of the business or assets of the Company), spouses, heirs and
personal and legal representatives. The Company shall require and cause any
successor (whether direct or indirect, and whether by purchase, merger,
consolidation or otherwise) to all, substantially all, or a substantial part, of
the business or assets of the Company, by written agreement in form and
substance satisfactory to Indemnitee, expressly to assume and agree to perform
this Agreement in the same manner and to the same extent that the Company would
be required to perform if no such succession had taken place. This Agreement
shall continue in effect regardless of whether Indemnitee continues to serve as
a director, officer, employee, agent or fiduciary (as applicable) of the Company
or of any other enterprise at the Company's request.
13. Attorneys' Fees. In the event that any action is instituted by
Indemnitee under this Agreement or under any liability insurance policies
maintained by the Company to enforce or interpret any of the terms hereof or
thereof, Indemnitee shall be entitled to be paid all Expenses
-8-
<PAGE> 9
incurred by Indemnitee with respect to such action, regardless of whether
Indemnitee is ultimately successful in such action, and shall be entitled to the
advancement of Expenses with respect to such action, unless as a part of such
action a court of competent jurisdiction over such action determines that each
of the material assertions made by Indemnitee as a basis for such action were
not made in good faith or were frivolous. In the event of an action instituted
by or in the name of the Company under this Agreement to enforce or interpret
any of the terms of this Agreement, Indemnitee shall be entitled to be paid all
Expenses incurred by Indemnitee in defense of such action (including costs and
expenses incurred with respect to Indemnitee's counterclaims and cross-claims
made in such action), and shall be entitled to the advancement of Expenses with
respect to such action, unless as a part of such action a court having
jurisdiction over such action determines that each of Indemnitee's material
defenses to such action were made in bad faith or were frivolous.
14. Notice. All notices, requests, demands and other communications
under this Agreement shall be in writing and shall be deemed duly given (i) if
delivered by hand and signed for by the party addressed, on the date of such
delivery, or (ii) if mailed by domestic certified or registered mail with
postage prepaid, on the third business day after the date postmarked. Addresses
for notice to either party are as shown on the signature page of this Agreement,
or as subsequently modified by written notice.
15. Consent to Jurisdiction. The Company and Indemnitee each hereby
irrevocably consent to the jurisdiction of the courts of the State of Delaware
for all purposes in connection with any action or proceeding which arises out of
or relates to this Agreement and agree that any action instituted under this
Agreement shall be commenced, prosecuted and continued only in the Court of
Chancery of the State of Delaware in and for New Castle County, which shall be
the exclusive and only proper forum for adjudicating such a claim.
16. Severability. The provisions of this Agreement shall be severable
in the event that any of the provisions hereof (including any provision within a
single section, paragraph or sentence) are held by a court of competent
jurisdiction to be invalid, void or otherwise unenforceable, and the remaining
provisions shall remain enforceable to the fullest extent permitted by law.
Furthermore, to the fullest extent possible, the provisions of this Agreement
(including, without limitations, each portion of this Agreement containing any
provision held to be invalid, void or otherwise unenforceable, that is not
itself invalid, void or unenforceable) shall be construed so as to give effect
to the intent manifested by the provision held invalid, illegal or
unenforceable.
17. Choice of Law. This Agreement shall be governed by and its
provisions construed and enforced in accordance with the laws of the State of
Delaware as applied to contracts between Delaware residents entered into and to
be performed entirely within the State of Delaware.
18. Subrogation. In the event of payment under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of Indemnitee, who shall execute all documents required and shall do
all acts that may be necessary to secure such rights and to enable the Company
effectively to bring suit to enforce such rights.
-9-
<PAGE> 10
19. Amendment and Termination. No amendment, modification,
termination or cancellation of this Agreement shall be effective unless it is in
writing signed by both the parties hereto. No waiver of any of the provisions of
this Agreement shall be deemed to be or shall constitute a waiver of any other
provisions hereof (whether or not similar), nor shall such waiver constitute a
continuing waiver.
20. Integration and Entire Agreement. This Agreement sets forth the
entire understanding between the parties hereto and supersedes and merges all
previous written and oral negotiations, commitments, understandings and
agreements relating to the subject matter hereof between the parties hereto.
21. No Construction as Employment Agreement. Nothing contained in
this Agreement shall be construed as giving Indemnitee any right to be retained
in the employ of the Company or any of its subsidiaries or affiliated entities.
[Remainder of Page Intentionally Left Blank]
-10-
<PAGE> 11
IN WITNESS WHEREOF, the parties hereto have executed this
Indemnification Agreement as of the date first above written.
"COMPANY"
POET HOLDINGS, INC.
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
"INDEMNITEE"
------------
Address:
----------------------------------
----------------------------------
----------------------------------
[Signature Page To POET Holdings, Inc. Indemnification Agreement]
-11-
<PAGE> 1
EXHIBIT 10.15
AGREEMENT
between:
POET SOFTWARE CORPORATION
("POET")
- and -
ARIBA, INC.
("ARIBA")
This Agreement ("Agreement") is entered into as of April 30, 1999, ("Effective
Date") by and between POET Software Corporation, a Massachusetts corporation,
having its principal place of business at 999 Baker Way, Suite 100, San Mateo,
CA 94404 ("POET"), and Ariba, Inc., a Delaware corporation having its principal
place of business at 1314 Cheaspeake Terrace, Sunnyvale, CA 94089 ("Ariba").
RECITALS.
A. Whereas POET has developed over the past two (2) years expertise in XML
technology by developing, marketing and licensing the Content Management
Suite (CMS). This product manages XML content and forms the foundation
for an expanded XML product line that can manage electronic catalogs
(e-Catalogs).
B. Whereas POET is developing an e-Catalog Suite (e-CS) which will enable
Suppliers to extract catalog information (e.g., Part Description,
Pricing, etc.) from existing IT systems using an "Extraction Module",
input the catalog information into an "XML e-Catalog Server" and format
the XML catalog information to enable an "e-Commerce Adapter" (e.g.,
"Ariba ORMS Adapter") to provide the XML catalog information in a DTD
format consistent with the requirements of procurement application
(e.g., Ariba ORMS). The XML e-Catalog information is then transmitted to
the Buyer via the Internet to enable the application (e.g., Ariba ORMS)
to perform an aggregation function of the Supplier e-Catalog
information.
C. Whereas Ariba currently markets, develops and licenses a software
product (Ariba ORMS) which is an electronic procurement system that is
focused on connecting business consumers ("Buyers") to "Suppliers" to
automate the procurement process of Operating Resource products and
services. Ariba has a solution that includes a complex workflow and
approval process for procurement. The Ariba system builds both the
aggregation server that aggregates and indexes catalog information from
all of their suppliers, and the client software that interfaces with
buyers.
D. Whereas Ariba currently receives Supplier information that has been
manually converted into an Ariba specified Catalog Information File
(CIF) which is in a comma delimited
<PAGE> 2
format. Ariba has a desire to work with POET so that POET can develop an
XML e-Catalog Server product that enables Suppliers to generate the
e-Catalog automatically in an XML format which is compatible with the
Ariba ORMS. Once developed, Ariba has a desire to promote POET's XML
e-Catalog Server product to Ariba's customers, the Buyers and also to
the Buyer's Suppliers.
Now, therefore, the parties agree as follows:
1. POET RESPONSIBILITIES
1.1 PRODUCT DEVELOPMENT: POET agrees to develop a software product,
"POETe-Catalog Suite", which will extract catalog information
from a Supplier's IT system and store it in the POET XML
e-Catalog Server. The Supplier's catalog information will be
transformed to the DTD format which Ariba has provided POET and
this information will be available in CIF or cXML format and
available for transmission via the Internet. There will be a set
of administrative tools which enable the Supplier to update the
POET e-Catalog Suite as information changes in the Supplier's IT
system. The cXML information will be transmitted to the Ariba
Supplier Load Server and will be available to the Ariba ORMS
system as illustrated in Figure 1.1-1.
[*]
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 3
1.2 PRODUCT ARCHITECTURE: The POET e-Catalog Suite will extract
catalog information from the Supplier IT system by using various
Extraction Modules (e.g., Specified ERP systems (e.g., SAP,
Intershop), RDBMS, Interactively input or using an SDK to
develop specific formats) as illustrated in Figure 1.2-1. The
extracted Catalog information will be stored in an XML Cache.
The XML e-Catalog information will be transformed into Ariba
format (cXML) using the DTDs, which were received, from Ariba.
The CIF or cXML Supplier Catalog information is available to be
transmitted via the Internet.
[*]
1.3 POET agrees to develop the e-Catalog Suite in accordance to the
schedule outlined in Attachment A. This schedule may be modified
and updated from time to time and amended upon mutual written
agreement.
1.4 POET agrees to provide Ariba's Development Representative
(identified in Section 7 of this Agreement) with monthly
conference calls or status reports on the progress which is
being made to deliver the e-Catalog Suite. The aforementioned
conference calls or status reports may occur more frequently as
reasonably requested by the Ariba technical representative.
1.5 POET agrees to develop a "Starter Kit" for Ariba that POET can
distribute to ASL Members. The "Starter Kit" consists of the
Ariba ORMS Adapter (cXML and CIF), the e-Catalog Server,
Extraction Module (Comma Delimited and Direct Data Entry) and
Administrative Tools. These components are illustrated in Figure
1.5-1. POET may at its sole discretion provide a limited number
of "Starter Kits" to key strategic ASL Members who are
considered "Lighthouse" Accounts. This would be provided to
"Lighthouse" Members [*]. To ensure high quality implementation,
the strategic ASL members may purchase an annual
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 4
[*]
Maintenance and Support Agreement. Ariba agrees to provide a
link from the Ariba website to the appropriate POET web site
location to enable Suppliers to license and download the
"Starter Kit" from POET.
1.6 POET agrees to pay Ariba [*].
1.7 POET agrees to work with Ariba to establish a delivery schedule
for additional Input/Extraction Modules developed by POET which
represents a rank order priority of the Input/Extraction Modules
required by the Suppliers.
1.8 POET agrees to grant to Ariba a Warrant to purchase up to 35,000
shares of common stock A in accordance to the provisions of
Attachment B to this Agreement.
1.9 POET hereby grants to Ariba a perpetual, royalty free worldwide
license of the POET e-Catalog Suite for internal use and the
requisite training solely to enable Ariba to validate the
e-Catalog Suite product, subject to any and all restrictions as
set forth in POET's standard license agreement attached hereto.
POET further agrees to provide up to 3 days of training on the
POET e-Catalog Suite for Ariba personnel.
2. ARIBA RESPONSIBILITIES
2.1. Ariba agrees to provide POET with access to Buyers and Suppliers
so that POET can develop a product, which reflects the
Supplier's requirements.
2.2 Ariba agrees to provide POET with a "Customer Requirements"
document, which has been prepared by Ariba which specifies the
Supplier requirements for an XML e-Catalog system including user
interface.
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 5
2.3 For a period of 2 years from the Effective Date of this
Agreement, Ariba agrees [*] unless one of the following
conditions were to occur [*] b) POET is acquired by a company
which competes with Ariba; [*]
2.4 Ariba agrees to grant to POET a perpetual, royalty free
worldwide license of the Ariba ORMS software for internal use
and the requisite training solely to enable POET to validate the
e-Catalog information being transmitted to the Ariba ORMS system
subject to any and all restrictions as set forth in Ariba's
standard license agreement attached hereto. Ariba further agrees
to provide up to 3 days of training on the Ariba ORMS product
for POET personnel.
2.5 Ariba agrees to provide POET with contact information (including
names, e-mail addresses, telephone numbers and addresses) for
the ASL Supplier Members that agree to be contacted by POET.
2.6 Ariba also agrees to identify 2 Suppliers who would be willing
to participate in POET's Beta program for the "Starter Kit".
Ariba further agrees to schedule and participate in meetings to
introduce POET to these Pilot Suppliers and support POET in
obtaining information from these Suppliers that define the
product requirements for the e-Catalog Suite. This information
will be provided to POET by [*].
2.7 Ariba agrees to provide the Charter ASL Members with a survey
form that POET has prepared to begin to characterize their
environments. Ariba has provided this survey to the Charter ASL
Suppliers.
2.8 Ariba agrees to provide POET with [*], as appropriate, during
its [*] meetings. This will be [*] and will enable POET to meet
with key Suppliers and Buyers to discuss their requirements for
the XML e-Catalog product.
2.9 Ariba provided POET [*] with an opportunity to demonstrate the
XML e-Catalog Product during the March 2/3, 1999, Customer
Advisory Member Meeting.
2.10 Ariba agrees to provide POET [*] membership to the ASL Program
under Ariba's standard terms and conditions for such program.
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 6
2.11 Ariba agrees to promote the POET e-Catalog Suite product to the
Buyers, which license the Ariba ORMS product. [*]
2.12 Ariba agrees to include POET's products in the Supplier training
program.
2.13 [*]
2.14 Ariba agrees to provide POET with [*] of the relevant results of
the survey information that is obtained from Ariba's Web-based
Suppliers registration process.
2.15 Ariba agrees to support POET in mutually agreed upon joint press
releases promoting POET's focus on the e-Catalog marketplace.
Within 30 days of executing this Agreement, Ariba agrees to
issue a joint press release announcing the strategic partnership
between POET and Ariba on developing an e-Catalog product.
2.16 Ariba agrees to participate with POET and jointly present the
POET solution to Ariba's customers.
3. COSTS AND EXPENSES. Any and all costs and expenses incurred by either
party arising out of the preparation and performance of this Agreement
shall be borne by that party, unless expressly agreed otherwise herein
or in writing.
4. TERM AND TERMINATION OF AGREEMENT. This Agreement, which is effective on
the first date indicated above, shall be for two years (or otherwise
agreed to in writing) and shall automatically expire and be deemed
terminated effective upon the date of the occurrence of any one of the
following events, whichever shall first occur:
a. mutual written agreement of the parties to terminate
this Agreement;
b. the insolvency, bankruptcy, reorganization under
bankruptcy laws, or assignment for the benefit of
creditors of either party; or
c. material breach of this Agreement by either party with
such breach remaining unremedied 30 days after receipt
of written notice of the breach.
d. change of control (which, for the purposes of this
Section, shall be defined as a third party acquiring
more than fifty percent (50%) control of Ariba's or
POET's voting interests or equity securities).
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 7
5. LIMITATION OF LIABILITY. Neither party accepts any liability whatsoever
with respect to the products or services provided hereunder by the other
party. In no event shall either party have any liability whatsoever,
whether based in contract, tort (including, without limitation,
negligence), warranty or any other legal or equitable grounds, to each
other or to third parties for any consequential, indirect, incidental,
special, punitive or exemplary damages, including, without limitation,
loss of interest, data, profit or revenue, or failure to realize
expected savings, arising from or related to this Agreement, even if
such party has been advised of the possibility of such losses or
damages.
6. PUBLICITY/USE OF NAMES. Neither party has the right to use the other's
name, logo, trademark, insignia or other intellectual property without
the prior written consent of the other.
7. CONTACTS. The parties each will designate the following individuals
within their organizations as their representative(s) responsible for
the direct performance of the parties' efforts under this Agreement. To
assure continuity, the parties will in good faith endeavor to avoid
replacing representatives unnecessarily. The initial representative(s)
named for the purpose are:
POET REPRESENTATIVE ARIBA REPRESENTATIVE
Mr. Dana Gauthier (Business) [*]
Ms. Carol Curry (Marketing) [*]
Mr. Matthias Neugebauer (Development) [*]
Mr. Olaf Schadow (Development)
8. RELATIONSHIP OF THE PARTIES.
8.1. The parties shall be deemed to be independent contractors, and
the employees of one shall not be deemed to be employees of the
other by virtue of entering into this Agreement. Neither party
shall act as the agent of the other party, and neither party
shall have the authority to bind the other party except to the
extent expressly authorized herein.
8.2. This Agreement is not intended by the parties to constitute or
create a joint venture, partnership, or formal business
organization of any kind, other than a team arrangement, and the
rights and obligations of the parties shall be only those
expressly stated in this Agreement. More particularly, except as
expressly provided herein, nothing in this Agreement shall be
construed as providing for the sharing of profits or losses
arising out of the efforts of the parties under this Agreement.
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 8
9. ASSIGNMENT. This Agreement may not be assigned or otherwise transferred
by POET or ARIBA, in whole or in part, without the express prior written
consent of the other party. This Agreement shall bind and inure to the
benefit of the successors and permitted assigns of the parties.
10. CONFIDENTIALITY. This Agreement and its contents may be disclosed by the
parties to their respective boards of directors, management, employees,
their legal, accounting and financial advisors on a "need to know"
basis. Neither party nor its agents, employees, or representatives shall
make any other disclosure with respect to the contents of this Agreement
without the prior written consent of the other party; provided, however,
that a party may disclose to others without the written consent of the
other party such Confidential Information if the disclosing party
reasonably believes upon the advice of counsel that such disclosure is
required by applicable law or regulation and the disclosing party
promptly notifies the non-disclosing party of such disclosure and the
reason therefore.
11. GENERAL.
11.1. SURVIVAL. Upon the termination of this Agreement for any reason
sections 5, 6 and 10 shall survive the expiration or other
termination of the Agreement, in addition to any other clauses
which survive by operation of law.
11.2. NOTICES. Any notice required or contemplated by this Agreement
shall be in writing and shall be deemed given if delivered
personally, if sent by facsimile, or if sent by registered mail,
addressed to the receiving party at the address of that party
stated below:
To: POET To: ARIBA
POET Software Corporation Ariba Inc.
999 Baker Way, Suite 100 1314 Chesapeake Terrace
San Mateo, CA 94404 Sunnyvale, CA 94089
FAX: 650-286-4630 FAX: 408-543-3988
Attn: Dana Gauthier Attn: [*]
If notice is given by personal delivery, it shall be deemed
effective upon such delivery (receipt required). If notice is
given by facsimile, notice shall be deemed effective the next
business day following transmission. If notice is given by mail,
delivery shall be deemed effective 3 business days after deposit
with postal authorities. The above address may be changed by the
respective party by means of a notice in accordance with the
provisions of this section.
11.3. SEVERABILITY. Each section, subsection and provision of this
Agreement is severable; if any section, subsection or provision
is declared void, illegal or unenforceable, the remaining
sections, subsections and provisions shall remain in full force
and effect.
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 9
11.4. WAIVER. Any failure by either party to enforce at any time any
of the provisions, including without limitation, the termination
provisions of the Agreement shall not be construed to be a
waiver of such provision or of the right of either party
thereafter to enforce such provision or exercise any other
rights available to it under the Agreement or at law.
11.5. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement of the parties with respect to the subject matter
hereof and cancels and supersedes any previous understanding or
agreement related to the subject matter herein, whether written
or oral.
11.6. AMENDMENTS. This Agreement shall not be amended except in
writing signed by both parties.
11.7. INTERPRETATION. The division of this Agreement into sections and
the insertion of headings are for convenience of reference only
and shall not affect the construction or interpretation of this
Agreement. Wherever in this Agreement the context so requires,
the singular number shall include the plural number and vice
versa and any gender herein used shall be deemed to include the
feminine, masculine or neuter gender, as applicable. The terms
"hereof", "hereto", "herein", "hereunder" and similar
expressions refer to this Agreement and not to any particular
section or other portion hereof and include any agreement
executed by the parties supplemental hereto.
12. INTELLECTUAL PROPERTY. Any "Intellectual Property" resulting from [*]
will become the exclusive property of [*], and no right, title, license,
or other interest in such new Intellectual Property will vest in [*].
"INTELLECTUAL PROPERTY" means all original material made, prepared,
developed or produced by [*] pursuant to this Agreement, including
documentation, reports, manuals, flow charts, tapes, source code and
object code, software, but excluding ideas, concepts, know-how or
techniques. Notwithstanding the foregoing, neither the existence of this
Agreement nor any disclosure of information, proprietary or
confidential, grants the other party any license or rights to or in any
such information which rights shall remain with the disclosing party,
except for the license rights expressly set forth herein.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
their respective duly authorized representatives.
POET SOFTWARE CORPORATION ARIBA, INC.
Per: /s/Dirk Bartels Per: [Illegible]
--------------------------- ------------------------------------
(signature) (signature)
Name: Dirk Bartels Name: E. Kinsey
---------------------------- ----------------------------------
(print or type) (print or type)
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 10
ATTACHMENT A
PRODUCT SCHEDULE: POET agrees to develop the e-Catalog product in accordance
with the following schedule:
[*]
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 11
[*]
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 12
ATTACHMENT B
THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), OR ANY STATE SECURITIES LAWS. SUCH SHARES MAY NOT BE SOLD OR OFFERED FOR
SALE IN THE ABSENCE OF SUCH REGISTRATION STATEMENT OR OPINION OF COUNSEL
REASONABLY SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT SUCH REGISTRATION IS
NOT REQUIRED UNDER THE SECURITIES ACT. COPIES OF THE AGREEMENTS COVERING THE
PURCHASE OF THESE SHARES AND RESTRICTING THEIR TRANSFER MAY BE OBTAINED AT NO
COST BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF THIS WARRANT TO THE
SECRETARY OF THE CORPORATION AT THE PRINCIPAL EXECUTIVE OFFICE OF THE
CORPORATION.
POET HOLDINGS, INC.
WARRANT TO PURCHASE SERIES A COMMON STOCK
EFFECTIVE DATE: APRIL 30, 1999
Void After April 30, 2004
This certifies that, for value received, Ariba, Inc. (the "Holder") is
entitled, subject to the terms set forth below, to purchase from Poet Holdings,
Inc., a Delaware corporation (the "Company"), up to a maximum of THIRTY-FIVE
THOUSAND FULLY PAID AND NON-ASSESSABLE shares of the Series A Common Stock of
the Company, upon surrender hereof, at the principal office of the Company
referred to below, with the subscription form attached hereto duly executed, and
simultaneous payment therefor in lawful money of the United States or otherwise
as hereinafter provided, at the Exercise Price as set forth in Section 2 below.
The number, character and Exercise Price of such shares of Series A Common Stock
are subject to determination and adjustment as provided below.
1. TERM OF WARRANT. Subject to the terms and conditions set forth
herein, this Warrant shall be exercisable, in whole or in part, during the
period beginning upon the Effective Date of this Warrant set forth above and
ending on April 30, 2004; provided, however, that this Warrant shall terminate
upon (i) a merger or consolidation of the Company with or into any other
corporation or corporations in which the stockholders of the Company as
constituted immediately prior to such merger or consolidation shall own less
than fifty percent (50%) of the voting securities of the surviving corporation,
or (ii) a sale of all or substantially all of the assets of the Company In the
event of a proposed transaction of the kind described above, the Company shall
notify the holder of the Warrant at least fifteen (15) days prior to the
consummation of such event or transaction.
<PAGE> 13
Notwithstanding the provisions of Section 1, this Warrant shall automatically be
deemed to be exercised in full in the manner set forth in Section 4.3, without
any further action on behalf of the Holder immediately prior to: (a) a merger or
consolidation of the Company with or into any other corporation or corporations
in which the stockholders of the Company as constituted immediately prior to
such merger or consolidation shall own less than fifty percent (50%) of the
voting securities of the surviving corporation, or (b) a sale of all or
substantially all of the assets of the Company.
2. EXERCISE PRICE. The per share purchase price of the Series A Common
Stock (the "Exercise Price") for which this Warrant may be exercised shall be
equal to $7.04 per share, subject to adjustment as provided in Section 12 below.
3. NUMBER OF SHARES. The number of shares of Series A Common Stock for
which this Warrant shall be exercisable (the "Warrant Shares") shall be
Thirty-Five Thousand (35,000) shares, subject to adjustment as provided in
Section 12 below.
4. EXERCISE OF WARRANT.
4.1 Time of Exercise. The purchase rights represented by this
Warrant are exercisable by the Holder in whole or in part at any time, or from
time to time, during the term hereof as described in Section 1 above. Such
exercise shall be effected by (1) (a) the surrender of this Warrant, (b)
delivery of the Notice of Exercise attached hereto as Exhibit A and (c) payment
of the Exercise Price in cash or by check acceptable to the Company, or (2)
pursuant to Section 4.3 below.
4.2 Effect of Exercise. This Warrant (or the portion thereof
exercised) shall be deemed to have been exercised immediately prior to the close
of business on the date of its surrender for exercise as provided above, and the
person entitled to receive the shares of Series A Common Stock issuable upon
such exercise shall be treated for all purposes as the holder of record of such
shares as of the close of business on such date. As promptly as practicable on
or after such date, the Company, at its expense, shall issue and deliver to the
person or persons entitled to receive the same a certificate or certificates for
the number of shares issuable upon such exercise and in any event within 30 days
of delivery of the subscription notice.
4.3 Net Exercise. In lieu of exercising this Warrant pursuant to
Section 4, the Holder may elect to receive, without the payment by the Holder of
any additional consideration, shares of Series A Common Stock equal to the value
of this Warrant (or the portion thereof being canceled) by surrender of this
Warrant at the principal office of the Company together with notice of such
election, in which event the Company shall issue to the holder hereof a number
of shares of Series A Common Stock computed using the following formula:
Y (A - B)
-----
X = A
Where: X = The number of shares of Series A Common Stock to be
issued to the Holder pursuant to this net exercise
option;
<PAGE> 14
Y = The number of Shares in respect of which the net issue
election is made;
A = The fair market value of one share of the Series A
Common Stock at the time the net issue election is made;
B = The Exercise Price (as adjusted to the date of the net
issuance).
For purposes of this Section 4.3, the fair market value of one share of Series A
Common Stock as of a particular date shall be determined as follows: (i) if
traded on a securities exchange or through the Nasdaq National Market, the value
shall be deemed to be the average of the closing bid or sales prices whichever
is applicable of the securities on such exchange over the thirty (30) day period
ending three (3) days prior to the net exercise election; (ii) if traded
over-the-counter, the value shall be deemed to be the average of the closing bid
or sale prices (whichever is applicable) over the thirty (30) day period ending
three (3) days prior to the net exercise; and (iii) if there is no active public
market, the value shall be the fair market value thereof, as determined in good
faith by the Board of Directors of the Company; provided, that, if the Warrant
is being exercised upon the closing of the IPO, the value will be the initial
"Price to Public" of one share of such Series A Common Stock specified in the
final prospectus with respect to such offering.
5. NO FRACTIONAL SHARES OR SCRIP. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant. In lieu of any fractional share to which the Holder would otherwise be
entitled, the Company shall make a cash payment equal to the Exercise Price
multiplied by such fraction.
6. NO RIGHTS AS STOCKHOLDER. The Holder shall not be entitled to vote or
receive dividends or be deemed the holder of Series A Common Stock or any other
securities of the Company that may at any time be issuable on the exercise
hereof for any purpose, nor shall anything contained herein be construed to
confer upon the Holder, as such, any of the rights of a stockholder of the
Company or any right to vote for the election of directors or upon any matter
submitted to stockholders at any meeting thereof, or to give or withhold consent
to any corporate action or to receive notice of meetings, or to receive
dividends or subscription rights or otherwise, until the Warrant shall have been
exercised as provided herein. However, nothing in this Section 6 shall limit the
right of the Holder to be provided the Notices required under this Warrant
7. TRANSFER OF WARRANT.
7.1 Register. The Company will maintain a register (the "Warrant
Register") containing the name and address of the Holder. The Holder of this
Warrant may change his address as shown on the Warrant Register by written
notice to the Company requesting such change. Any notice or written
communication required or permitted to be given to the Holder may be delivered
or given by mail to the Holder as shown on the Warrant Register and at the
address shown on the Warrant Register. Until this Warrant is transferred on the
Warrant Register of the Company, the Company may treat the Holder as shown on
the Warrant Register as the absolute owner of this Warrant for all purposes,
notwithstanding any notice to the contrary.
<PAGE> 15
7.2 Non-transferability and Non-negotiability of Warrant. Subject
to compliance with applicable federal and state securities laws, this Warrant
and all rights hereunder are transferable in whole by the Holder to any person
or entity upon written consent to the Company. The transfer shall be recorded on
the books of the Company upon the surrender of this Warrant, properly endorsed,
to the Company at its principal offices, and the payment to the Company of all
transfer taxes and other governmental charges imposed on such transfer.
8. RESERVATION OF STOCK. The Company covenants that during the term this
Warrant is exercisable, the Company will reserve from its authorized and
unissued Series A Common Stock a sufficient number of shares to provide for the
issuance of Series A Common Stock upon the exercise of this Warrant, and, from
time to time, will take all steps necessary to amend its Certificate of
Incorporation to provide sufficient reserves of shares of Series A Common Stock
issuable upon exercise of the Warrant. The Company further covenants that all
shares that may be issued upon the exercise of rights represented by this
Warrant and payment of the Exercise Price or pursuant to Section [Net Exercise
Provision], all as set forth herein, will be duly and validly issued, fully paid
and nonassessable and free from all taxes, liens, and charges in respect of the
issue thereof (other than taxes in respect of any transfer occurring
contemporaneously or as otherwise specified herein). The Company agrees that
issuance of this Warrant shall constitute full authority to the Company's
officers who are charged with the duty of executing stock certificates to
execute and issue the necessary certificates for shares of Series A Common Stock
and any other securities of the Company upon the exercise of this Warrant.
9. INVESTMENT REPRESENTATIONS OF THE HOLDER. Holder hereby represents
and warrants to the Company with respect to the sale of the Warrants and the
issuance of securities upon the exercise of the Warrants (collectively, the
"Securities") as follows:
9.1 Experience. Holder is experienced in evaluating and investing
in new, high technology companies such as the Company, and it has such knowledge
and experience in financial and business matters that it is capable of
evaluating the merits and risks of investment in the Company and it is able to
bear the economic risk of that investment.
9.2 Investment. Holder is acquiring the Securities for investment
for its own account and not with the view to, or for resale in connection with,
any distribution thereof. It understands that the Securities to be purchased
have not been registered under the Securities Act, by reason of a specific
exemption from the registration provisions of the Securities Act which depends
upon, among other things, the bona fide nature of the investment intent as
expressed herein.
9.3 Tax Consequences. Holder understands and acknowledges that
any financing structured in the manner provided for herein involves certain tax
risks and therefore it has consulted its own tax advisors regarding all the
federal and state tax consequences of the transactions contemplated by this
Agreement.
<PAGE> 16
9.4 Rule 144. Holder acknowledges that the Securities must be
held indefinitely unless subsequently registered under the Securities Act or an
exemption from such registration is available. It is aware of the provisions of
Rule 144 promulgated under the Securities Act.
9.5 No Public Market. Holder understands that no public market
now exists for any of the securities issued by the Company and that there can be
no assurance that a public market will ever exist for the Securities.
9.6 Access to Data. Holder has had an opportunity to discuss the
Company's business, management and financial affairs with its management and the
opportunity to review the Company's facilities. It understands that such
discussions, as well as any written information issued by the Company, were
intended to describe the aspects of the Company's business and prospects which
it believes to be material but were not necessarily a thorough or exhaustive
description.
9.7 Accredited Investor. Holder represents that it is an
"accredited investor" within the meaning of Regulation D promulgated by the
Securities and Exchange Commission (the "Commission") pursuant to the Securities
Act.
10 Representations an Warranties of the Company The Company hereby
represents to the Holder as follows:
10.1 Organization and Standing. The Company is a corporation duly
organized and existing under the laws of the jurisdiction of its
incorporation and is in good standing under such laws. The Company has
the requisite corporate power and authority to own and operate in its
properties and assets, and to carry on its business as presently
conducted and as proposed to be conducted. The Company is duly qualified
to do business as a foreign corporation in each jurisdiction in which
the conduct of its business requires such qualification, except where
the failure to so qualify would not have a material adverse effect on
the business of the Company taken as a whole.
10.2 Corporate Power and Valid Issuance. The Company has all
requisite corporate power to execute and deliver this Warrant and to
carry out and perform its obligations under the terms of this Warrant.
The Company has all requisite corporate power to sell and issue the
Warrant and to issue the capital stock of the Company issuable upon
exercise of the Warrant. The shares of Series A Common Stock when issued
pursuant to the terms hereof will be validly issued, fully paid and
non-assessable.
10.3 Capitalization. The authorized capital stock of the Company
consists of 11,411,173 shares of Common Stock, 10,000,000 shares of
which are designated Series A Common Stock, 236,566 of which are issued
and outstanding as of the date hereof, and 1,411,173 shares of which are
designated Series B Common Stock, 1,361,173 of which are issued and
outstanding as of the date hereof, and 5,490,353 shares of Preferred
Stock, 1,225,190 of which have been designated Series A Preferred Stock,
all of which were issued and outstanding as of the date hereof;
1,865,163 of which are designated Series B Preferred
<PAGE> 17
Stock, 1,686,049 of which were issued and outstanding as of the date
hereof; 1,400,000 of which are designated Series C Preferred Stock,
1,143,886 of which were issued and outstanding as of the date hereof;
and 1,000,000 of which have been designated Series D Preferred Stock,
855,810 of which were issued and outstanding as of the date hereof.
11. AMENDMENTS. The Holder hereby agrees that the observance of any
provision of this Warrant may be amended, waived or modified only by written
agreement signed by the Holder and the Company.
12. LOST DOCUMENTS. Upon receipt by the Company of evidence and
indemnity satisfactory to it of the loss, theft, destruction or mutilation of,
and upon surrender and cancellation of this Warrant, if mutilated, the Company
will make and deliver in lieu of this Warrant a new Warrant of the same series
and of like tenor of this Warrant.
13. ADJUSTMENTS. The number of shares purchasable hereunder are subject
to adjustment from time to time as follows:
13.1 Reorganization, Reclassification, Consolidation, Merger or
Sale. If any capital reorganization or reclassification of the capital stock of
the Company or any consolidation or merger of the Company with another
corporation, or the sale of all or substantially all of its assets to another
corporation shall be effected in such a way that Holder of Series A Common Stock
shall be entitled to receive stock, securities or assets with respect to or in
exchange for Series A Common Stock, then, as a condition of such reorganization,
reclassification, consolidation, merger or sale, lawful and adequate provisions
shall be made whereby the holder of this Warrant shall thereafter have the right
to receive upon the basis and upon the terms and conditions specified herein and
in lieu of or in addition to (as appropriate) the shares of Series A Common
Stock of the Company immediately theretofore receivable upon the exercise of
such Warrant , such shares of stock, securities or assets (including cash) as
may be issued or payable with respect to or in exchange for a number of
outstanding shares of such Series A Common Stock equal to the number of shares
of such stock immediately theretofore so receivable, had such reorganization,
reclassification, consolidation, merger or sale not taken place, and in any such
case appropriate provision shall be made with respect to the rights and
interests of such holder to the end that the provisions hereof (including,
without limitation, provisions for adjustments of the Exercise Price) shall
thereafter be applicable, as nearly as may be, in relation to any shares of
stock, securities or assets thereafter deliverable upon the exercise of such
exercise rights.
13.2 Split, Subdivision or Combination of Shares. If the Company
at any time while this Warrant, or any portion thereof, remains outstanding and
unexpired shall split, subdivide or combine the securities as to which purchase
rights under this Warrant exist, into a different number of securities of the
same class, the Exercise Price for such securities shall be proportionately
decreased in the case of a split or subdivision or proportionately increased in
the case of a combination and the number of the securities as to which purchaser
rights under this Warrant exist
<PAGE> 18
shall be increased or decreased proportionately in accordance with such split
subdivision or combination.
13.3 Adjustments for Dividends in Stock or Other Securities or
Property. If while this Warrant, or any portion hereof, remains outstanding and
unexpired the holders of the securities as to which purchase rights under this
Warrant exist at the time shall have received, or, on or after the record date
fixed for the determination of eligible stockholders, shall have become entitled
to receive, without payment therefor, other or additional stock or other
securities or property (other than cash) of the Company by way of dividend, then
and in each case, this Warrant shall represent the right to acquire, in addition
to the number of shares of the security receivable upon exercise of this
Warrant, and without payment of any additional consideration therefor, the
amount of such other or additional stock or other securities or property (other
than cash) of the Company which such holder would hold on the date of such
exercise had it been the holder of record of the security receivable upon
exercise of this Warrant on the date hereof and had thereafter, during the
period from the date hereof to and including the date of such exercise, retained
such shares and all other additional stock available to it as stated above
during such period, giving effect to all adjustments called for during such
period by the provisions of this Section 12.
13.4 No Impairment. The Company will not, by any voluntary
action, avoid or seek to avoid the observance or performance of any of the terms
to be observed or performed hereunder by the Company, but will at all times in
good faith assist in the carrying out of all the provisions of this Section 12
and in the taking of all such action as may be necessary or appropriate in order
to protect the rights of the holders of this Warrant against impairment.
13.5 Notice of Adjustment. When any adjustment is required to be
made in the number or kind of shares purchasable upon exercise of the Warrant,
or in the Exercise Price, the Company shall promptly notify the holder of such
event and of the number of shares of Series A Common Stock or other securities
or property thereafter purchasable upon exercise of this Warrant.
14. GENERAL PROVISIONS.
14.1 Governing Law. This Warrant shall be governed by and
construed under the laws of the State of California, excluding that body of law
relating to conflict of laws.
14.2 Expenses. Each party shall pay their respective expenses and
legal fees incurred in connection with the negotiation, execution and
consummation of this transaction.
14.3 Severability. In the event that any provision of this
Warrant becomes or is declared by a court of competent jurisdiction to be
illegal, unenforceable or void, the terms of this Warrant shall continue in full
force and effect without said provision; provided that no such severability
shall be effective if it materially changes the economic benefit of this Warrant
to any party.
<PAGE> 19
14.4 Headings. Headings used herein are for reference purposes
only and shall not be deemed to have any substantive effect.
14.5 All notices required under this Warrant and shall be deemed
to have been given or made for all purposes (i) upon personal delivery, (ii)
upon confirmation receipt that the communication was successfully sent to the
applicable number if sent by facsimile; (iii) one day after being sent, when
sent by professional overnight courier service, or (iv) five days after posting
when sent by registered or certified mail. Notices to the Company shall be sent
to the principal office of the Company (or at such other place as the Company
shall notify the Holder hereof in writing). Notices to the Holder shall be sent
to the address of the Holder on the books of the Company (or at such other place
as the Holder shall notify the Company hereof in writing).
IN WITNESS WHEREOF, POET HOLDINGS, INC., has caused the Warrant to be
executed by its officers thereunto duly authorized.
Dated: April 30, 1999
POET HOLDINGS, INC.
By: /s/Dirk Bartels
------------------------------------
Title: President & CEO
-----------------------------
Address: 999 Baker Way, Suite 100
San Mateo, CA 94404
ACCEPTED:
ARIBA, INC.
By: [Illegible]
--------------------------
Title: CFO
-----------------------
Address:
----------------------
<PAGE> 20
Warrant to Purchase Series A Common Stock
<PAGE> 21
EXHIBIT A
NOTICE OF EXERCISE
TO: POET HOLDINGS, INC.
(1) The undersigned hereby elects to purchase _______ shares of Series A
Common Stock of Poet Holdings, Inc. pursuant to the terms of the attached
Warrant to Purchase Series A Common Stock (the "Warrant"), and tenders herewith
payment of the Exercise Price for such shares in full or hereby exercises the
Warrant for ________ shares of Series A Common Stock of Poet Holdings, Inc.
pursuant to the terms of Section 4.3.
(2) The undersigned hereby confirms and acknowledges that the
representations and warranties set forth in Section 9 of the Warrant remain true
and correct concerning the Holder as of the date hereof, that the shares of
Series A Common Stock are being acquired solely for the account of the
undersigned and not as a nominee for any other party, and for investment, and
that the undersigned will not offer, sell, or otherwise dispose of any such
shares of Series A Common Stock except under circumstances that will not result
in a violation of the Securities Act of 1933, as amended, or any state
securities laws or unless pursuant to Rule 144 of such Act.
(3) Please issue a certificate or certificates representing said shares
of Series A Common Stock in the name of the undersigned or in such other name as
is specified below:
____________________________________
Print Name
____________________________________
Signature
____________________________________
Date
<PAGE> 1
EXHIBIT 23.1
CONSENT OF DELOITTE & TOUCHE LLP
We consent to the use in this Registration Statement No. 333-87267 of Poet
Holdings, Inc. on Amendment No. 7 to Form S-1 of our report dated September 8,
1999 (September 30, 1999 as to Note 11) appearing in the Prospectus, which is
part of the Registration Statement and of our report dated September 8, 1999
relating to the financial statement schedule appearing elsewhere in this
Registration Statement. We also consent to the reference to us under the
headings "Selected Consolidated Financial Data" and "Experts" in such
Prospectus.
Deloitte & Touche LLP
San Jose, California
November 9, 1999
