POET HOLDINGS INC
S-1/A, 1999-11-03
PREPACKAGED SOFTWARE
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<PAGE>   1


    AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 3, 1999


                                                      REGISTRATION NO. 333-87267
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                            ------------------------


                                AMENDMENT NO. 5

                                       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.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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 3, 1999.


                              3,950,000 SHARES OF
                                  COMMON STOCK

                              POET HOLDINGS, INC.


     POET Holdings, Inc. and the selling stockholders identified on page 61 and
62 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 E9.00
and E14.00 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 $9.59 and
$14.91 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.

DG BANK                                               PARIBAS-ZWEIGNIEDERLASSUNG
DEUTSCHE GENOSSENSCHAFTSBANK AG                               FRANKFURT AM MAIN-

                      Prospectus dated             , 1999.
<PAGE>   3





     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.

<PAGE>   4

     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


<TABLE>
<CAPTION>
                                        PAGE
                                        ----
<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..............................   21
Selected Consolidated Financial
  Data................................   23
Management's Discussion and Analysis
  of Financial Condition and Results
  of Operations.......................   25
Business..............................   39
Management............................   51
</TABLE>



<TABLE>
<CAPTION>
                                        PAGE
                                        ----
<S>                                     <C>
Executive Compensation................   54
Related Party Transactions............   59
Principal and Selling Stockholders....   61
Description of Capital Stock..........   65
Shares Eligible for Future Sale.......   69
The German Equity Market..............   71
German Tax Matters....................   72
Statutory Information.................   74
Where You Can Find Additional
  Information.........................   75
Legal Matters.........................   75
Experts...............................   75
Underwriting..........................   76
Index to Consolidated Financial
  Statements..........................  F-1
</TABLE>


     THROUGH AND INCLUDING                 , 1999 (THE 25(TH) 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.

                                        1
<PAGE>   5

                               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>   6

                                  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.
We expect the price range within which investors may offer to purchase shares
will be fixed on November 5, 1999, and published in the Handelsblatt on November
8, 1999. 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 will apply 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 16, 1999. The
first day on which the offered shares will be quoted on Neuer Markt is currently
anticipated to be November 17, 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>   7

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>   8

                   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
                                                       --------    ---------    -----------
                                                                  (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>

                                        5
<PAGE>   9

                                  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.

                                        6
<PAGE>   10

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>   11

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

                                        8
<PAGE>   12

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 28% in the United States and
approximately 13% 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

                                        9
<PAGE>   13

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;

                                       10
<PAGE>   14

     - 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.
                                       11
<PAGE>   15

     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
                                       12
<PAGE>   16


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.

                                       13
<PAGE>   17

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

                                       14
<PAGE>   18

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 $12.29 per share. 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."

                                       15
<PAGE>   19

                   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.

                                       16
<PAGE>   20

              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 of $1.069
per E1.00, the exchange rate in effect on September 30, 1999), 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.

                                       17
<PAGE>   21

                           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>   22

                                 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.

                                       19
<PAGE>   23

     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.

                                       20
<PAGE>   24

                                    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.

                                       21
<PAGE>   25

     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.

                                       22
<PAGE>   26

                      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>


                                       23
<PAGE>   27


<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>


                                       24
<PAGE>   28

                    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,

                                       25
<PAGE>   29

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

                                       26
<PAGE>   30

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>

                                       27
<PAGE>   31

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 $301,000,
offset by an increase in the overall number of support and maintenance
customers.

                                       28
<PAGE>   32

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

                                       29
<PAGE>   33

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,

                                       30
<PAGE>   34

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

                                       31
<PAGE>   35


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.

                                       32
<PAGE>   36

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>

                                       33
<PAGE>   37

     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

                                       34
<PAGE>   38

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%

                                       35
<PAGE>   39

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

                                       36
<PAGE>   40

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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<PAGE>   41

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.

                                       38
<PAGE>   42

                                    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

                                       39
<PAGE>   43

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

                                       40
<PAGE>   44

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

                                       41
<PAGE>   45

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

                                       42
<PAGE>   46

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

                                       43
<PAGE>   47

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

                                       44
<PAGE>   48

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

                                       45
<PAGE>   49

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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<PAGE>   50

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

                                       47
<PAGE>   51

     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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<PAGE>   52

     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


                                       49
<PAGE>   53

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.

                                       50
<PAGE>   54

                                   MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

     The following table sets forth information regarding our executive officers
and directors as of September 30, 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
Lawrence Owen Brown (2)............  58    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

                                       51
<PAGE>   55

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.

     LAWRENCE OWEN BROWN has served as a director of POET Holdings since April
1995 and has served as a member of the compensation committee since January
1999. Mr. Brown has been a Managing Partner of Technology Strategies &
Alliances, a technology consulting firm, since June 1996. From July 1989 to June
1996, Mr. Brown served as Chairman and Chief Executive Officer at Migration
Software Systems, Ltd., a software engineering company. Mr. Brown holds a
Bachelor of Science in Mechanical Engineering from Auburn University and has
attended the Tuck Executive Program at the Tuck School of Business at Dartmouth
College.

     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

                                       52
<PAGE>   56

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 and Mr. Brown. 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.

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.

                                       53
<PAGE>   57

                             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 of the
      remainder of the 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.

                                       54
<PAGE>   58

                       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 of $1.069 per E1.00, the exchange rate in effect
    on September 30, 1999) 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 of $1.069
    per E1.00, the exchange rate in effect on September 30, 1999) per share,
    minus the per share exercise price, multiplied by the number of shares
    underlying the option.

                                       55
<PAGE>   59

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

                                       56
<PAGE>   60

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

                                       57
<PAGE>   61

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.

                                       58
<PAGE>   62

                           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, 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>

                                       59
<PAGE>   63

     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.

                                       60
<PAGE>   64

                       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
Lawrence Owen Brown(11).......................     87,297      1.26%        7,369        79,928         *
J. Burgess Jamieson(12).......................    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(13)...............................  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(14)............................    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 (12 persons)(15)......................  4,896,365     70.44%      644,555     4,279,082     43.00%
5% STOCKHOLDERS:
European Technologies Holding N.V.(13)........  1,327,275     19.05%      245,758     1,081,517     10.26%
  De Biender 5
  NL-1852 ED Heiloo, The Netherlands
</TABLE>


                                       61
<PAGE>   65


<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>
INNOVACOM 1...................................    655,278      9.42%      121,331       533,947      5.36%
  23 Rue Royale
  75008 Paris, France
El Dorado Ventures(15)........................    694,195      9.97%      128,537       565,658      5.68%
  2400 Sand Hill Road, Suite 100
  Menlo Park, CA 94025
Sigma Partners(16)............................    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.............    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
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
Venture Lending, a Division of Cupertino
  National Bank & Trust.......................      6,555         *         1,214         5,341         *
  3 Palo Alto Square
  Suite 150
  Palo Alto, CA 94306
O'Brien Family Trust U/T/D dated July 1,
  1992(18)....................................      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>


                                       62
<PAGE>   66

- -------------------------
  *  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.

 (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) 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.

(12) 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.

(13) 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.


(14) 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.



(15) Includes all shares referenced in notes (3) through (14) above, except that
     shares beneficially owned by Ms. Bahles, Mr. Jamieson, Dr. Kohler and Mr.
     Lecoeur are counted only once in this calculation.


(16) 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

                                       63
<PAGE>   67

     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.

(17) Includes (i) 583,807 shares and a warrant to purchase 7,207 shares held by
     Sigma Partners III, (ii) 90,867 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.


(18) 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.


                                       64
<PAGE>   68

                          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
                                       65
<PAGE>   69

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.

                                       66
<PAGE>   70

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.

                                       67
<PAGE>   71

     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 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.

                                       68
<PAGE>   72

                        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 reported 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
                                       69
<PAGE>   73

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.

                                       70
<PAGE>   74

                            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

                                       71
<PAGE>   75

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

                                       72
<PAGE>   76

German holders through a partnership, the 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.

                                       73
<PAGE>   77

                             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

                                       74
<PAGE>   78

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.

                                       75
<PAGE>   79

                                  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

                                       76
<PAGE>   80

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.

                                       77
<PAGE>   81

                              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>   82

                          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>   83

                      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>   84

                      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>   85

                      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>   86

                      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>   87

                      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>   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)

     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>   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)

     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>   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)

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>   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)

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 $47,000, $123,000 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>   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)

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>   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)

     - 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>   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)

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>   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)

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>   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)

     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>   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)

     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>   98
                      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>   99
                      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>   100


PRELIMINARY OFFERING CIRCULAR OF NOVEMBER 4, 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>   101

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


1,109,896 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>   102

                              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 489,135 shares of common stock reserved for issuance upon the
exercise of options granted to officers, directors and employees as of September
30, 1999, and 107,079 shares of common stock reserved for the issuance upon the
exercise of warrants, each share having a par value of $0.001, $7,547 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

                                       A-3
<PAGE>   103

supplemented form after admission of the shares to exchange trading in the

Federal Republic of Germany.



                                       A-4
<PAGE>   104


         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


                        1,109,896 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

                         107,079 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


                San Mateo, Frankfurt am Main, November   , 1999



<TABLE>
<S>                                       <C>
DG BANK                                   PARIBAS
DEUTSCHE GENOSSENSCHAFTSBANK AG           -ZWEIGNIEDERLASSUNG FRANKFURT AM MAIN-
</TABLE>


                                       A-5
<PAGE>   105

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-6
<PAGE>   106
                              [INSIDE FRONT 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."



                              [INSIDE BACK 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."
<PAGE>   107

                                    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>   108

          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>   109

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.
 3.2*       Amended and Restated Bylaws of the Registrant.
 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.

 + Confidential treatment requested as to certain portions of this exhibit.

(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.

                                      II-3
<PAGE>   110

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>   111

                                   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 3RD DAY OF NOVEMBER, 1999.


                                          POET HOLDINGS, INC.


                                          By:       /s/ DIRK BARTELS

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

                                                        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>
              /s/ DIRK BARTELS                 President and Chief Executive     November 3, 1999
- ---------------------------------------------  Officer and Chairman of the
                Dirk Bartels                   Board
                                               (Principal Executive Officer)

                      *                        Chief Financial Officer           November 3, 1999
- ---------------------------------------------  (Principal Financial Officer)
                Jochen Witte

                      *                        (Principal Accounting Officer)    November 3, 1999
- ---------------------------------------------
                 Jerry Wong

                      *                        Director                          November 3, 1999
- ---------------------------------------------
                Shanda Bahles

                      *                        Director                          November 3, 1999
- ---------------------------------------------
             Lawrence Owen Brown

                      *                        Director                          November 3, 1999
- ---------------------------------------------
             J. Burgess Jamieson

                      *                        Director                          November 3, 1999
- ---------------------------------------------
                 Gert Kohler

                      *                        Director                          November 3, 1999
- ---------------------------------------------
               Jerome Lecoeur

            *By: /s/ DIRK BARTELS              Attorney-in-fact                  November 3, 1999
   --------------------------------------
                Dirk Bartels
</TABLE>


                                      II-5
<PAGE>   112

                    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 13, 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>   113

                                  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>   114

                               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.
 3.2*        Amended and Restated Bylaws of the Registrant.
 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.

 + Confidential treatment requested as to certain portions of this exhibit.

<PAGE>   1
                                                                     EXHIBIT 1.1


Mr. Dirk Bartels
President & CEO
POET Holdings Inc.
999 Baker Way, Suite 100
San Mateo, 94404 CA
USA

The Selling Shareholders
named in Schedule 2 to this Agreement
c/o Mr. Dirk Bartels as the
Selling Shareholders' Representative

                                                               November 12, 1999
                                                               Frankfurt am Main
                                                               DGBK/Ubernah12/CG

                                    3,950,000

                               POET HOLDINGS, INC.

                             SHARES OF COMMON STOCK

                             UNDERWRITING AGREEMENT

Dear Madams and Sirs:

With reference to our previous discussions, we would like to express our
pleasure with your decision to conduct the initial public offering (the
"Offering") of shares of Common Stock of POET Holdings, Inc. (the "Company")
(the "Shares") under the joint lead management of DG BANK ("DG") and Paribas
("PB" and, together with DG, the "Lead Managers").

The Company, and certain stockholders of the Company named in Schedule 1 hereto
(the "Selling Shareholders"), propose to sell an aggregate of

                      3,950,000 SHARES (THE "OFFER SHARES")

of the Company's Common Stock, par value $ 0.001 per share (the "Common Stock").
Of the total number of Offer Shares, 3,000,000 are being sold by the Company
after having been


<PAGE>   2
newly issued for this purpose from the Company's authorized capital (the "New
Shares") and 950,000 are being sold by the Selling Stockholders (the "Old
Shares").

The Company furthermore proposes to grant to the Lead Managers an option to
purchase up to an additional 570,000 shares of the Common Stock on the terms and
for the purposes set forth in Section 5 hereof (the "Option Shares").

In addition, certain Selling Shareholders propose to enter into an agreement
with the Lead Managers pertaining to the Lead Managers' option to borrow certain
Old Shares from such Selling Shareholders and to enter into a securities loan
upon the exercise of set option as contemplated under Section 4. hereof.

The Company and the Selling Shareholders have caused the Offer Shares, the
Option Shares and the Borrowed Stores to be registered (the "Registration") with
the United States Securities and Exchange Commission (the "SEC") under the
United States Securities Act of 1933, as amended (the "United States Securities
Act") pursuant to a registration statement on Form S-1 (the "Registration
Statement") to permit the Offering to be made in compliance with U.S. securities
laws. The Company and the Lead Managers have furthermore jointly made
application for listing of all Shares of Common Stock of the Company on the
Neuer Markt trading segment of the Frankfurt Stock Exchange ("FSE").

As of the date hereof, the amount of the Company's share capital owned by each
current shareholder (each such current shareholder hereinafter referred to as a
"Shareholder" and the entirety of such current shareholders collectively
referred to as the "Shareholders") is as set forth in the Registration
Statement currently filed with the SEC.

1.        Purchase (Zeichnung) of the Offer Shares by the Lead Managers

          On the basis of the representations and warranties contained in, and
          subject to the terms and conditions of, this Agreement, the Company
          agrees to sell the New Shares, and each Selling Shareholder hereby
          agrees to sell up to the number of Old Shares set opposite its/his/her
          name in Schedule 1 hereto, severally and not jointly, to the several
          Lead Managers, and each of the Lead Managers, severally and not

<PAGE>   3
          jointly, agrees to purchase (zeichnen) from the Company, and to
          purchase from each Selling Stockholder, at the purchase price
          determined as set forth below, half of the total number of Offer
          Shares (i.e. 1,975,000 Offer Shares per Lead Manager).

          In addition, the Company grants to the Lead Managers an option to
          purchase up to 570,000 Option Shares at the same purchase price per
          Share as the Offer Shares, such Option Shares to be issued from the
          Company's authorized share capital (the "Option") upon exercise of
          this Option by the Lead Managers. Such Option is granted for the
          purpose of covering over-allotments in the sale of Offer Shares and is
          exercisable as provided in Section 4 hereof. Option Shares shall be
          purchased severally for the account of each Lead Manager pro rata
          based on the number of Offer Shares purchasable by such Lead Manager
          hereunder.

          The Lead Managers shall neither be co-owners (Miteigentuemer nach
          Bruchteilen) nor joint-owners (Gesamthandseigentuemer) of the Offer
          Shares, or the Option Shares or the Borrowed Shares (as defined in
          Section 4 hereof) purchasable by the Lead Managers pursuant to this
          Agreement.

          The purchase price payable by the Lead Managers to the Company and the
          Selling Shareholders for the Offer Shares or the Option Shares (the
          "Offer Purchase Price" or the "Option Purchase Price", as the case may
          be) shall be equal to the Placement Price per share (as defined in
          Section 2 hereof), multiplied by the number of Offer Shares or Option
          Shares, as the case may be, to be purchased by the Lead Managers, from
          which product the amount of costs and commissions payable by each of
          the Company and each respective Selling Shareholder pursuant to
          Section 7 hereof shall be deducted.

2.        Placement Price, Pricing Date

          The price at which the Offer Shares and the Borrowed Shares (as
          defined in Section 4 hereof), if any, are sold to investors having
          offered to purchase such Shares (the "Investors") shall hereby be
          determined to be


<PAGE>   4
               EURO ____________ PER SHARE (THE "PLACEMENT PRICE")

          The date hereof shall henceforth be referred to as the "Pricing Date".

3.        Allotments, Preferential Allotments

          The Lead Managers shall be entitled to purchase 3% of the Offer Shares
          for their own account.

          Up to 190,000 Offer Shares shall be reserved for preferential
          allotment to employees of the Company and persons having business
          relationships with the Company (the "Preferential Allotment"). The
          persons eligible for Preferential Allotment (the "Beneficiaries")
          shall receive an allotment of shares at the Placement Price and on the
          general terms and conditions of the Offering according to a list of
          the Beneficiaries produced by the Company (the "Beneficiary List")
          communicated to the Lead Managers on the Pricing Date.

          The Lead Managers are neither obliged nor entitled to inquire as to
          whether Preferential Allotments to the Beneficiaries included in the
          Beneficiary List contravene any statutory or contractual rules. The
          Company shall be liable for any damages incurred by the Lead Managers
          as a result of a failure of Beneficiaries who do not request to have
          the Offer Shares delivered to a securities account in Germany, to pay
          for Offer Shares for which they have subscribed.

          Under no circumstances shall the arrangement described in this Section
          3 constitute a third party beneficiary contract within the meaning of
          Section 328 of the German Civil Code for the benefit of any third
          party, nor will any Lead Manager be liable to the Company or to any
          Beneficiary for any action taken or omitted to be taken by such Lead
          Manager in good faith in connection with the Preferential Allotment to
          Beneficiaries.

4.        Over-Allotments

          The Lead Managers' Option (as set forth under Section 1 hereof) will
          begin on the first day on which the Company's Shares are traded on FSE
          and will expire 30

<PAGE>   5
          calendar days thereafter. The Option may be exercised during such
          period by the Lead Managers in whole or in part from time to time by
          written notice given to the Company. Such notice shall set forth the
          aggregate number of Option Shares as to which the Option is being
          exercised.

          In order to cover over-allotments prior to the availability of the
          Option Shares to the Lead Managers and the admission of such Option
          Shares to trading on the FSE, each Shareholder set forth in Schedule 2
          hereby agrees to grant the Lead Managers the option to borrow up to
          the number of Old Shares set directly opposite that Shareholder's name
          (the "Borrowing Option"). The Borrowing Option is hereby exercised
          with regard to the number of Borrowed Shares indicated in the second
          column set opposite each Shareholder's name on Schedule 2 hereto. The
          exercise of the Borrowing Option creates a securities loan (the
          "Securities Loan") between the respective Shareholders and the Lead
          Managers for the account of the Underwriters for the number of Old
          Shares set forth in the second column of Schedule 2 hereof (the
          "Borrowed Shares"). The Securities Loan shall be free of charge to the
          Lead Managers and have the duration of the period commencing with the
          sale of the Offer Shares to the Lead Managers until at the latest six
          months after the admission of the Shares to trading on the Neuer Markt
          of the FSE.

5.        Delivery of Offer Shares and Borrowed Shares to the Lead Managers

          Upon execution of this Agreement, the Company and the Selling
          Shareholders shall give the Company's registrar and transfer agent
          (the "Registrar and Transfer Agent") instructions to transfer the
          Offer Shares and the Borrowed Shares to a custody account (the
          "Custody Account") held with DG (the "Custodian") in Frankfurt am
          Main, which Offer Shares and Borrowed Shares shall be received in such
          Custody Account by no later than the business day following the day of
          the execution of this Agreement. The Company and the Selling
          Shareholders hereby authorize the Custodian to deliver the Offer
          Shares, together with any Borrowed Shares which DG has informed the
          appropriate Selling Shareholders that it wishes to borrow, to an own
          account of DG on behalf of the Lead Managers, which delivery of Offer
          Shares shall be made against release of the Offer Purchase Price

<PAGE>   6
          to the respective Selling Shareholders by DG as contemplated under
          Section 6 hereof. Such instruction by the Company and the Selling
          Shareholders shall become effective on the Settlement Date. The
          parties agree that ownership of the Offer Shares and the Borrowed
          Shares shall pass to the Lead Managers on the Settlement Date in
          exchange for (Zug um Zug) release of the Offer Purchase Price by DG as
          contemplated under Section 6 hereof.

          For the period of time between the instruction to the Registrar and
          Transfer Agent to transfer the Offer Shares and the Borrowed Shares,
          if any, to the Custody Account, until the Settlement Date (as defined
          in Section 6 hereof), the Company and the Selling Shareholders hereby
          waive their right to instruct the Custodian to transfer the Offer
          Shares and the Borrowed Shares to any other person than to DG. In the
          event that the Offer Purchase Price is not paid to the Company and the
          Selling Shareholders on the Settlement Date as contemplated under
          Section 6 hereof, the Lead Managers shall immediately return the Offer
          Shares and the Borrowed Shares and shall transfer title thereto to the
          Company and the Selling Shareholders, respectively.

6.        Delivery of Shares to Investors

          The Lead Managers undertake to deliver the Offer Shares and the
          Borrowed Shares, if any, that have been allocated to Investors, to
          such Investors on November 17, 1999 or such other time and date that
          the Lead Managers, the Company and the Selling Shareholders may agree.
          (the "Settlement Date"). However, the Settlement Date shall always be
          the business day directly following the business day on which the
          price for the Shares is first quoted on the FSE.

          On the Settlement Date, DG shall credit a money account of the Company
          with DG in Frankfurt am Main (the "Sonderkonto Kapitalerhoehung POET
          Holdings Inc.") with the Offer Purchase Price in EURO allocable to the
          New Shares as calculated pursuant to Section 4 hereof.


<PAGE>   7
          Also on the Settlement Date, DG shall release the Offer Purchase Price
          allocable to the Old Shares as calculated pursuant to Section 4 hereof
          to the accounts of the Selling Shareholders listed in Schedule 1
          hereto.

          In the event that the Lead Managers exercise all or a portion of the
          Option, the Option Shares shall be delivered to DG in the same manner
          as the Offer Shares have been delivered two business days after
          exercise of the Option against payment of the Option Purchase Price to
          the Company's designated account (the "Second Transfer Date").

7.        Costs and Commissions

          The Selling Shareholders and the Company agree to pay to the Lead
          Managers a fee of 5.0% of the aggregate Placement Price of the Offer
          Shares and - if and to the extent the Option has been exercised - the
          Borrowed Shares, if any, by way of deduction from the Placement Price
          as contemplated under Section 4 hereof, (the "Placement Fee"). The
          portion of the Placement Fee payable by the Selling Shareholders shall
          be allocated among the Selling Shareholders pro rata based on the
          number of Old Shares sold by such Selling Shareholder.

          The Lead Managers agree among themselves that the Placement Fee shall
          be subdivided into three individual components:

          -         Management Fee: 20% of the Placement Fee - to be allocated
                    between the Lead Managers pro rata based on the amount of
                    Offer Shares and Borrowed Shares purchased by each of the
                    Lead Managers.

          -         Underwriting Fee: 20% of the Placement Fee - to be allocated
                    between the Lead Managers pro rata based on the amount of
                    Offer Shares and Borrowed Shares purchased by each of the
                    Lead Managers.

<PAGE>   8
          -         Selling Fee: 60% of the Placement Fee - to be allocated
                    between the Lead Managers pro rata based on their respective
                    allotments as determined by the allotment decisions at the
                    end of the Book-building Period.

          Notwithstanding the foregoing, DG shall receive a praecipuum of DEM
          100,000 of the Placement Fee for the technical handling of the
          Preferential Allotment programme. This praecipuum does not constitute
          an additional fee or commission payable by the Company or the Selling
          Shareholders.

          The Company shall furthermore pay to the Lead Managers a listing fee
          amounting to EURO 125,000 as consideration for the Lead Manager's
          efforts in assisting the Company to effect the listing of the Shares
          on the FSE and for the assumption of the liability arising pursuant to
          the German Stock Exchange Act.

          All costs associated with the Offering, the Listing and the
          Registration Statement, including, but not limited to, the costs of
          (i) setting, printing, distributing and translating the Offering
          Documents (including financial statements and exhibits thereto); (ii)
          the Offer Invitation; (iii) the preparation, printing, authentication,
          issuance and delivery of certificates for the Shares, including any
          stamp or transfer taxes in connection with the original issuance and
          sale of the Shares (iv) the printing (or reproduction) and delivery of
          this Agreement and all other agreements and documents printed (or
          reproduced) and delivered in connection with the Offering, the Listing
          or the Registration; (v) fees relating to the Registration and the
          Listing; and (vi) preparing and carrying out the roadshow, including
          travel costs, and all other costs and expenses incident to the
          performance by the Company and the Selling Shareholders of their
          obligations hereunder, will be borne by the Company; provided,
          however, that the Lead Managers will pay for their own out-of-pocket
          expenses (such as travel expenses and the hotel costs of bank
          employees) incurred in respect of the roadshow.

          The Company will also pay the costs of the Lead Managers' outside
          counsel incurred in respect of the Offering, the Listing and the
          Registration as well as the Lead Managers' expenses in connection with
          plausibility analysis of the

<PAGE>   9
          Company's business plan by PriceWaterhouseCoopers (the "Plausibility
          Check") and evaluation of the Company's software technology by VDI/VDE
          Technologiezentrum Informationstechnik GmbH (the "Technology Report").
          However, such costs shall be limited to a maximum of DEM 250,000 plus
          43.33 per cent of the total fees (limited to DM 750,000 excluding VAT,
          if any) and costs charged by the Lead Managers' legal counsel.

          Excess expenses for the Plausibility Check, the Technology Report, the
          legal due diligence and legal counsel not reimbursed as set forth
          above will be borne by the Lead Managers pro rata based on their
          respective purchasing quotas. In the event that the Offering is not
          consummated or completed as contemplated in this Agreement, the
          Company shall reimburse the Lead Managers for all costs incurred in
          connection with the preparation of the Offering, the Listing and the
          Registration Statement up to an aggregate amount of EURO 500,000.

8.        Conditions Precedent

          The respective obligations of the Lead Managers hereunder are subject
          to the accuracy, when made and on each the Pricing Date, the
          Settlement Date and the First and the Second Transfer Date, of the
          representations and warranties of the Company and the Selling
          Stockholders contained herein, to the performance by the Company and
          the Selling Stockholders of their respective obligations hereunder,
          and to each of the following additional terms and conditions:

          8.1       The Company's preferred shares, par value US$ 0.001 per
                    share (Series A, B, C and D, hereinafter referred to as the
                    "Preferred Shares"), and the Series B common shares, par
                    value US$ 0.001 per share (Series A and B, hereinafter
                    referred to as the "Common Shares"), whether authorized or
                    outstanding, shall have been converted into one class of
                    series A Common Stock and shall have been re-designated as
                    undesignated shares of Common Stock.

          8.2       Immediately after the conversion of the Company's entire
                    share capital into

<PAGE>   10
                    Shares, the Company shall deliver to DG (by registered mail
                    as well as immediately per fax to DG at
                    0-11-49-69/7447-3685) a copy of the shareholders' resolution
                    and the board of directors' resolution together with a
                    confirmation by the Secretary of the Company stating that
                    such copies represent the said shareholder and board
                    resolutions and confirming that the conversion into Shares
                    has occurred by virtue of such resolutions.

          8.3       The Company and the Shareholders shall have taken all
                    necessary action, corporate or otherwise, required to
                    authorize the issuance of the New Shares and Option Shares
                    (as defined below), if any, to complete the Offering.

          8.4       The Company shall have taken all necessary action, corporate
                    or otherwise, required to effect the issuance of the New
                    Shares and to authorize the issuance and sale of the Option
                    Shares, if any, to complete the Offering. The same
                    shareholders' rights shall attach to such authorized Shares
                    as are attached to the Company's current Shares.

          8.5       The Company shall have provided the Lead Managers with a
                    capitalization table as of the Pricing Date displaying the
                    total number of Shares outstanding, the total number of
                    warrants and options outstanding as well as the amount of
                    Shares authorized.

          8.6       Immediately after issuing the New Shares, the Company shall
                    have delivered to DG (by registered mail as well as
                    immediately per fax to DG at 0-11-49-69/7447-3685) a copy of
                    the board of director's resolution to issue the New Shares
                    together with a confirmation by the Secretary of the Company
                    stating that such copy represents the said board resolution
                    and confirming that the New Shares have been issued by
                    virtue of such resolution.

          8.7       The Company and the Selling Shareholders shall have used
                    their best efforts to provide any other evidence requested
                    by FSE to effect listing of the Shares.


<PAGE>   11
          8.8       The Company and the Selling Shareholders shall have taken
                    all actions necessary to have all of the Offer Shares and
                    any other Shares deliverable to the Lead Managers pursuant
                    to this Agreement certificated in one or more share
                    certificates (the "Certificates") and such Certificates
                    shall have been registered in the Company's share register
                    in the name of The Depository Trust Company of New York
                    ("DTC") or a nominee of DTC.

          8.9       The Offer Shares and the Borrowed Shares shall have been
                    accepted for deposit by DTC and shall be eligible for
                    clearance and settlement through the facilities of DTC.
                    Upon depositing the Certificates with DTC for the benefit of
                    Deutsche Borse Clearing AG's ("DBC") securities account
                    with DTC, DBC shall have been instructed to transfer the
                    Offer Shares in book-entry form to DG's account with DBC and
                    DG shall have been instructed to transfer the Offer Shares
                    to the Custody Account on or prior to the Pricing Date, 1999
                    and such transfer to the Custody Account shall have occurred
                    on or prior to the business day directly following the
                    Pricing Date.

          8.10      The Selling Shareholders shall have provided DG with the
                    details of the accounts to which the Offer Purchase Price
                    shall be released on the Settlement Date. Such details
                    especially include the name of the account-carrying bank's
                    correspondence bank in Germany.

          8.11      The English language preliminary and final selling
                    prospectus/company report as well as all amendments thereto
                    (collectively the "German Prospectus") shall have been filed
                    with the FSE by the Company and the Lead Managers and the
                    Registration Statement and all amendments thereto shall have
                    been filed with the SEC (such German Prospectus and
                    Registration Statement as well as their respective
                    amendments collectively hereinafter referred to as the
                    "Offering Documents"). The Offering Documents shall comply
                    with all applicable German and US rules and regulations,
                    respectively. The Company shall have assumed responsibility

<PAGE>   12
                    for the correctness and completeness of the Offering
                    Documents under the German Stock Exchange Act and the United
                    States Securities Act. The Company shall furthermore have
                    undertaken to comply with all rules and regulations of Neuer
                    Markt and the SEC pertaining to the admission of the Shares
                    to trading on Neuer Markt and the registration of the Offer
                    Shares with the SEC.

          8.12      The Registration Statement shall have been declared
                    effective by the SEC and no stop order or other order issued
                    by a governmental agency, domestic or foreign, suspending
                    the effectiveness of the Registration Statement or
                    preventing the completion of the Listing or the Offering
                    shall have been issued and no proceedings for that purpose
                    shall have been instituted or threatened. The FSE shall have
                    approved the preliminary German Prospectus for publication.

          8.13      The Company and the Shareholders shall have executed and
                    provided to DG undertakings not to dispose of Shares for a
                    period of six months from the date of admission of the
                    shares to Neuer Markt.

          8.14      The Company shall have undertaken to FSE to observe the
                    Rules and Regulations Neuer Markt and to adhere to the
                    provisions of the German Take-Over Code.

          8.15      The FSE shall have admitted all of the Company's Shares to
                    the regulated market (Geregelter Markt) with quotation in
                    the Neuer Markt trading segment of FSE and satisfactory
                    evidence of such actions shall have been provided to the
                    Lead Managers.

          8.16      The Company shall have authorized the Lead Managers to
                    publish the invitation to Investors to offer to purchase
                    Offer Shares (the "Offer Invitation," Verkaufsangebot) on
                    behalf of the Company on the first day of the Book-building
                    Period. The Offer Invitation shall comply with Rule 134 of
                    the United States Securities Act and shall have been
                    published in at least

<PAGE>   13
                    one FSE-approved daily newspaper with national circulation
                    in Germany. The publication of the Offering Documents in
                    Germany shall have been effectuated either (i) by making
                    such Offering Documents available at the offices of
                    specified banks, accompanied by a notice one day prior to
                    the Invitation Offer in at least one FSE-approved newspaper
                    (Schalterpublizitaet) with national circulation in Germany
                    or (ii) by publication of such Offering Documents in at
                    least one FSE-approved newspaper with national circulation
                    in Germany.

          8.17      On the Pricing Date, as well as on or before any other date
                    in which a Prospectus, preliminary or final, is dated, the
                    Company's auditors shall have confirmed to the Lead Managers
                    in a comfort letter substantially in the form attached
                    hereto as Appendix A that there have not been any material
                    adverse changes in the financial position of the Company or
                    any of its subsidiaries between the date of issuance of the
                    audit certificate in respect of the latest financial
                    statements and the date of such comfort letter. The auditors
                    of the Company shall submit to the Lead Managers a further
                    confirmation to the same effect on the day prior to the
                    Second Transfer Date.

          8.18      Wilson Sonsini Goodrich & Rosati, U.S. counsel to the
                    Company, shall have delivered a legal opinion addressed to
                    the Lead Managers dated the Pricing Date and shall deliver a
                    second legal opinion dated the Settlement Date, to the
                    effect set forth in Appendix B attached hereto.

          8.19      On the Settlement Date, there shall not have occurred (i)
                    since the date hereof or since the respective dates as of
                    which information is given in the Prospectus, any material
                    adverse change in the condition, financial or otherwise, or
                    in the earnings, business affairs or business prospects of
                    the Company and its subsidiaries considered as one
                    enterprise, whether or not arising in the ordinary course of
                    business, and the Lead Managers shall have received a
                    certificate of the President or a Vice President of the
                    Company and of the chief financial or chief accounting
                    officer of the

<PAGE>   14
                    Company, dated as of the Pricing Date and again as of the
                    Settlement Date, to the effect that (w) there has been no
                    such material adverse change, (x) the representations and
                    warranties in Section 13 hereof are true and correct with
                    the same force and effect in all respects as though
                    expressly made on and as of the Pricing Date and the
                    Settlement Date respectively, (y) the Company has complied
                    with all agreements and satisfied all conditions of its part
                    to be performed or satisfied on or prior to the Pricing Date
                    and (z) no stop order suspending the effectiveness of the
                    Registration Statement has been issued and no proceedings
                    for that purpose have been instituted or, to the Company's
                    knowledge, threatened, or (ii) such a change in national or
                    international financial, political or economic conditions or
                    currency exchange rates or exchange controls as to make it,
                    in the judgement of the Lead Managers, inadvisable to
                    proceed with the Offering or (iii) a general suspension or
                    material limitation on or by, as the case may be, the FSE.

          8.20      On the Pricing Date and on the Settlement Date, the Lead
                    Managers shall have received a certificate of each, or on
                    behalf of each, Selling Shareholder, dated as of such date,
                    to the effect that (i) the representations and warranties of
                    the Selling Shareholder contained in Section 12 hereof are
                    true and correct in all material respects with the same
                    force and effect as though expressly made at and as of such
                    date and (ii) the Selling Shareholder has complied with all
                    agreements and all conditions on its part to be performed
                    under this Agreement at or prior to such date.

9.        Further Agreements of the Company

          9.1       For as long as the Lead Managers act as designated sponsors
                    for the Company's Shares on Neuer Markt, the Company
                    undertakes to keep the Lead Managers informed of issuances
                    of capital stock, options and warrants to receive capital
                    stock and capital decreases (including the repurchase of
                    Shares). For as long as the Lead Managers act as designated
                    sponsors for the Company's Shares on Neuer Markt, the
                    Company shall keep DG and

<PAGE>   15
                    Paribas informed of all events of economic and/or legal
                    significance in relation to the Shares on an ongoing basis.

          9.2       The Company undertakes to (i) furnish to each of the Lead
                    Managers until the end of the distribution period for the
                    Offer Shares and the Borrowed Shares, if any, and for six
                    months thereafter, copies of the Offer Documents in such
                    quantities as the Lead Managers may from time to time
                    reasonably request and (ii) in case that at any time prior
                    to the completion of the initial distribution of the Offer
                    Shares and the Borrowed Shares, if any, or up to six months
                    thereafter, any event shall have occurred as a result of
                    which any Offer Document as then amended or supplemented
                    would include an untrue statement of a material fact or omit
                    to state any material fact necessary to make the statements
                    therein, in the light of the circumstances under which they
                    were made, not misleading, or, if for any other reason it
                    shall be required under applicable law during such period to
                    amend or supplement any Offer Document, it will notify the
                    Lead Managers promptly and confirm such notice in writing,
                    and will prepare and furnish to each of the Lead Managers,
                    without charge to any of the Lead Managers, as many copies
                    as the Lead Managers may, from time to time, reasonably
                    request of such amendment or supplement to such Offer
                    Documents, correcting in compliance with the respective laws
                    and regulations on prospectus liability such statement or
                    omission or effecting such compliance.

          9.3       The Company undertakes to observe the requirements of all
                    applicable securities laws, including, without limitation,
                    U.S. federal securities laws, in connection with the
                    Offering.

          9.4       The Company undertakes to observe and fulfill all
                    regulations, legal provisions and requirements of the Neuer
                    Markt, as well as to make available in the future all
                    necessary documents. In addition, the Company undertakes to
                    comply with all rules and regulations of the United States

<PAGE>   16
                    Securities Act applicable to it as a result of the
                    Registration. In addition, the Company undertakes:

                    -         to comply with the German Take Over Code of the
                              German Federal Finance Ministry's Stock Exchange
                              Expert Committee;

                    -         to complete the timely production and publication
                              of a Company calendar giving details of the dates
                              of the general shareholders' meeting;

                    -         to carry out at least one briefing of financial
                              analysts per year;

                    -         to complete the timely production and publication
                              of quarterly reports with details of business
                              trends and important financial figures in German
                              and English;

                    -         to prepare the Company's financial statements
                              according to U.S. GAAP in German and English and
                              to publish such statements no later than four
                              months after the end of the financial year;

                    -         to disclose annually the number of securities in
                              the Company held by members of the Board of
                              Directors.

10.       Further Agreements of Selling Shareholders

          10.1      In addition to any undertaking in relation to the FSE and
                    the Lead Managers existing as of the date hereof to the
                    effect not to dispose of any Shares for a period of 12
                    months after the admission of the Shares to the FSE,
                    __________ undertake, for a period of six months beginning
                    from the day after the expiry of such existing undertaking
                    not to, directly or indirectly, offer Shares, sell Shares,
                    make announcements with respect to such offers or sales, or
                    take any other measures that are economically equivalent to
                    such sale, without the prior written consent of the Lead
                    Managers. The Lead

<PAGE>   17
                    Managers shall be obliged to release __________ from this
                    undertaking provided that, in the opinion of the Lead
                    Managers, such parties have engaged an investment bank that
                    supports demand for the Shares by means of a road show and
                    research reports as to sufficiently stabilize the share
                    price despite the disposal of the Shares.

          10.2      The Selling Shareholders undertake to consult the Lead
                    Managers in relation to the terms of, the timetable for, and
                    the manner of publication of, any announcement of, or other
                    public disclosure regarding, the sale of the Old Shares
                    except as required by law and any applicable rules of any
                    relevant stock exchange. The Selling Shareholders will not
                    make any such announcement or disclosure without DG's prior
                    written consent.

11.       Further Agreements of the Lead Managers

          The Lead Managers undertake to serve as Designated Sponsors within
          the meaning of the Rules and Regulations of Neuer Markt. This service
          shall be free of charge in the first year after the first day of
          trading of the Shares and shall be subject to separate agreements with
          each of the Lead Managers. The Lead Managers shall have the right to
          purchase up to 3% of the Offer Shares at the Placement Price for their
          own account to create a long-position in the Shares which serves to
          facilitate their market-making obligations (the Shares purchased
          pursuant to such right being referred to as the "Designated Sponsor
          Shares"). The Designated Sponsor Shares shall be allocated to the Lead
          Managers pro rata based on their respective purchasing quotas.

12.       Warranties, Representations and Undertakings of the Selling
          Shareholders

          12.1      Each of the Selling Shareholders represents, warrants and
                    undertakes to the Lead Managers that:

<PAGE>   18
                    12.1.1    Such Selling Shareholder, if a corporation, is
                              duly organized, validly existing and in good
                              standing under the laws of its jurisdiction of
                              organization, and has the power and authority to
                              own its properties and assets and conduct its
                              business as presently conducted;

                    12.1.2    Such Selling Shareholder has the full right, power
                              and authority to enter into this Agreement and to
                              sell, transfer and deliver the Old Shares to be
                              sold by such Selling Shareholder hereunder. The
                              execution and delivery of this Agreement and the
                              sale and delivery of the Old Shares to be sold by
                              such Selling Shareholder and the consummation of
                              the transactions contemplated herein and
                              compliance by such Selling Shareholder with its
                              obligations hereunder have been duly authorized by
                              such Selling Shareholder and do not and will not,
                              whether with or without the giving of notice or
                              passage of time or both, conflict with or
                              constitute a breach of, or default under, or
                              result in the creation or imposition of any tax,
                              lien, charge or encumbrance upon the Old Shares to
                              be sold by such Selling Shareholder or any
                              property or assets of such Selling Shareholder
                              pursuant to any contract, indenture, mortgage,
                              deed of trust, loan or credit agreement, note,
                              license, lease or other agreement or instrument to
                              which such Selling Shareholder is a party or to
                              which such Selling Shareholder is subject, nor
                              will such action result in any violation of the
                              provisions of the charter or by-laws or other
                              organizational instrument of such Selling
                              Shareholder, if applicable, or any applicable
                              treaty, law, statute, rule, regulation, judgment,
                              order, writ or decree of any government,
                              government instrumentality or court, domestic or
                              foreign, having jurisdiction over such Selling
                              Shareholder or any of its properties;

                    12.1.3    Such Selling Shareholder has complied, and will
                              comply, in all respects, with the provisions of
                              U.S. and German law and the

<PAGE>   19
                              articles of incorporation of the Company
                              concerning the requirements for holding or
                              disposing of certain percentages of the share
                              capital of the Company, together with all
                              applicable German and U.S. stock exchange and
                              regulatory authority rules and regulations;

                    12.1.4    Such Selling Shareholder has and will have good,
                              valid and marketable title to the Old Shares to be
                              sold and to the Borrowed Shares to be lent by such
                              Selling Shareholder hereunder (such Old Shares
                              being fully paid), free and clear of any security
                              interest, mortgage, pledge, lien, charge, claim,
                              equity or encumbrance of any kind, other than
                              pursuant to this Agreement; and upon delivery of
                              such Old Shares and the Borrowed Shares, assuming
                              each such Lead Manager has no notice of any
                              adverse claim, each of the Lead Managers will
                              receive good, valid and marketable title to the
                              Old Shares purchased and the Borrowed Shares
                              borrowed by it from such Selling Shareholder, free
                              and clear of any security interest, mortgage,
                              pledge, lien, charge, claim, equity or encumbrance
                              of any kind; and there is no other conflicting
                              right, contingent or otherwise, of any person to
                              purchase or be offered for purchase any of the Old
                              Shares to be delivered by such Selling Shareholder
                              in connection with this Agreement;

                    12.1.5    This Agreement has been duly authorized, executed
                              and delivered by such Selling Shareholder and
                              constitutes the legal, valid and binding
                              obligation of such Selling Shareholder enforceable
                              in accordance with its terms;

                    12.1.6    The Old Shares and the Borrowed Shares, if any,
                              have been transferred to DG on the Pricing Date,
                              together with all rights, dividends, distributions
                              and other benefits attaching to them on

<PAGE>   20
                              such Pricing Date, with full title guarantee and
                              free from, and not in breach of, any charges,
                              liens or other encumbrances or any pre-emptive or
                              other rights limiting their transferability;

                    12.1.7    The Old Shares owned by such Selling Shareholder
                              are subject to the interests of the Lead Managers
                              hereunder; the obligations of such Selling
                              Shareholder hereunder shall not be terminated by
                              operation of law, whether in the case of a
                              partnership or corporation, by the dissolution of
                              such partnership or corporation, or by the
                              occurrence of any other event; and if such Selling
                              Shareholder should be dissolved, or if any other
                              such event should occur, before the delivery of
                              the Old Shares hereunder, the Old Shares shall be
                              delivered by or on behalf of such Selling
                              Shareholder in accordance with the terms and
                              conditions of this Agreement;

                    12.1.8    None of the Selling Shareholders, nor any of their
                              affiliates, nor any person acting on their behalf,
                              has taken or will take, directly or indirectly,
                              any action designed to cause or to result in, or
                              that has constituted or which might reasonably be
                              expected to cause or result in, the stabilization
                              in violation of applicable laws or manipulation of
                              the price of any security of the Company to
                              facilitate the sale or the resale of the Offer
                              Shares;

                    12.1.9    No filing with, or consent, approval,
                              authorization, order, registration, qualification
                              or decree of, any court or governmental
                              authorization or agency, domestic or foreign, is
                              necessary or required for the performance by such
                              Selling Shareholder of its obligations hereunder
                              or in connection with the sale, lending and
                              delivery of the Old Shares hereunder or the
                              consummation of the transactions contemplated by
                              this Agreement, except such as may have previously
                              been made or obtained;

<PAGE>   21
                    12.1.10   Such Selling Shareholder has no reason to believe
                              that the representations and warranties of the
                              Company contained in Section 13 are not true and
                              correct.

          12.2      The commitments of the Lead Managers hereunder are being
                    made on the basis of the representations, warranties and
                    undertakings set out above. The Selling Shareholders
                    undertake that each of them will fully indemnify each of the
                    Lead Managers against any and all losses, liabilities,
                    costs, claims, charges, actions, proceedings, damages,
                    expenses or demands which any of them may incur or which may
                    be made against a Lead Manager as a result of, or in
                    connection with, any breach or alleged breach by such
                    Selling Shareholder of any of its representations,
                    warranties and undertakings set out above.

          12.3      The Selling Shareholders' obligations in respect of the
                    above representations, warranties, undertakings and
                    indemnity shall be several and not joint and will continue
                    in full force and effect after the Settlement Date
                    notwithstanding the performance of this Agreement, the
                    completion of the sale of the Offer Shares, the completion
                    of the Registration or any investigation of the matters to
                    which they relate by the Lead Managers or on the Lead
                    Managers' behalf.

          12.4      The Selling Shareholders who, at the time of the Offering,
                    are represented on the board of directors of the Company as
                    well as such representatives who are Selling Shareholders
                    furthermore represent, warrant and undertake to the Lead
                    Managers that, on the date on which the SEC declares
                    effective the Registration Statement (the "Effective
                    Date"), such Registration Statement will conform in all
                    material respects to the applicable requirements of the
                    United States Securities Act and the rules and regulations
                    thereunder and will not include any untrue statement of a
                    material fact or omit to state any material fact required to
                    be stated therein or necessary in order to make the
                    statements therein not misleading. At the time of filing of
                    the Prospectus pursuant to Rule 424(b) or (if no such filing

<PAGE>   22
                    is required) at the Effective Date of the Registration
                    Statement in which the Prospectus is included, the
                    Registration Statement and the Prospectus will conform in
                    all material respects to the requirements of the United
                    States Securities Act and the rules and regulations
                    thereunder, and none of such documents will include any
                    untrue statement of a material fact or omit to state a
                    material fact necessary in order to make the statements
                    therein not misleading; provided, however, that such Selling
                    Shareholders make no undertaking as to the information
                    contained in or omitted from the Registration Statement or
                    the Prospectus in reliance upon and in conformity with
                    information furnished herein or in writing to the Company by
                    or on behalf of any Lead Manager specifically for inclusion
                    in the Registration Statement or the Prospectus.

          12.5      The Selling Shareholders who, at the time of the Offering,
                    are represented on the board of directors of the Company as
                    well as such representatives who are Selling Shareholders
                    furthermore represent, warrant and undertake to the Lead
                    Managers that, on the date on which a German Prospectus is
                    published, such German Prospectus will not include any
                    untrue statement of a material fact or omit to state any
                    material fact required to be stated therein or necessary in
                    order to make the statements therein not misleading;
                    provided, however, that such Selling Shareholder makes no
                    undertaking as to the information contained in or omitted
                    from the German Prospectus in reliance upon and in
                    conformity with information furnished herein or in writing
                    to the Company by or on behalf of any Lead Manager
                    specifically for inclusion in the German Prospectus.

          The representations, undertakings and warranties set out in this
          Section 12 shall be deemed to have been given on the Pricing Date and
          be repeated on the Settlement Date and the Second Transfer Date, if
          any.



<PAGE>   23
13.       Warranties, Representations and Undertakings of the Company

          13.1      The Company represents, warrants and undertakes to the Lead
                    Managers that:

                    13.1.1    The Company has been duly organized and is validly
                              existing as a corporation in good standing under
                              the laws of the State of Delaware and has
                              corporate power and authority to own, lease and
                              operate its properties and to conduct its business
                              and to enter into and perform its obligations
                              under this Agreement; and the Company is duly
                              qualified as a foreign corporation to transact
                              business and is in good standing in each other
                              jurisdiction in which such qualification is
                              required, whether by reason of the ownership or
                              leasing of property or the conduct of business,
                              except where the failure so to qualify or to be in
                              good standing would not have a material adverse
                              effect on the condition, financial or otherwise,
                              or on the earnings, business affairs or business
                              prospects of the Company and its subsidiaries
                              considered as one enterprise, whether or not
                              arising in the ordinary course of business (a
                              "Material Adverse Effect");

                    13.1.2    Each subsidiary of the Company (each a
                              "Subsidiary" and, collectively, the
                              "Subsidiaries") has been duly organized and is
                              validly existing as a corporation in good standing
                              under the laws of the jurisdiction of its
                              incorporation, has corporate power and authority
                              to own, lease and operate its properties and to
                              conduct its business and is duly qualified as a
                              foreign corporation to transact business and is in
                              good standing in each jurisdiction in which such
                              qualification is required, whether by reason of
                              the ownership or leasing of property or the
                              conduct of business, except where the failure so
                              to qualify or to be in good standing would not
                              result in a Material Adverse Effect; all of the
                              issued and outstanding capital stock of each such
                              Subsidiary has been duly authorized and validly
                              issued, is fully paid and non-assessable and is
                              owned by the Company, directly or through

<PAGE>   24
                              subsidiaries, free and clear of any security
                              interest, mortgage, pledge, lien, encumbrance,
                              claim or equity; none of the outstanding shares of
                              capital stock of any Subsidiary was issued in
                              violation of the preemptive or similar rights of
                              any securityholder of such Subsidiary;

                    13.1.3    The shares of issued and outstanding capital stock
                              of the Company, including the Old Shares to be
                              purchased or borrowed by the Lead Managers from
                              the Selling Shareholders, have been duly
                              authorized and validly issued and are fully paid
                              and non-assessable; none of the outstanding
                              Shares, including the Old Shares to be purchased
                              or borrowed by the Lead Managers from the Selling
                              Shareholders, was issued in violation of the
                              preemptive or other similar rights of any
                              securityholder of the Company;


                    13.1.4    The Company has full power and authority to enter
                              into, and perform its obligations under, this
                              Agreement and such entry into, and performance of
                              its obligations under, this Agreement has been
                              duly authorized by all necessary corporate or
                              other action;

                    13.1.5    As and when required by the German Securities
                              Trading Act (Wertpapierhandelsgesetz), the Company
                              has complied, and will comply, in all respects,
                              with the provisions of U.S. and German law and the
                              articles of incorporation of the Company
                              concerning the requirements for holding or
                              disposing of certain percentages of the share
                              capital of the Company, together with all
                              applicable stock exchange and German regulatory
                              authority rules and regulations;

<PAGE>   25
                    13.1.6    This Agreement has been duly executed and
                              delivered by the Company and constitutes a legal,
                              valid and binding obligation of the Company
                              enforceable against it in accordance with its
                              terms;

                    13.1.7    Except as set forth in the Prospectus, there are
                              no contracts, agreements, or understandings
                              between the Company and any person granting such
                              person the right to require the Company to file a
                              registration statement under the United States
                              Securities Act with respect to any securities of
                              the Company owned or to be owned by such person or
                              to require the Company to include such securities
                              in the securities registered pursuant to the
                              Registration Statement or in any securities being
                              registered pursuant to any other registration
                              statement filed by the Company under the United
                              States Securities Act;

                    13.1.8    The Company will consult the Lead Managers in
                              relation to the terms of, the timetable for, and
                              the manner of publication of, any announcement of,
                              or other public disclosure regarding, the
                              Offering, the Listing and the Registration except
                              as required by law and any applicable rules of any
                              relevant stock exchange. The Company will not make
                              any such announcement or disclosure without DG's
                              prior written consent. Any public announcement of
                              the sale of the Offer Shares will refer to DG and
                              PB as the Joint Book Runners and Lead Managers;

                    13.1.9    The New Shares have been duly authorized for
                              issuance and sale to the Lead Managers pursuant to
                              this Agreement and, when issued and delivered by
                              the Company to the Custody Account, will be
                              validly issued and fully paid and non-assessable;

                    13.1.10   Neither the Company nor any of its subsidiaries is
                              in violation of its charter or by-laws or in
                              default in the performance or observance of any
                              obligation, agreement or condition contained

<PAGE>   26
                              in any contract, indenture, mortgage, deed of
                              trust, loan or credit agreement, note, lease or
                              other agreement or instrument to which the Company
                              or any of its subsidiaries is a party or by which
                              it or any of them may be bound, or to which any of
                              the property or assets of the Company or any
                              subsidiary is subject (collectively, "Agreements
                              and Instruments") except for such defaults that
                              would not result in a Material Adverse Effect, and
                              the execution, delivery and performance of this
                              Agreement and the consummation of the transactions
                              contemplated herein (including the issuance and
                              sale of the New Shares and the use of the proceeds
                              from the sale of the New Shares) and compliance by
                              the Company with its obligations hereunder have
                              been duly authorized by all necessary corporate
                              action and do not and will not, whether with or
                              without the giving of notice or passage of time or
                              both, conflict with or constitute a breach of, or
                              default or Repayment Event (as defined below)
                              under, or result in the creation or imposition of
                              any lien, charge or encumbrance upon any property
                              or assets of the Company or any subsidiary
                              pursuant to, the Agreements and Instruments
                              (except for such conflicts, breaches or defaults
                              or liens that would not result in a Material
                              Adverse Effect), nor will such action result in
                              any violation of the provisions of the articles of
                              incorporation or by-laws of the Company or any
                              subsidiary or any applicable law, statute, rule,
                              regulation, judgment, order, writ or decree of any
                              government, government instrumentality or court,
                              domestic or foreign, having jurisdiction over the
                              Company or any subsidiary or any of their assets,
                              properties or operations. As used herein, a
                              "Repayment Event" means any event or condition
                              which gives the holder of any note, debenture or
                              other evidence of indebtedness (or any person
                              action on such holder's behalf) the right to
                              require the repurchase, redemption or repayment of
                              all or a portion of such indebtedness by the
                              Company or any subsidiary;

<PAGE>   27
                    13.1.11   There is no action, suit, proceeding, inquiry or
                              investigation before or brought by any court or
                              governmental agency or body, domestic or foreign,
                              now pending, or, to the knowledge of the Company,
                              threatened, against or affecting the Company or
                              any subsidiary, which is required to be disclosed
                              in the Prospectus and is not so disclosed, or
                              which might reasonably be expected to result in a
                              Material Adverse Effect, or which might reasonably
                              be expected to materially and adversely affect the
                              properties or assets thereof or the consummation
                              of the transactions contemplated in this Agreement
                              or the performance by the Company of its
                              obligations hereunder; the aggregate of all
                              pending legal or governmental proceedings to which
                              the Company or any subsidiary is a party or of
                              which any of their respective property or assets
                              is the subject, including ordinary routine
                              litigation incidental to the business, could not
                              reasonably be expected to result in a Material
                              Adverse Effect;

                    13.1.12   The Company and its subsidiaries own, possess, can
                              acquire on reasonable terms or have the benefit or
                              use of all material patents, licenses, trade
                              secrets, trademarks, trade names and other rights
                              to inventions, know-how, copyrights, confidential
                              information and other intellectual property
                              (collectively, "intellectual property rights")
                              currently employed by them in connection with the
                              conduct of the businesses now operated by them,
                              and there are no unresolved assertions that the
                              Company or any of its subsidiaries has infringed
                              the intellectual property rights of others that,
                              if determined adversely to the Company or any of
                              its subsidiaries, could, individually or in the
                              aggregate, have a Material Adverse Effect;

                    13.1.13   No filing with, or authorization, approval,
                              consent, license, order, registration,
                              qualification or decree of, any court or
                              governmental authority or agency, either in the
                              United States, Germany or

<PAGE>   28
                              elsewhere, is necessary or required for the
                              performance by the Company of its obligations
                              hereunder, in connection with the Offering, the
                              Listing, the Registration, issuance or sale of the
                              Shares hereunder or the consummation of the
                              transactions contemplated by this Agreement,
                              except such as have been already obtained or will
                              be obtained prior to the Offering, Listing or
                              Registration, as the case may be;

                    13.1.14   The Company and its subsidiaries possess such
                              permits, licenses, approvals, consents and other
                              authorizations (collectively, "Governmental
                              Licenses") issued by the appropriate federal,
                              state, local or foreign regulatory agencies or
                              bodies necessary to conduct the business now
                              operated by them; the Company and its subsidiaries
                              are in compliance with the terms and conditions of
                              all such Governmental Licenses, except where the
                              failure so to comply would not, singly or in the
                              aggregate, have a Material Adverse Effect; all of
                              the Governmental Licenses are in full force and
                              effect except for those Governmental Licenses the
                              failure of which to be in full force and effect
                              would not have a Material Adverse Effect; and
                              neither the Company nor any of its subsidiaries
                              has received any notice of proceedings relating to
                              the revocation or modification of any such
                              Governmental Licenses which, singly or in the
                              aggregate, if the subject of an unfavorable
                              decision, ruling or finding, would result in a
                              Material Adverse Effect;

                    13.1.15   The Company and its subsidiaries have good and
                              marketable title to all real property owned by the
                              Company and its subsidiaries and good title to all
                              other properties owned by them, in each case, free
                              and clear of all mortgages, pledges, liens,
                              security interest, claims, restrictions or
                              encumbrances of any kind except such as do not,
                              singly or in the aggregate, materially affect the
                              value of such property and do not interfere with
                              the use made and

<PAGE>   29
                              proposed to be made of such property by the
                              Company or any of its subsidiaries; and all of the
                              leases and subleases material to the business, the
                              Company and its subsidiaries, considered as one
                              enterprise, and under which the Company or any of
                              its subsidiaries holds properties described in the
                              Prospectus, are in full force and effect, and
                              neither the Company nor any subsidiary has any
                              notice of any material claim of any sort that has
                              been asserted by anyone adverse to the rights of
                              the Company or any subsidiary under any of the
                              leases or subleases mentioned above, or affecting
                              or questioning the rights of the Company or such
                              subsidiaries to the continued possession of the
                              leased or subleased premises under any such lease
                              or sublease;

                    13.1.16   Deloitte & Touche LLP, who have audited or will
                              audit certain financial statements of the Company
                              and its consolidated subsidiaries, are independent
                              accountants as required by the United States
                              Securities Act and the rules and regulations
                              thereunder;

                    13.1.17   The Company makes and keeps accurate books and
                              records and maintains internal accounting controls
                              which provide reasonable assurance that (A)
                              transactions are executed in accordance with
                              management's authorization, (B) transactions are
                              recorded as necessary to permit preparation of its
                              financial statements and to maintain
                              accountability for its assets, (C) access to its
                              assets is permitted only in accordance with
                              management's authorization and (D) the reported
                              accountability for its assets is compared with
                              existing assets at reasonable intervals;

                    13.1.18   Neither the Company nor any of its subsidiaries,
                              nor to the knowledge of the Company or its
                              subsidiaries, any director, officer, agent,
                              employee or other person associated with or acting
                              on behalf of the Company or any of its
                              subsidiaries, has used any

<PAGE>   30
                              corporate funds for any unlawful contribution,
                              gift, entertainment or other unlawful expense
                              relating to political activity; made any direct or
                              indirect unlawful payment to any foreign or
                              domestic government official or employee from
                              corporate funds; or violated or is in violation of
                              any provision of the United States Foreign Corrupt
                              Practices Act of 1977;

                    13.1.19   The Company and each of its subsidiaries carry, or
                              are covered by, insurance in such amounts and
                              covering such risks as is, in the opinion of the
                              Company, adequate for the conduct of their
                              respective businesses and the value of their
                              respective properties and assets, and as is
                              customary for companies engaged in similar
                              businesses in similar industries or as required by
                              law or pursuant to agreements to which the Company
                              or any of its subsidiaries is a party or by which
                              the Company or any of its subsidiaries is bound;

                    13.1.20   The Company is not an "investment company" under,
                              and as such term is defined in, the U.S.
                              Investment Company Act of 1940;

                    13.1.21   Neither the Company nor any of its affiliates (as
                              defined in rule 405 under the United States
                              Securities Act), nor any person acting on their
                              behalf, has taken or will take, directly or
                              indirectly, any action designed to cause or to
                              result in, or that has constituted or which might
                              reasonably be expected to cause or result in, the
                              stabilization in violation of applicable laws or
                              manipulation of the price of any security of the
                              Company to facilitate the sale or resale of the
                              Shares;

                    13.1.22   The Company has filed all foreign, federal, state
                              and local tax returns that are required to be
                              filed or has requested extensions thereof (except
                              in any case in which the failure to so file would

<PAGE>   31
                              not have a Material Adverse Effect) and has paid
                              all taxes required to be paid by it and any other
                              assessment, fine or penalty levied against it, to
                              the extent that any of the foregoing is due and
                              payable, except for any such assessment, fine or
                              penalty that is currently being contested in good
                              faith or as would not have a Material Adverse
                              Effect;

                    13.1.23   The Company has not included any persons in the
                              Beneficiary List who may have an influence on
                              public opinion (e.g. journalists, financial
                              analysts etc.) or whose participation in the
                              Preferential Allotment could create the appearance
                              of favoritism or of impropriety (e.g. public
                              servants);

                    13.1.24   The Company has reviewed its operations and that
                              of its subsidiaries to evaluate the extent to
                              which the business or operations of the Company or
                              any of its subsidiaries will be affected by the
                              Year 2000 Problem. In addition, the Company has
                              until the date hereof verified and continues to
                              verify the Year 2000 readiness of its suppliers as
                              well as third party service providers. As a result
                              of such reviews, to date the Company has no reason
                              to believe, and does not believe, that the Year
                              2000 Problem will have a material adverse change,
                              or any development involving a prospective
                              material adverse change, in or affecting the
                              general affairs, management, financial position,
                              shareholders' equity or results of operations of
                              the Company and its subsidiaries or result in any
                              material loss or interference with the Company's
                              business or operations. The "Year 2000 Problem" as
                              used herein means any risk that computer hardware
                              or software used in the receipt, transmission,
                              processing, manipulation, storage, retrieval,
                              retransmission or other utilization of data or in
                              the operation of mechanical or electrical systems
                              of any kind will not, in the case of dates or time
                              periods occurring after December

<PAGE>   32
                              31, 1999, function at least as effectively as in
                              the case of dates or time periods occurring prior
                              to January 1, 2000.

          13.2      The Company has filed with the SEC a Registration Statement
                    on Form S-1, including a related preliminary prospectus, for
                    the registration under the United States Securities Act of
                    the Shares and will use its best efforts to cause such
                    Registration Statement to become effective. The Company may
                    be required to file one or more amendments thereto, each of
                    which will be furnished to the Lead Managers. The Company
                    will file with the SEC either (1) prior to the Effective
                    Date of such Registration Statement, a further amendment to
                    such Registration Statement (including the form of final
                    prospectus) or (2) after the Effective Date of such
                    Registration Statement, a final prospectus in accordance
                    with Rules 430A and 424(b). In the case of clause (2), the
                    Company will include in such Registration Statement, as
                    amended at the Effective Date, all information (other than
                    Rule 430A information) required by the United States
                    Securities Act and the rules thereunder to be included in
                    such Registration Statement and the Prospectus. As filed,
                    such amendment and form of final prospectus, or such final
                    prospectus, shall contain all Rule 430A information,
                    together with all other such required information, and,
                    except to the extent the Lead Managers shall agree to a
                    modification, shall be in all substantive respects in the
                    form furnished to the Lead Managers prior to the Pricing
                    Date or, to the extent not completed at the Pricing Date,
                    shall contain only such specific additional information and
                    other changes (beyond that contained in the latest
                    preliminary prospectus) as the Company has advised the Lead
                    Managers, prior to the Pricing Date, will be included or
                    made therein. "Preliminary Prospectus" means each prospectus
                    included in such Registration Statement, or amendments
                    thereof, before it becomes effective under the United States
                    Securities Act and any prospectus filed by the Company with
                    the consent of the Lead Managers pursuant to Rule 424(a) of
                    the rules and regulations under the United States Securities
                    Act, and

<PAGE>   33
                    "Prospectus" means such final prospectus, with any changes
                    thereto made by the Company with the consent of the Lead
                    Managers.

                    On the Effective Date, the Registration Statement will
                    conform in all material respects to the applicable
                    requirements of the United States Securities Act and the
                    rules and regulations thereunder and will not include any
                    untrue statement of a material fact or omit to state any
                    material fact required to be stated therein or necessary in
                    order to make the statements therein not misleading. At the
                    time of filing of the Prospectus pursuant to Rule 424(b) or
                    (if no such filing is required) at the Effective Date of the
                    Registration Statement in which the Prospectus is included,
                    the Registration Statement and the Prospectus will conform
                    in all material respects to the requirements of the United
                    States Securities Act and the rules and regulations
                    thereunder, and none of such documents will include any
                    untrue statement of a material fact or omit to state a
                    material fact necessary in order to make the statements
                    therein not misleading; provided, however, that the Company
                    makes no undertaking as to the information contained in or
                    omitted from the Registration Statement or the Prospectus in
                    reliance upon and in conformity with information furnished
                    herein or in writing to the Company by or on behalf of any
                    Lead Manager specifically for inclusion in the Registration
                    Statement or the Prospectus;

          13.3      The Company will comply with the requirements of Rule 430A
                    or Rule 424, as applicable, and will notify the Lead
                    Managers immediately, and confirm the notice in writing, (i)
                    when any post-effective amendment to the Registration
                    Statement shall become effective, or any supplement to the
                    Prospectus or any amended Prospectus shall have been filed,
                    (ii) of the receipt of any comments from the SEC, (iii) of
                    any request by the SEC for any amendment to the Registration
                    Statement or any amendment or supplement to the Prospectus
                    or for additional information, and (iv) of the issuance by
                    the SEC of any stop order suspending the effectiveness of
                    the Registration Statement or of any order preventing or
                    suspending the use of any preliminary prospectus, or of the
                    suspension of the qualification of the Shares for offering
                    or sale in any jurisdiction, or of the initiation or
                    threatening of any proceedings for any of such purposes. The
                    Company will promptly effect the filings necessary pursuant
                    to Rule 424(b) and will



<PAGE>   34
                    take such steps as it deems necessary to ascertain promptly
                    whether the form of prospectus transmitted for filing under
                    Rule 424(b) was received for filing by the SEC and, in the
                    event that it was not, it will promptly file such
                    prospectus. The Company will make every reasonable effort to
                    prevent the issuance of any stop order and, if any stop
                    order is issued, to obtain the lifting thereof at the
                    earliest possible moment.

          13.4      The Company has prepared and filed, together with the Lead
                    Managers, with the FSE the preliminary German prospectus to
                    obtain listing of the Shares on the FSE as required by
                    applicable German law. The Company may be required to file
                    one or more amendments thereto together with the Lead
                    Managers.

                    On the date on which such preliminary and final German
                    Prospectus and any amendment thereto have been or will be
                    published, such published German Prospectus and amendments
                    thereto have not and will not include any untrue statement
                    of a material fact or omit to state any material fact
                    required to be stated therein or necessary in order to make
                    the statements therein not misleading; provided, however,
                    that the Company makes no undertaking as to the information
                    contained in or omitted from the German Prospectus and the
                    amendments thereto in reliance upon and in conformity with
                    information furnished herein or in writing to the Company by
                    or on behalf of any Lead Manager specifically for inclusion
                    in such documents.

          13.5      The Company represents that the consolidated historical
                    financial statements and schedules of the Company and its
                    consolidated subsidiaries included in the Prospectus and the
                    Registration Statement present fairly in all material
                    respects the financial condition, results of operations and
                    cash flows of the Company as of the dates and for the
                    periods indicated, comply as to form with the applicable
                    accounting requirements of the United States Securities Act
                    and the Neuer Markt and are prepared in conformity with U.S.
                    generally accepted accounting principles applied on a
                    consistent basis throughout the periods involved (except as
                    otherwise noted therein). The

<PAGE>   35
                    selected financial data set forth in the Prospectus and
                    Registration Statement fairly present, on the basis to be
                    stated in the Prospectus and the Registration Statement, the
                    information included therein.

          13.6      As soon as practicable, but not later than the Availability
                    Date (as defined below), the Company will make generally
                    available to its Shareholders an earnings statement covering
                    a period of at least 12 months beginning after the Effective
                    Date of the Registration Statement which will satisfy the
                    provisions of Section 11(a) of the United States Securities
                    Act. For the purpose of the preceding sentence,
                    "Availability Date" means the 45th day after the end of the
                    fourth fiscal quarter following the fiscal quarter that
                    includes the Effective Date, except that, if such fourth
                    fiscal quarter is the last quarter of the Company's fiscal
                    year, "Availability Date" means the 90th day after the end
                    of such fourth fiscal quarter.

          13.7      The Company will furnish to the Lead Managers and to counsel
                    to the Lead Managers copies of the Registration Statement
                    (two of which will be signed and will include all exhibits),
                    the Preliminary Prospectus, and, so long as delivery of a
                    prospectus relating to the Offer Shares is required to be
                    delivered under the United States Securities Act in
                    connection with sales by any Lead Manager or dealer, the
                    Prospectus, and all amendments and supplements to such
                    documents, in each case in such quantities as the Lead
                    Managers may request. The Prospectus shall be so furnished
                    on or prior to 3:00 P.M., German time, on the business day
                    following the later of the Pricing Date or the Effective
                    Date of the Registration Statement, or at such other time as
                    the Lead Managers shall consent. All other such documents
                    shall be so furnished as soon as available. The Company will
                    pay the expenses of printing and distributing to the Lead
                    Managers all such documents.

          13.8      The Company shall use the proceeds from the Offering of New
                    Shares payable to it in the manner and in the priorities to
                    be described under the heading "Use of Proceeds" in the
                    Prospectus.

<PAGE>   36
          13.9      The Company undertakes that it will notify the Lead Managers
                    immediately of any adverse change in, or affecting, the
                    general affairs, management, financial position,
                    shareholders equity or results of operation of the Company
                    and its subsidiaries taken as a whole, which would be likely
                    to prejudice materially the sale of the Shares by the Lead
                    Managers.

                    The representations, undertakings and warranties set out in
                    this Section 13 shall be deemed to have been given on the
                    Pricing Date and be repeated on the Settlement Date and the
                    Second Transfer Date, if any.

          13.10     The commitment of the Lead Managers hereunder is being made
                    on the basis of the representations, warranties and
                    undertakings set out above. The Company undertakes that it
                    will fully indemnify each of the Lead Managers against any
                    and all losses, liabilities, costs, claims, charges,
                    actions, proceedings, damages, expenses or demands which any
                    of the Lead Managers may incur or which may be made against
                    any Lead Manager as a result of, or in connection with, any
                    breach or alleged breach by the Company or any of its
                    representations, warranties and undertakings set out above;
                    the Company will further indemnify and hold harmless the
                    Lead Managers against any documentary, stamp or similar
                    issuance or transfer tax, including any interest and
                    penalties, on the creation, issuance and sale of the Shares
                    and on the execution and delivery of this Agreement payable
                    pursuant to United States law.

          13.11     The Company's obligations in respect of the above
                    representations, warranties, undertakings and indemnity will
                    continue in full force and effect after the Settlement Date
                    notwithstanding the performance of this Agreement, the
                    completion of the sale of the Offer Shares, the completion
                    of the Registration or any investigation of the matters to
                    which they relate by the Lead Managers or on the Lead
                    Managers' behalf.
<PAGE>   37
14.       Liability

          The liability of the Lead Managers under this Agreement shall be
          several and not joint and shall be limited to ill intent and gross
          negligence.

15.       Power of Attorney

          15.1      All declarations and communications of the Lead Managers
                    relating to this Agreement shall only be valid for and
                    against all other parties to this Agreement if made by DG as
                    representative of the Lead Managers to the Company or the
                    representative of the Selling Shareholders. DG is released
                    from the restrictions of Section 181 of the German Civil
                    Code.

                    The Lead Managers agree among themselves that DG's authority
                    to make such declarations and communications shall only
                    exist if PB has consented to such declarations and that the
                    Company and the Selling Shareholders may rely without
                    inquiry on such declarations and communications made by DG.

                    Further, in order for the parties to fulfill their
                    obligations relating to the procedures to admit the Shares
                    to trading on the FSE, related proceedings, and statutory
                    publications hereunder, DG is authorized to deliver
                    declarations or information in the name of the Company, the
                    Selling Shareholders and the Lead Managers.

          15.2      In connection with the execution of this Agreement, the
                    Selling Shareholders have appointed Mr. Dirk Bartels as
                    their joint representative who personally warrants to have
                    full power and authority to enter into this Agreement on
                    behalf of the Selling Shareholders.

16.       Notices, Service of Process

          16.1      All statements, requests, notices and agreements hereunder
                    shall be in writing, and:

<PAGE>   38
                    16.1.1    if to the Lead managers, shall be delivered or
                              sent by mail, telex or facsimile transmission to
                              DG BANK Deutsche Genossenschaftsbank AG, Am Platz
                              der Republik, 60265 Frankfurt am Main, Germany,
                              Attention: Mr. Frank Brunner, Investment Banking
                              Department (Fax:+49-69-7447-3622), with a copy to
                              Mr. Dieter Falkenstein, Investment Banking
                              Department (Fax: +49-69-7447-2179);

                    16.1.2    if to the Company, shall be delivered or sent by
                              mail, telex or facsimile transmission to the
                              address of the Company set forth in the
                              Registration Statement, Attention: Mr. Dirk
                              Bartels (Fax: +1-650-286-4630);

                    16.1.3    if to any Selling Shareholder, shall be delivered
                              or sent by mail, telex or facsimile transmission
                              to _________________ at the following address:

          16.2      In connection with the Offering, the Company and each of the
                    Selling Shareholders have appointed POET Software GmbH,
                    Kattjahren 4-8, 22359 Hamburg, Germany as agent for the
                    service of process (Zustellungsbevollmaechtigter) in Germany
                    for any services of process regarding contractual or other
                    obligations of the Company and the Selling Shareholders in
                    relation to the Lead Managers.

17.       Indemnification and Contribution

          17.1      The Company and its principal operating subsidiaries, POET
                    Software Corp. and POET Software GmbH (together the
                    "Principal Subsidiaries"), jointly and severally, shall
                    indemnify and hold harmless each Lead Manager, its officers
                    and employees and each person, if any, who controls any Lead
                    Manager within the meaning of the United States Securities
                    Act, from and against any loss, claim, damage or liability,
                    joint or several, or any action in respect thereof
                    (including, but not limited to, any loss, claim, damage,
                    liability or action relating to purchases and sales of
                    Shares), to which that Lead Manager, officer, employee or
                    controlling person may become subject, under the German
                    Stock Exchange Act, the United States

<PAGE>   39
                    Securities Act or otherwise, insofar as such loss, claim,
                    damage, liability or action arises out of, or is based upon,
                    (i) any untrue statement or alleged untrue statement of a
                    material fact contained (A) in any Preliminary Prospectus,
                    the Registration Statement or the Prospectus, or in any
                    amendment or supplement thereto, or (B) in any blue sky
                    application or other document prepared or executed by the
                    Company (or based upon any written information furnished by
                    the Company) specifically for the purpose of qualifying any
                    or all of the Shares under the securities laws of any state
                    or other jurisdiction (any such application, document or
                    information being hereinafter called a "Blue Sky
                    Application"), (ii) the omission or alleged omission to
                    state in any Preliminary Prospectus, the Registration
                    Statement or the Prospectus, or in any amendment or
                    supplement thereto, or in any Blue Sky Application any
                    material fact required to be stated therein or necessary to
                    make the statements therein not misleading or (iii) any act
                    or failure to act, or any alleged act or failure to act, by
                    any Lead Manager in connection with, or relating in any
                    manner to, the Shares or the Offering contemplated hereby,
                    and which is included as part of or referred to in any loss,
                    claim, damage, liability or action arising out of or based
                    upon matters covered by clause (i) or (ii) above (provided
                    that the Company and the Principal Subsidiaries shall not be
                    liable in the case of any matter covered by this clause
                    (iii) to the extent that it is determined in a final
                    judgement by a court of competent jurisdiction that such
                    loss, claim, damage, liability or action resulted directly
                    from any such act or failure to act undertaken or omitted to
                    be taken by such Lead Manager through its gross negligence
                    or willful misconduct), and shall reimburse each Lead
                    Manager and each such officer, employee and controlling
                    person promptly upon demand for any reasonable legal or
                    other expenses reasonably incurred by that Lead Manager,
                    officer, employee or controlling person in connection with
                    investigating or defending or preparing to defend against
                    any such loss, claim, damage, liability or action as such
                    expenses are incurred; provided, however, that the Company
                    and the Principal Subsidiaries shall not be liable in any
                    such case to the extent that any such loss, claim, damage,
                    liability or action arises out of, or is based upon, any
                    untrue statement or alleged untrue

<PAGE>   40
                    statement or omission or alleged omission made in any
                    Preliminary Prospectus, the Registration Statement or the
                    Prospectus, or in any such amendment or supplement, or in
                    any Blue Sky Application in reliance upon and in conformity
                    with the written information furnished to the Company by or
                    on behalf of any Lead Manager specifically for inclusion
                    therein and described in Section 17.6. The foregoing
                    indemnity agreement is in addition to any liability which
                    the Company and the Principal Subsidiaries may otherwise
                    have to any Lead Manager or to any officer, employee or
                    controlling person of that Lead Manager.

          17.2      The Selling Shareholders, severally in proportion to the
                    number of Old Shares to be sold by each of them hereunder,
                    shall indemnify and hold harmless each Lead Manager, its
                    officers and employees and each person, if any, who controls
                    any Lead Manager within the meaning of the United States
                    Securities Act, from and against any loss, claim, damage or
                    liability, joint or several, or any action in respect
                    thereof (including, but not limited to, any loss, claim,
                    damage, liability or action relating to purchases and sales
                    of Shares), to which that Lead Manager, officer, employee or
                    controlling person may become subject, under the German
                    Stock Exchange Act, the United States Securities Act or
                    otherwise, insofar as such loss, claim, damage, liability or
                    action arises out of, or is based upon, (i) any untrue
                    statement or alleged untrue statement of a material fact
                    contained in any Preliminary Prospectus, the Registration
                    Statement or the Prospectus, or in any amendment or
                    supplement thereto, or (ii) the omission or alleged omission
                    to state in any Preliminary Prospectus, the Registration
                    Statement or the Prospectus, or in any amendment or
                    supplement thereto, any material fact required to be stated
                    therein or necessary to make the statements therein not
                    misleading, but in each case only to the extent that the
                    untrue statement or alleged untrue statement or omission or
                    alleged omission was made in reliance upon and in conformity
                    with written information furnished to the Company by or on
                    behalf of the Selling Shareholders specifically for
                    inclusion therein, and shall reimburse each Lead Manager,
                    its officers and employees and each such controlling person
                    for any legal or other expenses

<PAGE>   41
                    reasonably incurred by that Lead Manager, its officers,
                    employees or controlling person in connection with
                    investigating or defending or preparing to defend against
                    any such loss, claim, damage, liability or action as such
                    expenses are incurred. The foregoing indemnity agreement is
                    in addition to any liability which the Selling Shareholders
                    may otherwise have to any Lead Manager or any officer,
                    employee or controlling person of that Lead Manager.

          17.3      Each Lead Manager, severally and not jointly, shall
                    indemnify and hold harmless the Company, its officers and
                    employees, each of its directors and each person, if any,
                    who controls the Company within the meaning of the United
                    States Securities Act, from and against any loss, claim,
                    damage or liability, joint or several, or any action in
                    respect thereof, to which the Company or any such director,
                    officer or controlling person may become subject, under the
                    United States Securities Act or otherwise, insofar as such
                    loss, claim, damage, liability or action arises out of, or
                    is based upon, (i) any untrue statement or alleged untrue
                    statement of a material fact contained (A) in any
                    Preliminary Prospectus, the Registration Statement or the
                    Prospectus, or in any amendment or supplement thereto, or
                    (B) in any Blue Sky Application or (ii) the omission or
                    alleged omission to state in any Preliminary Prospectus, the
                    Registration Statement or the Prospectus, or in any
                    amendment or supplement thereto, or in any Blue Sky
                    Application any material fact required to be stated therein
                    or necessary to make the statements therein not misleading,
                    but in each case only to the extent that the untrue
                    statement or alleged untrue statement or omission or alleged
                    omission was made in reliance upon and in conformity with
                    the written information furnished to the Company by or on
                    behalf of that Lead Manager specifically for inclusion
                    therein and described in Section 17.6, and shall reimburse
                    the Company and any such director, officer or controlling
                    person for any legal or other expenses reasonably incurred
                    by the Company or any such director, officer or controlling
                    person in connection with investigating or defending or
                    preparing to defend against any such loss, claim, damage,
                    liability or action as such expenses are

<PAGE>   42
                    incurred. The foregoing indemnity agreement is in addition
                    to any liability which any Lead Manager may otherwise have
                    to the Company or any such director, officer or controlling
                    person.

          17.4      Promptly after receipt by an indemnified party under this
                    Section 17 of notice of any claim or the commencement of any
                    action, the indemnified party shall, if a claim in respect
                    thereof is to be made against the indemnifying party under
                    this Section 17, notify the indemnifying party in writing of
                    the claim or the commencement of that action; provided,
                    however, that the failure to notify the indemnifying party
                    shall not relieve it from any liability which it may have
                    under this Section 17 except to the extent it has been
                    materially prejudiced by such failure and, provided further,
                    that the failure to notify the indemnifying party shall not
                    relieve it from any liability which it may have to an
                    indemnified party otherwise than under this Section 17. If
                    any such claim or action shall be brought against an
                    indemnified party, and it shall notify the indemnifying
                    party thereof, the indemnifying party shall be entitled to
                    participate therein and, to the extent that it wishes,
                    jointly with any other similarly notified indemnifying
                    party, to assume the defense thereof with counsel reasonably
                    satisfactory to the indemnified party. After notice from the
                    indemnifying party to the indemnified party of its election
                    to assume the defense of such claim or action, the
                    indemnifying party shall not be liable to the indemnified
                    party under this Section 17 for any legal or other expenses
                    subsequently incurred by the indemnified party in connection
                    with the defense thereof other than reasonable costs of
                    investigation; provided, however, that the Lead Managers
                    shall have the right to employ counsel to represent jointly
                    the Lead Managers and their respective officers, employees
                    and controlling persons who may be subject to liability
                    arising out of any claim in respect of which indemnity may
                    be sought by the Lead Managers against the Company and the
                    Principal Subsidiaries or any Selling Shareholders under
                    this Section 17 if, in the reasonable judgment of the Lead
                    Managers, it is advisable for the Lead Managers, officers,
                    employees and controlling persons to be jointly represented
                    by separate counsel, and in that event the

<PAGE>   43
                    fees and expenses of such separate counsel shall be paid by
                    the Company, the Principal Subsidiaries and the Selling
                    Shareholders. No indemnifying party shall (i) without the
                    prior written consent of the indemnified parties (which
                    consent shall not be unreasonably withheld), settle or
                    compromise or consent to the entry of any judgment with
                    respect to any pending or threatened claim, action, suit or
                    proceeding in respect of which indemnification or
                    contribution may be sought hereunder (whether or not the
                    indemnified parties are actual or potential parties to such
                    claim or action) unless such settlement, compromise or
                    consent includes an unconditional release of each
                    indemnified party from all liability arising out of such
                    claim, action, suit or proceeding, or (ii) be liable for any
                    settlement of any such action effected without its written
                    consent (which consent shall not be unreasonably withheld),
                    but if settled with its written consent or if there be a
                    final judgment of the plaintiff in any such action, the
                    indemnifying party agrees to indemnify and hold harmless any
                    indemnified party from and against any loss or liability by
                    reason of such settlement or judgment.

          17.5      If the indemnification provided for in this Section 17 shall
                    for any reason be unavailable to or insufficient to hold
                    harmless an indemnified party under Sections 17.1, 17.2 or
                    17.3 in respect of any loss, claim, damage or liability, or
                    any action in respect thereof, referred to therein, then
                    each indemnifying party shall, in lieu of indemnifying such
                    indemnified party, contribute to the amount paid or payable
                    by such indemnified party as a result of such loss, claim,
                    damage or liability, or action in respect thereof, (i) in
                    such proportion as shall be appropriate to reflect the
                    relative benefits received by the Company, the Principal
                    Subsidiaries, and the Selling Shareholders on the one hand
                    and the Lead Managers on the other from the Offering of the
                    Shares or (ii) if the allocation provided by clause (i)
                    above is not permitted by applicable law, in such proportion
                    as is appropriate to reflect not only the relative benefits
                    referred to in clause (i) above but also the relative fault
                    of the Company, the Principal Subsidiaries, and the Selling
                    Shareholders on the one hand and the Lead Managers on the
                    other with respect to the

<PAGE>   44
                    statements or omissions which resulted in such loss, claim,
                    damage or liability, or action in respect thereof, as well
                    as any other relevant equitable considerations. The relative
                    benefits received by the Company, the Principal
                    Subsidiaries, and the Selling Shareholders on the one hand
                    and the Lead Managers on the other with respect to such
                    Offering shall be deemed to be in the same proportion as the
                    total net proceeds from the offering of the Shares purchased
                    under this Agreement (before deducting expenses) received by
                    the Company, the Principal Subsidiaries, and the Selling
                    Shareholders, on the one hand, and the total underwriting
                    discounts, commissions and fees received by the Lead
                    Managers with respect to the Shares purchased under this
                    Agreement, on the other hand, bear to the total gross
                    proceeds from the offering of the Shares under this
                    Agreement, in each case as set forth in the table on the
                    cover page of the Prospectus. The relative fault shall be
                    determined by reference to whether the untrue or alleged
                    untrue statement of a material fact or omission or alleged
                    omission to state a material fact relates to information
                    supplied by the Company, the Principal Subsidiaries, the
                    Selling Shareholders or the Lead Managers, the intent of the
                    parties and their relative knowledge, access to information
                    and opportunity to correct or prevent such statement or
                    omission. For purposes of the preceding two sentences, the
                    net proceeds deemed to be received by the Company shall be
                    deemed to be also for the benefit of the Principal
                    Subsidiaries and information supplied by the Company shall
                    also be deemed to have been supplied by the Principal
                    Subsidiaries. The Company, the Principal Subsidiaries, the
                    Selling Shareholders and the Lead Managers agree that it
                    would not be just and equitable if contributions pursuant to
                    this Section 17.5 were to be determined by pro rata
                    allocation (even if the Lead Managers were treated as one
                    entity for such purpose) or by any other method of
                    allocation which does not take into account the equitable
                    considerations referred to herein. The amount paid or
                    payable by an indemnified party as a result of the loss,
                    claim, damage or liability, or action in respect thereof,
                    referred to above in this Section 17.5 shall be deemed to
                    include, for purposes of this Section 17.5, any legal or
                    other expenses reasonably incurred by such indemnified party
                    in connection with

<PAGE>   45
                    investigating or defending any such action or claim.
                    Notwithstanding the provisions of this Section 17.5, no Lead
                    Manager shall be required to contribute any amount in excess
                    of the amount by which the amount of any damages which such
                    Lead Manager has otherwise paid or become liable to pay by
                    reason of any untrue or alleged untrue statement or omission
                    or alleged omission exceeds the amount by which the total
                    price at which the Shares underwritten by it and distributed
                    to the public was offered to the public. No person guilty of
                    fraudulent misrepresentation (within the meaning of Section
                    11(f) of the United States Securities Act) shall be entitled
                    to contribution from any person who was not guilty of such
                    fraudulent misrepresentation. The Lead Managers' obligations
                    to contribute as provided in this Section 17.5 are several
                    in proportion to their respective underwriting obligations
                    and not joint.

          17.6      The Lead Managers severally confirm that the statements with
                    respect to the Offering of the Shares set forth on the cover
                    page of, and under the caption "Underwriting",
                    "Responsibility for the Contents of this Prospectus", "The
                    Offering", "Description of Capital Stock-German Take-Over
                    Code", "The German Equity Market", "German Tax Matters"
                    "Clearing and Transferability of Shares" (as far as such
                    section pertains to German clearing procedures) in the
                    Prospectus are correct and constitute the only information
                    furnished in writing to the Company by or on behalf of the
                    Lead Managers specifically for inclusion in the Registration
                    Statement and the Prospectus.

18.       Miscellaneous

          18.1      The parties shall keep information relating to, or disclosed
                    in the Offering and the Registration, strictly confidential
                    except to the extent publication of such information is
                    required by the SEC, FSE or other governmental agency.

<PAGE>   46
          18.2      Modifications and amendments of this Agreement must be in
                    writing unless there is another statutory form requirement.
                    The foregoing applies also to the modification or deletion
                    of this provision.

          18.3      Should any of the terms of this contract be entirely or
                    partially invalid or become invalid, this shall not effect
                    the validity of any other terms of the contract. The parties
                    will be deemed to have agreed upon a term or condition that
                    reflects as closely as possible the economic objectives
                    aimed at by the parties when entering into the invalid term
                    or condition.

          18.4      THIS CONTRACT SHALL BE GOVERNED BY AND CONSTRUED IN
                    ACCORDANCE WITH THE LAWS OF THE FEDERAL REPUBLIC OF GERMANY.
                    Place of performance and - as far as permitted by applicable
                    statute - forum for all disputes arising in connection with
                    this agreement shall be Frankfurt am Main.

We would request you to countersign the second copy of this offer as a sign of
your agreement.


Yours Sincerely,



- ---------------------------------                 --------------------------
DG BANK                                           PARIBAS
DEUTSCHE GENOSSENSCHAFTSBANK AG



- ----------------------------------
POET HOLDINGS INC.



- ---------------------------------                 --------------------------
POET SOFTWARE CORP.                               POET SOFTWARE GMBH


- --------------------------------------------------------------------------------
DIRK BARTELS (AS JOINT REPRESENTATIVE OF THE SELLING SHAREHOLDERS)


<PAGE>   47
                                                                     Schedule  1

[TABLE OF SELLING SHAREHOLDERS AND SELLING SHAREHOLDERS' ACCOUNTS, SUCH ACCOUNT
DETAILS TO INCLUDE INFORMATION ON THE IDENTITY OF THE ACCOUNT-CARRYING BANK'S
GERMAN CORRESPONDENCE BANK - WSGR]


<PAGE>   48
                                                                      Schedule 2

                     SHAREHOLDERS TO PROVIDE BORROWED SHARES

<TABLE>
<CAPTION>
SHAREHOLDER NAME             VOLUME OF BORROWING OPTION         EXERCISED
                                                                BY
                                                                LEAD MANAGERS
<S>                          <C>                                <C>
Mr. Dirk Bartels                     570,000
</TABLE>


<PAGE>   49
                                                                         Annex A


[FORM OF AUDITOR'S COMFORT LETTER.]


<PAGE>   50
                                                                         Annex B


[FORM OF WSGR LEGAL OPINION.]

<PAGE>   1
                                                                 EXHIBIT 10.14.1

                                  MIETVERTRAG

                                KATTJAHREN 4 - 8

                                HAMBURG-VOLKSDORF

                       GBR PETERSEN / SCHROEDER / SCHMIEL

                                  - VERMIETER -

                               POET SOFTWARE GMBH

                                   - MIETER -



<PAGE>   2

                                   MIETVERTRAG

                 FUR KONTORE, GEWERBLICHE RAUME UND GRUNDSTUCKE

                GbR Petersen / Schroeder / Schmiel als Vermieter

vertreten durch ./.

wohnhaft Buchenring 53, 22359 Hamburg, Telefon: 040/603 25 19

und POET Software GmbH

FoBredder 12, 22359 Hamburg als Mieter

schlieBen, vermittelt durch ./.

folgenden Mietvertrag:

                            SECTION 1 MIETGEGENSTAND

1. Es wird auf dem Grundstuck Kattjahren 4-8, Hamburg-Volksdorf vermietet:
Buroflachen gemaB Anlage 1 Die Mietflache betragt 3.139, 18 m2.

2. Dem Mieter werden folgende Schlussel ausgehandigt: Siehe Ubergabeprotokoll.

3. Der Mieter ubernimmt die Raume im gegenwartigen Zustand. ( Neubau ) Der
Vermieter/ fuhrt folgende Arbeiten in den Mietraumen aus: Siehe Anlage 3

4. Soweit vorhanden, ist dem Mieter die Benutzung des Fahrstuhis wahrend der
ublichen Geschaftszeit gestattet. An Sonnabenden, Sonntagen und allgemeinen
Feiertagen besteht kein Anspruch auf Betrieb des Fahrstuhls.

                               SECTION 2 MIETZWECK

1. Die Vermietung erfolgt zum Betrieb eines/einer Software-Hauses

2. Der Mieter verpflichtet sich, die Raume nur zu dem in Ziff. 1 genannten Zweck
zu nutzen.

3. Jede Anderung der Art des Betriebes oder jede Ausweitung des Sortiments eines
Verkaufsgeschaftes auf andere Hauptartikel bedarf der schriftlichen Genehmigung
des Vermieters.

4. Der Vermieter gewahrt dem Mieter keinen Konkurrenz- oder Sortimentsschutz.



<PAGE>   3

                            SECTION 3 BETRIEBSPFLICHT

1. Bel Laden, Gastwirtschaften and ahnlichen Betrieben, die auf den standigen
Publikumsverkehr angewiesen sind, 1st der Mieter ohne schriftliche Eriaubnis des
Vermieters nicht berechtigt, das Geschaftslokal zu schlieBen oder den
Geschaftsbetrieb einzustellen.

2. Der Vermieter ubernimmt keine Haftung dafur, daB die etwa notwendigen
behordlichen Genehmigungen fur den vorgesehenen Betrieb erteilt werden
bzw.erteilte Genehmigungen fortbestehen, sofern die Genehmigungen nicht aus
Grunden versagt oder aufgehoben werden, die ausschlieBlich auf der
Beschaffenhelt oder Lage des Mietobjekts beruhen. Schadensersatzanspruche des
Mieters nach 538 BGB sind in jedem Fall ausgeschlossen. Die Haftung des
Vermieters fur Vorsatz und grobe Fahrlassigkeit bleibt unberuhrt. Der Mieter hat
im ubrigen auf seine Kosten die gesetzlichen Voraussetzungen fur den Betrieb
seines Gewerbes zu beschaffen.

                      SECTION 4 MIETZEIT, KUNDIGUNG, OPTION

1. Das Mietverhaltnis beginnt am 01.03.1998 (siehe Anlage 4)

2. Das Mietverhaltnis endet mit dem Ablauf des Kalendervierteljahres, zu dem der
Vermieter oder der Mieter das Mietverhaltnis unter Einhaltung einer Frist von 6
Monaten schriftlich kundigt. Die Kundlgung ist jedoch fruhestens zum 30.03.2003
zulassig. Fur die Rechtzeitigkeit der Kundigung kommt es nicht auf den Tag der
Absendung, sondern auf den Tag der Ankunft des Kundigungsschreibens an.

3. (Optionsrecht) Der Mieter kann das Mietverhaltnis bis zum 30.03.2008
verlangern, wenn er dem Vermieter diese Abslcht spatestens einen Monat vor
Beginn der in Ziffer 2 Satz 1 vereinbarten Kundigungsfrist schriftlich mittelit.
Die Ausubung des Optionsrechts kann nur zum fruhest moglichen Kundigungstermin
erfolgen.

4. Setzt der Mieter den Gebrauch der Mietsache nach Ablauf der Mietzeit fort, so
gilt das Mietverhaltnis nicht als verlangert. section 568 BGB findet keine
Anwendung. Fortsetzung oder Erneuerung des Mietverhaltnisses nach seinem Ablauf
mussen schriftlich vereinbart werden.

5. Sowelt in diesem Vertrag nichts anderes vereinbart lst, gelten die
gesetzlichen Vorschriften uber ordentliche und auBerordentliche Kundigung.

                               SECTION 5 MIETPREIS

1. Der Mieter zahit dem Vermieter monatlich: siehe Anlage 4
als Nettokaltmiete                                         DM_____________
als angemessene Vorauszahlung fur:

Betriebskosten gem. Anlage 3 zu section 27 II. BV          DM_____________

Heizkosten gem. Anlage 3 zu section 27 II. BV              DM_____________

sonstige Kosten                                            DM_____________

zuzuglich Umsatzsteuer in gesetzlicher Hohe, soweit der Vermieter
umsatzsteuerpflichtig ist                             z.Z. DM ____________

                                               Gesamtmiete DM ____________

Die Betriebskosten gemaB Anlage 3 zu section 27 II. BV sind im AnschluB nach
section 21 dieses Mietvertrages wiedergegeben.

2. Der Vermieter rechnet uber die Betriebskosten I.S. section 27 II. BV unter
Berucksichtigung der geleisteten Vorauszahlungen jahrlich ab, auch wenn
zwischenzeitlich ein Mieterwechsel erfolgt. Soweit sich Betriebskosten im Rahmen
ordnungsmaBiger Bewirtschaftung erhohen oder neu entstehen, rechnet der
Vermieter hieruber gleichfalls jahrlich ab. Er ist berechtigt, aus diesem AnlaB
die Vorauszahlungen zu erhohen. Sach- und Arbeltsleistungen des Vermieters,
durch die Betriebskosten erspart werden, durfen mit dem Betrag angesetzt werden,
der fur eine gleichwertige Leistung eines Dritten, insbesondere eines
Unternehmers, angesetzt werden konnte.

3. Der Mieter tragt von den Betriebskosten einen Anteil von 100 % oder - sofern
der Antell nicht festgelegt ist - einen Antell nach dem Verhaltnis der
Nutzflache seiner Gewerberaume zur Summe der Wohn - und Nutzflachen aller Wohn -
und Gewerberaume der Wirtschaftseinheit. Zubehorraume wie Keller, Abstellraume
auBerhat der Wohnung, Dachboden,



<PAGE>   4

Trockenraume bleiben dabel underucksichtigt. Fuhrt dieser VerteilungsmaBstab zu
[illegible]



<PAGE>   5

Bei vermietetem Telleigentum tragt der Mieter den Betriebskostenanteil, den die
Verwalterabrechnung vorgibt: Die Verteilung der Heiz- und Warmwasserkosten
erfolgt

a)   nach dem Verhaltnis der Wohn-/Nutzflachen,

b)   bei Verwendung meBtechnischer Ausstattungen zur Verbrauchserfassung nach
     dem vom Vermieter gemaB sections 7 bis 10 HeizkostenV bestimmten
     AbrechnungsmaBstab.

     Wird bei Mieterwechsel eine Zwischenablesung vorgenommen, sind die Kosten
     entsprechend zu verteilen. Die Kosten der Zwischenablesung tragt der
     ausziehende Mieter. Findet keine Zwischenablesung statt, sind die gesamten
     Kosten zeitantellig aufzuteilen. Die Warmeverbrauchskosten konnen auch nach
     der Gradtagstabelle aufgeteilt werden.

Der Vermieter ist berechtigt, auch fur einzelne Betriebskosten, den
Abrechnungszeitraum umzustellen und den VerteilungsmaBstab unter Wahrung des
Grundsatzes der Gleichbehandlung aller Mieter zu andern, hinsichtlich der
Heizkosten nur entsprechend den Bestimmungen der HeizkostenV. Er ist ferner
berechtigt, Wasserzahler fur den Gewerbebetrieb des Mieters auf dessen Kosten
einzubauen. In diesem Fall werden die Kosten des Wasserverbrauchs und der
Sielbenutzung nach dem gemessenen Wasserverbrauch aufgeteilt. Auf Verlangen des
Vermieters hat der Mieter selbst einen Versorgungsvertrag mit dem
Wasserlieferanten abzuschlieBen.

4. Bringt der Gewerbebetrieb des Mieters es mit sich, daB Verpackungsmaterial
oder anderes die MullgefaBe besonders anfuliendes Material in groBerem Umfang
anfallt, so verpflichtet der Mieter sich, die Kosten fur zusatzliche MuligefaBe
zu tragen, die der Vermieter anfordern wird.

5. Soweit die Feuerkasse infolge der Benutzungsart der Raume durch den Mieter
Zuschlage zum Feuerkassenbeltrag erhebt, sind diese Zuschiage dem Vermieter zu
verguten. Der Mieter hatjede veranderte Einrichtung oder Benutzung der Raume,
durch die eine Anderung der Gefahreneinschatzung begrundet wird, unverzuglich
dem Vermieter schriftlich anzuzeigen.

6. Der Vermieter behalt sich vor, die vom Mieter zu leistenden Zahlungen fur
Mietzins, Heizungs- und Betriebskosten durch Verzicht auf die Steuerbefreiung
gemaB 9 Umsatzsteuergesetz der Umsatzversteuerung zu unterwerfen. Der Mieter ist
verpflichtet, dann neben der Miete und den sonstigen nach 5 Ziffer 1 des
Mietvertrages zu leistenden Zahlungen zusatzlich die Mehrwertsteuer zu
entrichten.

Bei einem nicht zum Vorsteuerabzug berechtigten Mieter setzt der Vermieter die
Miete so weit herab, daB die Gesamtmiete des Mieters sich nicht erhoht.

                        SECTION 6 ZAHLUNG DES MIETZINSES

1. Die Miete ist monatlich im voraus, spatestens am 3. Werktag eines Monats
fallig; Nachzahlungen aus Betriebsund Heizkostenabrechnungen jedoch erst 14 Tage
nach Vorlage der Abrechnung.

2. Der Mieter ermachtigt den Vermieter, die Miete sowie die Nachzahlungen aus
Betriebs- und Heizkostenabrechnungen durch Abbuchungen von dem vom Mieter
angegebenen Konto einzuziehen.

3. Wenn der Vermieter dem Mieter mitteilt, daB er die Miete und/oder die
Nachzahlungen aus Betriebs- und Heizkostenabrechnungen trotz der
Abbuchungsermachtigung nicht einzieht, zahlt der Mieter sie auf das vom
Vermieter anzugebende Konto, und zwar so rechtzeitig, daB sie dem Konto bis zur
Falligkeit gutgeschrieben werden.

4. Bei Zahlungsverzug ist der Vermieter berechtigt, die gesetzlichen
Verzugszinsen und fur jede schriftliche Mahnung eine Gebuhr von 3,- DM zu
erheben.

5. Befindet sich der Mieter mit der Zahlung der Miete in Verzug, so sind
Zahlungen, sofern der Mieter sie nicht anders bestimmt, zunachst auf etwaige
Kosten, dann auf die Zinsen, sodann auf die Mietsicherheit und zuletzt auf die
Hauptschuld, und zwar zunachst auf die altere Schuld, anzurechnen.

6. Konto des Vermieters:

Konto-Bezeichnung:_________________________     Kto.:_____________________

Bank/Sparkasse:____________________________     BLZ:______________________

Konto des Mieters:



<PAGE>   6


Konto-Bezeichnung: Poet Software GmbH                       Kto.: 62 46 400 00

Bank/Sparkasse: Dresdner Bank Berlin               BLZ: 100 800 00



<PAGE>   7

                        SECTION 7 ANDERUNG DES MIETZINSES

                                   Siehe section 22 - Sonstige Vereinbarungen D)

1. Ist seit der letzten Vereinbarung der Miete

a) entweder ein Zeitraum von mehr als einem Jahr verstrichen oder

b) der vom Statistischen Bundesamt festgestellte Lebenshaltungskostenindex
   aller privaten Haushalte (Basis 1991 = 100) um mehr als 5% gestiengen oder
   gesunken,

soll die Angemessenheit der Miete uberpruft und die Miethohe neu vereinbart
werden. Die bei VertragsabschluB vereinbarte Miete ist in jedem Fall die
Mindestmiete.

Kommt es zu keiner Einigung uber die kunftige Miethohe oder sind seit dem
schriftichen Verlangen einer der Parteien zwei Monate verstrichen, ohne daB es
zu einer Elnigung gekommen ist, soll ein von der Handelskammer Hamburg zu
ernennender Sachverstandiger als Schiedsgutachter die ortsubliche Miete nach
billigem Ermessen feststellen. Die festgestellite Miete gilt ab Beginn des
Monats, der auf den Zeltpunkt folgt, zu dem eine der Parteien das Veriangen auf
Anderung der bisherigen Miete gestellt hat. Die Kosten des Gutachtens tragen die
Parteien je zur Halfte.

2. DIE NACHSTEHENDE KLAUSEL GILT NUR, SOFERN SIE AUSGEFULLT, DER MIETVERTRAG FUR
DEN VERMIETER MINDESTENS 10 JAHRE UNKUNDBAR IST UND DIE LANDESZENTRALBANK IN DER
FREIEN UND HANSESTADT HAMBURG DIE KLAUSEL GENEHMIGT. IN DIESEM FALL GILT ZIFFER
1 NICHT.

Steigt oder fallt der vom Statistischen Bundesamt festgestellte Preisindex fur
die Lebenshaltung aller privaten Haushalte (Basis 1991 = 100) gegenuber der
jewells letzten Mietvereinbarung um mehr als _________%, andert sich die Miete
jewells in dem gleichen prozentualen Verhaltnis, und zwar vom Beginn des
nachsten auf die Uberschreitung des vereinbarten Prozentsatzes folgenden
Kalendermonats an.

                            SECTION 8 MIETSICHERHEIT

1. Der Mieter leistet bei AbschluB des Mietvertrages 350.000,00DM als
Mietsicherheit.

3. Die Mietsicherheit wird durch den Mieter in Form einer unbefristeten,
unwiderruflichen selbstschuldnerischen Burgschaft eines deutschen
Kreditinstituts erbracht unter Verzicht auf die Einreden der Anfechtbarkeit, der
Aufrechenbarkeit und der Vorausklage (sections 768, 770, 771 BGB). Die
Burgschaft muB unter Verzicht auf die Befreiung durch Hinterlegung auf erstes
Anfordern in Anspruch genommen werden konnen.

4. Der Vermieter zahlt dem Mieter bei Beendigung des Mietverhaltnisses nach
Raumung des Mietobjekts die Mietsicherheit zuruck bzw.handigt dem Burgen die
Burgschaftsurkunde aus, soweit gegen den Mieter keinerlei Anspruche aus dem
Mietverhaltnis bestehen oder zu erwarten sind.

                            SECTION 9 ZENTRALHEIZUNG

1. Der Vermieter ist verpflichtet, die Sammelheizungsanlage in der Zeit vom 1.
Oktober bis 30. April in Betrieb zu halten. Uber diesen Zeitpunkt hinaus 1st die
Heizung in Betrieb zu setzen, wenn an drei aufeinanderfolgenden Abenden um 21
Uhr die AuBentemperatur unter 12 Grad Celsius sinkt.

2. Nimmt der Mieter keine Warme ab, so befreit inn dies nicht von der Zahlung
der anteiligen Heizungskosten.

                          SECTION 10 HAFTUNGSAUSSCHLUB

1. Der Vermieter haftet nicht fur Schaden, die ein Mangel des Mietobjektes an
Sachen des Mieters verursacht. Er haftet auch nicht, wenn der Mangel oder sein
Ursprung bereits bei AbschluB des Mietvertrages vorhanden war. Soweit eine
Haftung des Vermieters Verschulden voraussetzt, bleibt seine Haftung fur grobe
Fahrlassigkeit sowie fur Vorsatz von diesem HaftungsausschluB unberuhrt.

2. Der Vermieter haftet nicht fur Kosten, die dem Mieter durch Umstellung von
Stadt- auf Erdgas, Stromart und -spannung oder Veranderungen des Wasserdruckes
entstehen.

          SECTION 11 AUSBAU, INSTANDHALTUNG UND NUTZUNG DER MIETFLACHE

1. Will der Mieter Um- oder Einbauten fur seine Zwecke vornehmen, so bedarf er
hierzu



<PAGE>   8

der schriftlichen Zustimmung des Vermieters. Dasselbe gilt fur eine Umstellung
der Beheizungsart. Fur etwa bei Umbauarbeiten eintretende Schaden sowie fur die
Einhaltung baupolizeilicher Vorschriften haftet der Mieter. Etwa notwendige
Genehmigungen hat der Mieter auf seine Kosten einzuholen.



<PAGE>   9

2. Der Vermieter verpflichtet sich wahrend der Mietzeit zur konstruktiven
instandhaltung und Instandseizung der Mietraume sowle zur Instandhaltung der
Sammelheizung, der Fahrstuhle and Versorgungsleitungen (Elektrizitat, Gas,
Wasser), soweit ietztere mitvermietet sind. Fur den Geschaftsbetrieb des Mieters
erforderliche Erweiterungen und Verstarkungen der Versorgungsleitungen durfen
nur nach vorheriger schriftlicher Zustimmung des Vermieters vorgenommen werden.

3. Die laufende instandhaltung und instandseizung im innern der Raume sowle die
Vornahme der Schonheitsreparaturen ist Verpflichtung des Mieters.

4. Der Mieter haftet fur jede schuldhafte Beschadigung der Mietsache und des
Hauses sowie samtlicher zum Hause oder den Raumen gehorenden Aniagen und
Einrichtungen, die er, seine Angehorigen, seine Mitarbeiter, seine Untermieter
oder die Personen verursachen, die auf seine Veranlassung mit der Mietsache in
Beruhrung kommen.

5. Entsteht durch Verstopfung, Offenlassen von Wasserhahnen oder ahnliches eine
Uberschwemmung, so hat der Mieter, in dessen Raumen die Uberschwemmung
verursacht worden ist, fur die Wiederherstellung sowie fur alle Schaden
aufzukommen, welche am Hause oder den Mitbewohnern durch die Uberschwemmung
entstehen.

6. Wenn der Mieter einen Schaden feststellt, ist er verpflichtet, diesen Schaden
unverzuglich dem Vermieter anzuzeigen. Fur einen durch nicht rechtzeitige
Anzeige verursachten weiteren Schaden ist der Mieter ersatzpflichtig.

7. Eine Belastigung der Mitbewohner des Hauses durch Gerausche, Erschutterungen,
Geruch und dgl. darf durch die Benutzungsart der Raume nicht eintreten. Der
Mieter ist dem Vermieter bei VerstoB gegen diese Vorschrift ersatzpflichtig und
hat bei Beanstandungen fur sofortige Abstellung der Belastigung zu sorgen.

    SECTION 12 AUSBESSERUNGEN UND BAULICHE VERANDERUNGEN DURCH DEN VERMIETER

1. Der Vermieter darf Ausbesserungen und bauliche Veranderungen, die zur
Erhaltung des Hauses oder der Mietraume, zur Abwendung drohender Gefahren oder
zur Beseitigung von Schaden notwendig werden, auch ohne Zustimmung des Mieters
vornehmen. Das gilt auch fur Arbeiten und bauiiche MaBnahmen, die zwar nicht
notwendig, aber doch zweckmaBig sind, insbesondere der Modernisierung des
Gebaudes oder der Einsparung von Heizenergie dienen, wann sie den Mieter nur
unwesentlich beeintrachtigen. Bei Wertverbesserungs- oder EnergiesparmaBnahmen
benachrichtigt der Vermieter den Mieter einen Monat vor Beginn der MaBnahme uber
deren Beginn und voraussichtliche Dauer. Soweit erforderlich, muB der Mieter bei
Durchfuhrung dieser Arbeiten mitwirken, z. B. durch vorubergehende Umraumung der
Mobel, Entfernung von Einbauten usw. Verletzt der Mieter diese Pflichten, so
haftet er dem Vermieter fur etwa entstehende Mehrkosten. Der Vermieter ist
verpflichtet, die Arbeiten zugig durchfuhren zu lassen. Das Kundigungsrecht nach
section 541 b Abs. 2 Satz 2 BGB ist ausgeschlossen.

2. Soweit der Mieter die Arbeiten duiden muB, kann er nur dann die Miete
mindern, ein Zuruckhaltungsrecht ausuben oder Schadenersatz verlangen, wenn es
sich um Arbeiten handelt, die den Gebrauch der Raume zu dem vereinbarten Zweck
ganz oder teilweise ausschiieBen oder erheblich beenintrachtigert. 541 b Abs. 3
BGB findet keine Anwendung.

              SECTION 13 BETRETEN DER MIETRAUME DURCH DEN VERMIETER

Dem Vermieter oder von ihm Beauftragten ist das Betreten der Mietraume wahrend
der ublichen Geschaftszeiten gestattet.

         SECTION 14 AUFSTELLEN VON MASCHINEN, LAGERUNG VON GEGENSTANDEN,
                            ABSTELLEN VON FAHRZEUGEN

1. Vor dem Aufstellen von Maschinen, schweren Apparaten und Geldschranken in den
Mietraumen hat sich der Mieter uber zulassige Belastungsgrenzen der
Stockwerksdecken beim Vermieter zu erkundigen und dessen schriftliche Zustimmung
einzuholen. Fur Schaden, die durch Nichtbeachtung dieser Bestimmungen eintreten,
haftet der Mieter. Ergeben sich durch die Maschinen nachteillge Auswirkungen fur
das Gebaude, Erschutterungen, Risse usw., so kann der Vermieter die erteilte
Erlaubnis widerrufen.

2. AuBerhalb der Mietraume durfen keinerlei Gegenstande (Kisten, Waren und
dergleichen) abgestellt oder gelagert werden. Erteilt der Vermieter in
Ausnahmefallen seine Zustimmung zu einer solchen Lagerung, so haftet der Mieter
fur alle hierdurch entstehenden Schaden.

3. Fahrzeuge des Mieters durfen nur mit Genehmigung des Vermieters und nur auf
den angewiesenen Platzen abgestellt werden. Fremde Fahrzeuge durfen nur wahrend
der zum Ent- und Beladen erforderlichen Zeit auf dem Grundstuck abgestellt
werden. Der Mieter haftet dem



<PAGE>   10

Vermieter fur jeglichen Schaden am Gebaude und sonstigen Grundstuck, der durch
seine Fahrzeuge oder durch die bei ihm verkehrenden Fahrzeuge verursacht wird.
Dem Mieter obllegt der Beweis dafur, daB ein schuldhaftes Verhalten nicht
vorgelegen hat.

4. Werden durch Transporte des Mieters Hof, Durchfahrt, Flur oder Treppen
verunreinigt, so ist der Mieter vernflicht [illegible]



<PAGE>   11

                  SECTION 15 AUBERORDENTLICHES KUNDIGUNGSRECHT.

Hinsichtlich des auBerordentlichen Kundigungsrechts des Vermieters und des
Mieters gelten die gesetzlichen Bestimmungen.

                              SECTION 16 MINDERUNG

Eine Minderung der Miete ist ausgeschlossen, wenn durch Umstande, die der
Vermieter nicht zu vertreten hat (z. B. Verkehrsumleitung, StraBensperrungen,
Bauarbeiten in der Nachbarschaft usw.), die gewerbliche Nutzung der Raume
beeintrachtigt wird (z. B. Umsatz- und Geschaftsruckgang).

                   SECTION 17 UNTERVERMIETUNG Siehe Section 22

                    SECTION 18 SCHILDER, AUTOMATEN, MARKISEN

1. Der Mieter hat Anspruch auf das Anbringen eines Firmenschildes. Fur dieses
Schild wird dem Mieter im Hauseingang sowie in seinem Stockwerk ein Platz
angewiesen. Die Ausfuhrung und die Art der Beschriftung wird vom Vermieter
festgelegt.

2. Im ubrigen ist der Mieter nicht berechtigt, ohne schriftliche Erlaubnis des
Vermieters an der AuBenfront des Hauses oder auf dessen Dach Einrichtungen
irgendweicher Art anzubringen (Schaukasten, Warenautomaten, Reklameschilder).
Etwaige behordliche Genehmigungen sind vom Mieter einzuholen. Er tragt alie mit
der Anbringung oder Aufstellung verbundenen Kosten, Gebuhren und Abgaben.

3. Der Mieter hat dafur einzustehen, daB Firmenschilder, Markisen und sonstige
an den AuBenwanden anzubringende Gegenstande sicher und in entsprechender Hohe
angebracht werden, so daB jeder Sach- und Personenschaden vermieden wird. Fur
eintretende Schaden haftet der Mieter. Bei Beendigung des Mietverhaltnisses oder
bei Widerruf der Erlaubnis hat der Mieter den fruheren Zustand auf seine Kosten
wiederherzustellen.

4. Das Schaufenster ist stets sauber und in einer der Mietgegend entsprechenden
Weise sorgfaltig dekoriert zu halten.

                    SECTION 19 WEGEREINIGUNG UND STREUPFLICHT

1. Der Laden- bzw. ErdgeschoBmieter ubernimmt die Wegereinigung des offentlichen
Gehwegs, der Zuwegung zum Haus und zu den Abfalibehaltern, soweit der Vermieter
die Reinigungspflicht nicht ausdrucklich ubernimmt. Die Relnigungspflicht
erstreckt sich auf die Beseitigung von Laub, Unrat und sonstigen
Verschmutzungen. Der Kehrricht ist wegzuschaffen. Wahrend der Wintermonate sind
Schnee und Eis zu den ublichen Verkehrszeiten zu beseitigen. Tausalz und
tausalzhaltige Mittel durfen nicht verwendet werden. Eisbildungen, denen nicht
ausreichend durch Streuen entgegengewirkt werden kann, sind zu beseitigen.
StraBenrinnen sind spatestens bei Eintritt von Tauwetter von Schnee und Eis so
freizumachen, daB Schmeizwasser ablaufen kann. Der Mieter besorgt sich das
Streumaterial auf eigene Kosten.

2. Bei vorubergehender Verhinderung (z. B. Krankheit, Ortsabwesenheit) hat der
Mieter auf seine Kosten fur Vertretung zu sorgen.

3. Der Vermieter ist berechtigt, wenn dies zur ordnungsmaBigen Bewirtschaftung
erforderlich ist, nach vorheriger Ankundigung die Reinigungspflichten selbst zu
ubernehmen oder sie einem Dritten zur Ausfuhrung zu ubertragen und die
entstehenden Kosten als Betriebskosten zu erheben. Unter denselben
Voraussetzungen ist er berechtigt die Reinigungspflichten wieder auf den Mieter
zu ubertragen.



<PAGE>   12

            SECTION 20 ANSPRUCHE BEL BEENDIGUNG DES MLETVERHALTNISSES

1. Bei Beendigung des Mietverhaltnisses steht dem Vermieter das Recht zu, die
Wiederherstellung des fruheren Zustandes zu verlangen oder die vom Mieter
geschaffenen Einrichtungen zu Ubernehmen. Entscheidet der Vermieter sich fur die
Ubernahme, so ist das Wegnahmerecht des Mieters ausgeschlossen. Einen Anspruch
auf Entschadigung fur verbleibende, vom Mieter geschaffene Einrichtungen kann
der Mieter nur geltend machen, wenn und soweit er schrifflich festgelegt ist.
Macht der Vermieter von seinem Ubernahmerecht keinen Gebrauch und nimmt der
Mieter die von ihm geschaffenen Einrichtungen weg, so hat er den ursprunglichen
Zustand auf seine Kosten handwerksgerecht wiederherzustellen.

2. Zieht der Mieter vor Ablauf des Vertrages aus, so hat er die Schlussel dem
Vermieter sofort auszuhandigen.

Der Vermieter ist berechtigt, sogleich Instandsetzungsarbeiten und Veranderungen
in den Mietraumen vornehmen zu lassen. Ein Minderungsrecht aus diesem Grunde
steht dem Mieter nicht zu.

                           SECTION 21 PERSONENMEHRHEIT

1. Mehrere Personen als. Vermieter/Mieter haften fur die Verpflichtungen aus dem
Mietvertrag als Gesamtschuldner.

2. Erklarungen konnen grundsatzlich von oder gegenuber nur einem
Vermieter/Mieter abgegeben werden, wenn [illegible] das Mietverhaltnis beruhren,
jedoch dann nicht, wenn sie zu einer Auflosung des Mietverhaltnisses fuhren
sollen.

                       SECTION 22 SONSTIGE VEREINBARUNGEN

A) Die Bauzeit betragt acht Monate nach rechtsgultigem
   Baugenehmigungsbescheid. Bei einer Uberschreitung der Bauzeit (ausgenommen
   Verzogerungen durch hohere Gewalt ) vergutet der Vermieter dem Mieter:

   DM   100.000,00 brutto fur jeden abgelaufenen Monat,

   jedoch maximal

   DM   400.000,00 brutto.

B) ANLAGEN:

   Anlage 1: GrundriBzeichnungen mit Raumaufteilung
   Anlage 2: GrundriBzeichnungen mit Flachenberechnung
   Anlage 3: Baubeschreibung und Raumbuch
   Anlage 4: Mietzeit und Mietberechnung nach section 4 und section 5

C) Eine Untervermietung wird erlaubt.

D) Der Mietpreis wird fur 5 Jahre ab Mietbeginn fest vereinbart.



<PAGE>   13

AUFSTELLUNG DER BETRIEBSKOSTEN GEMAB ANLAGE 3 ZU SECTION 27 II. BV:

Betriebskosten sind nachstehende Kosten, die dem Eigentumer (Erbbauberechtigten)
durch das Eigentum (Erbbaurecht) am Grundstuck oder durch den bestimmungsmaBigen
Gebrauch des Gebaudes oder der Wirtschaftseinhalt, der Nebengebaude, Anlagen,
Einrichtungen und des Grundstucks laufend entstehen, es sei denn, daB sie
ublicherweise vom Mieter auBerhalb der Miete unmittelbar getragen werden:

1.   DIE LAUFENDEN OFFENTLICHEN LASTEN DES GRUNDSTUCKS
     Hierzu gehort namentlich die Grundsteuer, jedoch nicht die
     Hypothekengewinnabgabe.

2.   DIE KOSTEN DER WASSERVERSORGUNG
     Hierzu gehoren die Kosten des Wasserverbrauchs, die Grundgebuhren, die
     Kosten der Anmietung oder anderer Arten der Gebrauchsuberlassung von
     Wasserzahiern sowie die Kosten ihrer Verwendung einschlieBlich der Kosten
     der Berechnung und Auftellung, die Kosten des Betriebs einer hauseigenen
     Wasserversorgungsanlage und einer Wasseraufbereitungsanlage einschlieBlich
     der Aufbereitungsstoffe.

3.   DIE KOSTEN DER ENTWASSERUNG
     Hierzu gehoren die Gebuhren fur die Haus- und Grundstucksentwasserung, die
     Kosten des Betriebs einer entsprechenden nicht offentlichen Anlage und die
     Kosten des Betriebs einer Entwasserungspumpe.

4.   DIE KOSTEN
     A)   DES BETRIEBS DER ZENTRALEN HEIZUNGSANLAGE EINSCHLIEBLICH DER
     ABGASANLAGE;
     hierzu gehoren die Kosten der verbrauchten Brennstoffe und ihrer Lieferung,
     die Kosten des Betriebsstroms, dle Kosten der Bedienung, Uberwachung und
     Pflege der Anlage, der regelmaBigen Prufung ihrer Betriebsbereitschaft und
     Betriebssicherheit einschlieBlich der Einstellung durch einen Fachmann, der
     Reinigung der Anlage und des Betriebsraums, die Kosten der Messungen nach
     dem Bundes-Immissionsschutzgesetz, die Kosten der Anmietung oder anderer
     Arten der Gebrauchauberlassung einer Ausstattung zur Verbrauchserfassung
     sowie die Kosten der Verwendung einer Ausstattung zur Verbrauchserfassung
     einschlieBlich der Kosten der Berechnung und Auftellung; oder

     B) DES BETRIEBS DER ZENTRALEN BRENNSTOFFVERSORGUNGSANLAGE;
     hierzu gehoren die Kosten der verbrauchten Brennstoffe und ihrer Lieferung,
     die Kosten des Betriebsstroms und die Kosten der Uberwachung sowie die
     Kosten der Reinigung der Anlage und des Betriebsraums; oder

     C) DER EIGENSTANDIG GEWERBLICHEN LIEFERUNG VON WARME, AUCH AUS ANLAGEN IM
     SINNE DES BUCHSTABEN A;
     hierzu gehoren das Entgeit fur die Warmelieferung und die Kosten des
     Betriebs der zugehorigen Hausanlagen entsprechend Buchstabe a; oder

     D) DER REINIGUNG UND WARTUNG VON ETAGENHEIZUNGEN;
     hierzu gehoren die Kosten der Beseitigung von Wasserabiagerungen und
     Verbrennungsruckstanden in der Anlage, die Kosten der regelmaBigen Prufung
     der Betriebsbereitschaft und Betriebssicherheit und der damit
     zusammenhangenden Einstellung durch einen Fachmann sowie die Kosten der
     Messungen nach dem Bundes-immissionsschutzgesetz.

5.   DIE KOSTEN
     A) DES BETRIEBS DER ZENTRALEN WARMWASSERVERSORGUNGSANLAGE;
     hierzu gehoren die Kosten der Wasserversorgung entsprechend Nr.2, soweit
     sie nicht dort bereits berucksichtigt sind und die Kosten der
     Wassererwarmung entsprechend Nummer 4 Buchstabe a; oder

     B) DER EIGENSTANDIG GEWERBLICHEN LIEFERUNG VON WARMWASSER, AUCH AUS ANLAGEN
     IM SINNE DES BUCHSTABEN A;
     hierzu gehoren das Entgelt fur die Lieferung des Warmwassers und die Kosten
     des Betriebs der zugehorigen Hausanlage entsprechend Nummer 4 Buchstabe a;
     oder

     C) DER REINIGUNG UND WARTUNG VON WARMWASSERGERATEN;
     hierzu gehoren die Kosten der Beseitigung von Wasserablagerungen und
     Verbrennungsruckstanden im innern der Gerate sowie die Kosten der
     regelmaBigen Prufung der Betriebsbereitschaft und Betriebssicherheit und
     der damit zusammenhangenden Einstellung durch einen Fachmann.

6.   DIE KOSTEN VERBUNDENER HEIZUNGS- UND WARMWASSERVERSORGUNGSANIAGEN
     a) bei zentralen Heizungsaniagen entsprechend Nummer 4 Buchstabe a und
     entsprechend Nummer 2, soweit sie nicht dort bereits berucksichtigt sind;
     oder



<PAGE>   14

     b) bei der eigenstandig gewerblichen Lieferung von Warme entsprechend
     Nummer 4 Buchstabe c und entsprechend Nummer 2, soweit sie nicht dort
     bereits berucksichtigt sind; oder

     c) bei verbundenen Etagenheizungen und Warmwasserversorgungsanlagen
     entsprechend Nummer 4 Buchstabe d und entsprechend Nummer 2, soweit sie
     nicht dort bereits berucksichtigt sind.

7.   DIE KOSTEN DES BETRIEBS DES MASCHINELLEN PERSONEN- ODER LASTENAUFZUGES
     Hlerzu gehOren die Kosten des Betriebsstroms, die Kosten der
     Beautsichtigung, der Bedienung, Uberwachung und Pflege der Anlage, der
     regelmaBigen Prufung ihrer Betriebsbereitschaft und Betriebssicherheit
     einschlieBlich der Einstellung durch einen Fachmann sowie die Kosten der
     Reinigung der Anlage.

8.   DIE KOSTEN DER STRABENREINIGUNG UND MULLABFUHR
     Hierzu gehoren die fur die offentliche StraBenreinigung und Mullabfuhr zu
     entrichtenden Gebuhren oder die Kosten entsprechender nicht offentlicher
     MaBnahmen.

9.   DIE KOSTEN DER HAUSREINIGUNG UND UNGEZIEFERBEKAMPFUNG
     Zu den Kosten der Hausreinigung gehoren die Kosten fur die Sauberung der
     von den Bewohnern gemeinsam benulzten Gebaudetelle, wie Zugange, Flure,
     Treppen, Keller, Bodenraume, Waschkuchen, Fahrkorb des Aufzuges.

10.  DIE KOSTEN DER GARTENPFLEGE
     Hierzu gehoren die Kosten der Pflege gartnerisch angelegter Flachen
     einschlieBlich der Erneuerung von Pflanzen und Gaholzen, der Pflege von
     Spielplatzen einschlieBlich der Erneuerung von Sand und der Pflege von
     Platzen, Zugangen und Zufahrten, die dem nicht offentlichen Verkehr dienen.

11.  DIE KOSTEN DER BELEUCHTUNG
     Hierzu gehoren die Kosten des Stroms fur die AuBenbeleuchtung und die
     Beleuchtung der von den Bewohnern gemeinsam benutzten Gebaudetelle, wie
     Zugange, Flure, Treppen, Keller, Bodenraume, Waschkuchen.

12.  DIE KOSTEN DER SCHORNSTEINREINGUNG
     Hierzu gehoren die Kehrgebuhren nach der maBgebenden Gebuhrenordnung,
     soweit sie nicht bereits als Kosten nach Nummer 4 Buchstabe a
     berucksichtigt sind.

13.  DIE KOSTEN DER SACH- UND HAFTPFLICHTVERSICHERUNG
     Hierzu gehoren namentlich die Kosten der Versicherung des Gebaudes gegen
     Feuer-, Sturm- und Wasserschaden, der Glasversicherung, der
     Haftpflichtversicherung fur das Gebaude, den Oltank und den Aufzug.

14.  DIE KOSTEN FUR DEN HAUSWART
     Hierzu gehoren die Vergutung, die Sozialbeltrage und alle geidwerten
     Leistungen, die der Eigentumer (Erbbauberechtigte) dem Hauswart fur seine
     Arbeit gewahrt, soweit diese nicht die Instandhaltung, Instandsetzung,
     Erneuerung, Schonheitsreparaturen oder die Hausverwaltung betrifft.
     Soweit Arbelten vom Hauswart ausgefuhrt werden, durfen Kosten fur
     Arbeitsleistungen nach den Nummern 2 bis 10 nicht angesetzt werden.

15.  DIE KOSTEN
     A) DES BETRIEBS DER GEMEINSCHAFTS-ANTENNENANLAGE; hierzu gehoren die Kosten
     des Betriebsstroms und die Kosten der regeimaBigen Prufung ihrer
     Betriebsbereitschaft einschlieBlich der Einstellung durch einen Fachmann
     oder das Nutzungsentgelt fur eine nicht zur Wirtschaftseinhelt gehorende
     Antennenanlage; oder

     B) DES BETRIEBS DER MIT EINEM BREITBANDKABEINETZ VERBUNDENEN PRIVATEN
     VERTEILANLAGE;
     hierzu gehoren die Kosten entsprechend Buchstabe a, ferner die laufenden
     monatlichen Grundgebuhren fur Breitbandanschlusse.

16.  DIE KOSTEN DES BETRIEBS DER MASCHINELLEN WASCHEINRICHTUNG
     Hierzu gehoren die Kosten des Betriebsstroms, die Kosten der Uberwachung,
     Pflege und Reinigung der maschinellen Elnrichtung, der regelmaBigen Prufung
     ihrer Betriebsbereitschaft und Betriebssicherheit sowie die Kosten der
     Wasserversorgung entsprechend Nummer 2, soweit sie nicht dort bereits
     berucksichtigt sind.

17.  SONSTIGE BETRIEBSKOSTEN
     Das sind die in den Nummern 1 bis 16 nicht genannten Betriebskosten,
     namentlich die



<PAGE>   15

     Betriebskosten von Nebengebauden, Anlagen und Einrichtungen.



<PAGE>   16

                                   HAUSORDNUNG

1.   Die Mietraume sind sauber und frei von Ungeziefer zu halten. Abfall und
     Unrat durfen nicht in den Raumen angesammelt werden, sondern sind
     unverzuglich zu beseitigen.

     Das Reinigen von Gegenstanden darf nur innerhalb der gemieteten Raume
     geschehen.

2.   Der Mieter hat die von ihm ausschlieBlich benutzten Toiletten, Handsteine
     und Waschbecken sauberzuhalten und etwaige Verstopfungen sofort beseitigen
     zu lassen. Die installationsgegenstande durfen nur ihrem Zweck gemaB
     benutzt werden.

3.   Wahrend der Heizperiode hat der Mieter dafur Sorge zu tragen, daB auBerhaib
     der Dienst-und Arbeitszeit die Fenster seiner Raume geschlossen und die
     Heizkorper so weit angestellt bleiben - bzw. bei eigener Heizungsanlage die
     Raume so ausreichend beheizt sind -, daB Frostschaden vermieden werden.

4.   Ist ein Lastenaufzug vorhanden, so durfen unhandliche und schwere
     Gegenstande nur damit transportiert werden - nicht uber die Treppen.

5.   Aus gewerblicher Tatigkeit anfallendes Verpackungsmaterial darf nicht in
     die allgemeinen HausmullgefaBe getan werden.

6.   Elektrizitats-, Gas- und Wassermesser der Mieter sind innerhalb der
     gemieteten Raume aufzustellen.

7.   Sind SchlieBungszeiten fur die Hausturen festgelegt, so sind diese
     unbedingt zu beachten.

8.   Die Benutzung des Fahrstuhis geschieht auf eigene Gefahr. Die von den
     zustandigen Uberwachungsorganen erlassenen Betriebsvorschriften sind
     einzuhalten.

HH, den 29.05 1997 Hamburg, den 29.5. 1997

Unterschrift des Vermieters:        Unterschrift des Mieters:


/s/ Signature Illegible                           /s/ Signature Illegible

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

Herausgegeben vom Grundeigentumer-Verband Hamburg von 1832 e.V., gemeinsam mit
dem Hamburger Kontorhausverband e.V.; Nachdruck und Vervielfaltigung unzulassig.



<PAGE>   17

                                    ANLAGE 2

                                GRUNDRIBZEICHNUNG

                                       MIT

                                FLACHENBERECHNUNG



<PAGE>   18

                                  [Floor Plan]


<PAGE>   1
                                                                 Exhibit 10.14.2


English Summary of Exhibit 10.14.1

On May 29, 1997, POET Software GmbH entered into an Office Lease Agreement with
GBR Peters/Schroeder/Schmiel pursuant to which it has leased office space of
approximately 3,200 square meters in Hamburg. The term of the Office Lease
Agreement is from March 1, 1998 until March 30, 2003 and may be terminated with
six months notice. POET Software GmbH has an option to extend the Office Lease
Agreement until March 30, 2008. The monthly lease payment pursuant to the Office
Lease Agreement is approximately DM 100,000 including VAT.



<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. 5 to Form S-1 of our report dated September 8,
1999 (September 13, 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 2, 1999



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