INTERSHOP COMMUNICATIONS AKTIENGESELLSCHAFT, F-1/A, 2000-03-29

INTERSHOP COMMUNICATIONS AKTIENGESELLSCHAFT
F-1/A, 2000-03-29
COMPUTER INTEGRATED SYSTEMS DESIGN

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As filed with the Securities and Exchange Commission on March 29, 2000

Registration No. 333-32034
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SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549

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AMENDMENT No. 1

To
FORM F-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

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INTERSHOP Communications Aktiengesellschaft
(Exact Name of Registrant as Specified in its Charter)
INTERSHOP Communications Stock Corporation
(Translation of Registration Name into English)

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Federal Republic of Germany 7373 Not Applicable
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification No.)
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Amsinckstrabe 57
D-20097 Hamburg
Federal Republic of Germany
(011) 49-40-23708-2
(Address and telephone number of Registrant's principal executive offices)

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CRAIG W. HARDING
INTERSHOP Communications AG
600 Townsend Street, Suite 500
San Francisco, CA 94103
(415) 229-0100
(Name, address and telephone number of agent for service)

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Copies to:
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WILLIAM H. HINMAN, JR. MARK A. BERTELSEN
Shearman & Sterling Wilson Sonsini Goodrich & Rosati
555 California Street, Suite 2000 Professional Corporation
San Francisco, CA 94104 650 Page Mill Road
Palo Alto, CA 94304
</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,
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, 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(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. [_]

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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 of 1933 or until the registration statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.

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++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+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 MARCH 29, 2000

435,000 Bearer Ordinary Shares

[INTERSHOP LOGO APPEARS HERE]

in the form of 4,350,000 American Depositary Shares

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We are offering 4,350,000 American Depositary Shares. Each ADS represents
1/10 of one bearer ordinary share and will be evidenced by an American
Depositary Receipt.

Prior to this offering, there has been no public market for our ADSs. Our
ordinary shares are listed on the Neuer Markt of the Frankfurt Stock Exchange
under the symbol ISH. On March 28, 2000, the last reported sale price was
(Euro)579.00 per ordinary share, which is equivalent to $55.65 per ADS. We have
applied to list our ADSs on The Nasdaq Stock Market's National Market under the
symbol "ISHP."

We have granted the underwriters an option to purchase a maximum of 650,000
additional ADSs to cover over-allotments of ADSs.

Investing in our ADSs involves risks. See "Risk Factors" on page 6.

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Underwriting
Price to Discounts and Proceeds to
Public Commissions INTERSHOP
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Per ADS.................................... $ $ $
Total...................................... $ $ $
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Delivery of the ADSs will be made on or about , 2000.

Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.

Credit Suisse First Boston

Chase H&Q

U.S. Bancorp Piper Jaffray

The date of this prospectus is , 2000.
<PAGE>

Inside Front Cover:

The following captions accompany a graphical depiction of our products on the
insider front cover:

"Sell Anywhere with Intershop

"Sell direct to businesses and consumers over the Internet

"Sell indirect through affiliate sites, online marketplaces and distributors'
websites

"Enable merchants to sell their products on line

"Enable marketplaces: Bring multiple buyers and sellers together at your online
marketplace"
<PAGE>

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TABLE OF CONTENTS

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Page
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Prospectus Summary....................................................... 3
Summary Consolidated Financial Data...................................... 5
Risk Factors............................................................. 6
Presentation of Financial Information.................................... 15
Forward-Looking Statements............................................... 16
Use of Proceeds.......................................................... 16
Dividend Policy.......................................................... 16
Price Range of Ordinary Shares........................................... 17
Exchange Rate Information................................................ 18
Capitalization........................................................... 19
Dilution................................................................. 20
Selected Consolidated Financial Data..................................... 21
Management Discussion and Analysis of Financial Condition and Results of
Operations.............................................................. 23
Business................................................................. 31
Management............................................................... 45
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Page
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Certain Relationships and Related Transactions............................. 50
Principal Shareholders..................................................... 53
Description of Capital Stock............................................... 54
Shares Eligible for Future Sale............................................ 62
Description of American Depositary Shares.................................. 64
The German Equity Market................................................... 72
German Taxation............................................................ 74
Taxation of U.S. Investors................................................. 78
Limitations Affecting Security Holders..................................... 84
Underwriting............................................................... 85
Notice to Canadian Residents............................................... 87
Legal Matters.............................................................. 88
Experts.................................................................... 88
Available Information...................................................... 88
Index to Consolidated Financial Statements................................. F-1
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You should rely only on the information contained in this document or to
which we have referred you. We have not authorized anyone to provide you with
information that is different. This document may only be used where it is legal
to sell these securities. The information in this document may only be accurate
on the date of this document.

Dealer Prospectus Delivery Obligation

Until , 2000 (25 days after the commencement of this offering), all
dealers that effect transactions in these securities, whether or not
participating in this offering, may be required to deliver a prospectus. This
is in addition to the dealer's obligation to deliver a prospectus when acting
as an underwriter and with respect to unsold allotments or subscriptions.
<PAGE>

PROSPECTUS SUMMARY

You should read the entire prospectus carefully, including the financial data
and related notes, before making an investment decision.

INTERSHOP Communications

We are a global provider of electronic commerce software. Electronic commerce
software applications are software applications that help businesses market and
sell their products and services over the Internet. Our products are targeted
toward large businesses, both those that sell their own products and services
online and those that assist other businesses in selling their products and
services online. Our products can be used to address entry-level electronic
commerce storefronts, as well as more advanced electronic commerce business
models such as online marketplaces. We market our software applications and
professional services to large businesses that have the ability to manage their
own electronic commerce sites. We also market our products and services to
application service providers, or ASPs. ASPs are companies that, with the help
of our software applications, manage electronic commerce sites for the growing
number of small- and medium-sized businesses seeking to establish a business
presence on the Internet. Businesses also use our software applications to
enable sellers of products and services by providing a forum for bringing
buyers and sellers together online. By offering products that provide solutions
to a range of distinct business models, we can meet the needs of our customers
as they evolve from entry-level to more sophisticated electronic commerce
operations while remaining on our software platform.

The growth of the Internet has fueled the demand for electronic commerce
technologies. These technologies support a wide range of online business
functions, from enabling transactions to providing marketing data about
customers. According to International Data Corporation, or IDC, the market for
Internet commerce applications is expected to grow from $1.7 billion in 1999 to
$13.2 billion by 2003.

Many existing electronic commerce software packages provided by our
competitors successfully display products and process orders. However, few
software packages can combine these basic functions with the ability to
integrate with existing business systems, to be deployed rapidly and to provide
intelligent merchandising capabilities, such as customer profiling, shopping
lists and cross-selling that allow companies to provide their online customers
with an individualized shopping experience. We believe that a large market
opportunity exists for a solution such as ours that meets the extensive
requirements of businesses developing an online presence.

We intend to continue to strengthen our position as a leading provider of
electronic commerce software applications enabling businesses to sell products
and services over the Internet. Key elements of our strategy include:

. Extending our leadership in the electronic commerce software market;

. Expanding our leadership position in providing software to ASPs;

. Providing solutions for a wide range of electronic commerce business
models;

. Continuing to expand our presence in the enterprise market by increasing
our sales and marketing capabilities;

. Strengthening our network of sales and technology partners; and

. Leveraging our global presence to capitalize on the growth in the
electronic commerce market.

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We have operations in the United States and Europe and a worldwide network of
over 600 channel partners, including PricewaterhouseCoopers, Deutsche Telekom,
Unisys, Northern Telecom and MindSpring. Our global presence allows us to work
closely with large businesses and ASPs that operate internationally. In 1998,
customers using our products established over 5,500 new electronic commerce
sites. According to IDC, this placed us in the top three companies cited in the
survey in terms of the number of sites established. By December 31, 1999, over
10,000 electronic commerce sites had been licensed to be deployed on our
products worldwide by ASPs and enterprises such as Bosch, Canon, Hewlett
Packard, MindSpring, Northern Telecom and US West.

We began doing business in 1992 as NetConsult Computersysteme GmbH. In April
1998, we incorporated as a German stock corporation. We are a holding company
and own seven subsidiaries that conduct all of our worldwide operations. In
1999, we had net a loss of $18.4 million, and we had an accumulated net deficit
of $45.4 million as of December 31, 1999.

Our operational headquarters are located at 600 Townsend Street, Suite 500
West, San Francisco, CA 94103, and our telephone number at that address is
(415) 229-0100. Our principal executive offices are located at Amsinckstrabe
57, 20097 Hamburg, Germany. Our website is located at www.intershop.com. The
information on our website is not part of this prospectus.

"INTERSHOP" is a registered trademark of our company. This prospectus
contains product names and trademarks of our company and other organizations.

The Offering

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ADSs offered........................................ 4,350,000 ADSs representing
435,000 ordinary shares

Ordinary shares that will be outstanding after this 17,313,104 ordinary shares, which is
offering........................................... equivalent to 173,131,040 ADSs

Use of proceeds..................................... For working capital and general
corporate purposes. See "Use of
Proceeds."

Proposed Nasdaq National Market symbol.............. ISHP
</TABLE>

The number of shares of common stock outstanding after this offering is based
on shares outstanding as of December 31, 1999.

4
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Summary Consolidated Financial Data
(in thousands, except per share data)

The following table summarizes the statement of operations and balance sheet
data for our business and our predecessor. The following data should be read in
conjunction with "Selected Consolidated Financial Data," "Management Discussion
and Analysis of Financial Conditions and Results of Operations" and other
financial statements within this prospectus. For convenience only certain euro
figures have been translated into U.S. dollars at the rate of (Euro)1.00 =
$1.00, the noon buying rate in New York City for cable transfers in foreign
currencies certified by the Federal Reserve Bank of New York for customs
purposes on December 31, 1999. All prior year balances have been restated from
Deutsche marks into euros using the exchange rate as of January 1, 1999. Prior
to 1997, there was no common stock outstanding as we were organized as
INTERSHOP Communications GmbH, which is a limited liability corporation.
Accordingly, no earnings per share have been presented for periods prior to
1997. Financial data as of and for the years ended December 31, 1995 and 1996
represent information for INTERSHOP Communications GmbH.

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As of December 31,
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1999
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Adjusted
for the
1995 1996 1997 1998 Actual Actual offering
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(Euro) (Euro) (Euro) (Euro) (Euro) US$ (Euro)
(unaudited)
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Consolidated Balance
Sheet Data:
Cash and cash
equivalents............ 57 214 5,058 34,185 12,065 12,065 284,728
Working capital......... (56) 224 (82) 31,709 10,020 10,020 282,683
Total assets............ 283 1,586 10,731 47,221 53,789 53,789 326,452
Long-term liabilities... 3 1,713 6,945 1,978 240 240 240
Accumulated deficit..... (5) (2,324) (9,489) (27,017) (45,406) (45,406) (45,406)
Total shareholders'
equity................. 47 (2,313) (9,593) 34,225 22,864 22,864 295,527
</TABLE>

5
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RISK FACTORS

You should carefully consider the risks described below as well as other
information included in this prospectus before buying ADSs in this offering.

Risks Related to Our Business

We have incurred net losses in the past and expect to incur them in the
foreseeable future. If we continue to incur net losses for a period longer than
anticipated, we may be unable to continue operations.

We have incurred net losses for the past three years and expect to continue
to operate at a loss for the foreseeable future. We had an accumulated deficit
of (Euro)45.4 million as of December 31, 1999. Factors that may negatively
impact our future profitability include our high levels of expenditures in
sales and marketing to support product launches, potential decreases in
revenues if these product launches are unsuccessful and our high ongoing levels
of research and development expenses. If we fail to become profitable or are
unable to sustain profitability, we may be unable to continue our operations.

The market for our products and services is rapidly changing. If our products
and services do not gain or retain acceptance in this market, we may not
generate sufficient revenues to sustain our business.

The market for products and services that enable businesses to sell over the
Internet is new and evolving. Therefore, demand for and acceptance of recently
introduced products and services like ours is uncertain. We are particularly
susceptible to this risk because our current growth strategy includes
increasing our focus on products designed to serve individual enterprises in
addition to ASPs. In particular, we recently introduced our enfinity product
which is targeted at large enterprises. If this product does not achieve market
acceptance, we may not be able to grow our business. In addition, the market
for our products and services may not develop sufficiently to meet our revenue
goals. Specifically, our products and services may not be perceived as superior
to other products and services, may not meet our customers' needs or may not
prompt recommendations to other potential customers.

Our quarterly financial results are subject to significant fluctuations which
could harm our business and cause the price of our ADSs to fall.

We expect to experience significant fluctuations in our future quarterly
operating results that may be caused by many factors. These factors include:

. the size and the timing of orders in one quarter or from quarter to
quarter and the fact that the majority of our sales in any given quarter
historically occur in the last few weeks of the quarter;

. our ability to implement our software solutions within a given quarter
and the timing of our customers' acceptance of our products;

. the potential for delay or deferral of customer implementations of our
software and changes in customer budgets;

. increases in our operating expenses as we continue to expand our product
line and fund greater levels of research and development;

. our pricing and mix of products and services sold;

. the relatively long sales cycles for some of our products;

. changes in our pricing policies or those of our competitors;

. introduction of new products or product enhancements by our competitors;

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. our historic tendency to have larger sales revenues in the fourth
calendar quarter; and

. our large percentage of European sales which are adversely affected in
the third calendar quarter of each year due to reduced business
activities in the summer months.

Our business and, therefore, the market price of our shares and ADSs could be
subject to significant fluctuations in response to quarter-to-quarter
variations in our operating results and other events or factors.

We face intense and increasing competition in the market for electronic
commerce software applications, and our failure to compete successfully could
decrease our revenues.

The market for our products and services is intensely competitive, evolving
and subject to rapid technological change. Since there are relatively low
barriers to entry in the market for electronic commerce applications,
competition from other established and emerging companies may develop in the
future. We expect competition to intensify as current competitors expand their
product offerings and new competitors enter the market. Increased competition
is likely to result in price reductions, lower average sales prices, reduced
margins, longer sales cycles and loss of market share, any of which could harm
our business, operating results or financial condition.

Many of our competitors have, and new potential competitors may have, longer
operating histories, significantly greater financial, technical, marketing and
other resources than us, more experience developing electronic commerce
software, larger technical staffs, larger customer bases, more established
distribution channels, and greater brand recognition than we do. In addition,
many of our competitors have well-established relationships with our current
and potential customers, especially in the United States, and have extensive
knowledge of our industry. In the past, we have lost potential customers to
competitors for various reasons, including lower prices and other incentives
not matched by us. Current and potential competitors have established or may
establish cooperative relationships among themselves or with third parties to
increase the ability of their products to address customer needs. As a result,
it is possible that new competitors or alliances among competitors may emerge
and rapidly acquire significant market share. We also expect that competition
may increase as a result of industry consolidations.

We cannot assure you that we will be able to compete successfully against
current or future competitors, or that competitive pressures will not reduce
our future revenues.

If we fail to introduce new products and enhance existing ones, our competitive
position and future business prospects could be harmed.

To remain competitive, we must continue to enhance and improve the
responsiveness, functionality and features of our products and services. The
Internet and the market for electronic commerce software are characterized by
rapid technological change, changes in user requirements and preferences,
frequent introductions of new products and services embodying new technologies
and the emergence of new industry standards and practices that could render our
technology and products obsolete. Consequently, we cannot predict the life
cycles of our products. Further, we may be unsuccessful or experience delays in
developing, acquiring or marketing new or enhanced products or services. Our
success will depend, in part, on our ability to both internally develop and
license leading technologies to enhance our existing products and services and
develop new products and services. We must continue to address the increasingly
sophisticated and varied needs of our customers, and respond to technological
advances and emerging industry standards and practices on a cost-effective and
timely basis. In addition, as we continue to increase our focus on providing
products and services directly to individual enterprises, as opposed to ASPs,
we will face additional concerns that could hinder our ability to respond in a
timely manner to changes in market demand. These concerns include trying to
accommodate the requirements of a larger pool of customers with more
specialized needs and responding to the dynamics of a different market with
different product cycles. The development of our proprietary technology
involves significant technical and business risks. We may fail to use new
technologies effectively or adapt our

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proprietary technology and systems to customer requirements or emerging
industry standards. If we are unable to adapt to changing market conditions,
client requirements or emerging industry standards, we may not be able to
increase our revenues and expand our business. Any delay or failure in
implementing or marketing new or enhanced products or services could harm our
competitive position and our future business prospects.

Lengthy sales and implementation cycles could cause delays in revenue growth.

The period between our initial contact with a potential customer and the
purchase of our products and services is often long and subject to delays
associated with the lengthy budgeting and approval process of our customers.
Therefore, the historic sales cycle associated with the license and
implementation of many of our products has been lengthy and beyond our control.
As we continue to launch new products and increase our focus on providing
products and services directly to individual enterprises, as opposed to ASPs,
the length of these sales cycles could be increased temporarily or permanently.
These delays may have a negative impact on the timing of our revenues and, if
they occur, may be expected to cause our operating results to vary
significantly from quarter to quarter.

Our future revenues depend on third parties who market, sell and deploy our
products.

We rely on third parties to market and deploy our products. We relied on
third parties to deploy 27% of our products deployed in 1998 and 32% in 1999.
In addition, our customers rely on professional services organizations, such as
consulting firms, systems integrators and design firms to assist with the
development, integration and implementation of our products. If we cannot
adequately train a sufficient number of these firms in the use of our products
or if for any reason a large number of them support or promote competing
products or technologies, our business might be seriously harmed. Many of these
relationships are not subject to formal agreements and none of these firms is
under any obligation to provide services to us or our customers. If we fail to
develop and maintain relationships with leading consulting firms, system
integrators, ASPs and design firms, our ability to successfully market, sell
and deploy our products could be reduced.

We have a limited operating history, and our success may be limited by factors
often encountered by companies with a limited operating history.

Our original predecessor company, NetConsult Computersysteme GmbH, was
founded in 1992, and we were incorporated in our current form under German law
on April 23, 1998. Accordingly, we have only a limited operating history.
Factors that may negatively impact our future profitability include our high
levels of expenditures in sales and marketing to support upcoming product
launches, potential decreases in revenues if these product launches are
unsuccessful and our high ongoing levels of research and development expenses.
Each or all of these factors could limit our success.

A breach of our electronic commerce security measures could reduce future
demand for our products and services.

A requirement of the continued growth of electronic commerce and
communications is the secure transmission of confidential information over
public networks. We rely on a combination of a secure socket layer, the most
common encryption standard used on the Internet, and digital encryption
standard, which is commonly used for the encryption of financial information,
to provide the security necessary for the secure transmission of our customers'
data. A third party who is able to circumvent our security measures could
misappropriate proprietary information or interrupt our operations. Any such
compromise or elimination of our security could reduce future demand for our
products and services. In addition, we may be required to expend significant
capital and other resources to protect against such security breaches or to
address problems they may cause. Finally, since our activities involve the
storage and transmission of proprietary information, such as credit card
numbers, security breaches could damage our reputation and expose us to a risk
of loss or litigation and possible liability.

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Our distribution strategy depends, in part, on ASPs. If they are unable to sell
their services which are based on our products, demand for our products may
decrease.

Our distribution strategy relies primarily upon relationships with ASPs, such
as MindSpring, and value added resellers. ASPs maintain and manage Internet
servers on which they provide electronic commerce sites to merchants who wish
to sell their products or services over the Internet. Sales to ASPs represented
51% of our net revenues in 1998 and 36% in 1999. If the ASPs are unable to sell
services which are based on our products to their customers, the demand for our
products by the ASPs could decrease substantially and our licensing revenues
from ASPs could decrease proportionally.

We depend on third parties for licensed technology that we might not be able to
obtain from other sources.

We rely on certain technology that we license from third parties, including
database software from Sybase, Persistence Software and Sun Microsystems and
other software that is integrated with our software to perform key functions.
Our third-party technology licenses may not continue to be available to us on
commercially reasonable terms, or at all. The loss or inability to maintain any
of these technology licenses could prevent use of our products and services
until equivalent technology, if available, is identified, licensed and
integrated. Further, we cannot assure you that we will be able to acquire new
third party licenses that may be necessary for our business.

Losing some or all of our key personnel could harm our ability to manage our
business.

Our business depends substantially on the performance of our executive
officers and key employees, especially our chief executive officer, Mr. Stephan
Schambach. We are dependent upon our ability to retain and motivate high
quality personnel, especially for our management and development teams. Losing
the services of any of our executive officers or other key employees could
seriously harm our business, operating results and financial condition.

Our future success and ability to expand operations also depends upon our
ability to identify, hire, train and retain other highly qualified technical
and managerial personnel. Competition for top personnel is intense as these
personnel are in limited supply, and we might not be able to hire or retain
sufficient numbers of other highly qualified technical and managerial personnel
to support our business.

Currency fluctuations in the various markets in which we do business may
negatively affect our overall operating results, which are reported in euros.

We conduct many of our operations through subsidiaries in several countries,
primarily Germany, the United Kingdom, the United States, France and Sweden.
The operating and financial results of our subsidiaries are reported in the
relevant foreign currencies and then translated into euros at the applicable
foreign currency exchange rates for inclusion in our consolidated financial
statements. The exchange rates between these currencies and the euro may
fluctuate. We have not entered into any hedging or other arrangements for the
purpose of guarding against the risk of currency fluctuations. Therefore, the
translation effect of such fluctuations may have a harmful effect on our
results of operations and financial position as reported in euros. In general,
appreciation of the local currencies relative to another currency has an
adverse effect on revenues and operating income denominated in that currency,
while depreciation of the local currencies has a positive effect on revenues
and operating income denominated in the local currencies.

We have experienced significant growth of our business in recent periods and
failure to manage our continued growth could strain our management and other
resources.

Competing in the markets in which we participate requires effective planning
and management. Our rapid growth could place a significant strain on our
managerial, operational and financial resources. In particular, the rapid
increase in our number of employees, especially in the United States, could
cause our current facilities to

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become insufficient for our needs. To manage our growth, we must continue to
implement and improve our operational and financial systems and to expand,
train and manage our employee base. The cost of investment and the continuing
maintenance costs for these applications adds significantly to our general and
administrative expenses.

In addition, our systems, procedures and controls might not be adequate to
support our operations. In particular, our rapid growth in the United States
could tax the capabilities of our information systems and our ability to
continue to effectively integrate our worldwide operations. We may not succeed
in achieving the rapid execution necessary to exploit the market for our
products and services. Our future operating results will also depend on our
ability to expand our sales and marketing organizations, establish distribution
channels to penetrate different and broader markets, and expand our support
organization commensurate with the increasing base of our installed products.
If we are unable to manage our growth effectively or fail to acquire resources
or assistance necessary to manage or support our growth, our business might be
harmed.

If we fail to meet the challenges associated with operating internationally, we
may not be able to grow our business.

Our products are currently marketed in over 25 countries in Europe, North
America, South America, Africa and the Asia/Pacific regions. Our future revenue
growth depends upon the successful continued expansion of our sales, marketing,
support and service organizations, through direct or indirect channels, in the
countries in which potential customers are located. This expansion will require
that we establish new offices, hire new personnel and manage operations in
widely disparate geographies, economies, legal systems, languages and cultures.
In pursuing our international strategy, we face several additional risks. These
risks include:

. uncertainty of market acceptance in new regions due to language,
cultural or other factors;

. lower levels of Internet usage and electronic commerce usage in the
countries outside of the United States and Europe;

. unexpected changes and differences in regulatory requirements,
particularly as applied to electronic commerce;

. our inability to manage our international growth, which we began before
we were able to firmly establish our business model or infrastructure in
a single market or a small number of markets;

. difficulty in collecting accounts receivable in some jurisdictions;

. potentially adverse tax consequences; and

. our ability to find and develop relationships with international
companies.

If we are unable to manage the potential effects of any of these risks, we
may not be able to grow our business in the future.

Our customer base is concentrated and our success depends on our ability to
retain certain existing customers.

Deutsche Telekom accounted for approximately 23% of our net sales for the
year ended December 31, 1998, and 9% for the year ended December 31, 1999. Our
top ten customers accounted for approximately 41% of net sales for the year
ended December 31, 1998 and 31% of net sales for the year ended December 31,
1999. We expect to continue to derive a significant portion of our revenues
from sales to a limited number of customers. The loss or a substantial decrease
in the volume of orders from Deutsche Telekom or any of our other top customers
may harm our business.

We are subject to numerous taxing authorities which could make tax assessments
against us for prior years.

Since some of our subsidiaries operate outside of the United States, we are
subject to the jurisdiction of numerous foreign tax authorities. These tax
authorities monitor the income generated in their jurisdictions and

10
<PAGE>

regulate various corporate transactions, including intercompany transfers. We
cannot assure you that intercompany transfers and various corporate
transactions will not be challenged by foreign tax authorities or that such
challenges will not harm our business. Except with respect to INTERSHOP
Communications, Inc. and INTERSHOP Communications GmbH, no tax audits have yet
been performed on us or our subsidiaries. The tax audit did not cover our
existing corporate group structure. Accordingly, a subsequent tax assessment
may occur.

Taxes on transactions on the Internet being considered by the United States and
other jurisdictions could slow the growth of electronic commerce and,
therefore, harm our business.

Tax authorities on the international, federal, state and local levels are
currently reviewing the appropriate tax treatment of companies engaged in
commerce over the Internet. New United States state tax regulations may subject
us to additional state sales, income and other taxes. A recently passed United
States federal law places a temporary moratorium on certain types of taxation
on Internet companies. If sales, income or other types of taxes over the
Internet are imposed, those taxes would likely increase our cost of doing
business.

We may not be able to adequately protect our intellectual property rights.

Our success depends, in part, upon our proprietary technology and other
intellectual property rights. To date, we have relied primarily on a
combination of copyright, trade secret, and trademark laws, and nondisclosure
and other contractual restrictions on copying and distribution to protect our
proprietary technology. We cannot assure you that our means of protecting our
intellectual property rights in the United States or abroad will be adequate or
that others, including our competitors, will not use our proprietary technology
without our consent.

We may face intellectual property infringement claims that are costly to
resolve.

We cannot assure you that third parties will not claim that our current or
future products and services infringe upon their intellectual property rights.
For example, the United States Patent and Trademark Office has granted, and may
continue to grant, patents for inventions that represent traditional methods of
doing business, but adapted for use on the Internet. In November 1998 we were
approached by Open Market, Inc., which proposed to license to us several
patents held by Open Market. In September 1999, we responded to the Open Market
inquiry, informing Open Market that based on our review of the Open Market
patents, we believe that the technology used in our products is sufficiently
independent and does not infringe on the patents awarded to Open Market. We
have not received any further inquiries or correspondence from Open Market.
Although we do not believe that we are infringing its patent rights, Open
Market may claim that we are doing so. If a claim of patent infringement by
Open Market or any other companies were made against us, we would likely incur
significant expenses in defending against the claim, which could harm our
business. In addition, if a claim of infringement is made against us and we are
not successful in defending against the claim, we could be liable for
substantial damages. We may also be required to make royalty payments, which
could be substantial, to the holder of the patent rights. These events could
harm our business and limit our prospects for growth.

From time to time, other third parties may assert exclusive patent,
copyright, trademark and other intellectual property rights to technologies
that are important to us. In addition, third parties may assert claims or
initiate litigation against us or our manufacturers, suppliers or customers
with respect to existing or future products, trademarks or other proprietary
rights.

We are obligated under certain agreements to indemnify other parties and our
customers as a result of claims that we infringe on the proprietary rights of
third parties. If we are required to indemnify parties under these agreements,
our operating results could be harmed.

We may not be able to secure necessary funding in the future or may only be
able to do so at terms disadvantageous to us or our current shareholders.

We require substantial working capital to fund our business. We have had
significant operating losses and negative cash flow from operations since
inception and expect this to continue for the foreseeable future. We

11
<PAGE>

expect to use the net proceeds of this offering primarily for working capital
and general corporate purposes, including to fund the growth of our business.
We believe that these proceeds, together with our existing capital resources,
will be sufficient to meet our capital requirements for the near term. However,
our capital requirements depend on several factors, including the rate of
market acceptance of our products and services, the ability to expand our
customer base, our ability to control costs and other factors. If capital
requirements vary materially from those currently planned, we may require
additional financing sooner than anticipated. If additional funds are raised
through the issuance of equity securities, the percentage ownership of our
shareholders will be reduced, shareholders may experience additional dilution
or such equity securities may have rights, preferences or privileges senior to
those of the holders of our ordinary shares and ADSs. Additional financing may
not be available when needed on terms favorable to us or at all. If adequate
funds are not available or are not available on acceptable terms, we may be
unable to develop new or enhance our products and services, take advantage of
future opportunities or respond to competitive pressures.

Concentration of ownership of our ordinary shares and ADSs may limit your
ability to influence corporate matters.

Mr. Stephan Schambach, our chief executive officer, is not a direct
shareholder of our company. However, both he and Mr. Burgess Jamieson hold
shares in our U.S. subsidiary which may be converted into the ordinary shares
of our company. In the event that all shares in our U.S. subsidiary were
converted into the ordinary shares of our company after the consummation of
this offering, Mr. Schambach would own approximately 12.6% of our capital stock
and Messrs. Schambach and Jamieson together would own approximately 13.7% of
our capital stock. In this event, Messrs. Schambach and Jamieson, along with
other members of our supervisory board, management board and executive
officers, would own approximately 27.7% of our capital stock. As a result, this
group of shareholders will be able to exercise significant influence over all
matters requiring shareholder approval. If some or all of this group of
shareholders choose to act or vote together, they will have the power to
control matters requiring shareholder approval, including supervisory board
elections, amendments to our articles of association and approval of
significant corporate transactions like mergers or sales of all of our assets.
This concentration of ownership may have the effect of discouraging third
parties from making a tender offer or bid to acquire our company at a price per
share that is above the then-current market price.

We could be subject to potential product liability claims and could be forced
to pay damages on those claims.

Software products as complex as ours may contain undetected errors or defects
when first introduced or when new versions are released. Customers or third
parties might detect other errors once they have started using our software.
They might also use our software for purposes for which it was not intended.
Our license agreements with customers and distribution partners often contain
provisions designed to limit our exposure to potential product liability
claims, such as disclaimers of warranties and limitations on liability for
special, consequential and incidental damages. In addition, our contracts often
limit the amounts recoverable by others for damages to the amounts paid to us
by the customer for the product or service which gives rise to the claim.
Although we have been subject to no such claims as of the date of this
prospectus, the continued sale and support of our products may result in our
being subject to those claims. However, customers who bring liability claims
may seek damages beyond the scope of these contracts and subject us to losses
which may not be covered by our product liability insurance. If we were
required to pay those damages, our operating margins would be reduced.

Certain antitakeover provisions under German law and in our articles of
association may discourage acquisitions of us that may be beneficial to you.

We are subject to the Takeover Code of the Exchange Expert Commission of the
German Federal Ministry of Finance. These provisions, along with the provisions
of our articles of association, may have the effect of deterring hostile
takeovers or delaying or preventing changes in our control or management. As a
result, transactions that would award you a premium for your ADSs over the
current market prices may not be

12
<PAGE>

completed. In addition, these provisions may limit your ability to approve
transactions that you believe to be in your best interest.

You may not be able to enforce United States legal judgments against us.

We are a stock corporation (Aktiengesellschaft) organized under the laws of
Germany. Some of the members of our supervisory board (Aufsichtsrat) and
management board (Vorstand) are non-residents of the United States. A
substantial portion of the assets of those persons and of our assets are
located outside of the United States. As a result, it may not be possible to
effect service of process within the United States upon those persons or upon
us or to enforce against them judgments obtained in United States courts based
on the civil liability provisions of the United States securities laws. In
addition, awards of punitive damages in actions brought in the United States or
elsewhere may not be enforceable in Germany.

Risks Related to the Offering

The price of your ADSs may fluctuate dramatically and your investment in our
ADSs could suffer a decline in value.

The worldwide equity markets in recent years, and in particular the market
for Internet stocks, have experienced extreme price and volume fluctuations.
This market volatility affects the market prices of the stock of many high
technology and Internet companies and is often unrelated or disproportionate to
the operating performance of these companies. In addition, negative changes in
financial estimates of our performance by securities analysts could cause
volatility in the price of our ADSs. These fluctuations, as well as general
economic and market conditions, may negatively affect the market price for our
ordinary shares and ADSs without regard to any changes in our results of
operations or financial condition.

You may not be able to resell your ADSs.

Prior to this offering, there has been no public market for the ADSs,
although our ordinary shares trade in Germany on the Neuer Markt of the
Frankfurt Stock Exchange. While we intend to apply to list our ADSs on The
Nasdaq Stock Market's National Market, we cannot assure you that an active
trading market for our ADSs will develop or be maintained after listing. If an
active trading market is not developed or maintained, the liquidity and trading
prices of our ADSs could be negatively affected.

We have broad discretion in spending the proceeds of this offering and may do
so in ways with which you disagree.

We intend to use the proceeds for working capital and general corporate
purposes. Since we have no specific allocations for the use of the net proceeds
of this offering, our management will have broad discretion over the ways in
which the proceeds will be used. Because of the number and variability of
factors that determine our use of the net proceeds of this offering, you may
not agree with the uses management chooses or that the proceeds will be
invested in a way that yields a favorable return to you.

Future sales of our shares may cause our ordinary share prices to decline.

If our shareholders sell substantial amounts of our ordinary shares,
including ordinary shares issued upon the exercise of outstanding options and
warrants, in the public market following this offering, the market price of our
ADSs could fall. In addition, these sales could create the perception to the
public of difficulties or problems with our products and services. As a result,
these sales also might make it more difficult for us to sell equity or equity-
related securities in the future at a time and price that we deem appropriate.
See "Shares Eligible for Future Sale" for additional details on the number of
shares which may be sold in the public market and the timing of sales of our
ordinary shares.

13
<PAGE>

You will face substantial and immediate dilution.

The present owners of our issued and outstanding ordinary shares have also
acquired a controlling interest in our company at a cost substantially less
than the price at which the investors in this offering will acquire their ADSs
or shares. In addition, purchasers of our ADSs will experience immediate and
substantial dilution of approximately $54.22 in net tangible book value per ADS
or approximately 97% of the assumed offering price of $55.65 per ADS, based on
an exchange rate of (Euro)1.00 = $0.96, on March 28, 2000, adjusting for the
ratio of 1/10 an ordinary share per ADS. Since voting power is shared among all
outstanding ordinary shares, the issuance of more ordinary shares reduces the
voting powers of each previously outstanding ordinary share.

14
<PAGE>

PRESENTATION OF FINANCIAL INFORMATION

We had previously prepared consolidated financial statements in Deutsche
Marks. We now prepare consolidated financial statements in the euro, and we
have restated all historical financial information from DM into the euro. Our
share price is quoted in the euro on the Neuer Markt of the Frankfurt Stock
Exchange. In this prospectus, references to "DM" are to Deutsche marks,
references to "(Euro)" are to the euro, and references to "$" and "U.S.
dollars" are to United States dollars. For convenience only and except where
noted otherwise, certain euro figures have been translated into U.S. dollars at
the rate of (Euro)1.00 = $1.00, the noon buying rate in New York City for cable
transfers in foreign currencies certified by the Federal Reserve Bank of New
York for customs purposes on December 31, 1999. You should not consider these
translations as representations that the euro amounts actually represent such
U.S. dollar amounts or could be converted into U.S. dollars at the rate
indicated. See "Exchange Rate Information" for information concerning the
Deutsche Mark to dollar exchange rate from January 1, 1994 through December 31,
1998 and the euro to dollar exchange rate from January 1, 1999 through December
31, 1999.

The euro to DM exchange rate is a fixed rate of DM 1.95583 = (Euro)1.00.

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 such
year.

15
<PAGE>

FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements that involve risks and
uncertainties. We use words such an "anticipates," "believes," "plans,"
"expects," "future," "intends" and similar expressions to identify such
forward-looking statements. This prospectus also contains forward-looking
statements attributed to third parties relating to their estimates regarding
the growth of electronic commerce and related service markets and spending. You
should not place undue reliance on these forward-looking statements, which
apply only as of the date of this prospectus. Our actual results could differ
materially from those anticipated in these forward-looking statements for many
reasons, including the risks we face that are described above under the caption
"Risk Factors" and elsewhere in this prospectus.

USE OF PROCEEDS

Our net proceeds from the sale of the shares and ADSs in this offering are
estimated to be $226.3 million, or (Euro)235.5 million, after deducting the
estimated underwriting discount and estimated offering expenses. This assumes
an assumed offering price of $55.65 per ADS.

We currently expect to use the net proceeds primarily for working capital and
general corporate purposes. For the fiscal year ending December 31, 2000, we
currently estimate that from the net proceeds product development expenses will
be between $10.0 million and $20.0 million and expenses relating to the
expansion of our sales and marketing organization will be between $30.0 million
and $40.0 million. These projected expenses are estimates and approximations
only and do not represent firm commitments by us. Our actual results have
deviated significantly from our forecasts in the past and are likely to do so
in the future. As a result, investors should not rely on these forecasts when
considering an investment in us. In addition, we may use a portion of the net
proceeds for further development of our product lines through acquisitions of
products, technologies and businesses, although we have no present commitments
or agreements to make any major acquisitions. The amount of cash that we will
actually expend for working capital purposes will vary significantly depending
on a number of factors, including future revenue growth, if any, and the amount
of cash we generate from operations. Thus, management will have significant
discretion in applying the net proceeds of this offering. Pending the uses
described above, we will invest the net proceeds in investment grade, interest-
bearing securities.

DIVIDEND POLICY

We have never declared or paid any dividends. We currently intend to retain
all available earnings generated by our operations for the development and
growth of our business and do not currently anticipate paying any cash
dividends on our ordinary shares or ADSs. If we were to pay any dividends, we
would pay them in Deutsche marks until the euro replaces the Deutsche mark as
legal tender in the Federal Republic of Germany, after June 30, 2002. After
that date, we would pay any dividends in euros.

16
<PAGE>

PRICE RANGE OF ORDINARY SHARES

Currently, the principal trading market for our ordinary shares is the Neuer
Markt of the Frankfurt Stock Exchange.

For December 31, 1999, approximately 50 U.S. holders held our ordinary
shares. These holders held approximately 1,500,000 ordinary shares,
representing less than 10% of our outstanding ordinary shares.

The following tables set forth, for the periods indicated, the reported high
and low quoted closing prices, together with the average daily trading volume,
on the Neuer Markt of the Frankfurt Stock Exchange. Our ordinary shares began
trading on the Neuer Markt of the Frankfurt Stock Exchange on July 16, 1998. On
March 28, 2000, the closing price of our ordinary shares on the Neuer Markt of
the Frankfurt Stock Exchange was (Euro)579.00 per ordinary share, which is
equivalent to $55.65 per ADS.

Frankfurt Stock Exchange

<TABLE>
<CAPTION>
Frankfurt Stock Exchange Average Daily
Price per Share Trading Volume
------------------------- --------------
High Low
------------ ------------ (in thousands)
<S> <C> <C> <C>
1998
Third quarter....................... (Euro) 41.24 (Euro) 31.10 36.32
Fourth quarter...................... 42.44 26.42 34.79
1999
First quarter....................... (Euro) 60.50 (Euro) 33.20 44.45
Second quarter...................... 82.67 58.67 72.42
Third quarter....................... 104.50 73.67 88.77
Fourth quarter...................... 308.00 100.40 89.25
2000
First quarter (through March 28,
2000).............................. (Euro)671.00 (Euro)241.00 78.34
</TABLE>

17
<PAGE>

EXCHANGE RATE INFORMATION

For a discussion of the impact of exchange rate fluctuations on our business,
financial condition and results of operations, see "Risk Factors--Currency
Fluctuations May Negatively Affect Our Operating Results" and "Management
Discussion and Analysis of Financial Condition and Results of Operations."

The following table sets forth, for the periods and dates indicated, the
average, high, low and period-end noon buying rates for converting Deutsche
marks to U.S. dollars, expressed in Deutsche marks per U.S. dollar, and
converting euros to U.S. dollars, expressed in euros per U.S. dollar. Effective
January 1, 1999, the euro was introduced in the 11 member states of the
European Union currently participating in the European Monetary Union, known as
the EMU, as a common legal currency among those states for "paperless"
transactions, pending the substitution of euro bank notes and coins for the
national currencies of the participating member states between January 1, 2002
and July 1, 2002. Effective July 1, 2002, the euro will be the official legal
tender for the participating member states, and the national currencies of
those member states will be withdrawn from circulation. The fixed exchange rate
for the euros converted to the Deutsche mark is DM 1.95583 per (Euro)1.00. We
do not represent that the Deutsche mark or euro amounts shown below could be or
could have been converted into U.S. dollars at any particular rate or at all.
The period average is the average of the noon buying rates on the last business
day of each full calendar month during the relevant period.

<TABLE>
<CAPTION>
Period Period
As of December 31, High Low Average End
- ------------------ ------- ------- ------- -------
<S> <C> <C> <C> <C>
1995............................................ DM 1.57 DM 1.34 DM 1.43 DM 1.43
1996............................................ 1.57 1.43 1.50 1.55
1997............................................ 1.87 1.54 1.73 1.79
1998............................................ 1.86 1.56 1.76 1.68
1999............................................ 1.96 1.64 1.84 1.95
2000 (through March 28, 2000)................... 2.06 1.88 1.98 2.03
</TABLE>

The table below sets forth, for the periods and dates indicated, information
concerning the noon buying rates for the euro quoted by the Federal Reserve
Bank of New York expressed in euro per $1.00. We do not represent that the euro
or U.S. dollar amounts shown below could be or could have been converted into
U.S. dollars at any particular rate or at all. The period average is the
average of the noon buying rates on the last business day of each full calendar
month during the relevant period.

<TABLE>
<CAPTION>
Period
High Low Average Period End
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
As of March 28, 2000................ (Euro)1.05 (Euro)0.96 (Euro)1.01 (Euro)1.04
</TABLE>

18
<PAGE>

CAPITALIZATION

The table below sets forth the following information:

. our actual capitalization as of December 31, 1999; and

. our capitalization as adjusted to give effect to our sale of 4,350,000
ADSs at an assumed public offering price of $55.65 per ADS and deduction
of the estimated underwriting discount and estimated offering expenses
payable by us.

Unless we specifically state otherwise, the information in this prospectus
does not take into account the issuance of up to 650,000 ADSs that the
underwriters have the option to purchase solely to cover over-allotments. If
the underwriters exercise their over-allotment option in full, 17,378,104
ordinary shares will be outstanding after this offering based on the shares
outstanding as of December 31, 1999. This table excludes:

. 1,633,000 ordinary shares reserved for issuance under our 1999 Stock
Option Plan as of December 31, 1999;

. 353,497 ordinary shares reserved for issuance under our 1997 Equity
Incentive Plan as of December 31, 1999; and

. 2,728,900 ordinary shares reserved for issuance to Messrs. Stephan
Schambach and Burgess Jamieson in the event of the conversion of their
shares in INTERSHOP Communications, Inc., our U.S. subsidiary as of
March 28, 2000.

For convenience only certain euro figures have been translated into U.S.
dollars at the rate of (Euro)1.00 = $1.00, the noon buying rate in New York
City for cable transfers in foreign currencies certified by the Federal Reserve
Bank of New York for customs purposes on December 31, 1999.

<TABLE>
<CAPTION>
December 31, 1999
----------------------------------
Actual As Adjusted
---------------- ----------------
(in thousands)
<S> <C> <C> <C> <C>
(Euro) $ (Euro) $
Total long-term borrowings................. 20 20 20 20
Bearer ordinary shares .................... 16,878 16,878 17,313 17,313
Paid-in capital............................ 48,169 48,169 283,187 283,187
Deferred compensation...................... (273) (273) (273) (273)
Notes receivable from shareholders......... (141) (141) (141) (141)
Accumulated deficit........................ (45,406) (45,406) (45,406) (45,406)
Accumulated other comprehensive income..... 3,637 3,637 3,637 3,637
------- ------- ------- -------
Total shareholders' equity............... 22,864 22,864 258,317 258,317
------- ------- ------- -------
Total capitalization..................... 22,884 22,884 258,337 258,337
======= ======= ======= =======
</TABLE>

19
<PAGE>

DILUTION

Our net tangible book value, as of December 31, 1999, was (Euro)22.0 million
($21.0 million), or approximately (Euro)1.30 per ordinary share ($0.13 per
ADS). Net tangible book value per ordinary share represents the amount of our
total tangible assets, minus the amount of our total liabilities, divided by
the number of shares outstanding. After giving effect to our issuance and sale
of 435,000 ordinary shares in this offering at the assumed offering price of
(Euro)579.00 per share ($55.65 per ADS) (after deducting estimated underwriting
discounts, commissions and estimated offering expenses which we will pay), our
pro forma net tangible book value, as of December 31, 1999, would have been
(Euro)257.4 million ($246.6 million) or (Euro)14.87 per ordinary share ($1.43
per ADS). This represents an immediate increase in pro forma net tangible book
value of (Euro)13.57 per share ($1.30 per ADS) to our existing shareholders and
an immediate dilution in net tangible book value of (Euro)564.12 per ordinary
share ($54.22 per ADS) to you for purchasing shares in this offering. Per ADS
U.S. dollar amounts are calculated at a rate of (Euro)1.00 = $0.96, on March
28, 2000, adjusting for the ratio of 1/10 of an ordinary share per ADS.

The following table shows this per share dilution:

<TABLE>
<CAPTION>
Per Share Per ADS
------------ -------
<S> <C> <C>
Assumed offering price................................... (Euro)579.00 $55.65
Net tangible book value at December 31, 1999 before
giving effect to this offering.......................... 1.30 0.13
Increase attributable to this offering................... 13.57 1.30
Pro forma net tangible book value at December 31, 1999
after giving effect to this offering.................... 14.87 1.43
------------ ------
Dilution to new investors................................ (Euro)564.13 $54.22
============ ======
</TABLE>

The following table sets forth, on a pro forma basis, as of December 31,
1999, the number of shares issued by us, the total consideration paid to us and
the average price paid per ordinary share by existing shareholders and by new
investors purchasing shares in this offering. Per ADS U.S. dollar amounts are
calculated at a rate of (Euro)1.00 = $0.96, on March 28, 2000, adjusting for
the ratio of 1/10 of an ordinary share per ADS.

<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average Price
---------------- ----------------------- -------------------
Number % Amount % Per Share Per ADS
---------- ----- ----------------- ----- ----------- -------
<S> <C> <C> <C> <C> <C> <C>
Existing shareholders... 16,878,104 97.5 (Euro) 64,633,000 20.4 (Euro) 3.83 $ 0.37
New investors........... 435,000 2.5 251,865,000 79.6 579.00 55.65
---------- ----- ----------------- -----
Total................. 17,313,004 100.0 (Euro)316,498,000 100.0 (Euro)18.28 $ 1.76
</TABLE>

This table excludes:

. 1,633,000 ordinary shares reserved for issuance under our 1999 Stock
Option Plan as of December 31, 1999;

. 353,497 ordinary shares reserved for issuance under our 1997 Equity
Incentive Plan as of December 31, 1999; and

. 2,728,900 ordinary shares reserved for issuance to Messrs. Stephen
Schambach and Burgess Jamieson in the event of the conversion of their
shares in INTERSHOP Communications, Inc., our U.S. subsidiary as of
March 28, 2000.

20
<PAGE>

SELECTED CONSOLIDATED FINANCIAL DATA
(in thousands, except per share data)

The consolidated statement of operations data for the years ended December
31, 1997, 1998 and 1999 and the consolidated balance sheet data at December 31,
1998 and 1999 are derived from our consolidated financial statements, which
have been audited by Arthur Andersen Wirtschaftsprufungsgesellschaft
Steuerberatungsgesellschaft mbH, independent public accountants, and are
included elsewhere in this prospectus. The consolidated statement of operations
data for the years ended December 31, 1995 and 1996 and the consolidated
balance sheet data at December 31, 1995 and 1996 are derived from our
consolidated financial statements, audited by Arthur Andersen
Wirtschaftsprufungsgesellschaft Steuerberatungsgesellschaft mbH, not included
in this prospectus. All prior year balances have been restated from Deutsche
marks into euros using the exchange rate as of January 1, 1999. Prior to 1997,
there was no common stock outstanding as we were organized as INTERSHOP
Communications GmbH, which is a limited liability corporation. Accordingly, no
earnings per share have been presented for periods prior to 1997. Financial
data as of and for the years ended December 31, 1995 and 1996 represent
information for INTERSHOP Communications GmbH.

When you read this selected consolidated financial data, it is important that
you also read the historical consolidated financial statements and related
notes included in this prospectus, as well as the section in this prospectus
entitled "Management Discussion and Analysis of Financial Condition and Results
of Operations." For convenience only certain euro figures have been translated
into U.S. dollars at the rate of (Euro)1.00 = $1.00, the noon buying rate in
New York City for cable transfers in foreign currencies certified by the
Federal Reserve Bank of New York for customs purposes on December 31, 1999.

<TABLE>
<CAPTION>
For the Year Ended December 31,
----------------------------------------------------
1995 1996 1997 1998 1999 1999
------ ------ ------ ------- ------- -----------
(Euro) (Euro) (Euro) (Euro) (Euro) US$
<S> <C> <C> <C> <C> <C> <C>
(unaudited)
Consolidated Statement of
Operations Data:
Revenues:
Licenses................ 43 25 2,947 11,295 29,534 29,534
Services, maintenance
and other revenues..... 842 446 2,088 6,577 16,732 16,732
--- ------ ------ ------- ------- -----------
Total revenues........ 885 471 5,035 17,872 46,266 46,266
--- ------ ------ ------- ------- -----------
Cost of revenues:
Licenses................ 120 85 442 1,742 4,786 4,786
Services, maintenance
and other revenues..... 548 483 2,245 3,766 8,465 8,465
--- ------ ------ ------- ------- -----------
Total cost of
revenues............. 668 568 2,687 5,508 13,251 13,251
--- ------ ------ ------- ------- -----------
Gross profit............. 217 (97) 2,348 12,364 33,015 33,015
Operating expenses:
Research and
development............ 30 298 1,006 4,368 7,115 7,115
Sales and marketing..... 78 1,069 4,705 18,368 34,771 34,771
General and
administrative......... 126 790 3,454 6,729 11,206 11,206
Legal settlement
costs.................. -- -- -- 1,866 -- --
--- ------ ------ ------- ------- -----------
Total operating
expenses............. 234 2,157 9,165 31,331 53,092 53,092
--- ------ ------ ------- ------- -----------
Operating loss........... (17) (2,254) (6,817) (18,967) (20,077) (20,077)
Other income, net........ 14 (66) (198) 1,659 1,688 1,688
--- ------ ------ ------- ------- -----------
Net loss................. (3) (2,320) (7,015) (17,308) (18,389) (18,389)
=== ====== ====== ======= ======= ===========
Accretion of redeemable
preferred stock......... (149) (220) -- --
------ ------- ------- -----------
Net loss attributable to
common shareholders..... (7,164) (17,528) (18,389) (18,389)
Basic and diluted net
loss per AG share
attributable to common
shareholders............ (1.19) (1.44) (0.97) (0.97)
Basic and diluted net
loss per American
Depositary Share
attributable to common
shareholders
(unaudited)............. (0.12) (0.14) (0.10) (0.10)
------ ------- ------- -----------
Shares used in per AG
share calculation....... 6,034 12,145 18,948 18,948
------ ------- ------- -----------
Shares used in per ADS
calculation............. 60,340 121,450 189,480 189,480
------ ------- ------- -----------
</TABLE>

21
<PAGE>

<TABLE>
<CAPTION>
As of December 31,
----------------------------------------------------
1995 1996 1997 1998 1999 1999
------ ------ ------ ------- ------- -----------
(Euro) (Euro) (Euro) (Euro) (Euro) US$
<S> <C> <C> <C> <C> <C> <C>
(unaudited)
Consolidated Balance
Sheet Data:
Cash and cash
equivalents............ 57 214 5,058 34,185 12,065 12,065
Working capital......... (56) 224 (82) 31,709 10,020 10,020
Total assets............ 283 1,586 10,731 47,221 53,789 53,789
Long-term liabilities... 3 1,713 6,945 1,978 240 240
Accumulated deficit..... (5) (2,324) (9,489) (27,017) (45,406) (45,406)
Total shareholders'
equity................. 47 (2,314) (9,593) 34,225 22,864 22,864
</TABLE>

From inception to December 31, 1996 the Company reported its consolidated
financial statements in Deutsche marks (DM). In 1997, the Company reported in
U.S. dollars as INTERSHOP Communication, Inc., a U.S. entity, was the parent
company in that year. These financial statements were then restated and
presented in DM after the Company acquired the majority of the outstanding
shares of INTERSHOP Communications, Inc. during 1998. With the introduction of
the euro ((Euro)) on January 1, 1999, the Company has elected to present the
accompanying consolidated financial statements in euro. Accordingly, the
Deutsche mark consolidated financial statements for each period presented have
been restated into euro using the Deutsche mark/euro exchange rate as of
January 1, 1999 of (Euro)1 = DM 1.95583. The Company's restated financial
statements in euro depict the same trends as would have been presented if it
had continued to present its consolidated financial statements in Deutsche
marks. The consolidated financial statements will, however, not be comparable
to financial statements for periods prior to January 1, 1999 in euro of other
companies that previously reported their financial information in a currency
other than Deutsche marks. See disclosure of the above reporting currency
information in Note 1 of Notes to Consolidated Financial Statements.

22
<PAGE>

MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

You should read the following discussion and analysis of the financial
condition and results of operations in conjunction with "Selected Consolidated
Financial Data" and the consolidated financial statements and related notes.
This discussion and analysis contains forward-looking statements that involve
risks, uncertainties and assumptions. Our actual results may differ materially
from those anticipated in these forward-looking statements as a result of
certain factors, including those set forth under "Risk Factors" and elsewhere
in this prospectus.

Overview

We are a global provider of electronic commerce software applications that
enable businesses to sell their products and services over the Internet. Our
products can be integrated with existing business systems to allow our
customers to sell goods and services over the Internet without replacing their
existing business systems. The merchandising capabilities of our products, such
as customer profiling and cross-selling, help our customers to increase sales
revenues. We also provide professional services for our customers to assist in
the installation and ongoing maintenance of our software applications. We began
marketing electronic commerce software in 1992 in Jena, Germany and were a
development stage company until 1997. We introduced our current product line in
March 1998 and derive most of our revenue through licensing of our software
products.

We have previously prepared and reported our consolidated financial
statements in Deutsche marks. With the introduction of the euro on January 1,
1999, we elected to present the accompanying consolidated financial statements
in euro. Accordingly, the Deutsche mark consolidated financial statements for
each period presented have been restated into euro using the Deutsche mark/euro
exchange rate as of January 1, 1999 of (Euro)1 = DM 1.95583. Our restated euro
financial statements depict the same trends as would have been presented if we
had continued to present our consolidated financial statements in Deutsche
marks. The consolidated financial statements will, however, not be comparable
to the euro financial statements of other companies that previously reported
their financial information in currency other than Deutsche marks.

The financial information expressed in United States dollars is presented for
the convenience of the reader and is translated from euro at the noon buying
rate in New York City for cable transfers in euro as certified for custom
purposes by the Federal Reserve Bank of New York on December 31, 1999 which was
(Euro)1.00 to US$ 1.00. The translated amounts should not be construed as a
representation that the local currency has been, could have been, or could be
in the future, converted into U.S. dollars at this or any other rate of
exchange.

Source of Revenues and Revenue Recognition Policy

To date, we have generated revenues principally from the sale of licenses of
our software products and by providing related professional services including
consulting, implementation, technical support, maintenance and training. We
generally license our products to customers on a "right to use" basis pursuant
to a perpetual license. Our license agreements are generally in the same
standard form, although each license may be individually negotiated and may
contain variations. Our licenses are generally non-transferable or, if
transferable, any transfer is subject to our reasonable approval. The standard
end-user license agreement provides for an initial license fee based on the
number and types of electronic commerce sites or computers involved. Additional
license fees are charged when the number of electronic commerce sites or
servers exceeds the number covered by the initial license fee.

We recognize product license revenues when all of the following conditions
are met:

. we have a non-cancelable license agreement with the customer;

. we have delivered the software product to the customer;

. the amount of fees to be paid by the customer is fixed or determinable;
and

. the collection of these fees is probable.

23
<PAGE>

In instances where we provide services which significantly alter the features
and functionality of our software, we recognize the license and related service
revenues based on the percentage of completion as work progresses.

Our remaining revenues are primarily attributable to service revenues, which
include consulting, customer support and training revenue. Customers may
purchase implementation services from us, but we expect to rely increasingly on
third-party consulting organizations to deliver these services directly to our
customers.

We bill professional services either on a time and materials basis or on a
fixed-price basis. We recognize professional services fees billed on a time and
materials basis as the services are performed. We recognize professional
services fees on fixed-price arrangements as the work progresses, based on our
estimate of the work completed.

We also enter into support agreements with customers in which we agree to
provide technical support and software updates. We recognize revenues from
these agreements as service revenues over the term of the agreement, which is
typically one year.

The costs associated with our license revenues include royalty payments to
third parties for integrated technology, the cost of manuals and product
documentation, production media used to deliver our products and shipping
costs, including the costs associated with the electronic transmission of
software to new customers. Our cost of maintenance and service revenues
includes salaries and related expenses for our customer support, implementation
and training services organizations, costs of third parties contracted to
provide consulting services to customers and an allocation of our facilities,
communications and depreciation expenses.

Our operating expenses are classified according to the nature of the
expenditure. The three general categories are: research and development, sales
and marketing and general and administrative. Costs for overhead and facilities
are allocated to each category that use the overhead and facilities services
based on their headcount.

In connection with stock option grants to our employees, our balance of
deferred stock-based compensation totaled approximately (Euro)0.3 million as of
December 31, 1999. This amount represents the difference between the exercise
price and the deemed fair market value of our common stock for accounting
purposes on the date we granted these stock options. This amount is included as
a component of stockholders' equity and is being amortized on a straight-line
basis by charges to operations over the vesting period of the options. For
fiscal 1998 and 1999, we recorded approximately (Euro)0.2 million and
(Euro)0.3 million of stock-based compensation amortization expense,
respectively. The amortization of the remaining deferred stock-based
compensation will result in additional charges to operations through 2001.

Although revenues increased in each of the past three years, we incurred
significant costs to develop our technology and products and to recruit and
train personnel for our engineering, sales, marketing, professional services
and administrative departments. As a result, we incurred significant losses for
each of the past four years and as of December 31, 1999, had an accumulated
deficit of (Euro)45.4 million. We intend to continue to invest heavily in
sales, marketing and research and development. We therefore expect to continue
to incur operating losses for the foreseeable future.

Our limited operating history makes predicting future operating results very
difficult. We believe that period-to-period comparisons of operating results
should not be relied upon as predictive of future performance. Our prospects
must be considered in light of the risks, expenses and difficulties encountered
by companies at an early state of development, particularly companies in new
and rapidly evolving markets. We may not be successful in addressing these
risks and difficulties. Although we have experienced significant percentage
growth in revenues in recent periods, we do not believe that prior growth rates
are sustainable or indicative of future operating results.

24
<PAGE>

We had 544 full-time employees as of December 31, 1999 and intend to hire a
significant number of employees in the future. This expansion places
significant demands on our management and operational resources. To manage this
rapid growth and increased demand, we will need to invest in and implement
scalable operational systems, procedures and controls. We must also be able to
recruit qualified candidates to manage our expanding operations. We expect
future expansion to continue to challenge our ability to hire, train, manage
and retain our employees.

Years Ended December 31, 1997, 1998 and 1999

Revenues

Licenses. License revenues were (Euro)2.9 million for 1997, (Euro)11.3
million for 1998 and (Euro)29.5 million in 1999, representing increases of 290%
from 1997 to 1998 and 161% from 1998 to 1999. The increase in license revenues
from 1997 to 1998 is attributable to increased sales to new customers resulting
from increased headcount in our sales force. The increase in license revenues
from 1998 to 1999 is attributable to increased sales to new customers.
Approximately 50% of this increase is attributable to increased headcount in
our sales force, approximately 30% is attributable to the release of our ePages
and enfinity product lines and approximately 20% is attributable to our
geographic expansion to other European countries. Total headcount in our sales
department was 34 people at December 31, 1997, 72 at December 31, 1998 and 101
at December 31, 1999.

Service, maintenance and other revenues. Service, maintenance and other
revenues were (Euro)2.1 million for 1997, (Euro)6.6 million for 1998 and
(Euro)16.7 million for 1999, representing increases of 214% from 1997 to 1998
and 153% from 1998 to 1999. Service revenues from professional services
consulting fees were (Euro)1.2 million for 1997, (Euro)4.7 million for 1998 and
(Euro)11.3 million for 1999. Service revenues from software maintenance and
support agreements were (Euro)0.3 million for 1997, (Euro)1.6 million for 1998
and (Euro)4.0 million for 1999. Other revenues were (Euro)0.6 million for 1997,
(Euro)0.3 million for 1998 and (Euro)1.4 million for 1999. The increase in
service, maintenance and other revenues is primarily attributable to the
increased licensing activity described above, which has resulted in increased
revenues from customer implementations and maintenance contracts.

Cost of Revenues

Licenses. Cost of revenues includes product license costs which include
royalties to third party software vendors for software embedded in our product
suite, as well as documentation and other informational media associated with
our products. Cost of license revenues was (Euro)0.4 million for 1997,
(Euro)1.7 million for 1998 and (Euro)4.8 million for 1999. The increase is
attributable to the increase in royalties paid to third parties from the
increase in license revenues. Royalties paid to third parties were (Euro)0.3
million for 1997, (Euro)1.0 million for 1998 and (Euro)2.8 million for 1999.

Service, maintenance and other revenues. Cost of service, maintenance and
other revenues includes salary and other related costs for our professional
services and support staff, as well as third party contractor expenses. Cost of
service, maintenance and other revenues was (Euro)2.2 million for 1997,
(Euro)3.8 million for 1998 and (Euro)8.5 million for 1999. The increase is
attributable to the increase in the number of employees providing
implementation, training and technical support services. Total headcount in our
professional services, training and support departments was 63 people at
December 31, 1997, 104 at December 31, 1998 and 175 at December 31, 1999.

Gross Profit

Gross profit was (Euro)2.3 million for 1997, (Euro)12.4 million for 1998 and
(Euro)33.0 million for 1999. The increase is attributable to the growth in our
customer base as well as the increase in license sales as a percentage of total
sales. Our customer base was 130 at December 31, 1997, 600 at December 31, 1998
and 3,100 at December 31, 1999. Management believes that this trend will
continue in the foreseeable future.

25
<PAGE>

Operating Expenses

Research and Development. Research and development expenses were (Euro)1.0
million for 1997, (Euro)4.4 million for 1998 and (Euro)7.1 million for 1999.
The increase is attributable to increases in the number of research and
development personnel. Total headcount in our research and development
department was 32 people at December 31, 1997, 51 at December 31, 1998 and 112
at December 31, 1999. To date, all software development costs have been
expensed in the period incurred. We believe that continued investment in
research and development is critical to attaining our strategic objectives,
and, as a result, we expect research and development expenses to increase
significantly in future periods.

Sales and Marketing. Sales and marketing expenses were (Euro)4.7 million for
1997, (Euro)18.4 million for 1998 and (Euro)34.8 million for 1999. The increase
in the total amount of sales and marketing expenses is attributable to the
increased number of sales and marketing employees and the increase in marketing
program expenses. Total headcount in our marketing department was 27 people at
December 31, 1997, 44 at December 31, 1998 and 78 at December 31, 1999.
Marketing program expenses were (Euro)1.0 million for 1997, (Euro)3.8 million
for 1998 and (Euro)13.2 million for 1999. We believe that continued investment
in sales and marketing is critical to attaining our strategic objectives, and,
as a result, we expect sales and marketing expenses to increase in future
periods.

General and Administrative. General and administrative expenses were
(Euro)3.5 million for 1997, (Euro)6.7 million for 1998 and (Euro)11.2 million
for 1999. The increase is primarily attributable to the increase in the number
of administrative personnel. The number of administrative personnel was 24
people at December 31, 1997, 49 at December 31, 1998 and 78 at December 31,
1999. We believe that general and administrative costs will further increase as
we expect to continue adding personnel to support our expanding operations and
incurring additional costs related to the growth of our business.

Other Income, Net

Other income, net consists of interest income, interest expense and other
non-operating expenses. Other income, net was (Euro)(0.2) million for 1997,
(Euro)1.7 million for 1998 and (Euro)1.7 million for 1999. The increase from
1997 to 1998 is due to interest income generated from the remaining proceeds
from our initial public offering in Germany in July 1998. Included in other
income, net is employment-related government subsidies in Germany. After
receiving no subsidies in 1997, we received (Euro)1.3 million in 1998 and
(Euro)0.9 million in 1999.

26
<PAGE>

Quarterly Results of Operations

The following table sets forth consolidated statement of operations data for
each of the eight consecutive quarters ending December 1999, as well as the
percentage of our total revenues represented by each item. We believe that this
information has been prepared substantially on the same basis as the audited
consolidated financial statements appearing elsewhere in this prospectus, and
all necessary adjustments, consisting only of normal recurring adjustments,
have been included in the amounts stated below to present fairly the unaudited
quarterly results of operations. Amounts in U.S. dollars are unaudited and
translated at (Euro)1.00 to $1.00, the noon buying rate on December 31, 1999.
For recent exchange rates between the euro and the U.S. dollar, please see
"Exchange Rate Information." You should read this information in conjunction
with our annual audited consolidated financial statements and related notes
appearing elsewhere in this prospectus. The operating results for any quarter
are not indicative of the operating results for any future period.

<TABLE>
<CAPTION>
Three Months Ended
-----------------------------------------------------------------------------------------
Mar. 31, Jun. 30, Sep. 30, Dec. 31, Mar. 31, Jun. 30, Sep. 30, Dec. 31, Dec. 31,
1998 1998 1998 1998 1999 1999 1999 1999 1999
-------- -------- -------- -------- -------- -------- -------- -------- --------
(Euro) (Euro) (Euro) (Euro) (Euro) (Euro) (Euro) (Euro) US$
(in thousands)
Revenues: (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Licenses................ 2,399 2,284 2,295 4,319 4,489 6,026 5,690 13,328 13,328
Services, maintenance
and other revenues..... 1,058 1,305 2,269 1,943 2,483 3,471 4,812 5,966 5,966
------ ------ ------ ------ ------ ------- ------ ------ ------
Total revenues.......... 3,457 3,589 4,564 6,262 6,972 9,497 10,502 19,294 19,294
------ ------ ------ ------ ------ ------- ------ ------ ------
Cost of revenues:
Licenses................ 462 384 399 815 561 785 1,015 2,072 2,072
Services, maintenance
and other revenues..... 632 653 1,101 1,061 1,564 1,742 1,940 3,572 3,572
------ ------ ------ ------ ------ ------- ------ ------ ------
Total cost of revenues.. 1,094 1,037 1,500 1,876 2,125 2,527 2,955 5,644 5,644
------ ------ ------ ------ ------ ------- ------ ------ ------
Gross profit............ 2,363 2,552 3,064 4,386 4,847 6,970 7,547 13,650 13,650

Operating expenses:
Research and
Development............ 882 765 1,347 1,374 1,461 1,518 2,149 1,987 1,987
Sales and marketing..... 4,594 3,782 4,279 5,713 5,244 7,203 6,321 16,004 16,004
General and
administrative......... 1,662 3,710 1,495 1,729 2,220 2,722 2,561 3,702 3,702
------ ------ ------ ------ ------ ------- ------ ------ ------
Total operating
expenses............... 7,138 8,257 7,121 8,816 8,925 11,443 11,031 21,693 21,693
------ ------ ------ ------ ------ ------- ------ ------ ------

Operating income
(loss)................. (4,775) (5,705) (4,057) (4,430) (4,078) (4,473) (3,484) (8,043) (8,043)
Other income, net....... 322 (150) 831 656 597 287 134 670 670
------ ------ ------ ------ ------ ------- ------ ------ ------
Net income (loss)....... (4,453) (5,855) (3,226) (3,774) (3,481) (4,186) (3,350) (7,373) (7,373)
====== ====== ====== ====== ====== ======= ====== ====== ======
<CAPTION>
As a Percentage of Total Revenues
-----------------------------------------------------------------------------------------
Mar. 31, Jun. 30, Sep. 30, Dec. 31, Mar. 31, Jun. 30, Sep. 30, Dec. 31, Dec. 31,
1998 1998 1998 1998 1999 1999 1999 1999 1999
-------- -------- -------- -------- -------- -------- -------- -------- --------
(Euro) (Euro) (Euro) (Euro) (Euro) (Euro) (Euro) (Euro) US$
Revenues: (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Licenses................ 69.4 % 63.6 % 50.3 % 69.0 % 64.4 % 63.5 % 54.2 % 69.1 % 69.1 %
Services and
maintenance............ 30.6 % 36.4 % 49.7 % 31.0 % 35.6 % 36.5 % 45.8 % 30.9 % 30.9 %
------ ------ ------ ------ ------ ------- ------ ------ ------
Total revenues.......... 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %
------ ------ ------ ------ ------ ------- ------ ------ ------
Cost of revenues:
Licenses................ 13.4 % 10.7 % 8.7 % 13.1 % 8.1 % 8.3 % 9.6 % 10.7 % 10.7 %
Services, maintenance
and other revenues..... 18.2 % 18.2 % 24.2 % 16.9 % 22.4 % 18.3 % 18.5 % 18.5 % 18.5 %
------ ------ ------ ------ ------ ------- ------ ------ ------
Total cost of revenues.. 31.6 % 28.9 % 32.9 % 30.0 % 30.5 % 27.6 % 28.1 % 29.3 % 29.3 %
------ ------ ------ ------ ------ ------- ------ ------ ------
Gross profit............ 68.4 % 71.1 % 67.1 % 70.0 % 69.5 % 73.4 % 71.9 % 70.7 % 70.7 %

Operating expenses:
Research and
Development............ 25.5 % 21.3 % 29.4 % 21.9 % 21.0 % 16.0 % 20.4 % 10.3 % 10.3 %
Sales and marketing..... 132.9 % 105.4 % 93.8 % 91.3 % 75.2 % 75.8 % 60.2 % 82.9 % 82.9 %
General and
administrative......... 48.1 % 103.4 % 32.8 % 27.6 % 31.8 % 28.7 % 24.4 % 19.2 % 19.2 %
------ ------ ------ ------ ------ ------- ------ ------ ------
Total operating
expenses............... 206.5 % 230.1 % 156.0 % 140.8 % 128.0 % 120.5 % 105.0 % 112.4 % 112.4 %
------ ------ ------ ------ ------ ------- ------ ------ ------
Operating income
(loss)................. (138.1)% (159.0)% (88.9)% (70.8)% (58.5)% (47.1)% (33.1)% (41.7)% (41.7)%
Other income, net....... 9.3 % (4.2)% 18.2 % 10.5 % 8.6 % 3.0 % 1.3 % 3.5 % 3.5 %
------ ------ ------ ------ ------ ------- ------ ------ ------
Net income (loss)....... (128.8)% (163.2)% (70.7)% (60.3)% (49.9)% (44.1)% (31.8)% (38.2)% (38.2)%
====== ====== ====== ====== ====== ======= ====== ====== ======
</TABLE>

27
<PAGE>

Our quarterly revenue increased throughout 1998 and 1999 primarily as a
result of the introduction of our INTERSHOP 3, INTERSHOP 4 and our INTERSHOP
enfinity products and the substantial growth of our sales force. The 84%
increase in revenues from the quarter ended September 30, 1999 to the quarter
ended December 31, 1999 is primarily attributable to the release of our
enfinity product line as well as new customer purchases of INTERSHOP 4. Cost of
revenues has increased in each of the last three quarters as a result of the
hiring of employees. Total operating expenses increased in each of the last
four quarters primarily due to increased expenses associated with building a
sales and marketing infrastructure including the development of a direct sales
force, increased spending on research and development to support new product
introductions and an increase in general and administrative expenses to manage
our expanding operations.

License and service revenues as a percentage of total revenues have varied
from quarter to quarter due to the timing of the release of new products. The
relative amount of license revenues as compared to service revenues has varied
based on the volume of license fees for software solutions compared to the
volume of license fees for additional sites, which generally do not require
services. In addition, the amount of services we provide for a software
solution can depend in large part on the solution which has been licensed, the
complexity of the customers' information technology environment, the resources
directed by customers to their implementation projects, the number of users
licensed and the extent to which consulting organizations provide services
directly to customers.

Our operating expenses as a percentage of total revenue have generally
decreased from quarter to quarter due to our historical rapid revenue growth.

Our revenues and operating results can vary, sometimes substantially, from
quarter to quarter, causing significant variations in operating results during
certain quarters. Our revenues, particularly our license revenues, are
difficult for us to forecast for several reasons. These include:

. market acceptance of and demand for our current and new products and
enhancements;

. our ability to fulfill orders received within a given quarter and the
timing of our customers' acceptance of our products;

. the potential for delay or deferral of customer implementations of our
software and changes in customer budgets;

. increases in our sales and marketing expenses as we begin production of
upgrades to our product line and continue to fund greater levels of
research and development;

. our pricing and mix of products and services sold;

. the relatively long sales cycles for some of our products;

. the size and the timing of orders in one quarter or from quarter to
quarter and the fact that the majority of our sales in any given quarter
historically occur in the last few weeks of the quarter;

. changes in pricing policies and introduction of new products or product
enhancements by our competitors; and

. announcements of technological innovations or new products or services
by us or our competitors.

Historically, our business, as is common in the software industry, has
experienced its highest revenues in the fourth quarter of each year, due
primarily to year-end capital purchases by customers. Because our operating
expenses are based upon anticipated revenue levels and because a high
percentage of our expenses are relatively fixed in the near term, any shortfall
in anticipated revenue or delay in recognition of revenue could result in
significant variations in our operating results from quarter to quarter. In
addition, we may not be able to confirm any shortfalls until late in the
quarter or following the end of the quarter because license agreements are
often executed late in a quarter.

28
<PAGE>

Liquidity and Capital Resources

Since our inception, we have financed our operations through private
placements of preferred stock and bridge loans from investors as well as funds
raised from an initial public offering in Germany in July 1998. As of December
31, 1999, we had (Euro)12.1 million in cash, cash equivalents and short-term
investments, and (Euro)10.0 million in working capital.

Net cash provided by operating activities was (Euro)2.6 million in 1997. Net
cash used in operating activities was (Euro)21.0 million in 1998 and (Euro)24.4
million in 1999. Net cash provided in 1997 was primarily due to the receipt of
a significant prepayment for an extended contract from a major customer. Net
cash flows used in operating activities in 1998 and in 1999 reflect net losses
and, to a lesser extent, the increase in accounts receivable from increased
revenues.

Net cash used in investing activities was (Euro)2.0 million in 1997,
(Euro)3.8million in 1998 and (Euro)7.5 million in 1999. Cash used in investing
activities primarily reflects purchases of property and equipment in each
period.

Net cash from financing activities was (Euro)4.1 million in 1997, (Euro)52.7
million in 1998 and (Euro)9.8 million in 1999. These cash flows reflect
primarily proceeds from private sales of preferred stock of (Euro)5.2 million
between 1997 and April 1998 and the proceeds from the public sale of common
stock of (Euro)53.9 million in July 1998. In 1999, financing cash flows were
primarily proceeds from a loan from a shareholder for (Euro)7.0 million.

Capital expenditures, net of capital leases, were (Euro)1.9 million in 1997,
(Euro)3.3 million in 1998 and (Euro)3.6 million in 1999. Our capital
expenditures consisted of purchases of resources to manage our operations,
including computer hardware and software, office furniture and equipment and
leasehold improvements. We expect that our capital expenditures will continue
to increase in the future. Since our inception, we have generally funded
capital expenditures either through the use of working capital or with capital
leases.

During 1999, we experienced a significant growth in our operating expenses,
in particular an increase of (Euro)2.7 million from 1998 to 1999 in research
and development and an increase of (Euro)16.4 million from 1998 to 1999 in
sales and marketing expenses. As a result, we anticipate that 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 or investments in complementary businesses, technologies or
product lines. We believe that the net proceeds from this offering along with
our current resources will be sufficient to meet our near-term working capital
and operating resource expenditure requirements.

Recently Issued Accounting Pronouncements

In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which requires companies to
record derivative financial instruments on the balance sheet as assets or
liabilities, measured at fair value. Gains or losses resulting from changes in
the values of those derivatives would be accounted for depending on the use of
the derivative and whether it qualifies for hedge accounting. The key criterion
for hedge accounting is that the hedging relationship must be highly effective
in achieving offsetting changes in fair value or cash flows. In June 1999, the
FASB issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities--Deferral of the Effective Date of FASB Statements No. 133," which
amends SFAS No. 133 to be effective for all fiscal quarters of all fiscal years
beginning after June 15, 2000 (or January 1, 2001 for our balance sheets). This
statement will not have a material impact on the financial condition or results
of our operations.

In December 1998, the American Institute of Certified Public Accountants
(AICPA) issued Statement of Position (SOP) 98-9, "Modification of SOP 97-2,
Software Revenue Recognition, with Respect to Certain Transactions." SOP 98-9
amends SOP 97-2 and SOP 98-4 by extending the deferral of the application of
certain provisions of SOP 97-2 amended by SOP 98-4 through fiscal years
beginning on or before March 15,

29
<PAGE>

1999. All other provisions of SOP 98-9 are effective for transactions entered
into in fiscal years beginning after March 15, 1999. These statements will not
have a material impact on the financial condition or results of our operations.

Market Risk

The following discusses our exposure to market risk related to changes in
interest rates, foreign currency exchange rates and equity prices. This
discussion contains forward-looking statements that are subject to risks and
uncertainties. Actual results could vary materially as a result of a number of
factors including those set forth in the Risk Factors section.

Interest Rate Risk

As of December 31, 1999, we had cash and cash equivalents of approximately
(Euro)12.1 million which consist of cash and highly liquid short-term
investments with original maturities of three months or less at the date of
purchase. These investments may be subject to interest rate risk and will
decrease in value if market interest rates increase. A hypothetical increase or
decrease in market interest rates by 10% from the market interest rates at
December 31, 1999 would cause the fair value of these short-term investments to
change by an immaterial amount. Declines in interest rates over time will,
however, reduce our interest income.

Foreign Currency Exchange Rate Risk

A significant portion of our business is conducted in currencies other than
the euro. Our international sales are primarily made through our subsidiaries
in their respective regions and are generally denominated in the local
currency. Expenses incurred by their subsidiaries are also denominated in the
local currency. Accordingly, the functional currency of their subsidiaries is
the local currency. Of our consolidated revenues in 1997, 1998 and 1999,
approximately 23%, 43% and 63%, respectively, were attributable to non-German
operations and translated into euro. As a consequence, period-to-period changes
in the average exchange rate in a particular currency can significantly affect
revenues and operating income denominated in that currency. In general,
appreciation of the euro relative to another currency has an adverse effect on
revenues and operating income denominated in that currency, while depreciation
of the euro has a positive effect on revenues and operating income denominated
in the local currency. The principal non-euro currencies in which our
subsidiaries conduct business and are subject to the risks described above are
the U.S. dollar and the British pound sterling.

Equity Price Risk

We do not own any significant equity investments. Therefore, we are not
currently exposed to any direct equity price risk.

30
<PAGE>

BUSINESS

We are a global provider of electronic commerce software applications that
enable businesses to sell their products and services over the Internet. Our
products are targeted toward large businesses, both those that sell their own
products and services online and those that assist other businesses in selling
their products and services online. We target our software applications and
professional services to large businesses that have the ability to manage their
own electronic commerce sites. We also target our products and services to ASPs
that use our software applications to manage electronic commerce sites for the
growing number of small- and medium-sized businesses seeking an Internet
presence and to online marketplaces who provide an online forum for sellers by
bringing buyers and sellers together online. Furthermore, our products can be
used to address simpler, entry-level electronic commerce business models, as
well as more advanced electronic commerce business models. By offering products
that provide solutions to a range of distinct business models, we can meet the
needs of our customers as they evolve from entry-level to more sophisticated
electronic commerce operations while remaining on our software platform.

We have operations in the United States and Europe and a worldwide network of
over 600 channel partners, including PricewaterhouseCoopers, Deutsche Telekom,
Unisys, Northern Telecom and MindSpring. Our global presence allows us work
closely with large businesses and ASPs that operate internationally. In 1998,
customers using our products established over 5,500 new electronic commerce
sites. According to IDC, this placed us in the top three companies cited in the
survey in terms of number of sites established. By December 31, 1999, over
100,000 electronic commerce sites had been licensed to be deployed on our
products worldwide.

Industry Background

The Growth and Evolution of the Internet and Electronic Commerce

The Internet is a rapidly growing and increasingly accepted medium for
commerce. IDC estimates that the Internet commerce market is expected to grow
from $111 billion in 1999 to $1.3 trillion by 2003. As the Internet and online
business has proliferated, there has been increasing demand for technologies
that allow companies to leverage the Internet. The foremost among these is
electronic commerce software. The electronic commerce software market consists
of technologies that support a wide range of critical online business
functions, from enabling transactions to providing marketing data about
customers. According to IDC, the market for Internet commerce applications is
expected to grow from $1.7 billion in 1999 to $13.2 billion by 2003.

The rapid growth and acceptance of the Internet as a medium for commerce is
compelling mainstream businesses to participate in electronic commerce and
creating demand for pre-packaged electronic commerce software applications. As
recently as a few years ago, electronic commerce was dominated by a small
number of companies that used the Internet as their primary sales channel. Many
of these electronic commerce pioneers established their presence on the Web
using internally developed solutions that took a long time to deploy, were
costly to install and maintain and did not integrate well with existing
financial and operational software systems. As electronic commerce activity
continues to expand rapidly, a growing number of businesses have been compelled
to adopt the Internet as a medium of commerce in order to remain competitive.
At the same time, businesses are finding that speed is a key factor in
successfully establishing an electronic commerce presence. As a result,
businesses are seeking pre-packaged software applications that support
sophisticated electronic commerce sites while reducing the lengthy development
and implementation times and costly maintenance requirements of custom-
developed solutions.

In conjunction with the growth and acceptance of the Internet as a compelling
medium for commerce for traditional businesses, there has been a proliferation
of ASPs that rely on pre-packaged software applications. ASPs make it easier
for traditional businesses--particularly small- to medium-sized businesses--to
sell products and services over the Internet by maintaining and managing
servers on which they provide outsourced hosting of electronic commerce sites.
ASPs demand electronic commerce solutions that deploy rapidly, require

31
<PAGE>

little installation and maintenance, integrate well with existing billing and
customer care systems and allow the ASP to offer their customers varying levels
of functionality priced according to customer needs.

Recently, a large and growing number of online marketplaces has emerged.
These new online marketplaces include those that address business-to-consumer
needs and those focusing on vertical and horizontal business-to-business
electronic commerce in a wide variety of industries. Online marketplaces bring
buyers and sellers together in a single online environment, giving sellers an
additional channel through which to access customers online. This provides
online sellers an effective alternative to establishing their own destination
sites and taking on the expensive and difficult task of attracting customers to
come directly to their site.

Challenges for Electronic Commerce Solutions

While many existing electronic commerce software solutions successfully
process orders and perform other basic functions, few combine basic
functionality, intelligent merchandising capabilities, integration with
existing business systems and rapid deployment. Even fewer are built upon the
new and emerging standards that will support not only today's business models,
but also the new business models that will redefine how businesses exploit the
opportunities offered by electronic commerce. Businesses developing an online
presence are seeking a software solution that should:

. Provide intelligent merchandising capabilities. Intelligent
merchandising allows a business to capture information about its
customers and their purchasing behavior. By engaging in intelligent
merchandising a business can give its online shopper an improved
customer experience and better target offers to that customer's needs,
resulting in higher sales per customer visit and increased customer
loyalty.

. Integrate with existing business systems. As electronic commerce assumes
a more critical role in business strategy, it becomes imperative for
companies to integrate their electronic commerce sites directly into
existing business systems. Online storefronts should effectively be an
extension of these systems to improve operational flow, reduce costs and
increase customer satisfaction.

. Provide a packaged solution. Businesses that are entering the online
market often are initially unwilling or unable to make large
expenditures in the most advanced software and will eventually want to
upgrade to higher levels of functionality without incurring substantial
costs. A packaged solution reduces the time and expense of implementing
and deploying an electronic commerce solution.

. Serve as complete electronic commerce engines that enable a myriad of
transactions between suppliers, distributors and customers. New online
marketplaces and trading communities are emerging, allowing businesses
to trade more efficiently. These new business models require complete
electronic commerce engines that can serve as the foundation for a
variety of different business functions and enable a full range of
transactions between suppliers, distributors and customers.

. Support the new and emerging standards that will enable new and emerging
electronic commerce business models. In order to enable some of the
newer and more revolutionary emerging electronic commerce business
models a number of new standards and technologies are emerging, such as
XML and Enterprise Java Beans. We believe that only those businesses
whose electronic commerce applications are built on these new
technologies and standards will be able to effectively take advantage of
emerging business models in electronic commerce, such as selling through
online marketplaces.

The INTERSHOP Solution

We offer electronic commerce software applications that enable businesses to
sell goods and services over the Internet. We target both businesses who sell
their own products and services online and businesses, such as ASPs and online
marketplaces, who help companies sell their products and services online. Our
software provides both basic electronic commerce functionality and advanced
features, such as intelligent merchandising

32
<PAGE>

capabilities, and it also allows customers to customize and extend the
functionality of their electronic commerce sites through product enhancements
developed by our independent software vendor partners. Our products are
designed to support a wide range of business models, including basic business-
to-consumer and business-to-business functionality that many businesses need
today, as well as more advanced business models including enabling online
marketplaces, electronic commerce enabling the value chain and supporting
online electronic commerce communities, so that they serve not only our
customers' electronic commerce needs today, but will also provide a seamless
upgrade path to allow them to engage in emerging electronic commerce business
models tomorrow. In addition, our software works in conjunction with a
company's existing technology infrastructure, integrates with existing business
systems and supports an array of emerging online business models in enabling
transactions between suppliers, distributors and customers.

Our software applications offer our customers the following features and
benefits:

Core Electronic Commerce Engine

We offer electronic commerce software applications that serve as core
electronic commerce engines for businesses selling goods and services over the
Internet. Our software provides both basic electronic commerce functionality
and advanced features like intelligent merchandising capabilities and it also
allows customers to customize and extend the functionality of their electronic
commerce sites through product enhancements developed by our independent
software vendor partners. Our software works in conjunction with a company's
existing technology infrastructure, integrates with existing business systems
like enterprise resource planning and supply chain management software and
serves as the intermediary between a business and its trading partners by
integrating emerging online business systems like electronic commerce software.

Our applications provide the electronic commerce functionality that a
business requires to sell goods and services online. This functionality
includes:

. the ability to display goods and services online;

. search and catalog capabilities;

. electronic shopping carts;

. integration with existing business systems; and

. support for online transactions.

Intelligent Merchandising Capabilities

Our software applications contain built-in advanced intelligent merchandising
capabilities such as profiling, shopping lists, cross-selling, promotions and
advanced reporting. These capabilities allow our customers to deepen their
relationships with their customers, increase the average revenue per customer
visit, encourage an increased number of customer visits and increase word-of-
mouth referrals, letting them better market to their customers. In addition,
lessons learned from marketing to their customers online can be leveraged
throughout their brick-and-mortar business, allowing them to use their
electronic commerce site as a testing ground to improve the way they market
their products and services to their customers across all channels.

Faster Deployment than Existing Solutions

While supporting a complete range of electronic commerce functionality, our
products are packaged software applications which allow them to be easily and
quickly installed and provide a comprehensive maintenance and upgrade path.
Electronic commerce sites using our software applications are usually deployed
within 60 days on average. We believe this is more than 30 days faster than
most companies developing electronic commerce solutions. In addition, many of
our customers have deployed their electronic commerce sites in less than 30
days.

33
<PAGE>

Integration with Existing Business Systems

Our products include software modules that support integration with existing
business systems, such as financial, customer relationship management and
enterprise resource planning software and other critical business systems. This
integration allows our enterprise customers to build electronic commerce sites
that leverage existing business systems to perform inventory control, accounts
receivable management and other basic functions. For ASPs, our products
similarly integrate with existing billing, customer care, registration and
authentication systems.

Our Platform Supports Major Emerging Online Business Models

Our software applications support more than basic business-to-consumer or
business-to-business electronic storefronts. Our products are powerful core
electronic commerce engines that connect trading partners and enable
transactions between suppliers, distributors and customers. Our software
permits our customers to engage in a variety of activities associated with
established electronic commerce business models focusing not only on the common
electronic commerce business models used today, but also those that will allow
a business to expand and enhance the ways it exploits electronic commerce in
the future. These business models can be grouped according to whether our
customer sells its own products and services online or whether it enables
others to sell online, as well as the level of sophistication of the business
model. As shown in the figure below, the four basic categorizations include
direct selling, indirect selling, enabling merchants and enabling marketplaces.

34
<PAGE>

The business models included in each category and a brief description follow:
<TABLE>

- -------------------------------------------------------------------------------
<CAPTION>
Category Business Model Description
- -------------------------------------------------------------------------------
<C> <C> <S>
Sell direct Sell direct to consumers Selling products and services
to consumers via online
storefront

Sell direct to businesses Selling products and services
to other businesses via online
electronic commerce site

- -------------------------------------------------------------------------------
Sell indirect Affiliate selling Supporting the ability to
seamlessly and automatically
sell via portals and affiliate
sites

Electronic commerce Sponsor an online community of
enabled channel electronic commerce sites for
brick-and-mortar distribution
channel partners, enabling them
to engage in electronic
commerce while reducing channel
conflict with existing channel

Selling on marketplaces Supporting the ability to
seamlessly and automatically
sell via online marketplaces
and business-to-business
portals

- -------------------------------------------------------------------------------
Enable merchants Store hosting Supporting the hosting of a
large number of electronic
commerce sites all at one
central location

Application hosting Supporting high-end electronic
commerce outsourcing
functionality, including
integration with sophisticated
business systems such as
electronic resource planning
and enterprise financials

- -------------------------------------------------------------------------------
Enable marketplaces Aggregation Supporting an online
marketplace by aggregating
products from a large number of
sellers onto a single online
site

Auction Supporting an online
marketplace with auction
pricing functionality

Procurement Supporting an online
marketplace with functionality
specific to procurement, such
as organizational approvals

Exchange Supporting an online
marketplace with bid/ask
pricing functionality

Commerce community Supporting the hosting of a
community of related electronic
commerce sites at one central
location with community
features such as shared
shopping baskets
</TABLE>

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

Strategy

Our objective is to become the leading provider of electronic commerce
software applications. Our strategy is to provide superior products and related
services to a wide range of electronic commerce businesses. The key elements to
our strategy are:

Extend leadership in electronic commerce software. We have been providing
electronic commerce software applications since 1994 and have developed
significant expertise in this developing field. We intend to maintain our
leadership in this area by continuing investments in research and development
to further refine our line of industry-leading products, by branding and
awareness advertising to further establish our brand recognition, by building
partnerships with best-in-class companies who supplement our electronic
commerce solution sale and by exerting our thought leadership through focus on
providing solutions for a complete set of new and emerging business models.

35
<PAGE>

Expand our leadership position in providing software to ASPs. We license our
software to ASPs for companies that want a third party to host their electronic
commerce software solutions. We believe that the ASP option is particularly
attractive to small- and mid-size companies that typically have limited
internal information technology resources. To date, we have established
relationships with many of the leading ASPs, including Concentric, MindSpring,
Northern Telecom, PSINet and US West. In the future, we intend to leverage
these relationships to establish partnerships with additional ASPs.

Continue to expand our presence in the enterprise market by increasing our
sales and marketing capabilities. In the fourth quarter of 1999, we introduced
our enfinity product line which is targeted at servicing the complicated needs
of large businesses. We intend to increase enfinity's market presence through a
variety of sales and marketing programs designed to generate market awareness
and to help establish enfinity as the leading electronic commerce software
solution for large businesses. In addition, we plan to leverage our
relationships with ASPs and systems integrators to help promote and sell the
enfinity product.

Continue to provide solutions for a wide range of electronic commerce
business models. Our product line provides effective solutions for companies
looking not only to take advantage of today's electronic commerce business
models but also more sophisticated, emerging business models. We will continue
to pioneer products that address emerging business models through our focus on
leading electronic commerce-enabling technologies, such as XML, Enterprise Java
Beans, Java Server Pages, ICE and LDAP.

Strengthen our network of sales and technology partners. We have established
relationships with a number of systems integrators and other professional
services providers that market, sell and support our products. We intend to
strengthen our existing relationships and continue to develop top-tier partners
to facilitate the distribution of new products and entry into new markets. We
also plan to expand strategic alliances with leading hardware and software
vendors to ensure the interoperability of our products.

Leverage our global presence. We combine extensive operation in North and
South America, Europe and Asia with a worldwide network of partners to provide
dedicated service to businesses in over 25 countries. We have recently opened
an office in Hong Kong that will provide sales and customer service
capabilities. In addition, we intend to leverage this global presence to
capitalize on the rapid worldwide growth of the electronic commerce market. We
will also continue to build relationships with leading independent software
vendors in order to extend the functionality of our products.

Products and Services

We provide a comprehensive array of software products and related services
that allows businesses to engage in electronic commerce. Our products enable
businesses who sell their own products and services online to run their own
electronic commerce sites and to sell in new and innovative ways such as
through marketplaces and online portals. Further, our products also allow ASPs
and online marketplaces to facilitate online selling by hosting sites for other
businesses and by providing online marketplaces which bring buyers and sellers
together in a virtual environment. We supplement our products with professional
and customer services to provide our customers with implementation and ongoing
maintenance of our products.

36
<PAGE>

Products

Our products are designed to work individually or in conjunction with one
another in order to mix and match to address the customer's particular need and
address the customer's particular business model. In December 1999, we launched
our INTERSHOP enfinity product which is targeted primarily at supporting our
customers in direct selling, is used in conjunction with other products to
support indirect selling and also supports online marketplaces. The remainder
of our product line--INTERSHOP ePages, INTERSHOP Hosting and INTERSHOP
Merchant--is targeted primarily toward ASPs and the enabling merchants business
model, as well as working in conjunction with enfinity to support indirect
selling. For additional detail on our products, see the table below:

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Product Description Business models supported Target customer
- --------------------------------------------------------------------------------------
<C> <S> <C> <C>
enfinity Highly sophisticated . Sell direct Large enterprises,
sites for large . Sell indirect "dot.com" companies and
businesses that need . Enable marketplaces online marketplaces
high performance and
complete integration
- --------------------------------------------------------------------------------------
Merchant Sophisticated sites for . Enable merchants ASPs
small- to medium-sized . Sell indirect
businesses hosted on
their own individual
server
- --------------------------------------------------------------------------------------
Hosting Sophisticated sites for . Enable merchants ASPs
small- to medium-sized . Sell indirect
businesses that share a
single server
- --------------------------------------------------------------------------------------
ePages Entry-level storefronts . Enable merchants ASPs
for small businesses . Sell indirect
- --------------------------------------------------------------------------------------
</TABLE>

We include several different types of software from various software vendors
which are included in our products. These include database software,
application servers and search engines. In most cases, the software supplier
has the right to terminate its supplier agreement in the event we materially
breach the license agreement.

Services

We support our software products with a full set of services, including
professional services, customer support and training. We provide these services
through our in-house services organization and through our network of over 600
affiliated service providers and systems integrators. Our services include the
following:

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Service Principal Attributes
- -------------------------------------------------------------------------------
<C> <S>
Technical support Variety of technical support packages such as "per
packages incident" and annual support contracts which include
free upgrades and no limits on inquiries
- -------------------------------------------------------------------------------
Training and product Comprehensive series of classes to provide the knowledge
education and skills to successfully deploy, use and maintain our
products and solutions
- -------------------------------------------------------------------------------
Consulting services Assessment of electronic commerce business models,
marketing plans and technical needs
- -------------------------------------------------------------------------------
Software development Deployment of technology into customer systems and
integration into existing enterprise resource planning
and infrastructure systems
- -------------------------------------------------------------------------------
Outsourced project Evaluation, execution, testing and roll-out of projects
management
- -------------------------------------------------------------------------------
</TABLE>

37
<PAGE>

Customers

Our customers consist mainly of two types: ASPs and marketplace operators who
use our products to host Internet sites for on-line merchants and run online
marketplaces and enterprises who sell these products directly and indirectly
over the Internet. By December 31, 1999, over 100,000 electronic commerce sites
had been licensed on our software products worldwide. The following is a list
of customers from which we have received over $150,000 in revenues since the
beginning of 1998:

<TABLE>
<S> <C>
Businesses Who Sell Direct Businesses Who Enable Merchants
and Sell Indirect and Enable Marketplaces
. ATL . Adero
. Bosch . Bell Emergis (Bell Canada)
. Canon . Bell South
. Cicada Music . Cardinal Health
. Coram Healthcare . Cobalt
. Dresdner Bank . Concentric Network
. GE Capital . Deutsche Telekom
. Globana Online . eWeb Asia
. Gutenberg Communications . First World Communications
. Hewlett-Packard . France Telecom
. JBA Deutschland . Freecom
. Live Mind . Go2Net
. Modus Media . Ision Internet
. Silicon Graphics . MindSpring
. S.W.I.F.T. . National Association of Realtors
. Times Square 2000 . Nextron
. VRC NetShopping . None Networks
. Waterstone's Bookshops . Northern Telecom
. NTL
. Orbit
. PSINet
. Quoka Online
. Strato
. Telecom New Zealand
. Ticketmaster CitySearch
. Tradewind
. Unisys
. U S West

</TABLE>

38
<PAGE>

Customer Case Studies

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Business model
Customer category Application
- -------------------------------------------------------------------------------
<C> <C> <S>
Compaq Sell indirect Compaq Germany has been working to make its
personal computer products available online
supporting, rather than competing with its
existing channel partners. We, along with
Deutsche Telecom, provided Compaq with a
solution allowing its current channel partners
to run and manage their own online stores,
pre-populated by Compaq with the newest
catalog data and leveraging the customer
traffic that comes to Compaq's main website.
Within three months of the scoping exercise,
the first sites were up and running,
generating increased demand and positive
feedback from the channel partners.
- -------------------------------------------------------------------------------
Cicada Music Sell direct Cicada Music is dedicated to delivering a
revolutionary experience in online music
shopping, providing a music service to the
customer with the goal of delivering music
wherever its customer is, whether that is on
their desktop, in their car, or even to a
customer's cell phone in real time. In order
to achieve this goal, PricewaterhouseCoopers
worked with us to build an electronic commerce
enabled portal for users to listen to live
streaming audio, create custom compact discs
and download MP3 music files. Using our
enfinity product, we were able to build a
fully funtional pilot website,
www.cicadamusic.com, in six weeks.
- -------------------------------------------------------------------------------
Cardinal Health Sell indirect Cardinal Health, one of the largest providers
of health care products with sales through six
of the top 10 pharmaceutical chains nationwide
and annual revenues of over $24 billion, asked
us to fortify its existing retail channel
against the increasing competition of virtual
pharmacies. Based on our Hosting and ePages
products, Cardinal sponsors multi-tiered
electronic commerce solutions for its channel
partners, allowing them to compete with online
pharmacies and improving channel efficiency.
- -------------------------------------------------------------------------------
MindSpring Enable MindSpring Enterprises, based in Atlanta, GA,
merchants serves over 1.3 million subscribers and over
60,000 web hosting accounts, or 2.9 million
subscribers and close to 100,000 hosting
accounts when combined with EarthLink, and has
chosen our products with which to offer
electronic commerce hosting to its customers.
With our help, MindSpring offers customers an
easy-to-use storefront offering customized to
MindSpring's look and feel. By offering a
variety of classes of service based on several
of our hosting products, ePages and Hosting,
MindSpring offers a seamless upgrade path from
simple template-driven storefronts with
limited functionality all the way up to
feature-rich storefronts that include an
unlimited number of products and multiple
payment systems, giving MindSpring's customers
a smooth upgrade path.
</TABLE>

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

39
<PAGE>

Sales and Marketing

Sales

We sell our products through 20 worldwide sales and distribution network of
offices located in North America, Europe, Asia, South America and Australia. We
sell directly through a force of over 65 sales professionals. We also sell
indirectly through a network of over 600 channel partners worldwide. Our
partners participate in programs offering a mix of training, technical support,
marketing support, access to special information on our website and a
developer's license. The majority of our software license sales are indirect,
delivered by one of these channel partners. We intend to continue to increase
our direct and indirect sales channels.

Marketing

Our marketing efforts support our strategy to become the leading provider of
software applications used by businesses to build electronic commerce sites
that enable businesses to sell their products and services over the Internet.
We support this strategy in a variety of ways, including identification of the
most appropriate target customers for our products, building the right sales
and distribution channels to get our products to those customers, promoting and
advertising our products in order to create brand awareness among those
customers and pricing our products so that they are consistent with customer
expectations.

Target Customers. Within the enterprise market, we target the key business
decision makers, including the chief executive officer, vice-president of
marketing, chief information officer, chief financial officer and directors of
electronic commerce. Within the ASP market, we target product managers and
product line managers responsible for the electronic commerce line of business.

Promotion. We support an ongoing, multi-pronged approach to promoting our
services and generating awareness in our target customers. This includes a mix
of print advertising, trade shows, direct marketing and communications on our
web site. We design promotional activities to position ourselves as the leading
enterprise-class vendor in electronic commerce, to increase awareness for our
products with our target customers and to generate sales leads for the sales
channel. Trade shows and direct marketing are conducted on an ongoing, year-
round basis and are designed to increase awareness and create sales leads. We
conduct high-profile advertising campaigns several times per year to support
new product launches. In October of each year, we conduct a show called
INTERSHOP Open. It is targeted toward our customers, partners and developers
and provides an annual forum for the open exchange of information and provides
us with a platform to launch new products and make other major announcements.

40
<PAGE>

Strategic Alliances

To ensure that we deliver a comprehensive solution to our customers, we have
established strategic relationships with system integrators, independent
software vendors and vendors of hardware and database platforms. The following
chart outlines the value of each category to our business and representative
companies in each category:

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Category Value to Our Business Representative Companies
- -----------------------------------------------------------------------------------------
<C> <S> <C>
System integrators System integrators . Andersen Consulting
and Internet implement our products . Cambridge Technology Partners
professional and generate sales leads . Computer Sciences Corporation
service providers . debis (a division of Daimler-Chrysler)
. Grant Thornton LLP
. Intellia
. Keane
. KPMG
. PricewaterhouseCoopers
. Unisys
. Whittman-Hart
. Xuma
- -----------------------------------------------------------------------------------------
Hardware/database Our relationship with . Compaq
platforms vendors of hardware . Hewlett-Packard
platforms helps us . IBM
ensure the reliability, . Intel
scalability and . Oracle
performance of our . Silicon Graphics
software applications . Sun Microsystems
. Sybase
- -----------------------------------------------------------------------------------------
Independent Third parties provide . Allaire
software and solutions that allow our . Bright Info
service vendors customers to customize . Cognos
and extend the . CyberSource
functionality of our . CyberCash
software applications . CommerceOne
. FedEx
. Great Plains
. Interwoven
. NetPerceptions
. Persistence
. SAP
. Symantec
. Talisma
. UPS
- -----------------------------------------------------------------------------------------
</TABLE>

Competition

The market for our products and services is intensely competitive, evolving
and subject to rapid technological change. Increased competition is likely to
result in price reductions, lower average sales prices, reduced margins, longer
sales cycles and loss of market share, any of which could harm our business,
operating results or financial condition. Our primary source of direct
competition comes from electronic commerce

41
<PAGE>

software companies, platform vendors and online services. In addition, we may
encounter future competition from enterprise software companies and software
vendors in related technology.

Our current direct competitors break into the following categories:

. Other electronic commerce software companies: We compete with software
application vendors including Open Market, BroadVision, Interworld and
Art Technology Group.

. Large integrated software technology companies: We also compete against
companies such as Microsoft, IBM, Netscape (a subsidiary of America
Online) and Oracle which each offer electronic commerce software and may
try to increase their share of this market.

Our current indirect competitors include:

. Electronic commerce online services: This category is comprised of
Yahoo! Stores, iMall and others. These online services focus on hosting
small business sites and compete directly with our ASP customers in the
low-end merchant market.

Our potential future competitors could also include:

. Enterprise software companies: Large vendors of enterprise software,
such as Baan, SAP, i2 Technologies, JD Edwards and Siebel, may enter the
electronic commerce market.

. Other software vendors: This group includes electronic commerce vendors
such as Commerce One and Ariba plus Internet content management and
personalization firms such as Vignette and Net Perceptions.

We believe that the principal competitive factors for electronic commerce
software applications and solutions are breadth and scope of solution, depth of
supplier content, the ability to operate with existing information technology
systems, scalability, functionality, ease-of-use, ease-of-implementation, total
cost of ownership and installed base of referenceable customers. We believe we
currently compete favorably with our competitors in these areas.

Many of our competitors have, and new potential competitors may have, longer
operating histories, significantly greater financial, technical, marketing and
other resources than us, more experience developing electronic commerce
software, larger technical staffs, larger customer bases, more established
distribution channels, greater brand recognition and greater financial,
marketing and other resources than we do. In addition, many of our competitors
have well-established relationships with our current and potential customers,
especially in the United States and have extensive knowledge of our industry.
In the past, we have lost potential customers to competitors for various
reasons, including lower prices and other incentives not matched by us. In
addition, current and potential competitors have established or may establish
cooperative relationships among themselves or with third parties to increase
the ability of their products to address customer needs. As a result, it is
possible that new competitors or alliances among competitors may emerge and
rapidly acquire significant market share. We also expect that competition may
increase as a result of industry consolidations.

Research and Development

Our research and development organization has eight teams that include our
existing products, advanced development, backbone technology, payment and other
types of cartridges, quality assurance, UNIX, versions and development of
localized versions. Each of the eight teams shares information in order to more
efficiently resolve a similar problem and provide comprehensive solutions. Our
product development activities are conducted in large part through our
operations in Jena, Germany, but are coordinated closely with our product
management resources located in San Francisco, California.

We believe our research and development team and core technologies represent
a significant competitive advantage. The software and Internet applications
development teams include a number of key employees who

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<PAGE>

have developed Internet applications and services and have extensive experience
with Java programming. Our research and development team is working with the
leading technologies and standards, including XML, Enterprise Java Beans, Java
Server Pages and LDAP, to help ensure our software applications are compatible
with the newest electronic commerce technology. Furthermore, we believe that
having our research and development team based in Jena, Germany is a
competitive advantage because we have lower labor costs and higher retention
levels than comparable software companies with research and development teams
based in the United States.

In developing updates of its standard software that meet our customers'
needs, we take into account experience gathered in our support to our existing
customers. In addition, the research and development groups in Jena focus on
the continuous development of the existing products and the preparing the next
software generation by anticipating the upcoming demands for electronic
commerce software. In addition, enhancements to the existing products and the
next generation products are tested by a separate group of programmers with
expertise and experience in locating defects and "bugs."

We expect that most of our enhancements to existing and future products will
be developed internally. However, we currently license certain externally-
developed technologies and will continue to evaluate externally-developed
technologies to integrate with our solutions. These externally developed
technologies, if suffering from defects, quality issues or the lack of product
functionality required to make our solutions successful in the marketplace, may
seriously impact and harm our business.

Intellectual Property and Other Rights

We depend on our ability to develop and maintain the proprietary aspects of
our technology. To protect our proprietary technology, we rely primarily on a
combination of contractual provisions, confidentiality procedures, trade
secrets and patent, copyright and trademark laws.

We license rather than sell our products and require our customers to enter
into license agreements, which impose restrictions on their ability to utilize
the software. In addition, we seek to avoid disclosure of our trade secrets
through a number of means, including but not limited to, requiring those
persons with access to our proprietary information to execute confidentiality
agreements with us and restricting access to our source code. We seek to
protect our software, documentation and other written materials under trade
secret and copyright laws, which afford only limited protection. We currently
have no U.S. or EEC patent applications pending.

"INTERSHOP" is a registered trademark of our company in the United States and
Germany. We also hold trademarks in several other jurisdictions. In addition,
"INTERSHOP" and the INTERSHOP logo are registered as trademarks in other
foreign countries. We also have filed applications to register these trademarks
in several countries. We have filed trademark applications in the United States
for "Creating the Digital Economy." The above mentioned trademark applications
are subject to review by the applicable governmental authority, may be opposed
by private parties and may not issue.

In 1998, we entered into a settlement agreement with the Swiss company
INTERSHOP Holding AG which limits our use of the name "INTERSHOP" as part of
our business name and of our various trademarks and product names. We do not
consider these restrictions to have a material adverse effect on our present
and future business activities. The restrictions are designed to avoid
confusion of the Swiss company with our company. In particular, we may not set
up operations or go public in Switzerland using "INTERSHOP" as a business name
or as part of a business name, nor use "INTERSHOP" as formal business name
without an addition such as "Communications."

Employees

As of December 31, 1999, we had a total of 544 employees, including 112 in
research and development, 179 in sales and marketing, 175 in customer support,
professional services and training and 78 in administration and finance. Of
these employees, 176 were located in the United States and 368 were located

43
<PAGE>

outside the United States. None of our employees is represented by a collective
bargaining agreement, nor have we experienced any work stoppages. We consider
our relations with our employees to be good.

Facilities

All of our facilities in the United States and Europe are leased from third
parties. Our principal U.S. sales, marketing, customer service and
administrative office occupies approximately 22,000 square feet in
San Francisco, California, under a sublease that expires on July 31, 2000. We
have arranged to move to a larger facility in San Francisco when or before our
lease expires. Our principal European sales, marketing and administrative
office occupies approximately 11,366 square feet in Hamburg, Germany and our
principal research, development and European customer support offices occupy
approximately 12,873 square feet in Jena, Germany. We also maintain
professional services operations which occupy approximately 3,400 square feet
in Stuttgart, Germany and 5,800 square feet on Long Island, New York.

In addition, we also lease sales and support offices in the metropolitan
areas of Atlanta, Boston, Charlotte, Chicago, Denver, Hong Kong, Los Angeles,
London, Melbourne, New York, Paris, Sao Paulo, Seattle, Stockholm, Sydney,
Toronto and Washington, D.C.

Legal Proceedings

We are not currently a party to any material legal proceedings.

Governmental Regulation

The laws governing Internet transactions remain largely unsettled. The
adoption or modification of laws or regulations relating to the Internet could
harm our business, operating results and financial condition by increasing our
costs and administrative burdens. It may take years to determine whether and
how existing laws such as those governing intellectual property, privacy,
libel, consumer protection and taxation apply to the Internet. Laws and
regulations directly applicable to communications or commerce over the Internet
are becoming more prevalent. We must comply with new regulations in both Europe
and the United States, as well as any regulations adopted by other countries
where we do business. The growth and development of the market for online
commerce may prompt calls for more stringent consumer protection laws, both in
the United States and abroad, as well as new laws governing the taxation of
electronic commerce.

Our software products are sold by our United States subsidiary and by its
subsidiaries. The software products currently sold and distributed by our
United States subsidiary do not contain any encryption technology which is
subject to United States, German or European Union export controls. However,
this may change in the future. Export controls, either in their current form or
as may be subsequently enacted, may delay the introduction of new products or
limit our ability to distribute products outside of the United States or
electronically. While we intend to take precautions against unlawful
exportation, the global nature of the Internet makes it difficult to
effectively control the distribution of our products. In addition, governmental
legislation or regulation may further limit levels of encryption or
authentication technology. Further, various countries regulate the import of
certain encryption technology and have adopted laws relating to personal
privacy issues which could limit our ability to distribute products in those
countries.

Structure of Our Company

We are a holding company that directly and indirectly owns seven subsidiaries
that conduct all of our business worldwide. We were incorporated in our current
form under German law on April 23, 1998. Our company was founded in 1992 as
NetConsult Computersysteme GmbH, which is now one of our subsidiaries.

44
<PAGE>

MANAGEMENT

Management Board

We established our management board in April 1998. Our management board is
responsible for the management of our company, the exercise of our business
activities and the supervision of our property. The following table lists the
current members of the management board:

<TABLE>
<CAPTION>
Member
Name Age since Position
---- --- ------ --------
<C> <C> <C> <S>
Stephan Schambach....... 29 1998 Chairman of the management board, Chief
Executive Officer (Vorstandsvorsitzender)
and Founder
Wilfried Beeck.......... 40 1998 Member of the management board, Chief
Financial Officer (Finanzvorstand) and
Founder
</TABLE>

Stephan Schambach. Mr. Schambach has served as the Chairman of the management
board since 1998. Stephan Schambach is the founder of our company and director
of the management board. In 1990, at the age of 19, he terminated his physics
studies at the University of Jena to implement his idea for the commercial use
of the Internet in his own firm. In 1992 he established NetConsult
Computersysteme GmbH to provide consulting services to German companies. In
1996, he established INTERSHOP Communications, Inc. and has since managed the
enterprise as both chairman of the board and chief executive officer and as a
member of the board of management for our company.

Wilfried Beeck. Mr. Beeck has served as a member of the management board
since 1998. He was appointed as chief financial officer of our company in June
1998. Wilfried Beeck is a co-founder of NetConsult Computersysteme GmbH 1992
and INTERSHOP Communications, Inc. He studied mathematics and computer science
at the University of Kiel before entering the computer industry in the early
1980s. Before co-founding INTERSHOP Communications, Inc. in 1996, he founded
Dart Software GmbH, a vendor of object-oriented software tools and business
applications.

Under our articles of association, our supervisory board may adjust the
number of members of the management board at any time. Currently, there are two
members serving on the management board. The members of the management board
are appointed by the supervisory board for a term of no more than five years.
The current management board was elected for a term of five years that expires
on June 22, 2003. A member of the management board can only be terminated for
significant cause based upon a decision by the supervisory board.

In addition to the management board, we employ the following executive
officers. Messrs. Costello, Demetros, Harding, Oreste and Callan are employed
on an at-will basis. None of the other executive officers listed below is party
to employment agreements with us.

<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<C> <C> <S>
Karsten Schneider....... 39 Senior Vice President of Business Development and
Founder
Frank Gessner........... 31 Vice President of Engineering
Bernhard Marbach........ 38 Vice President of Sales for Europe and Asia
Wolfgang Schober........ 37 Vice President of Professional Services
Dirk Reiche............. 35 Vice President of Finance for Europe and Asia
Dieter Neujahr.......... 40 Vice President of Operations for Europe
Keith C. Costello....... 33 President for the Americas
James Demetros.......... 37 Vice President of Sales for the Americas
Craig W. Harding........ 42 General Counsel and Secretary for the Americas
Philip L. Oreste........ 33 Vice President of Finance for the Americas
Edward J. Callan........ 34 Vice President of Marketing
</TABLE>

45
<PAGE>

Karsten Schneider, Senior Vice President of Business Development. Mr.
Schneider oversees strategic alliances, business and market development and the
independent software vendor partner program worldwide. He founded the company
in 1992. Prior to 1992, Mr. Schneider worked at Carl Zeiss, an optics
engineering company headquartered in Jena, Germany, where he was a development
engineer. He received a degree in Mechanical & Electrical engineering in Sofia,
Bulgaria with honors.

Frank Gessner, Vice President of Engineering. Mr. Gessner joined us in 1995.
As Vice President of Engineering, Mr. Gessner manages research and development
activities for us. Prior to that time, he studied computer science at the
Bolton University in England and at the University of Leipzig, where he
received a degree with honors.

Bernhard Marbach, Vice President of Sales for Europe and Asia. Mr. Marbach
directs sales in Europe and Asia for us. Prior to joining our company in 1997,
Mr. Marbach was at PINK software GmbH in Hamburg, where he was vice president
for worldwide sales. In addition, Mr. Marbach was Director of Sales for Central
Europe for NeXT Software. Mr. Marbach studied marketing and management and
computer science at the University of Hamburg.

Wolfgang Schober, Vice President of Professional Services. Mr. Schober is
responsible for worldwide professional and consulting services. Prior to
joining our company in February 1998, he worked for 13 years at Hewlett-Packard
in Germany, Colorado and California as a manager of international projects, a
manager of electronic commerce research and development manager. Mr. Schober
also studied mathematics at the University of Stuttgart and technical computer
science at the professional school in Ulm.

Dirk Reiche, Vice President of Finance for Europe and Asia. Mr. Reiche leads
the financial group within our European organization. He studied business
administration at the University of Hamburg. He began his career as a manager
in the Gruner & Jahre publishing house. Before he joined us in 1997, he worked
for a new media start-up company and a telecommunications provider in Berlin-
Brandenburg.

Dieter Neujahr, Vice President of Operations for Europe. Mr. Neujahr, who
joined us in 1999, is responsible for operations in Europe. Previously he
served as founder and managing director of the European headquarters of Intuit
in Munich and managed the first foreign language development and release of
programs such as Quicken and QuickBooks. Mr. Neujahr also worked at Intuit's
worldwide headquarters in Palo Alto, California, where he led the introduction
of various service marketing programs in the U.S. market. Mr. Neujahr studied
economic science and economical informatics at Nurnberg und Wurzberg.

Keith C. Costello, President for the Americas. Mr. Costello, who joined us in
January 2000, is primarily responsible for our business activities in the
Americas. Immediately prior to joining us, Mr. Costello was with Oracle
Corporation, where he was Vice President for Oracle Consulting. Prior to that,
Mr. Costello held management positions at Booz, Allen & Hamilton and Price
Waterhouse. He holds a Bachelor of Arts from the University of California,
Berkeley.

James Demetros, Vice President of Sales for the Americas. Mr. Demetros is
responsible for all markets in the sales for the United States, Canada and
Latin America. Prior to joining Intershop in 1999, Mr. Demetros was Director of
Apple's Enterprise Software Division (formerly NeXT Software). Prior to Apple's
acquisition of NeXT Software, Mr. Demetros held positions as Senior Director of
U.S. Sales Operations, Director of Eastern Regional Operations and Director,
Northeast Regional Operations. Mr. Demetros began his career in computer
technology at Wang Laboratories where he held a variety of sales and sales
management positions. He is a graduate of the University of Connecticut.

Craig W. Harding, General Counsel and Secretary for the Americas. Mr.
Harding, who joined us in 1997, is the senior legal officer for North America.
Previously, he was General Counsel and Secretary at Actra Business Systems,
LLC, which is a joint venture of Netscape Communication Corporation and GE
Information Services. Mr. Harding also served as General Counsel at Kaleida
Labs, a joint venture of IBM and Apple Computer, and as General Counsel at
Sierra On-Line. He holds degrees in mathematics from Duke University and law
from Vanderbilt University School of Law.

46
<PAGE>

Philip L. Oreste, Vice President of Finance for the Americas. As Vice
President of Finance for the Americas, Mr. Oreste manages investor relations,
accounting and controlling. He was formerly Controller of Pacific Bell Internet
Services, the Internet service provider and subsidiary of Pacific Bell. He has
also held the position of Vice President of Finance for Shakey's. Mr. Oreste
earned a Bachelor of Science degree in Accounting from the University of San
Francisco and is a licensed Certified Public Accountant in the State of
California.

Edward J. Callan, Vice President, Marketing. Mr. Callan, who joined us in
1998, guides our worldwide marketing organization, including product
management, marketing communications, public relations, Web marketing, channel
marketing, technical training and documentation. He was formerly Vice President
of Consumer and Small Business Marketing for SBC Internet, where he managed
marketing strategy for both Pacific Bell Internet and Southwestern Bell
Internet brands. Prior to that, Mr. Callan spent three years with Dataquest as
a Senior Consultant and developed marketing strategies for clients in the
Internet, telecommunications and software industries. Mr. Callan has an MBA
from the Wharton School of the University of Pennsylvania, and a Bachelor's
degree in Electrical Engineering and Computer Science from the University of
California at Berkeley.

Supervisory Board

Our supervisory board oversees the leadership of the management board. The
following table lists the current members of the supervisory board:

<TABLE>
<CAPTION>
Member
Name Age since Principal Occupation
---- --- ------ --------------------
<C> <C> <C> <S>
Eckhard Pfeiffer, Chairman........ 58 1999 Former Chief Executive Officer
of Compaq Computer Corporation
Theodore J. Smith, Vice Chairman.. 70 1998 Chairman, FileNet Corporation
Joerg Menno Harms................. 60 1998 Managing Director, Hewlett-
Packard GmbH
Lorenzo Pelliciolo................ 48 1999 Chief Executive Officer of Seat
Regine Gialle
Knut Fockler, PhD................. 50 1999 Director of Multimedia, Deutsche
Telekom AG
Hartmut Esslinger, PhD............ 55 1999 Founder of frogdesign, an
integrated design company
</TABLE>

Under our articles of association, the supervisory board has six members. In
general, the members of the supervisory board are appointed for the year terms
ending on the adjournment of the general shareholders' meeting for the fourth
fiscal year after the beginning of their term of service, unless the general
shareholders' meeting determines a shorter period of service at the time of
their election. A supervisory board member's term will end on the appointment
of his successor unless he resigns or is dismissed earlier. In general, each
member of the supervisory board can be dismissed at any time by a three-fourths
majority of the general shareholders' meeting.

Compensation

Compensation of the Executive Officers and the Management Board. We paid
aggregate compensation of $861,120 to the executive officers and the members of
the management board in fiscal year 1999. Of such amount, none was paid in
respect of pension or other similar benefits. There are no pension reserves for
the executive officers and members of the management board.

Between 10% and 20% of the total remuneration paid to the executive officers
and the members of the management board depends on their achievement of
performance targets, which are defined by certain qualitative criteria, as well
as our sales and profit. These targets are set by the supervisory board, in
accordance with German law, on an annual basis. In addition, they are entitled
to participate in the 1999 Stock Option Plan (for a description of this plan,
please see "Management--Equity Incentive Plans").

47
<PAGE>

Compensation of the Management Board. As of December 31, 1999, there were no
pension reserves for members of the management board. Members of the management
board are entitled to participate in the 1999 Stock Option Plan (for a
description of this plan, see "Management--Equity Incentive Plans"). As of
March 15, 2000, members of the management board collectively hold 3,900,000
shares, which includes 2,500,000 shares issuable to Mr. Stephan Schambach.

Compensation of the Supervisory Board. We reimburse members of the
supervisory board for their out-of-pocket expenses related to their service on
the supervisory board. However, we do not otherwise compensate members of the
supervisory board.

Equity Incentive Plans

Effective as of June 21, 1999, we adopted a unified stock option plan, which
we refer to as the 1999 Plan. The 1999 Plan provides for grants of options to
purchase shares of our company to board members, executive officers and
employees of our company and our affiliates. Options granted under the 1999
Plan are intended to attract, commit and motivate these individuals. We have
granted options under the 1999 Plan to nearly all new employees who have joined
us on or after June 21, 1999. These are usually granted as of the hiring date
of each employee.

We also maintain the INTERSHOP Communications, Inc. 1997 Equity Incentive
Plan, which we refer to as the 1997 Plan, pursuant to which selected employees,
officers, directors and consultants of our subsidiaries were granted stock
options. The details of the 1999 Plan and the 1997 Plan are as follows:

The 1999 Stock Option Plan. At the shareholders' meeting on June 21, 1999,
our shareholders adopted the 1999 Plan, which became effective on July 1, 1999,
and authorized the grant of stock options (Bezugsrechte), which we refer to as
AG Options, to employees, officers and directors of our company and our
affiliates, including members of the management board. There are two pools of
shares authorized under the 1999 Plan. There are 133,000 shares for grants of
stock options to members of the management board and general managers of our
subsidiaries and 1,500,000 shares for grants of stock options to all other
employees.

The management board is authorized to determine which eligible employees will
receive AG Options and to set the terms and conditions of the AG Options. In
the case of AG Options granted to members of the management board, the
supervisory board determines the terms of the awards. The supervisory board can
also determine additional performance targets that must be met prior to the
grant of an AG Option to any participant.

Each AG Option is exercisable for one share. The vesting schedules of the AG
Options will be four years from the date of the grant; however, pursuant to
German law, no AG Options will be exercisable, even though a portion is vested,
prior to the second anniversary of the date of grant. The exercise price of the
AG Options is equal to 120% of the fair market value of the AG Shares on the
date of grant, where the fair market value is determined to be the average
closing sales price as quoted on the Neuer Markt for the 10 trading days prior
to the date of the grant. The exercise price can be reduced by a shareholders'
resolution if, at any time, we issue shares or securities convertible into
shares at a price lower than the exercise price of an outstanding AG Option.

The AG Options granted under the 1999 Plan are not transferable except by
will or the laws of descent and distribution.

The 1997 Equity Incentive Plan. Prior to our shareholder's meeting on June
21, 1999, INTERSHOP Communications, Inc., our United States subsidiary,
maintained the 1997 Plan pursuant to which selected employees, officers,
directors and consultants of all of our subsidiaries who joined us prior to
June 21, 1999, were granted stock options, which we refer to as U.S. Options.
Effective as of June 21, 1999, we no longer grant options to new employees
under the 1997 Plan. The U.S. Options are exercisable for AG Shares at a ratio
of 5:3.

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<PAGE>

The U.S. Options granted under the 1997 Plan include both incentive stock
options within the meaning of Section 422 of the United States Internal Revenue
Code of 1986, as amended, and non-incentive stock options, which we refer to as
non-statutory stock options. Incentive stock options may only be granted to
employees and must have an exercise price equal to or greater than the fair
market value of the shares on the date of grant. The non-statutory stock
options may be granted to employees, consultants or directors and cannot have
an exercise price less than 85% of the fair market value of the shares on the
date of grant.

The 1997 Plan is administered by the management board, which has the full
authority to amend and interpret the plan and the options granted under the
1997 Plan. The vesting schedules of the options granted under the 1997 Plan
vary from grant to grant; however, a minimum of 20% of the total number of
shares subject to an option must vest each year. Generally, the U.S. Options
vest with respect to 17% of the shares on the six-month anniversary of the date
of grant and in 30 monthly installments with respect to the remaining 83% of
the shares. Vested options may be exercised at any time following their vesting
date and prior to the tenth anniversary of the date of grant; however, an
individual optionholder may not exercise stock options more than four times in
any calendar year.

Upon the termination of an optionholder's status as an employee, director, or
consultant for any reason other than death or disability, the unvested portion
of the option will be forfeited and the vested portion will remain exercisable
for a maximum of three months. The options granted under the 1997 Plan are not
transferable, except by will or by the laws of descent and distribution.

Outstanding Options

As of December 31, 1999, there were 473,000 outstanding options to purchase
ordinary shares (including 86,083 outstanding options held by our executive
officers). As of December 31, 1999, the weighted average exercise price of all
our outstanding options was (Euro)73.90 per share. The options outstanding as
of December 31, 1999 will expire at various times prior to June 2009. Of these
options, none are held by the members of the supervisory board and the
management board.

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<PAGE>

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

In January 1997, INTERSHOP Communications, Inc. acquired 100% of the shares
of INTERSHOP Communications GmbH pursuant to a share exchange agreement,
entered into in December 1996, between INTERSHOP Communications, Inc. and the
shareholders of INTERSHOP Communications GmbH. The outstanding capital stock
and debt of INTERSHOP Communications GmbH were converted into common and
preferred stock, respectively, in INTERSHOP Communications, Inc. INTERSHOP
Communications, Inc. thus became the parent company of INTERSHOP Communications
GmbH and its subsidiaries.

As part of the restructuring activities that occurred in May and June 1998,
prior to our initial public offering in Germany, INTERSHOP Communications GmbH
acquired 100% of the shares of a dormant company, that was since renamed
"INTERSHOP Communications AG," from its founders Dr. Robert Rottger and Ms.
Jutta Niedrich for approximately (Euro)51,129. The purpose of this transaction
was to establish a German stock corporation as the parent company for the group
prior to our initial public offering in Germany. Since it often takes several
weeks to form a new Aktiengesellschaft, German companies that intend to
reorganize as a Aktiengesellschaft often acquire a dormant company in lieu of
forming a new one.

The then existing stockholders of INTERSHOP Communications, Inc. exchanged
their shares in INTERSHOP Communications, Inc. for shares of our company. The
holders of 79.3% of the shares of INTERSHOP Communications, Inc. received
12,354,810 shares of our company. As a result of this transaction, we became
the parent company of INTERSHOP Communications, Inc. and its subsidiaries. Due
to certain tax consequences, our founder Mr. Schambach, and a private investor,
Mr. Jamieson, did not contribute all of their shares of INTERSHOP
Communications, Inc. and currently still hold 16.0% and 1.5%, respectively, of
that company's capital stock. Other than us, Messrs. Schambach and Jamieson are
the only other current stockholders of INTERSHOP Communications, Inc., and each
is entitled to exchange his shares in that company for shares in our company at
a ratio of 5:3, using conditional capital specifically approved for this
purpose at our stockholders' meeting on June 23, 1998. As of December 31, 1999,
Messrs. Schambach and Jamieson may exchange their 4,260,000 and 381,500 shares,
respectively in INTERSHOP Communications, Inc., into 2,500,000 and 228,900
shares, respectively, of our company.

The post-formation and share contribution agreement (Nachgrundungs- und
Einbringungsvertrag) was executed on June 22, 1998 by our management board and
also by several holders of ordinary and preferred shares of INTERSHOP
Communications, Inc. These shareholders include Messrs. Stephan Schambach and
Wilfried Beeck, both of whom are members of our management board. The record of
the execution of the post-formation and share contribution agreement indicates
that Mr. Beeck acted both on our behalf and as a shareholder of INTERSHOP
Communications, Inc. Our shareholders approved the post-formation and share
contribution agreement at the shareholders' meeting held on June 23, 1998 in
accordance with Section 52 of the German Stock Corporation Act, or the AktG.
Section 112 of the AktG provides that, in connection with any transaction
between members of the management board and a corporation, the corporation must
be legally represented by its supervisory board. The agreement was approved by
our supervisory board on June 21, 1999. There is some question under German law
as to whether Section 112 applies to the execution of an agreement which is to
be approved by the shareholder's meeting in accordance with Section 52 and,
further, whether a supervisory board could retroactively approve an agreement
that was entered into in violation of Section 112, if applicable. We, however,
believe that Section 112 does not apply to the agreement and that the agreement
is valid. In a situation where an agreement needs to be approved by a
shareholder's meeting according to Section 52, which was the case here, Section
112 does not apply, and, consequently, no requirement for the supervisory board
to represent a company when entering into the agreement. After having reviewed
the legal background, although there are no precedent court decisions, we are
of the opinion that Section 112 does not apply to the agreement. If our
conclusion on the non-application of Section 112 were incorrect, we believe,
nevertheless, that the agreement would have been provisionally invalid when
executed, but could subsequently be ratified, and would have become valid
retroactively, by the approval of the supervisory board as of June 21, 1999.
Although two dated German regional court decisions held, that such an approval
would not be sufficient, our view that a violation of Section 112 would be
cured by a subsequent supervisory board's approval is

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<PAGE>

supported by more recent decisions of the German Supreme Court. In the event
that the German Supreme Court held the agreement to be invalid, all or a
portion of the ordinary and preferred shares of INTERSHOP Communications, Inc.
would not have been transferred to us effectively. Consequently, share issued
by us in order to fulfill our obligations under the agreement would not carry
any voting rights. Furthermore, any alleged invalidity of the agreement could
possibly affect the validity of future resolutions passed at any of our
shareholders' meetings, provided that an action to set aside the resolutions
were brought forward within one month after adoption of the resolution. If the
German Supreme Court were to determine that we had violated Section 112, we
would take appropriate steps to re-execute the agreement and to re-consummate
the transaction with the approval of all parties to the agreement. We believe
the parties would be obliged to give approval under the German good-faith-
principle. There is a slim possibility that the re-execution may not be
possible by an attachment of the shares by creditors of the other parties to
the agreement or by the insolvency of these other parties.

In May 1998, we entered into a legal settlement that obligated us to pay
(Euro)1.9 million. Private Equity Bridge Invest Ltd., or PEBI, an affiliate of
one of the underwriters from our initial public offering in Germany, paid this
amount on our behalf in exchange for shares of preferred stock of INTERSHOP
Communications, Inc. No shares of preferred stock of INTERSHOP Communications,
Inc. were issued to PEBI. At various times between June and December 1998, PEBI
purchased a total of 120,090 shares of our company from us and purchased 60,000
shares of our company from INTERSHOP Communications GmbH for a total cash
consideration of (Euro)4.0 million, whereas the total market value was
(Euro)5.9 million.

Also at our stockholders' meeting on June 23, 1998, at which the sole
stockholder was INTERSHOP Communications GmbH, resolutions were passed that
increased our capital stock, or, in other words, authorized additional shares.

On June 23, 1998, the Vice Chairman of the Supervisory Board, Mr. Theodore J.
Smith, subscribed to 50,001 newly issued no-par value shares at an issue price
of (Euro)12.78 per share, resulting in an aggregate payment of (Euro)639,118.
This subscription agreement was entered into in connection with the
cancellation of a convertible promissory note that was entered into between Mr.
Smith and INTERSHOP Communications, Inc. in April 1998. The promissory note had
been in the amount of $500,000 and bore interest at the rate of 7% per annum.
The proceeds of the issuance of the promissory note were used for the Company's
general working capital needs during the period prior to its initial public
offering in Germany.

In January 1998, INTERSHOP Communications, Inc. granted Mr. Beeck a put
right to sell his interests in a limited liability company for $250,000. In
exchange, the company transferred to INTERSHOP Communications, Inc. management
and technical employees as well as limited intellectual property. The purpose
of this transaction was to transfer these assets from the limited liability
company to us in a cash-efficient manner. The limited liability company still
exists but has no ongoing business operations. Mr. Beeck has not exercised this
put right and we are not aware of any intentions on his part to do so.

Effective as of July 1997, Deutsche Telekom, one of our most significant
customers and also a strategic partner, acquired a license to use our software
for a period of three years. On December 31, 1997, Deutsche Telekom, through
its venture capital subsidiary T-Telematik Venture Holding GmbH, purchased
approximately 7.8% of the then outstanding capital stock of INTERSHOP
Communications, Inc. for $3,830,000 and then subsequently exchanged this
capital stock for shares of our company pursuant to an agreement dated June 23,
1998.

In 1999, two of our shareholders, Mr. Stephan Schambach and Mr. Wilfried
Beeck, both of whom are members of our management board, have agreed to loan to
us in the amount of (Euro)5,000,000, and (Euro)7,000,000, respectively, in the
form of an overdraft credits for our working capital credit
(Betriebsmitteldredit), each of which bears interest at the rate of 6% per
annum. The loans are callable with three months notice beginning December 31,
2000. There are prepayment penalties for each loan of twelve months interest if
the loans are paid down prior to December 31, 2000. As of December 31, 1999, we
had drawn down the full (Euro)7,000,000 of the loan from Mr. Beeck.

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<PAGE>

During 1996, we entered into a series of unsecured loans with some of our
shareholders. Interest is payable quarterly at 10%. The loans may be repaid at
any time, but no later than February 2004. Cumulated interest of (Euro)50,618
was paid on December 31, 1998 and the remaining outstanding principal balance
at that same date was (Euro)20,000.

We believe that all the transactions set forth above were made on terms no
less favorable to us than could have been obtained from unaffiliated third
parties.

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PRINCIPAL SHAREHOLDERS

The following table sets forth certain information with respect to the
beneficial ownership of our ordinary shares as of March 15, 2000 and as
adjusted to reflect the sale of the shares in this offering by:

. each person, or group of affiliated persons, who is known by us to own
beneficially more than 10% of our ordinary shares;

. each member of the management board;

. each member of the supervisory board; and

. members of the management board and the supervisory board as a group.

Except as otherwise noted, the persons or entities in this table have sole
voting and investment power with respect to all the ordinary shares owned by
them. The following tables assumes no exercise of the over-allotment by the
underwriters. Beneficial ownership is determined in accordance with the rules
of the Securities and Exchange Commission, and generally includes voting power
or investment power with respect to securities. Ordinary shares subject to
options currently exercisable or exercisable within 60 days of the date of this
prospectus are deemed outstanding for the purpose of computing the percentage
beneficially owned by the person holding such options but are not deemed
outstanding for the purpose of computing the percentage beneficially owned by
any other person. Mr. Schambach holds 16.3% of the shares of our U.S.
subsidiary INTERSHOP Communications, Inc. which he may exchange at any time for
our ordinary shares at a ratio of 5:3. Percentage of beneficial ownership is
based upon 19,504,212 shares outstanding prior to this offering and 19,939,212
shares outstanding following this offering. This figure assumes that Mr.
Schambach has exchanged his shares of our U.S. subsidiary, INTERSHOP
Communications, Inc., for our shares, and the latter figure assumes no exercise
of the over-allotment option by the underwriters. We believe that the persons
named in this table, based on information provided by such persons, have sole
voting and investment power with respect to the ordinary shares indicated.

<TABLE>
<CAPTION>
Percentage Owned
-----------------
Ordinary Before After
Name of Beneficial Owner Shares Offering Offering
- ------------------------ --------- -------- --------
<S> <C> <C> <C>
Stephan Schambach................................. 2,500,000 12.8 12.5
Wilfried Beeck.................................... 1,400,000 7.2 7.0
Eckhard Pfeiffer.................................. 80,000 * *
Theodore J. Smith................................. 26,458 * *
Joerg Menno Harms................................. 300 * *
Lorenzo Pelliciolo................................ 0 * *
Knut Fockler...................................... 0 * *
Hartmut Esslinger................................. 0 * *
Members of the management board and the
supervisory board and executive officers as a
group............................................ 5,281,647 27.1 26.5
</TABLE>
- --------
* Represents less than 1% of our outstanding shares.

The total number of outstanding shares used to calculate the percentages in
the above table does not include the exercise of the over-allotment option. If
the over-allotment option is exercised, the underwriters will have an option to
purchase from us an additional 650,000 ADSs.

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<PAGE>

DESCRIPTION OF CAPITAL STOCK

The following summary is based upon our articles of association (Satzung) and
the German Stock Corporation Act (Aktiengesetz, AktG), each as in effect on the
date of this prospectus. This summary is intended to contain all material
information in relation to our capital stock and the rights attaching to the
shares, but does not purport to be complete. It is qualified in its entirety by
reference to the articles of association and German law in effect on the date
of this prospectus.

Capital Increases and Decreases

Following this offering, our issued and outstanding capital stock
(Grundkapital) will be (Euro)17,439,212, divided into 17,439,212 bearer
ordinary shares of no par value (Stuckaktien). These shares have a calculated
value (rechnerischer Wert) of (Euro)1.00 each.

Under the German Stock Corporation Act, our capital may be increased by a
resolution passed by a majority of the shareholders of at least three-quarters
of our outstanding capital stock present at the shareholders' meeting.

Alternatively, the shareholders may, by a resolution approved by a majority
of the shareholders holding at least three-quarters of our outstanding capital
stock represented at the shareholders' meeting, empower the management board to
issue with the approval of the supervisory board, within a period not exceeding
five years, shares in a specified amount, thus creating authorized capital
(genehmigtes Kapital). Finally, the shareholders may create, by a resolution
requiring the same majority, conditional capital (bedingtes Kapital) for the
purposes of issuing shares to optionees or for the purpose of a contemplated
merger.

The nominal amount of each authorized capital and conditional capital may not
exceed 50% of our capital stock outstanding at the time the resolution to
create that capital is adopted, provided that in the case of conditional
capital created for the purpose of granting stock options to employees, this
limit is 10% of the capital stock outstanding at the time of the resolution.

Any decrease in our share capital requires the approval of a majority of the
shareholders holding at least three-quarters of our outstanding share capital
represented at the shareholders' meeting.

Bearer Ordinary Shares

We were incorporated in Germany on April 23, 1998 with a capital stock of
(Euro)51,129, divided into 60,000 bearer ordinary shares with a calculated
value of (Euro)0.85 each. We were registered with the commercial register of
Hamburg, Germany on May 20, 1998.

In accordance with the Law on Introduction of Shares with no par value
(Stuckaktiengesetz), enacted on April 1, 1998, the then existing shares were
converted into shares of no par value (Stuckaktien) at the general meeting of
May 26, 1998.

(Euro) In the context of a restructuring, our capital stock was increased from
(Euro)51,129 to (Euro)153,464 by means of a (Euro)102,335 cash contribution by
PEBI in exchange for the issuance of 120,090 new shares. Subsequently, our
capital stock was increased by way of contributions-in-kind of (Euro)10,528,190
from (Euro)153,464 to (Euro)10,681,654 through the issuance of 12,354,810 new
shares. The contribution-in-kind consisted of the contribution of 20,591,348
shares of INTERSHOP Communications, Inc. The shares of approximately 200
employees and advisors of INTERSHOP Communications, Inc. which were contributed
to us in the course of that contribution-in-kind, had been previously
transferred to a trustee.

In addition, at our special meeting on June 23, 1998, we resolved that our
capital be increased from (Euro)10,681,654 to (Euro)10,724,263 by means of a
(Euro)42,609 cash contribution in exchange for the issuance of 50,001 new
shares to Mr. Theodore J. Smith. Subsequently, INTERSHOP Communications GmbH,
our former sole shareholder, transferred its 60,000 shares to PEBI.

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<PAGE>

After the foregoing transactions, 12,584,901 shares, with a calculated value
of (Euro)0.85 per share, were issued and outstanding. On July 9, 1998,
3,000,000 shares with a calculated value of (Euro)0.85 were issued in
connection with our initial public offering. Additionally, 627,162 shares and
147,867 shares were issued on January 15, 1999 and on April 23, 1999,
respectively, to Mr. Christof K. Leiste from conditional capital II, following
his exercise of exchange rights pursuant to the 1997 Plan. Similarly, 206,700
shares were issued to Mr. Burgess Jamieson from conditional capital III,
following the exercise of his exchange rights.

After these share issuances, our share capital amounted to (Euro)14,117,306
divided into 16,566,630 shares with a calculated value of (Euro)0.85 per share.
Our shareholders' meeting held on June 21, 1999 resolved the conversion of the
share capital from DM into euro. Following that conversion the share capital
amounted to (Euro)14,117,305.70. The shareholders' meeting resolved a capital
increase from (Euro)14,117,305.70 by (Euro)2,449,324.30 to (Euro)16,566,630 by
converting amounts available in a capital reserve (Kapitalrucklage). The
capital increase was carried out without issuing new shares. Furthermore, the
shareholders' meeting resolved a 3:1 stock split, and all share amounts and
calculated values have been restated in this prospectus to reflect this stock
split. All shares have full dividend rights for the fiscal year from January 1,
1999 to December 31, 1999.

After the June 21, 1999 meeting, we issued an additional 71,747 shares and
240,000 shares in 1999 out of conditional capital II and III, respectively. In
2000, as of March 15, 2000, we issued an additional 70,108 and 56,000 shares
out of conditional capital II and III, respectively.

Unless otherwise regulated by law, one share grants one vote in all matters
subject to a shareholders' vote, including the election of the members of the
supervisory board. Neither our certificate of incorporation nor our articles of
association provide for cumulative exercise of voting rights for the election
of board members. The holders of common shares are entitled to receive fixed
dividends, approved by the annual shareholders' meeting and funded by means
available for this purpose under the applicable rules and regulations. In case
of liquidation, any liquidation proceeds remaining after paying off all of our
liabilities would be distributed among shareholders in proportion to the total
number of the shares held by each shareholder. Common shareholders are not
subject to contribution and have no rights to conversion, reimbursement or
preferential rights for the purchase of additional shares, regardless of share
class. Shares outstanding have been paid in full and are not contributory.

Preferred Stock

At this time, we have not authorized any shares of preferred stock. Our
articles of association do not permit the issuance of such preferred stock
without the approval of the majority of the shareholders. If our shareholders
wish to enable us to issue preferred stock at a certain time in the future,
they would need to consent to the amendment of the articles of association,
which requires a majority of three-quarters of the capital stock present at a
shareholders' meeting.

Stock Option Plans

1999 Stock Option Plan. We currently maintain a stock option plan that became
effective on June 21, 1999. This plan provides for grants of options to
purchase AG Shares to board members, executive officers and employees of our
company and our affiliates. The options granted under this plan are intended to
attract, commit and motivate these key individuals. Each option granted under
the 1999 Plan is exercisable for one AG Share. As of December 31, 1999, 158,000
options had been granted under the 1999 Plan. For a more detailed description
of the 1999 Plan, see "Management--Equity Incentive Plans."

1997 Equity Incentive Plan. The INTERSHOP Communications, Inc. 1997 Equity
Incentive Plan provides options to certain employees, officers, directors and
consultants of our subsidiaries. Each option granted under the 1997 Plan is
exercisable for AG Shares at a ratio of 5:3. We no longer grant options under
this plan; however, there were 315,000 options outstanding under this plan as
of December 31, 1999. For a more detailed description of the 1997 Plan, see
"Management--Equity Incentive Plans."

Number of Shares Available for Allocation Under the Stock Option Plan

Our shareholders' meeting on June 23, 1998 resolved conditional capital
increases for the issuance of shares to employees holding options exercisable
for our shares. Some employees were granted options

55
<PAGE>

exercisable for shares of INTERSHOP Communications, Inc. under the 1997 Plan.
Those employees have entered into agreements allowing them to exercise their
options of INTERSHOP Communications, Inc. for our shares. Our shareholders'
meeting on June 21, 1999 has amended the conditional capital increases. The
following conditional pools of shares are available for issuance to holders of
options or subscription rights (Bezugsrechte):

. Our share capital is conditionally increased by our first pool of
conditional capital to (Euro)1,633,000 for the issuance of 1,500,000
shares to our employees and their affiliates and 133,000 shares to
members of our management board and our affiliates. The conditional
capital increase is made to grant subscription rights (Bezugsrechte) to
the aforementioned persons. The subscription rights can be exercised
between two and five years of the date of grant.

. Our share capital is conditionally increased by our second pool of
conditional capital by (Euro)424,971 for the issuance of 424,971 shares.
The conditional capital increase is made to grant exchange rights to all
holders of options of INTERSHOP Communications, Inc. known to us for an
exchange ratio of five option rights to receive one INTERSHOP
Communications, Inc. share to three option rights to receive one share
of our company. After the issuance of 141,582 shares since the June 21,
1999 meeting, conditional capital II currently has 283,389 unissued
shares remaining.

The respective number of shares available for issuance can be adjusted at the
shareholders' meeting within the 50% limitation of (S) 192 para. 3, German
Stock Corporation Act (Aktiengesetz, AktG), or, if the conditional capital is
created in order to grant stock options to employees, within a limit of 10% of
the outstanding share capital at the time the resolution upon the additional
capital is adopted. As of December 31, 1999, 588,988 options exercisable for
shares of INTERSHOP Communications, Inc. were outstanding. Based on the
conversion of options to purchase INTERSHOP Communications, Inc. shares into
options to purchase our shares, 424,971 options have been granted. Additional
options were granted, in particular, to European employees prior to our initial
public offering in Germany in 1998.

Resolutions of the Meeting of Shareholders

At our shareholders' meeting held on June 21, 1999, the following
resolutions, in particular, were duly adopted:

Resolutions in connection with the conversion of the share capital from DM
into euro:

. Conversion of the share capital from DM 27,611,050 into
(Euro)14,117,305.70.

. Increase of the share capital from (Euro)14,117,305.70 to
(Euro)16,566,630 by (Euro)2,449,324.30 by converting amounts available
in a capital reserve (Kapitalrucklage). The capital increase was carried
out without issuing new shares.

. Stock split of 3:1, the 5,522,210 shares split into 16,566,630 shares.

. Conversion of the authorized capital I from DM 2,500,000 into
(Euro)1,278,229.70 and increase by (Euro)221,770.30 to (Euro)1,500,000.

. Conversion of the authorized capital II from DM 1,500,000 into
(Euro)766,937.82 and increase by (Euro)133,062.18 to (Euro)900,000.

. Conversion of the conditional capital I from DM 2,500,000 into
(Euro)1,278,229.70 and increase by (Euro)221,770.30 to (Euro)1,500,000.

. Conversion of the remaining conditional capital II from DM 708,285 into
(Euro)362,140.37 and increase by (Euro)62,830.63 to (Euro)424,971.

. Conversion of the remaining conditional capital III from DM 5,041,500
into (Euro)2,577,678.02 and increase by (Euro)447,221.98 to
(Euro)3,024,900.

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<PAGE>

Further resolutions:

. Conditional increase of the capital stock up to a maximum of
(Euro)1,633,000 through the issuance of up to 1,500,000 new bearer
ordinary shares to our employees and the employees of our affiliated
companies and up to 133,000 new bearer ordinary shares to the members of
our management board and of our affiliated companies, which represented
the creation of a new conditional capital I for the issuance of options
to employees and members of the management board.

. Authorization for the management board (Vorstand) to increase the share
capital within a period of five years after registration of this
resolution into the commercial register by up to (Euro)5,883,000 through
the issuance of up to 5,883,000 new bearer ordinary shares against
contribution in cash or in kind, which represented the creation of a new
authorized capital III.

. Authorization until December 20, 2000 to purchase and sell our shares
for a price not to be higher or lower than 10% of the average exchange
quotation on the Neuer Markt of the Frankfurt Stock Exchange of the
preceding 10 exchange days.

Under Section 193(2) of the German Stock Corporation Act, or the AktG, a
shareholders' resolution effecting a conditional capital increase needs to set
forth, among other things, the issue price for the new shares, or,
alternatively, the basis on which the issue price is to be determined. We
believe that the resolution on our conditional capital II, as resolved at our
shareholders' meeting held on June 23, 1998, complies with the requirements of
Section 193(2) and, therefore, was validly adopted. Due to the somewhat unclear
wording of the actual resolution, a third party could assert that the
resolution did not comply with the requirement that the issue price or the
basis on which the issue price is to be determined must be set forth in the
resolution. Non-compliance with this requirement, other than a complete
omission of both the issue price and the basis on which it is to be determined,
would not render the resolution void but would merely give rise to an action to
set aside the resolution under Section 246. To be actionable, such an action
would need to be initiated within one month after the adoption of the
resolution. Since this time period has lapsed, the resolution could not be set
aside in this manner. Although we are of the opinion that it would be highly
unlikely, we cannot completely dismiss the possibility that the German Supreme
Court could render a final nullity judgment if a third party were instead to
bring an action for declaration of nullity of the resolution regarding
conditional capital II. To our knowledge, there is no binding legal authority
supporting such a declaration. However, German stock corporation law has also
been interpreted to the effect that, in the case of a nullity judgment, the
shares issued out of our conditional capital II would be deemed invalid.
Consequently, the holders of those shares would not be entitled to vote at our
shareholders' meetings. If the holders of invalid shares attended a
shareholders' meeting in the future, any resolutions passed at that meeting
could potentially be set aside if, excluding the invalid votes, the resolution
would not have been passed by the requisite vote. In addition, any receipt of
any distributions or dividends by the holders of invalid shares would be deemed
unjust, and this could give rise to claims against us in the amount of any
unjust distribution or dividends. We consider the likelihood any such claims
being raised to be low.

If both valid and invalid shares were traded, all of our shares would
eventually become indistinguishably commingled so that it would become
impossible to distinguish if and to what extent a particular shareholder holds
valid or invalid shares. As a consequence, after some time, all or
substantially all of our shareholders would hold both valid and invalid shares.
Although we cannot deny the possibility that certain shareholders could assert
damage claims against us, we do not believe that this would cause damage to any
of our shareholders because the proportionate stake of each shareholder would
not be affected. Regardless of this, we are of the opinion that, even if the
underlying resolution regarding conditional capital II were declared void by
the German Supreme Court, the shares issued out of that capital would,
regardless of the invalidity of the underlying resolution, have to be treated
as validly issued in accordance with the German legal principles of de facto
companies (faktische Gesellschaft). In addition, we intend to take all
appropriate steps to cure the potential invalidity. These steps could include
making an offer to all holders of invalid shares to exchange their invalid
shares for valid ones issued out of a properly authorized capital. In any
event, an action for declaration of nullity of the resolution regarding our
conditional capital II would be time barred if brought after the lapse

57
<PAGE>

of the relevant statute of limitations, which statute will lapse within less
than 18 months. Less than 5.4% of our current outstanding shares have been
issued out of our conditional capital II.

All shares issued by us have been issued in, or transformed into, bearer
ordinary shares. The shares are freely transferable. Ownership of the shares
will pass at the earliest upon delivery or, if such shares are deposited with a
clearing system, in accordance with the rules of the relevant clearing system.
The shares may be deposited with, and held through, Deutsche Borse Clearing AG,
or DBC, the German clearing system based in Frankfurt am Main, Germany.

Notification Requirements

Under the German Stock Corporation Act, any enterprise owning shares in a
German stock corporation must promptly notify that corporation in writing if
the aggregate number of shares held by it exceeds, or declines to, a threshold
of 25 or 50 percent of the corporation's capital. For the purpose of this
notice requirement, shares owned by an enterprise include shares owned by an
enterprise it controls, directly or indirectly, as well as shares held by a
person on behalf of any of such entities. If a shareholder fails to give this
notice, and if such failure continues, that shareholder may not exercise any
rights as a shareholder and is not entitled to receive dividends on such
shares.

Shareholders' Meetings

At our annual general shareholders' meeting, our shareholders resolve the
allocation and distribution of profit, approve or disapprove the actions of the
members of the management board and the supervisory board and appoint our
auditors. The meeting takes place within the first eight months of our fiscal
year, which runs from January 1 to December 31, and is called by the management
board. Our shareholders also periodically elect the members of the supervisory
board. Shareholder approval is required for important corporate measures, which
include:

. capital increases and decreases;

. approval of stock options;

. issuance of bonds convertible into shares;

. bonds with warrants to purchase shares;

. profit participating bonds and profit participating rights;

. amendments to the articles of association; and

. mergers and similar transactions and the dissolution of our company.

Special meetings may be called by the management board or the supervisory
board or upon request of shareholders holding, individually or collectively, at
least 5 percent of the nominal value of our capital stock. Shareholders holding
in total at least 5 percent of our capital stock or shares in total nominal
amount of at least DM 1,000,000 or (Euro)500,000 may require that modified or
additional resolutions be proposed at the shareholders' meeting and that those
resolutions be published prior to the meeting. Notices of shareholders'
meetings are announced in the German Federal Gazette (Bundesanzeiger) one month
prior to the meeting. The notice consists of the publication of the time and
place of the meeting, the agenda and the conditions for participation of
shareholders.

The right to attend and vote at a shareholders' meeting is only accorded to
those shareholders who deposit their shares or certificates of deposit of a
bank serving as a depositary for such securities at least four working days,
excluding Saturdays, with us, a German notary, a bank serving as a depositary
for such securities (Wertpapiersammelbank) or at any other place of deposit
specified in the notice of the meeting. Shares are also

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<PAGE>

deemed to have been deposited if, with the consent of one of the depositees
listed above, they are held for such depositee in a bank account and are
blocked until the end of the shareholders' meeting. In order to exercise the
right to attend and vote at the meeting, shareholders must provide us with
appropriate documentation which evidences the deposit of their shares as
described above at the meeting. Following a deposit of shares or the blocking
of the account in which they are held, a holder of shares may still sell or
otherwise dispose of his shares. In that event, any voting instructions a
shareholder may have given with respect to such shares will be ignored.
Shareholders may appoint proxies to represent them at shareholders' meetings.

For information on the voting rights of holders of ADRs, please see
"Description of American Depositary Shares."

Voting Rights

Each share entitles its holder to one vote. Generally, shareholders are
entitled to vote at shareholders' meetings in proportion to the number of
shares held, and a simple majority of votes cast is sufficient to approve a
measure unless a higher majority is required by German law or by the articles
of association. The German Stock Corporation Act requires that certain
significant resolutions be passed by a majority of at least three-quarters of
the capital stock present or represented at the meeting at which the vote is
taken. According to our articles of association, a simple majority of votes
cast at the shareholders' meeting is sufficient to pass a shareholder
resolution unless mandatory provisions of the German Stock Corporation Act
provide otherwise. The mandatory provisions, according to which a resolution
can only be passed by a majority of at least three quarters of the capital
stock present or represented, are the following:

. share capital increases that exclude shareholders' preemptive rights;

. the creation of authorized or conditional capital;

. changes to the articles of association modifying corporate purpose;

. any decrease of capital;

. mergers and similar transactions;

. dissolution; and

. company agreements (Unternehmensvertrage) like denomination or profit
transfer agreements.

The articles of association do not require higher majorities for any
additional resolutions.

Dividends

We have not declared or paid any cash dividends on our capital stock and do
not intend to pay any cash dividends in the foreseeable future but plan to
retain all earnings to finance our operations and expansion of our business.
Future dividends may be proposed by the supervisory board and the management
board in the general meeting of stockholders. Resolutions on the use of
earnings are considered at the annual general meeting of stockholders taking
place in the following fiscal year.

For information concerning the receipt of dividends by holders of ADSs,
please see "Description of American Depositary Shares."

Preemptive Rights

Under the German Stock Corporation Act, a shareholder in a stock corporation
has a preferential or preemptive right to subscribe for shares, debt
instruments convertible into shares, or involving a profit participation, and
to participation rights issued by the corporation in proportion to the shares
held by that shareholder. Under the German Stock Corporation Act, this
preferential right can be denied or limited only through a shareholders'
resolution approved by a majority of three-quarters of the capital stock
represented at a shareholders' meeting in person or by proxy. The resolution
must specifically approve both the capital stock

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<PAGE>

increase and the denial or limitation of the shareholders' preemption rights.
Even with a three-quarters majority, the denial or limitation of preemptive
rights is permissible only under limited circumstances, including when:

. the capital increase involves a contribution in cash
(Barkapitalerhohung);

. the capital increase does not exceed 10% of the corporation's capital
(Grundkapital); and

. the issue price does not fall significantly below the price of the
corporation's shares on a stock exchange on which its shares are listed.

Preemptive rights may be transferred by agreement and delivery of the coupon
evidencing these rights. If the shares to which the preemptive rights relate
are held in a clearing system, the rights may be transferred in accordance with
the rules of such clearing system. Exercisable preemptive rights attaching to
the shares would generally be traded on the Neuer Markt of the Frankfurt Stock
Exchange for a limited number of days.

Due to the restrictions on the offer and sale of securities in the United
States under U.S. securities laws and regulations, we cannot assure you that
any offer of new shares to existing shareholders on the basis of their
preemptive rights will be made to U.S. holders of ADSs or shares. See
"Description of American Depositary Shares."

No Stockholder Action by Written Consent and Special Meetings

Any action requiring the approval of our shareholders may only be taken at a
duly called ordinary or special meeting, and may not be effected by a written
consent in lieu of such a meeting. This provision may have the effect of
delaying votes on a shareholder proposal until the next general meeting, unless
a special meeting is called by shareholders holding at least 5% of the nominal
value of our capital stock.

Liquidation

Apart from liquidation as a result of bankruptcy proceedings, our company may
be liquidated only with a majority of four-fifths of the votes cast and three-
quarters of the capital stock present or represented at a shareholders' meeting
at which the vote is taken. In accordance with the German Stock Corporation
Act, upon our liquidation, any liquidation proceeds remaining after paying off
all of our liabilities would be distributed among shareholders in proportion to
the total number of the shares held by each shareholder.

Purchase by Our Company of Our Own Shares

Under the German Stock Corporation Act, a corporation may not purchase its
own shares, subject to certain limited exceptions. The aggregate number of such
shares repurchased by a German corporation may not in general exceed ten
percent of its capital stock. At the shareholders' meeting held on June 21,
1999, we were authorized, until December 20, 2000, to purchase our own shares
up to a maximum of 10% of our capital stock. We will publish details of
relevant dealings in our own equity securities each year in our annual report.

Antitakeover Provisions

To comply with the admission regulations of the Neuer Markt of the Frankfurt
Stock Exchange, we have adopted the Takeover Code recommended by the Stock
Exchange Expert Commission (Borsensachverstandigenkommission) at the German
Federal Ministry of Finance. This Takeover Code, while not having the force of
law, is nevertheless in practice complied with by all relevant market
participants. These provisions, and the provisions of our articles of
association, may have the effect of deterring hostile takeovers or delaying or
preventing changes in our control or management, including transactions in
which shareholders might otherwise receive a premium for their shares over then
current market prices. In addition, these provisions may limit the ability of
shareholders to approve transactions that they may deem to be in their best
interests. See "Risk Factors--Certain antitakeover provisions under German law
and in our articles of association may discourage takeover attempts."

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Amendment of Articles of Association

Resolutions seeking to amend the articles of association may be proposed
either jointly by the supervisory board and the management board or by
shareholders holding a total of at least 5% of our capital stock or shares in
total nominal amount of at least DM 1 million or (Euro)500,000. Any such
resolution must be passed by a majority of at least three-quarters of the
nominal capital stock present or represented at the meeting at which the vote
is taken.

Deliverability and Clearing

The shares and ADSs being offered hereunder will initially be represented by
one or more global share certificates deposited with Clearstream Banking AG.
Several shares may be represented by one certificate. The form and content of
the share certificates, the dividend coupons and the renewal coupons will be
determined by the management board with the consent of the supervisory board.

On , 2000, the global share certificates representing the shares
were deposited with Clearstream Banking AG, as share depositary. The shares are
expected to be accepted for clearance through Clearstream Banking AG, the
Euroclear System and Clearstream Banking, societe anonyme. The shares may be
credited at the option of investors either to a German bank's Clearstream
Banking AG account or to the accounts of participants with Euroclear or
Clearstream Banking, societe anonyme. Our ADSs will be eligible for clearance
through the facilities of The Depository Trust Company.

The German securities identification number (WKN) of the shares is 622 700.
The international securities identification number (ISIN) of the shares is DE
000 622 7002 and the ISIN of our ADSs is US 46069W 10 09. The common code of
the shares is 008885109. The CUSIP number of our ADSs is 46069W 10 0.

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<PAGE>

SHARES ELIGIBLE FOR FUTURE SALE

Following this offering, we will have 17,313,104 ordinary shares outstanding,
assuming no exercise of the over-allotment option and no exercise of
outstanding options to purchase shares based on the shares outstanding as of
December 31, 1999. The 4,350,000 ADSs sold in this offering, representing
435,000 shares, are freely tradable without restriction or further registration
under the Securities Act of 1933, except that any shares held by our
"affiliates", as that term is defined in Rule 144 under the Securities Act, may
generally only be sold in compliance with the limitations of Rule 144 described
below.

The remaining 16,878,104 ordinary shares are deemed "restricted securities"
as defined under Rule 144. Restricted securities may be sold in the public
market in the United States only if they become registered or if they qualify
for an exemption from registration under Rule 144, Rule 701 or Rule 904 under
the Securities Act, which are summarized below. Subject to the lock-up
agreements described below and the provisions of Rules 144, 701 and
16,878,104 shares will be eligible for sale from time to time after the date of
this prospectus.

Prior to this offering, including our executive officers and members of our
supervisory board and management board, holders of a total of approximately
5,281,647 shares have entered into lock-up agreements generally providing that
they will not, subject to limited exceptions, offer, sell, contract to sell or
otherwise dispose of, or enter into any transaction, including any derivative
transaction, having an economic effect similar to that of a sale of, any of our
shares or any other of our securities which are substantially similar to our
shares or which are convertible into or exchangeable for, or represent the
right to receive, our shares or securities which are substantially similar to
our shares for a period of 90 days after the date of this prospectus without
the prior written consent of Credit Suisse First Boston Corporation. As a
result of these contractual restrictions, notwithstanding possible earlier
eligibility for sale under the provision of Rules 144, 144(k), 701 and 904,
shares subject to lock-up agreements will not be eligible for sale until these
lock-up agreements expire or are waived by Credit Suisse First Boston
Corporation. See "Underwriting."

In general, under Rule 144, a person, or persons whose shares are aggregated,
including an affiliate, who has beneficially owned shares for at least one year
is entitled to sell, within any three-month period commencing 90 days after the
date of this prospectus, a number of shares that does not exceed the greater of

. one percent of the then outstanding shares (approximately 173,131 shares
immediately after this offering); or

. the average weekly trading volume in the shares during the four calendar
weeks preceding the date on which notice of such sale is filed, subject
to certain restrictions.

In addition, a person who is not deemed to have been an affiliate of ours 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, would be entitled to
sell such shares under Rule 144(k) without regard to the requirements described
above. To the extent that shares were acquired from an affiliate of ours, an
acquiror's holding period for the purpose of effecting a sale under Rule 144
commences on the date of transfer from the affiliate.

Rule 701 under the Securities Act provides that shares acquired pursuant to
written plans, such as our equity incentive plans, may be resold by persons
other than affiliates, beginning 90 days after the date of this prospectus,
subject only to the manner of sale provisions of Rule 144, and by affiliates,
beginning 90 days after the date of this prospectus, subject to all provisions
of Rule 144 except its one-year minimum holding period.

Rule 904 of Regulation S under the Securities Act provides that shares owned
by any person, other than persons deemed to be affiliates by virtue of their
significant shareholdings in our company 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 certain
other conditions. In general, this means that the shares, including
"restricted" shares and

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shares held by our directors and officers who do not own a significant
percentage of the shares, may be sold without registration on the Neuer Markt
of the Frankfurt Stock Exchange or otherwise outside the United States.

Prior to this offering, our shares have been listed on the Neuer Markt of the
Frankfurt Stock Exchange. No prediction can be made as to the effect, if any,
that market sales of shares or the availability of shares for sale will have on
the market price prevailing from time to time. Nevertheless, sales of
substantial amounts of shares in the public market, especially by affiliates,
could adversely affect the market price of our shares and ADSs and could impair
our future ability to raise capital through the sale of our equity securities.

We have agreed, to the extent permitted by law, not to issue, sell or
otherwise dispose of any shares during the 90-day period following the date of
this prospectus and have agreed to neither announce nor effect any increase in
capital during such period without the prior written consent of the global
coordinator of this offering, except that we may issue shares and grant options
under our equity incentive plans. See "Risk Factors--Future sale of shares of
our shares may cause our share prices to decline."

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DESCRIPTION OF AMERICAN DEPOSITARY SHARES

Citibank, N.A. will act as the depositary bank for our ADSs. Citibank's
depositary offices are located at 111 Wall Street, New York, New York 10005.
ADSs represent ownership interests in securities that are on deposit with the
depositary bank. ADSs are normally represented by certificates that are
commonly known as American Depositary Receipts or ADRs. The depositary bank
typically appoints a custodian to safekeep the securities on deposit. In this
case, the custodian is Citibank AG, located at Neue Mainzer Strabe 75,
60311 Frankfurt am Main, Germany 4189211.

We have appointed Citibank as depositary bank pursuant to a deposit
agreement. A copy of the deposit agreement is on file with the Securities and
Exchange Commission under cover of a registration statement on Form F-6. You
may obtain a copy of the deposit agreement from the Securities and Exchange
Commission's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C.
20549. Please refer to registration number 333-11642 when retrieving your copy.

We are providing you with a summary description of our ADSs and your rights
as an owner of ADSs. Please remember that summaries by their nature lack the
precision of the information summarized and that a holder's rights and
obligations as an owner of ADSs will be determined by the deposit agreement and
not by this summary. We urge you to review the deposit agreement in its
entirety as well as the form of ADR attached to the deposit agreement.

Each ADS represents 1/10 of a share of INTERSHOP Communications AG on deposit
with the custodian bank. An ADS will also represent any other property received
by the depositary bank or the custodian on behalf of the owner of the ADS but
that has not been distributed to the owners of ADSs because of legal
restrictions or practical considerations.

If you become an owner of ADSs, you will become a party to the deposit
agreement and therefore will be bound to its terms and to the terms of the ADR
that represents your ADSs. The deposit agreement and the ADR specify our rights
and obligations as well as your rights and obligations as an owner of ADSs and
those rights and obligations of the depositary bank. As an ADS holder, you
appoint the depositary bank to act on your behalf in certain circumstances. The
deposit agreement is governed by New York law. However, our obligations to the
holders of ordinary shares will continue to be governed by the laws of Germany,
which may be different from the laws in the United States.

As an owner of ADSs, you may hold your ADSs either by means of an ADR
registered in your name or through a brokerage or safekeeping account. If you
decide to hold your ADSs through your brokerage or safekeeping account, you
must rely on the procedures of your broker or bank to assert your rights as an
ADS owner. Please consult with your broker or bank to determine what those
procedures are. This summary description assumes you have opted to own ADSs
directly by means of an ADR registered in your name and, as such, we will refer
to you as the "holder."

Dividends and Distributions

As a holder, you generally have the right to receive the distributions we
make on the securities deposited with the custodian bank. Your receipt of these
distributions may be limited, however, by practical considerations and legal
limitations. Holders will receive distributions under the terms of the deposit
agreement in proportion to the number of ADSs held as of a specified record
date.

Distributions of Cash

Whenever we make a cash distribution for the securities on deposit with the
custodian, we will notify the depositary bank. Upon receipt of our notice, the
depositary bank will arrange for the funds to be converted into U.S. dollars
and for the distribution of the U.S. dollars to the holders.

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The conversion into U.S. dollars will take place only if practicable. The
amounts distributed to holders will be net of the fees, expenses, taxes and
governmental charges payable by holders under the terms of the deposit
agreement. The depositary will apply the same method for distributing the
proceeds of the sale of any property, such as undistributed rights, held by the
custodian in respect to securities on deposit.

Distributions of Ordinary Shares

Whenever we make a distribution of ordinary shares for the securities on
deposit with the custodian, we will notify the depositary bank. Upon receipt of
such notice, the depositary bank will either distribute to holders new ADSs
representing the ordinary shares deposited or modify the ADS-to-share ratio, in
which case each ADS you hold will represent rights and interests in the
additional ordinary shares so deposited. Only whole new ADSs will be
distributed. Fractional entitlements will be sold and the proceeds of such sale
will be distributed as in the case of a cash distribution.

The distribution of new ADSs or the modification of the ADS-to-share ratio
upon a distribution of ordinary shares will be made net of the fees, expenses,
taxes and governmental charges payable by holders under the terms of the
deposit agreement. In order to pay such taxes or governmental charges, the
depositary bank may sell all or a portion of the new ordinary shares so
distributed.

No distribution of new ADSs will be made if it would violate a law, such as
the U.S. securities laws, or if it is not reasonably practicable. If the
depositary bank does not distribute new ADSs as described above, it will use
its best efforts to sell the ordinary shares received and will distribute the
proceeds of the sale as in the case of a distribution of cash.

Distributions of Rights

Whenever we intend to distribute rights to purchase additional ordinary
shares, we will give prior notice to the depositary bank and we will assist the
depositary bank in determining whether it is lawful and reasonably practicable
to distribute rights to purchase additional ADSs to holders.

The depositary bank will establish procedures to distribute rights to
purchase additional ADSs to holders and to enable holders to exercise those
rights if it is lawful and reasonably practicable to make the rights available
to holders of ADSs, and if we provide all of the documentation contemplated in
the deposit agreement, such as opinions to address the lawfulness of the
transaction. You may have to pay fees, expenses, taxes and other governmental
charges to subscribe for the new ADSs upon the exercise of your rights. The
depositary bank is not obligated to establish procedures to facilitate the
distribution and exercise by holders of rights to purchase new ordinary shares
directly rather than new ADSs.

The depositary bank will not distribute the rights to you if:

. we do not request that the rights be distributed to you or we ask that
the rights not be distributed to you;

. we fail to deliver satisfactory documents to the depositary bank; or

. it is not reasonably practicable to distribute the rights.

The depositary bank will sell the rights that are not exercised or not
distributed if such sale is lawful and reasonably practicable. The proceeds of
that sale will be distributed to holders as in the case of a cash distribution.
If the depositary bank is unable to sell the rights, it will allow the rights
to lapse, and you will realize no benefit from them.

Elective Distributions

Whenever we intend to distribute a dividend payable at the election of
shareholders either in cash or in additional ordinary shares, we will give
prior notice to the depositary bank and will indicate whether we wish

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<PAGE>

the elective distribution to be made available to you. In such case, we will
assist the depositary bank in determining whether such distribution is lawful
and reasonably practical.

The depositary bank will make the election available to you only if it is
reasonably practical and if we have provided the documentation contemplated in
the deposit agreement. In such case, the depositary bank will establish
procedures to enable you to elect to receive either cash or additional ADSs, in
each case as described in the deposit agreement.

If the election is not made available to you, you will receive either cash or
additional ADSs, depending on what a shareholder in Germany would receive for
failing to make an election, as is more fully described in the deposit
agreement.

Other Distributions

Whenever we intend to distribute property other than cash, ordinary shares or
rights to purchase additional ordinary shares, we will notify the depositary
bank in advance and will indicate whether we wish that distribution to be made
to you. If so, we will assist the depositary bank in determining whether a
distribution to holders is lawful and reasonably practicable.

If it is reasonably practicable to distribute that property to you and if we
provide the documentation contemplated in the deposit agreement, the depositary
bank will distribute the property to the holders in a manner the bank
reasonably deems practicable.

The distribution will be made net of fees, expenses, taxes and governmental
charges payable by holders under the terms of the deposit agreement. In order
to pay any taxes and governmental charges, the depositary bank may sell all or
a portion of the property received.

The depositary bank will not distribute the property to you and will sell the
property if:

. we do not request that the property be distributed to you or if we ask
that the property not be distributed to you;

. we do not deliver satisfactory documents to the depositary bank; or

. the depositary bank determines that all or a portion of the distribution
to you is not reasonably practicable.

The proceeds of this type of sale will be distributed to holders as in the
case of a cash distribution.

Redemption

Whenever we decide to redeem any of the securities on deposit with the
custodian, we will notify the depositary bank. If it is reasonably practicable
and if we provide the documentation contemplated in the deposit agreement, the
depositary bank will mail notice of the redemption to the holders.

The custodian will be instructed to surrender the ordinary shares being
redeemed against payment of the applicable redemption price. The depositary
bank will convert the redemption funds received into U.S. dollars upon the
terms of the deposit agreement and will establish procedures to enable holders
to receive the net proceeds from the redemption upon surrender of their ADRs to
the depositary bank. You may have to pay fees, expenses, taxes and other
governmental charges upon the redemption of your ADSs. If less than all ADSs
are being redeemed, the ADSs to be retired will be selected by lot or on a pro
rata basis, as we and the depositary bank may determine.

Changes Affecting Ordinary Shares

The ordinary shares held on deposit for your ADSs may change from time to
time. For example, there may be a change in nominal or par value, a split-up,
cancellation, consolidation or classification of the ordinary shares or a
recapitalization, reorganization, merger, consolidation or sale of assets.

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If any such change were to occur, your ADSs would, to the extent permitted by
law, represent the right to receive the property received or exchanged in
respect of the ordinary shares held on deposit. The depositary bank may in
those circumstances deliver new ADSs to you or call for the exchange of your
existing ADSs for new ADSs. If the depositary bank may not lawfully distribute
that property to you, the depositary bank may sell that property and distribute
the net proceeds to you as in the case of a cash distribution.

Issuance of ADSs upon Deposit of Ordinary Shares

The depositary bank may create ADSs on your behalf if you or your broker
deposit ordinary shares with the custodian. The depositary bank will deliver
these ADSs to the person you indicate only after you pay any applicable
issuance fees and any charges and taxes payable for the transfer of the
ordinary shares to the custodian.

The issuance of ADSs may be delayed until the depositary bank or the
custodian receives confirmation that all required approvals have been given and
that the ordinary shares have been duly transferred to the custodian. The
depositary bank will only issue ADSs in whole numbers.

When you make a deposit of ordinary shares, you will be responsible for
transferring good and valid title to the depositary bank. As such, you will be
deemed to represent and warrant that:

. the ordinary shares are duly authorized, validly issued, fully paid,
nonassessable and legally obtained;

. all preemptive and similar rights, if any, with respect to such shares
have been validly waived or exercised;

. you are duly authorized to deposit the ordinary shares;

. the ordinary shares presented for deposit are free and clear of any
lien, encumbrance, security interest, charge, mortgage or adverse claim,
and are not, and the ADSs issuable upon such deposit will not be
"restricted securities," as defined in the deposit agreement; and

. the ordinary shares presented for deposit have not been stripped of any
rights or entitlements.

If any of the representations or warranties are incorrect in any way, we and
the depositary bank may, at your cost and expense, take any and all actions
necessary to correct the consequences of the misrepresentations.

Withdrawal of Ordinary Shares upon Cancellation of ADSs

As a holder, you will be entitled to present your ADSs to the depositary bank
for cancellation and then receive the underlying ordinary shares at the
custodian's offices. In order to withdraw the ordinary shares represented by
your ADSs, you will be required to pay to the depositary the fees for
cancellation of ADSs and any charges and taxes payable upon the transfer of the
ordinary shares being withdrawn. You assume the risk for delivery of all funds
and securities upon withdrawal. Once canceled, ADSs will not have any rights
under the deposit agreement.

If you hold an ADR registered in your name, the depositary bank may ask you
to provide proof of identity and genuineness of any signature and certain other
documents as the depositary bank may deem appropriate before it will cancel
your ADSs. The withdrawal of the ordinary shares represented by your ADSs may
be delayed until the depositary bank receives satisfactory evidence of
compliance with all applicable laws and regulations. Please keep in mind that
the depositary bank will only accept ADSs for cancellation that represent a
whole number of securities on deposit.

You will have the right to withdraw the securities represented by your ADSs
at any time except for:

. temporary delays that may arise because the transfer books for the
ordinary shares or ADSs are closed or ordinary shares are immobilized on
account of a shareholders' meeting or a payment of dividends;

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. obligations to pay fees, taxes and similar charges; or

. restrictions imposed because of laws or regulations applicable to ADSs
or the withdrawal of securities on deposit.

The deposit agreement may not be modified to impair your right to withdraw
the securities represented by your ADSs except to comply with mandatory
provisions of law.

Voting Rights

As a holder, you generally have the right under the deposit agreement to
instruct the depositary bank to exercise the voting rights for the ordinary
shares represented by your ADSs. The voting rights of holders of ordinary
shares are described in "Description of Capital Stock--Voting Rights."

At our request, the depositary bank will mail to you any notice of
shareholders' meeting received from us together with information explaining how
to instruct the depositary bank to exercise the voting rights of the securities
represented by ADSs.

If the depositary bank timely receives voting instructions from a holder of
ADSs, it will endeavor to vote the securities represented by the holder's ADSs
in accordance with such voting instructions.

Please note that the ability of the depositary bank to carry out voting
instructions may be limited by practical and legal limitations and the terms of
the securities on deposit. We cannot assure you that you will receive voting
materials in time to enable you to return voting instructions to the depositary
bank in a timely manner. Securities for which no voting instructions have been
received will not be voted.

Fees and Charges

As an ADS holder, you will be required to pay the following service fees to
the depositary bank:

<TABLE>
<CAPTION>
Service Fees
------- ----
<S> <C>
Issuance of ADSs.................................... Up to 5c per ADS issued
Cancellation of ADSs................................ Up to 5c per ADS issued
Exercise of rights to purchase additional ADSs...... Up to 5c per ADS canceled
Distribution of cash dividend or ADSs pursuant to
stock
dividends (or other fee distribution of stock)..... Up to 2c per ADS held
Distribution of cash upon sale of rights and other
entitlements....................................... Up to 2c per ADS held
</TABLE>

As an ADS holder you will also be responsible to pay certain fees and
expenses incurred by the depositary bank and certain taxes and governmental
charges such as:

. fees for the transfer and registration of ordinary shares, such as upon
deposit and withdrawal of ordinary shares;

. expenses incurred for converting foreign currency into U.S. dollars;

. expenses for cable, telex and fax transmissions and for delivery of
securities; and

. taxes and duties upon the transfer of securities, such as when shares
are deposited or withdrawn from deposit.

We have agreed to pay certain other charges and expenses of the depositary
bank. Note that the fees and charges you may be required to pay may vary over
time and may be changed by us and by the depositary bank. You will receive
prior notice of those changes.

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Amendments and Termination

We may agree with the depositary bank to modify the deposit agreement at any
time without your consent. We undertake to give holders 30 days prior notice of
any modifications that would prejudice any of their substantial rights under
the deposit agreement, except in very limited circumstances enumerated in the
deposit agreement.

You will be bound by the modifications to the deposit agreement if you
continue to hold your ADSs after the modifications to the deposit agreement
become effective. The deposit agreement cannot be amended to prevent you from
withdrawing the ordinary shares represented by your ADSs, except as permitted
by law.

We have the right to direct the depositary bank to terminate the deposit
agreement. Similarly, the depositary bank may in certain circumstances on its
own initiative terminate the deposit agreement. In either case, the depositary
bank must give notice to holders at least 30 days before termination.

Upon termination, the following will occur under the deposit agreement:

. For a period of six months after termination, you will be able to
request the cancellation of your ADSs and the withdrawal of the ordinary
shares represented by your ADSs and the delivery of all other property
held by the depositary bank in respect of those ordinary shares on the
same terms as prior to the termination. During this six months period
the depositary bank will continue to collect all distributions or
dividends received on the ordinary shares on deposit but will not
distribute any property to you until you request the cancellation of
your ADSs.

. After the expiration of such six months period, the depositary bank may
sell the securities held on deposit. The depositary bank will hold the
proceeds from that sale and any other funds then held for holders of
ADSs in a non-interest bearing account. At that point, the depositary
bank will have no further obligations to holders other than to account
for the funds then held for holders of ADSs still outstanding.

Books of Depositary

The depositary bank will maintain ADS holder records at its depositary
office. You may inspect those records at its office during regular business
hours but solely for the purpose of communicating with other holders in the
interest of business matters relating to ADSs and the deposit agreement.

The depositary bank will maintain records in New York facilities to record
and process the issuance, cancellation, combination, split-up and transfer of
ADRs. These facilities may be closed from time to time, to the extent not
prohibited by law.

Limitations on Obligations and Liabilities

The deposit agreement limits our obligations and the depositary bank's
obligations to you. Please note the following:

. We and the depositary bank are obligated only to take the actions
specifically stated in the depositary agreement without negligence or
bad faith.

. The depositary bank disclaims any liability for any failure to carry out
voting instructions, for any manner in which a vote is cast or for the
effect of any vote, provided it acts in good faith and in accordance
with the terms of the deposit agreement.

. The depositary bank disclaims any liability for any failure to determine
the lawfulness or practicality of any action, for the content of any
document forwarded to you on our behalf or for the accuracy of any
translation of such a document, for the investment risks associated with
investing in ordinary shares, for the validity or value of the ordinary
shares, for any tax consequences that result from the

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ownership of ADSs, for the credit worthiness of any third party, for
allowing any rights to lapse under the terms of the deposit agreement,
for the timeliness of any of our notices or for our failure to give
notice, provided we act without negligence or bad faith.

. We and the depositary bank will not be obligated to perform any act that
is inconsistent with the terms of the deposit agreement.

. We and the depositary bank disclaim any liability if we are prevented or
forbidden from acting on account of any law or regulation, any provision
of our articles of association, any provision of any securities on
deposit or by reason of any act of God or war or other circumstances
beyond our control.

. We and the depositary bank disclaim any liability by reason of any
exercise of, or failure to exercise, any discretion provided for the
deposit agreement or in our articles of association or in any provisions
of securities on deposit.

. We and the depositary bank further disclaim any liability for any action
or inaction in reliance on the advice or information received from legal
counsel, accountants, any person presenting ordinary shares for deposit,
any holder of ADSs or authorized representative thereof, or any other
person believed by either of us in good faith to be competent to give
such advice or information.

. We and the depositary bank also disclaim liability for the inability by
a holder to benefit from any distribution, offering, right or other
benefit which is made available to holders of ordinary shares but is
not, under the terms of the deposit agreement, made available to you.

. We and the depositary bank may rely without any liability upon any
written notice, request or other document believed to be genuine and to
have been signed or presented by the proper parties.

Pre-Release Transactions

The depositary bank may, in certain circumstances, issue ADSs before
receiving a deposit of ordinary shares or release ordinary shares before
receiving ADSs. These transactions are commonly referred to as "pre-release
transactions." The deposit agreement limits the total size of pre-release
transactions and imposes a number of conditions on such transactions, such as
the need to receive collateral, the type of collateral required and the
representations required from brokers. The depositary bank may retain any
compensation earned as a result of engaging in the pre-release transactions.

Taxes

You will be responsible for the taxes and other governmental charges payable
on ADSs and the securities represented by ADSs. We, the depositary bank and the
custodian may deduct from any distribution the taxes and governmental charges
payable by holders and may sell any and all property on deposit to pay the
taxes and governmental charges payable by holders. You will be liable for any
deficiency if the sale proceeds do not cover the taxes that are due.

The depositary bank may refuse to issue ADSs, to deliver, transfer, split and
combine ADRs or to release securities on deposit until all taxes and charges
are paid by the applicable holder. The depositary bank and the custodian may
take reasonable administrative actions to obtain tax refunds and reduced tax
withholding for any distributions on your behalf. However, you may be required
to provide to the depositary bank and to the custodian proof of taxpayer status
and residence and such other information as the depositary bank and the
custodian may require to fulfill legal obligations. You are required to
indemnify us, the depositary bank and the custodian for any claims with respect
to taxes based on any tax benefit obtained for you.

Also see "German Taxation" and "Taxation of U.S. Investors."

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Foreign Currency Conversion

The depositary bank will arrange for the conversion of all foreign currency
received into U.S. dollars if such conversion is practical, and it will
distribute the U.S. dollars in accordance with the terms of the deposit
agreement. You may have to pay fees and expenses incurred in converting foreign
currency, such as fees and expenses incurred in complying with currency
exchange controls and other governmental requirements.

If the conversion of foreign currency is not practical or lawful, or if any
required approvals are denied or not obtainable at a reasonable cost or within
a reasonable period, the depositary bank may take the following actions in its
discretion:

. convert the foreign currency to the extent practical and lawful and
distribute the U.S. dollars to the holders for whom the conversion and
distribution is lawful and practical;

. distribute the foreign currency to holders for whom the distribution is
lawful and practical; and

. hold the foreign currency, without liability for interest, for the
applicable holders.

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THE GERMAN EQUITY MARKET

The Frankfurt Stock Exchange and the Neuer Markt

The Frankfurt Stock Exchange is the most significant of the eight German
stock exchanges, handling 17,022 securities in 1998. In Germany, total turnover
in equities grew by more than 40% in 1997, to DM 1.4 trillion, of which DM 1.2
trillion were attributed to the Frankfurt Stock Exchange. The Frankfurt Stock
Exchange has become the second largest stock exchange in Europe and the fourth
largest stock exchange in the world in terms of turnover, ranked after the New
York Stock Exchange, The Nasdaq Stock Market's National Market and the London
Stock Exchange.

The Neuer Markt of the Frankfurt Stock Exchange is a 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. In 1998, the index of the Neuer Markt growth segment closed at
2,744.55 points, up 174% from 1997. 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 ordinary shares listed on the Neuer Markt takes place on the floor
of the stock exchange, but is computer-aided. Markets in listed securities are
generally of the auction type, but listed securities also change hands in
inter-bank dealer markets off of the Frankfurt Stock Exchange. Price formation
is determined by open bid by state-appointed specialists (Aamtliche Makler) who
are themselves exchange members, but who do not, as a rule, deal with the
public. Prices of currently traded securities are displayed continuously during
trading hours. At the half-way point of each trading day, a single standard
quotation is determined for all ordinary 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.

Ordinary shares traded on the Neuer Markt can also be accepted for trading on
a computer-aided system called Xetra. Trading on Xetra 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.

Transactions on the Frankfurt Stock Exchange, including transactions within
the Xetra system, are settled on the second business day following trading.
Transactions for large volumes or involving foreign parties off of the
Frankfurt Stock Exchange 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 rules governing securities trading by
German banks (Sonderbedingungen fur Wertpapiergeschafte), customer 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 of the Frankfurt Stock Exchange is the
introduction of the obligatory "Betreuer," or market-maker, an entity admitted
for trading at the Frankfurt Stock Exchange which provides additional liquidity
by quoting prices for the buying and selling of ordinary shares on request.
Each issuer on the Neuer Markt of the Frankfurt Stock Exchange has to nominate
at least two Betreuer which will not only ensure that there is sufficient
liquidity for its ordinary shares, but also serve as consultants on all stock
market related matters for the issuer. Neuer Markt equity listings are admitted
to electronic trading through Xetra.

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Trading on German stock exchanges is regulated by, among others, the Federal
Supervisory Office for Securities Trading (Bundesaufsichtsamt fur den
Wertpapierhandel).

We will apply to list our ADSs on The Nasdaq Stock Market's National Market
under the symbol "ISHP" and the ordinary shares are listed on the Neuer Markt
of the Frankfurt Stock Exchange. Ordinary shares trade on the Neuer Markt under
the symbol "ISH." The Neuer Markt is still a relatively new market.
Accordingly, we cannot assure you that an active trading market for the
ordinary shares will be maintained 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
ordinary shares and in turn our ADSs. Persons proposing to trade the ordinary
shares on the Neuer Markt should inform themselves about the potential costs of
such trading.

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GERMAN TAXATION

The following is a summary discussion of certain tax matters arising under
German tax law. Our discussion does not purport to be a comprehensive, but we
have provided a materially complete description of all of the tax
considerations which may be relevant to a decision to purchase ADSs in this
offering. The discussion is based on the tax laws of the Federal Republic of
Germany as in effect on the date of this prospectus, which are subject to
change, possibly with retroactive effect. With the exception of certain
illustrative data, the discussion is limited to the taxation of dividends,
capital gains, income, gifts and inheritance under German law, and does not
address all aspects of such German taxation. The discussion does not consider
any specific facts or circumstances that may apply to a particular purchaser.
In particular, this discussion does not comprehensively treat the tax
considerations that will be relevant to prospective investors who reside
outside Germany. For a discussion of certain tax considerations relevant to
U.S. investors see "Taxation of U.S. Investors." Any person who is in doubt as
to his tax position is urged to consult a tax advisor before purchasing shares.

A brief discussion of German corporate taxation precedes the discussion of
taxes applicable to shareholders.

Taxation of Our Company

In general, German corporations are subject to corporate income tax at a rate
of 40% on nondistributed profits and of 30% on distributed profits. Since
January 1, 1998, a surtax (Solidaritatszuschlag) has been charged at a rate of
5.5% on corporate income tax liability. For distributed profits generated since
1999, the effective overall tax burden from corporate income tax and surtax
amounts to 31.94%. The effective overall tax burden is higher than the
combination of the nominal rates of 31.65% (30% plus 5.5% thereof), because the
method of calculating corporate income tax liability does not apply to the
surtax.

In addition, German corporations are subject to a trade tax which, depending
upon the municipal district in which their facilities are located, can amount
to between 15% and 21% of net income. The trade tax is, however, deductible
from net income for the purpose of calculating a German corporation's regular
corporate tax. As a result, the effective burden of the trade tax generally
lies between 13% and 18% of net income.

The combination of the corporate income tax and the trade tax, together with
the surtax, lead to an average tax burden for German corporations amounting to
approximately 43% for distributed profits and approximately 52% for
undistributed profits.

Taxation of Dividends

Taxpayers resident in Germany are generally entitled to a tax credit in the
amount of three-sevenths of the gross amount, before dividend withholding tax,
of profits received in distribution. This credit reduces their personal or
corporate income tax liability. The credit also reduces the basis for the 5.5%
surtax on a German taxpayer's personal or corporate income tax liability.
Shareholders not tax resident in Germany are not entitled to this tax credit.
Even shareholders tax resident in Germany are not entitled to this tax credit
under certain circumstances, for example when they receive dividends in
distributions of profits that were tax free owing to an applicable income tax
treaty.

In addition to corporate income tax, dividends paid by a German resident
stock corporation (Aktiengesellschaft) are subject to withholding tax equal to
25% of the amount of the gross dividend distributed plus a 5.5% surtax
(Solidaritatszuschlag) on that amount, corresponding to a tax of 1.375% of the
cash dividend. The withholding tax and surtax retained by the corporation will
be credited against the personal or corporate income tax and surtax liability
of German tax resident shareholders or will be refunded to them. Thus, German
shareholders are effectively taxed in advance, in the amount of the tax credit,
the withholding tax and the surtax thereon.

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For shareholders who are tax resident in Germany, the German corporate tax
imputation system effectively leads to a neutralization of the corporate income
tax, i.e., the income underlying the dividend is taxed at the individual income
or corporate income tax rate of the shareholder. To achieve this, the income of
the shareholder is taxed on a grossed-up basis, i.e., the German tax resident
shareholder receives for taxation purposes 51.54% of the taxable dividend in
cash, 17.5% as a tax credit resulting from withholding tax, plus 0.96% tax
credit for the surtax, and 30% as a tax credit for the underlying corporate
income tax. If a shareholder's assessable personal or corporate income tax plus
surtax thereon is less than the tax credit of 48.46%, the excess tax credit
will be refunded; if the personal or corporate income tax is higher, additional
personal or corporate income tax plus surtax becomes payable.

German tax resident individual shareholders, finance companies and corporate
shareholders whose shares are part of a business property are subject to trade
tax on gross dividends received, unless the shareholder owns 10% or more of the
nominal capital stock of the company at the beginning of the calendar year. The
applicable trade tax burden generally amounts to between 15% and 21%, depending
upon the trade tax rate fixed by the municipality in which the business
facilities of the shareholder are located. Trade tax is a deductible expense
for income or corporate income tax purposes of the shareholder.

Under the provisions of any applicable income tax treaty, the level of the
German withholding tax on a dividend paid by a company tax resident in Germany
to a shareholder not tax resident in Germany may be reduced. The shareholder
entitled to the reduced rate of withholding tax under the applicable income tax
treaty is, however, generally required to file a claim with the German tax
authorities for repayment of the amount by which the actual amount of
withholding tax, including surtax, exceeds the maximum amount of withholding
tax permitted to be collected by the applicable income tax treaty.

The withholding tax on dividends may, in certain circumstances, be reduced to
zero. Essentially, this applies only in situations where the shareholder is a
qualifying corporation not tax resident in Germany but tax resident in one of
the other member states of the European Union and further requirements are met.

Where the shares are part of the business property of a permanent
establishment or a fixed place of business of the non-resident shareholder
maintained in Germany, the shareholder will be taxed on the same basis of
taxation as a shareholder tax resident in Germany who holds the shares as
business property. The shareholder can then utilize tax credits as a German tax
resident shareholder. Trade tax will be payable under the same circumstances
and at the same rate as in the case of a German tax resident shareholder. If
the shareholder is a natural person, income derived in such person's permanent
establishment or fixed place of business in Germany is subject to income tax at
such person's personal income tax rate.

The corporate income tax rate for a shareholder not tax resident in Germany
holding the shares as part of the business property of a permanent
establishment which the shareholder maintains in Germany is 40%. If the
permanent establishment earned no other income and had no expenses, such as
interest on loans to finance the shareholding or trade tax, the shareholder
would be entitled to a refund of tax amounting to 7.91%. There is no
withholding tax payable on transferring the dividend from a permanent
establishment or fixed base in Germany to a head office abroad.

Taxation of Capital Gains

A shareholder tax resident in Germany who realizes any capital gains upon the
disposal of shares is subject to taxes in Germany if the disposal is made no
later than one year after the acquisition. Most income tax treaties with
Germany provide that shareholders not resident in Germany who do not maintain a
permanent establishment or fixed base in Germany are not subject to German
income or trade tax on capital gains.

Under German tax law, a capital gain resulting from the disposal of shares is
also subject to taxation in Germany, regardless of how long the shares have
been held, if at any time during the five year period preceding

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the disposal of the shares the shareholder or, in the case of a gratuitous
acquisition of the shares, his predecessor held at least 10% of the share
capital.

Regardless of the term of the possession, any capital gains resulting from
the disposal of shares are subject to taxation in Germany if the shares were
held as part of the business property of a permanent establishment in Germany.

Gift and Inheritance Tax

Under German law, the transfer of shares will be subject to German
inheritance and gift tax on a transfer by reason of death or a gift, if:

. the shares were held by the donor or transferor as part of the business
property of a permanent establishment or a fixed base maintained in
Germany;

. the donor or transferor or the heir, donee or other beneficiary is
resident in Germany or, with respect to German citizens who are not
resident in Germany, if such donor, transferor or beneficiary has not
been continuously residing outside of Germany for a period of more than
five years; or

. the shareholder holds, alone or together with related persons, directly
or indirectly, ten percent or more of the corporation's nominal capital
stock.

The few German estate tax treaties currently in force, such as the treaty
with the United States, usually provide that German gift or inheritance tax may
only be imposed in the first two instances above.

Other German Taxes

There are no German transfer, stamp or other similar taxes which would apply
on the sale or transfer of the shares. Wealth tax is no longer levied in
respect of any taxation period which has started on January 1, 1997 or later.
For collection periods from 1998 on, the trade capital tax has been abrogated.

Planned Reform of Corporate Taxation in Germany

In December 1999, the Government of the Federal Rupublic of Germany released
a draft bill for the reform of corporate tax and the reduction of tax rates.
According to the present stage of the legislative procedure, the planned
amendments are expected to be effective January 1, 2001 at the earliest. Other
than possible significant changes within the course of the legislative
procedure, the following amendments, among others, are planned:

. The imputation system, or corporation tax credit system, shall be
abolished within a transitional period. At the shareholder's level, a
credit of the corporation tax paid by the corporation would no longer
take place.

. Retained and distributed profits of a corporation would be taxed at a
standard corporation tax rate of 25%.

. The top rate of the income tax would be cut to 48.5% by 2001. Further
decreases to 45% are planned in the following years.

. The tax rates of the withholding tax on income from capital investment
would be reduced by 5%.

. With regard to shareholders subject to unlimited income tax liability,
only half of the dividends would be subject to income tax, the so-called
sytem of taxing half of the distributed profits. If the shareholder is
subject to unlimited corporation income tax liabilty, the received
dividends would not be taxed at all.

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. Capital gains of corporations upon sale of shares would not be subject
to corporation taxation. This rule is expected to become applicable for
the first time between January 1, 2001 and January 1, 2002, depending on
the fiscal year of the corporation the shares are to be sold.

. Even after the expiration of the one-year holding period, profit from
sales of shares held by a private investor would be subject to income
tax by half, if he, or in the event of a gratuitous acquistion, one of
his predcesors, had a share in the nominal capital of the corporation of
at least 1% at some time within the last five years. This amendment
would be applicable to resident and non-resident taxpayers unless an
applicable tax treaty provides otherwise.

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TAXATION OF U.S. INVESTORS

General

The following is a summary of material United States and German tax
considerations relating to the ownership and disposition of ordinary shares or
ADSs by U.S. Holders, which we define below. As discussed below, our discussion
does not purport to be comprehensive, but we have provided a materially
complete description of the tax considerations which may be relevant to the
ownership and disposition of ordinary shares or ADSs by U.S. Holders. The
discussion is based on tax laws of the United States and Germany as in effect
on the date hereof, including the Convention Between the United States of
America and The Federal Republic of Germany for the Avoidance of Double
Taxation and the Prevention of Fiscal Evasion With Respect to Taxes on Income
and Capital and to Certain other Taxes, which we refer to as the Income Tax
Treaty, and the Convention Between the United States of America and the Federal
Republic of Germany for the Avoidance of Double Taxation with Respect to Taxes
on Estates, Inheritances, and Gifts, which we refer to as the Estate Tax
Treaty. These laws are subject to change, possibly with retroactive effect.

In general, a "U.S. Holder" is any beneficial owner of shares or ADSs:

. who is a resident of the United States for the purposes of the Income
Tax Treaty;

. who is not also a resident of the Federal Republic of Germany for the
purposes of the Income Tax Treaty;

. who owns the shares or ADSs as capital assets;

. who owns, directly or indirectly, less than 10% of the voting stock;

. who does not hold shares as part of the business property of a permanent
establishment located in Germany or as part of a fixed base of an
individual located in Germany and used for the performance of
independent personal services; and

. who is entitled to benefits under the Income Tax Treaty with respect to
income and gain derived in connection with the shares or ADSs.

The discussion does not purport to be a comprehensive description of all of
the tax considerations that may be relevant to the ownership and disposition of
shares or ADSs, and, in particular, it does not address United States federal
taxes other than income tax and German taxes other than income tax, gift and
inheritance taxes and capital tax. Moreover, the discussion does not consider
any specific facts or circumstances that may apply to a particular U.S. Holder.
Some U.S. Holders including tax-exempt entities, certain insurance companies,
traders in securities that elect to mark to market, investors that actually or
constructively own ten percent or more of the voting shares, holders subject to
the alternative minimum tax, securities broker-dealers and certain other
financial institutions, holders who hold the shares or ADSs in a hedging
transaction or as part of a straddle or conversion transaction or holders whose
functional currency is not the U.S. dollar, may be subject to special rules.
Prospective investors are urged to consult their tax advisors regarding the
United States federal, state, local, German and other tax consequences of
owning and disposing of shares or ADSs. In particular, prospective investors
are urged to consult their tax advisers to confirm their status as U.S. Holders
and the consequences to them if they do not so qualify.

In general, for United States federal income tax purposes, holders of ADRs
evidencing ADSs will be treated as the owners of the shares represented by such
ADSs. Unless the context otherwise requires, all references in this section to
"shares" are deemed to refer likewise to ADSs representing an ownership
interest in shares.

Taxation of Dividends

For United States federal income tax purposes, U.S. Holders must include in
income, as foreign source ordinary income, the gross amount of any dividend by
us, as determined before reduction for German

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withholding taxes to the extent paid or deemed paid out of our current or
accumulated earnings and profits as determined for United States federal income
tax purposes. As discussed in more detail below, the amount of the dividend
shall include, where applicable, the German tax credit-related refund, under
the Income Tax Treaty, equal to 5% of the gross amount of the dividend which is
treated for United States federal income tax purposes as a distribution equal
to 5.88% of the gross amount of the dividend actually paid.

Dividends paid in Deutsche marks to a U.S. Holder of shares will be included
in income in a U.S. dollar amount calculated by reference to the exchange rate
in effect on the date the dividends, including the deemed refund of German
corporate tax, are received by the U.S. Holder or, in the case of ADSs, by the
depositary bank. If dividends paid in Deutsche marks are converted into U.S.
dollars on the date received, U.S. Holders generally should not be required to
recognize foreign currency gain or loss in respect of the dividend income.
Generally, any gain or loss resulting from currency exchange fluctuations,
during the period from the date the dividend payment is includible in income to
the date that payment is converted into U.S. dollars, will be treated as
ordinary income or loss. Such gain or loss will generally be considered income
from sources within the United States for foreign tax credit limitation
purposes.

U.S. Holders may be eligible for a United States foreign tax credit for
certain German income taxes paid on these dividends. U.S. Holders should be
aware that under no circumstances will a United States foreign tax credit be
available in respect of any portion of a foreign tax which the U.S. Holder is
entitled to have refunded, whether pursuant to the terms of a tax treaty or
foreign law. For foreign tax credit limitation purposes, dividends paid by us
will be considered income from sources outside the United States, but generally
will be treated separately, together with other items of "passive income," or
in the case of certain holders "financial services income." Dividends paid by
us will not be eligible for the dividends-received deduction generally allowed
to United States corporations in respect of dividends received from United
States corporations.

Under German law, German corporations (as described in "German Taxation--
Taxation of Dividends") generally are required to withhold tax on dividends in
a total amount equal to 26.375% of the gross amount paid to resident and
nonresident shareholders, consisting of a 25% withholding tax plus a 1.375%
surtax. A partial refund of this withholding tax can be obtained by U.S.
Holders under the Income Tax Treaty.

In the case of a U.S. Holder, the German withholding tax is partially
refunded under the Income Tax Treaty to reduce the withholding tax to 15% of
the gross amount of the dividend. In addition, so long as the German imputation
system provides German resident individual shareholders with a tax credit for
corporate taxes on dividends paid by German corporations, the Income Tax Treaty
provides that U.S. Holders are entitled to a further refund equal to 5% of the
gross amount of the dividend. For United States federal income tax purposes,
the benefit resulting from this refund is treated as a dividend received by the
U.S. Holder with respect to German corporate taxes equal to 5.88% of the gross
amount of the dividend actually paid, subject to a 15% German withholding tax
equal to 0.88% of the dividend actually paid, that is, 15% of 5.88%.

Thus, for each $100 of gross dividend paid by us to a U.S. Holder, such
holder will initially receive $73.625, that is, $100 less 26.375% withholding
tax. The dividend after partial refund of the withholding tax under the Income
Tax Treaty will be subject to a German withholding tax of $15. If the U.S.
Holder also applies for the additional 5% refund, German withholding tax is
effectively reduced to $10. The cash received per $100 of gross dividend
therefore is $90. For United States federal income tax purposes, the U.S.
Holder will be treated as having received a total dividend of $105.88, to the
extent such amount is paid out of our current and accumulated earnings and
profits as determined for United States federal income tax purposes, consisting
of the $100 gross dividend and the deemed refund of German corporate tax of
$5.88. The notional $105.88 dividend is deemed to have been subject to German
withholding tax of $15.88. Thus, for each $100 of gross dividend, the U.S.
Holder will include $105.88 in gross income and will be entitled to a foreign
tax credit of $15.88, subject to the general limitations of United States
federal income tax law.

Effective January 1, 1998, a 5.5% surtax on the German withholding tax is
levied on dividend distributions paid by a German resident company. The surtax
amounts to 1.375%, that is, 5.5% x 25% of the

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gross dividend amount. Since the Income Tax Treaty limits the maximum amount
the German withholding tax, U.S. Holders are entitled to a full refund of this
surtax.

German Refund Procedures

In the case of U.S. Holders of ADSs, Citibank, which is the depositing bank,
and we will perform, on behalf of such U.S. Holders, certain administrative
functions necessary to obtain the 5% refund, the refund of the German
withholding tax in excess of 15%, and the refund of the 5.5% German surtax when
applicable. The following procedure is currently permitted by the German tax
authorities but that permission may be revoked, or the procedure may be
amended, at any time in the future.

In order to utilize this procedure, the U.S. Holder will be required to
submit the following items to the depositary bank:

. a certification of their last filed U.S. federal income tax return from
the Internal Revenue Service on IRS Form 6166; and

. a complete and signed form, which will be provided to the U.S. Holder by
the depositary bank, stating basic information required for us to file
the German claim for refund form on behalf of the U.S. Holder
authorizing us to perform these procedures and agreeing that the German
tax authorities may inform the Internal Revenue Service of any refunds
of German taxes.

The depositary bank will provide the U.S. Holder with an unsigned request for
an IRS Form 6166 which the U.S. Holder will be required to file with the
Internal Revenue Service at the address specified below to obtain the Form
6166. The issued Form 6166 will be valid for a period of three years from the
date of the last filed return to which it relates.

The depositary bank will forward the certification and the signed
authorization to us which, with the depositary bank's prior authorization, we
will prepare and file, on behalf of U.S. Holders, the German claim for refund
form with the Form 6166s and other necessary documentation with the German tax
authorities. The German tax authorities will issue the refunds which will be
denominated in Deutsche marks in the name of the depositary bank which will
convert the refunds into U.S. dollars and issue corresponding checks to the
U.S. Holders.

The claim for refunds must be submitted within four years of the end of the
calendar year in which the dividend is received. The depositary bank and we
anticipate filing the claims for refunds within a reasonable time after receipt
of the necessary documentation. U.S. Holders are urged to return the necessary
documentation to the depositary bank in a timely fashion.

U.S. Holders holding ADRs registered with brokers participating in the
Depositary Trust Company will not be able to utilize this procedure unless the
brokers, as is expected, assist the depositary bank in obtaining these
documents from the U.S. Holders.

In order to obtain the five percent tax credit-related refund, the refund of
the German withholding tax in excess of 15%, and the refund of the 5.5% German
surtax, U.S. Holders of shares must submit the following items directly to the
German tax authorities:

. a claim for refund;

. the original bank voucher, or certified copy, issued by the paying
entity documenting the tax withheld; and

. an IRS Form 6166.

Refund claims must be made on a special refund claim form, which must be
filed with the German tax authorities at the following address: Bundesamt fur
Finanzen, FriedhofstraBe 1, D-53225 Bonn, Germany. The

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refund claim forms may be obtained from the German tax authorities at the same
address where the applications are filed, or from the Embassy of the Federal
Republic of Germany, 4645 Reservoir Road, N.W., Washington, D.C. 20007-1998.

U.S. Holders may obtain a Form 6166, which is a certification of the U.S.
Holder's last filed United States federal income tax return, by filing a
request with the office of the Director of the Internal Revenue Service Center
at the following address: Internal Revenue Service Center, Philadelphia,
Pennsylvania, Foreign Certificate Request, P.O. Box 16347, Philadelphia, PA
19114-0447. Requests for certification are to be made in writing and must
include the U.S. Holder's name, social security number or employer
identification number, tax return form number, and tax period for which such
certification is requested. The Internal Revenue Service will send IRS Form
6166 directly to the U.S. Holder.

Refunds under the Income Tax Treaty are not available for shares held by a
U.S. Holder in connection with a permanent establishment or fixed base in
Germany.

Taxation of Capital Gains

German Taxation. Under the Income Tax Treaty, a U.S. Holder will not be
liable for German tax on capital gains realized or accrued on the sale or other
disposition of shares, unless the shares are held in connection with a
permanent establishment or fixed base in Germany.

United States Federal Income Taxation. Upon a sale or other disposition of
shares, a U.S. Holder will recognize gain or loss for United States federal
income tax purposes in an amount equal to the difference between the U.S.
dollar value of the amount realized and the U.S. Holder's tax basis, determined
in U.S. dollars, in the shares. Such gain or loss will generally be capital
gain or loss. In the case of certain non-corporate U.S. Holders, including
individuals, any capital gain will generally be subject to U.S. federal income
tax at preferential rates if specified minimum holding periods are met. In
addition, any gain or loss realized by a U.S. Holder on the sale or other
disposition of shares will generally be treated as U.S. source gain.

Passive Foreign Investment Company Status

We believe that we are not a passive foreign investment company, which we
refer to as a PFIC, for U.S. federal income tax purposes and do not expect to
become a PFIC in the year that includes this offering or in future years.
However, because this conclusion is a factual determination made annually and
because there are uncertainties in the application of the relevant rules, we
cannot assure you that we will not be considered to be a PFIC for any fiscal
year. In general, a non-U.S. corporation will be classified as a PFIC if either
(i) at least 75% of its gross income for a taxable year is passive income or
(ii) if the average quarterly value of assets held by it during a taxable year
which produce or are held for the production of passive income represents at
least 50% of the value of all of its assets. For this purpose, the corporation
must take into account a proportionate share of the income and assets of each
corporation in which it owns, directly or indirectly, at least a 25% interest.

If we were a PFIC, a U.S. Holder would generally be subject to special rules
with respect to (a) any gain realized on the sale or other disposition of the
shares and (b) any "excess distribution" by us to the U.S. Holder. An excess
distribution generally consists of distributions to the U.S. Holder on the
shares during a single taxable year that are greater than 125% of the average
annual distributions received by the U.S. Holder in the three preceding taxable
years or during the U.S. Holder's holding period for the shares, if shorter.
Under these rules:

. the gain or excess distribution would be allocated ratably over the U.S.
Holder's holding period for the shares;

. the amount allocated to the taxable year in which the gain or excess
distribution was realized would be taxable as ordinary income;

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. the amount allocated to each prior year, with certain exceptions, would
be subject to tax at the highest tax rate in effect for that year; and

. the interest charge generally applicable to underpayments of tax would
be imposed in respect of the tax attributable to each such year. Special
rules apply with respect to the calculation of the amount of the foreign
tax credit with respect to excess distributions by a PFIC.

In certain circumstances, a U.S. Holder, in lieu of being subject to the
passive foreign investment company rules discussed above, may make an election
to include gain on the stock of a passive foreign investment company as
ordinary income under a mark-to-market method provided that such stock is
regularly traded on a qualified exchange. Under current law, the mark-to-market
election may be available to a U.S. Holder since the ADSs will be listed on the
Nasdaq National Market, which constitutes a qualified exchange as designated in
the Code. There can be no assurances, however, that the ADSs will be "regularly
traded" on such exchange. It is intended that only the ADSs will be listed on
the Nasdaq National Market. The ordinary shares are listed on the Neuer Markt
of the Frankfurt Stock Exchange, which must meet certain trading, listing,
financial disclosure and other requirements to be treated as a qualified
exchange under applicable Treasury regulations for purposes of the mark-to-
market election, and no assurance can be given that the shares will be
"regularly traded" for purposes of the mark-to-market election.

If a U.S. Holder makes an effective mark-to-market election, the U.S. Holder
will recognize as ordinary income or loss each year an amount equal to the
difference as of the close of the taxable year between the fair market value of
the passive foreign investment company shares or ADSs and the U.S. Holder's
adjusted tax basis in such shares or ADSs. Losses would be allowed only to the
extent of net mark-to-market gain previously included by the U.S. Holder under
the election for prior taxable years. A U.S. Holder's adjusted tax basis in
passive foreign investment company shares or ADSs will be increased by the
amount of any income inclusion and decreased by the amount of any deductions
under the mark-to-market rules.

If a U.S. Holder makes a mark-to-market election, it will be effective for
the taxable year for which the election is made and all subsequent taxable
years unless the shares or ADSs are no longer regularly traded on a national
securities exchange or the Internal Revenue Service consents to the revocation
of the election. A mark-to-market election is subject to complex and specific
rules and requirements, and U.S. Holders are urged to consult their tax
advisors about the availability of the mark-to-market election and whether
making the election would be advisable in their particular circumstances.

If we were a PFIC, a U.S. Holder would be required to make an annual return
on IRS Form 8621 regarding distributions received with respect to shares and
any gain realized on the disposition of shares.

Gift, Estate and Inheritance Taxes

The Estate Tax Treaty provides that an individual whose domicile is
determined to be in the United States for purposes of the treaty will not be
subject to German inheritance and gift tax, or the equivalent of the United
States federal estate and gift tax, on the individual's death or making of a
gift unless the shares are part of the business property of a permanent
establishment located in Germany or are part of the assets of a fixed base of
an individual located in Germany and used for the performance of independent
personal services. An individual's domicile in the United States, however, does
not prevent imposition of German inheritance and gift tax with respect to an
heir, donee, or other beneficiary who is domiciled in Germany at the time the
individual died or the gift was made.

The Estate Tax Treaty also provides a credit against United States federal
estate and gift tax liability for the amount of inheritance and gift tax paid
to Germany, subject to certain limitations, in a case where the shares are
subject to both German inheritance or gift tax and United States federal estate
or gift tax.

82
<PAGE>

Other German Taxes

There are no German transfer, stamp or other similar taxes that would apply
to U.S. Holders who purchase or sell shares.

U.S. Information Reporting and Backup Withholding

Dividend payments on the shares and proceeds from the sale, exchange or
redemption of shares may be subject to information reporting to the IRS and
possible U.S. backup withholding at a 31% rate. Backup withholding will not
apply, however, to a holder who furnishes a correct taxpayer identification
number or certificate of foreign status and makes any other required
certification or who is otherwise exempt from backup withholding. Persons
required to establish their exempt status generally must provide such
certification on IRS Form W-9, entitled Request for Taxpayer Identification
Number and Certification, in the case of U.S. persons and on IRS Form W-8 BEN,
entitled Certificate of Foreign Status, in the case of non-U.S. persons.
Finalized U.S. Department of Treasury regulations, which are applicable to
payments made after December 31, 2000, have generally expanded the
circumstances under which information reporting and backup withholding may
apply unless the holder provides the information described above.

Amounts withheld as backup withholding may be credited against a holder's
U.S. federal income tax liability, and a holder may obtain a refund of any
excess amounts withheld under the backup withholding rules by filing the
appropriate claim for refund with the IRS and furnishing any required
information. U.S. Holders of shares should consult their tax advisors regarding
the application of the information reporting and backup withholding rules.

83
<PAGE>

LIMITATIONS AFFECTING SECURITY HOLDERS

At the current time, 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 (Bundesbank), subject only to certain
immaterial exceptions, any payment received from or made to an individual or a
corporation resident outside Germany if such payment exceeds DM 5,000 (or the
equivalent in a foreign currency). In addition, German residents must report
any claims against or any liabilities payable to nonresidents if such claims or
liabilities, in the aggregate, exceed DM 3 million (or the equivalent in a
foreign currency) during any one month. German residents must also report any
direct investment outside Germany if such investment exceeds DM 100,000.

There are no limitations on the right of non-resident or foreign owners to
hold or vote our shares or ADSs imposed by German law or the articles of
association.

84
<PAGE>

UNDERWRITING

Under the terms and subject to the conditions contained in an underwriting
agreement dated , 2000, we have agreed to sell to the underwriters named
below, for whom Credit Suisse First Boston Corporation, Chase Securities Inc.
and U.S. Bancorp Piper Jaffray Inc. are acting as representatives, the
following respective number of ADSs:

<TABLE>
<CAPTION>
Underwriter Number of ADSs
- ----------- --------------
<S> <C>
Credit Suisse First Boston Corporation...........................
Chase Securities Inc.............................................
U.S. Bancorp Piper Jaffray Inc...................................
---------
Total.......................................................... 4,350,000
=========
</TABLE>

The underwriting agreement provides that the underwriters are obligated to
purchase all the ADSs in the offering if any are purchased, other than those
ADSs covered by the over-allotment option described below. The underwriting
agreement also provides that if an underwriter defaults the purchase
commitments of non-defaulting underwriters may be increased or the offering of
ADSs may be terminated.

We have granted to the underwriters a 30-day option to purchase on a pro rata
basis up to 650,000 additional ADSs from us at the public offering price less
the underwriting discounts and commissions. This option may be exercised only
to cover any over-allotments of ADSs.

The underwriters propose to offer the ADSs initially at the public offering
price on the cover page of this prospectus and to selling group members at that
price less a concession of $ per ADS. The underwriters and selling group
members may allow a discount of $ per ADS on sales to other broker/dealers.
After the public offering, the public offering price and concession and
discount to broker/dealers may be changed by the representatives.

The following table summarizes the compensation and estimated expenses we
will pay.

<TABLE>
<CAPTION>
Total
-----------------------------
Percentage Without With
Per ADS per ADS Over-allotment Over-allotment
------- ---------- -------------- --------------
<S> <C> <C> <C> <C>
Underwriting Discounts and
Commissions paid by us...... $ $ $
Expenses payable by us....... $ $ $
</TABLE>

The underwriters have informed us that they do not expect discretionary sales
to exceed 5% of the shares of common stock being offered.

We have agreed that we will not offer, sell, contract to sell, pledge or
otherwise dispose of, directly or indirectly, or file with the Securities and
Exchange Commission a registration statement under the Securities Act of 1933
relating to, any of our ordinary shares or securities convertible into or
exchangeable or exercisable for any of our ordinary shares, or publicly
disclose the intention to make any such offer, sale, pledge, disposition or
filing, without the prior written consent of Credit Suisse First Boston
Corporation for a period of 90 days after the date of this prospectus, except
issuances pursuant to the exercise of employee stock options outstanding on the
date hereof or pursuant to our dividend reinvestment plan.

Members of our supervisory board and management board, our executive officers
and a security holder have agreed that they will not offer, sell, contract to
sell, pledge or otherwise dispose of, directly or indirectly, any of our
ordinary shares or securities convertible into or exchangeable or exercisable
for any of our ordinary

85
<PAGE>

shares, enter into a transaction which would have the same effect, or enter
into any swap, hedge or other arrangement that transfers, in whole or in part,
any of the economic consequences of ownership of our ordinary shares, whether
any such aforementioned transaction is to be settled by delivery of our
ordinary shares or such other securities, in cash or otherwise, or publicly
disclose the intention to make any such offer, sale, pledge or disposition,
without the prior written consent of Credit Suisse First Boston Corporation for
a period of 90 days after the date of this prospectus.

The underwriters have reserved for sale, at the initial public offering price
up to 250,000 ADSs for employees, directors and other persons associated with
us who have expressed an interest in purchasing securities in the offering. The
number of ADSs available for sale to the general public in the offering will be
reduced to the extent such persons purchase such reserved ADSs. Any reserved
ADSs not so purchased will be offered by the underwriters to the general public
on the same terms as the other ADSs.

We have agreed to indemnify the underwriters against liabilities under the
Securities Act, or contribute to payments which the underwriters may be
required to make in that respect.

Our ordinary bearer shares are listed on the Neuer Markt of the Frankfurt
Stock Exchange under the symbol ISH. We have applied to list the ADSs on The
Nasdaq Stock Market's National Market under the symbol "ISHP".

The representatives may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with Regulation
M under the Securities Exchange Act of 1934.

. Over-allotment involves syndicate sales in excess of the offering size,
which creates a syndicate short position.

. Stabilizing transactions permit bids to purchase the underlying security
so long as the stabilizing bids do not exceed a specified maximum.

. Syndicate covering transactions involve purchases of the common stock in
the open market after the distribution has been completed in order to
cover syndicate short positions.

. Penalty bids permit the representatives to reclaim a selling concession
from a syndicate member when the common stock originally sold by the
syndicate member is purchased in a syndicate covering transaction to
cover syndicate short positions.

These stabilizing transactions, syndicate covering transactions and penalty
bids may cause the price of the common stock to be higher than it would
otherwise be in the absence of these transactions. These transactions may be
effected on The Nasdaq National Market, the Neuer Markt of the Frankfurt Stock
Exchange or otherwise and, if commenced, may be discontinued at any time.

86
<PAGE>

NOTICE TO CANADIAN RESIDENTS

Resale Restrictions

The distribution of the ADSs in Canada is being made only on a private
placement basis exempt from the requirement that we prepare and file a
prospectus with the securities regulatory authorities in each province where
trades of ADSs are effected. Accordingly, any resale of the ADSs in Canada must
be made in accordance with applicable securities laws which will vary depending
on the relevant jurisdiction, and which may require resales to be made in
accordance with available statutory exemptions or pursuant to a discretionary
exemption granted by the applicable Canadian securities regulatory authority.
Purchasers are advised to seek legal advice prior to any resale of the ADSs.

Representations of Purchasers

Each purchaser of ADSs in Canada who receives a purchase confirmation will be
deemed to represent to us and the dealer from whom the purchase confirmation is
received that (i) the purchaser is entitled under applicable provincial
securities laws to purchase the ADSs without the benefit of a prospectus
qualified under the securities laws, (ii) where required by law, that the
purchaser is purchasing as principal and not as agent, and (iii) the purchaser
has reviewed the text above under "Resale Restrictions."

Rights of Action for Ontario Purchasers

The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or recession or rights of action under the civil liability provisions
of the U.S. federal securities laws.

Enforcement of Legal Rights

All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be
possible for Canadian purchasers to effect service of process within Canada
upon the issuer or these persons. All or a substantial portion of the assets of
the issuer and these persons may be located outside of Canada and, as a result,
it may not be possible to satisfy a judgment against the issuer or these
persons in Canada or to enforce a judgment obtained in Canadian courts against
the issuer or these persons outside of Canada.

Notice to British Columbia Residents

A purchaser of common stock to whom the Securities Act (British Columbia)
applies is advised that the purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any ADSs
acquired by the purchaser in this offering. Such report must be in the form
attached to British Columbia Securities Commission Blanket Order BOR #95/17, a
copy of which may be obtained from us. Only one report must be filed in respect
of ADSs acquired on the same date and under the same prospectus exemption.

Taxation and Eligibility for Investment

Canadian purchasers of ADSs should consult their own legal and tax advisors
with respect to the tax consequences of an investment in the ADSs in their
particular circumstances and with respect to the eligibility of the common
stock for investment by the purchaser under relevant Canadian legislation.

87
<PAGE>

LEGAL MATTERS

The validity of our shares and ADSs will be passed upon for us by Shearman &
Sterling, San Francisco, California, our United States counsel, and Haarmann,
Hemmelrath & Partner, our German counsel. The underwriters have been
represented by Wilson Sonsini Goodrich & Rosati, Palo Alto, California, United
States counsel, and Oppenhof Raedler, German counsel.

EXPERTS

The audited financial statements included in this prospectus and elsewhere in
the Registration Statement have been audited by Arthur Andersen
Wirtschaftsprufungsgesellschaft Steuerberatungsgesellschaft mbH, independent
public accountants, as indicated in their report with respect thereto, and are
included herein in reliance upon the authority of that firm as experts in
giving said reports.

AVAILABLE INFORMATION

We have filed with the Commission a registration statement on Form F-1 under
the Securities Act with respect to the securities offered in this offering.
This prospectus, which forms a part of the Registration Statement, does not
contain all of the information set forth in the Registration Statement, certain
parts of which are omitted in accordance with the rules and regulations of the
Commission. For further information, reference is hereby made to the
registration statement. Statements contained in this prospectus concerning the
contents of any contract or other document filed as an exhibit to the
registration statement are materially complete but, in each instance, reference
is made to the copy of such contract or other document filed as an exhibit to
the registration statement, and each such statement is qualified in its
entirety by reference to such exhibit for a complete statement of its
provisions.

Prior to this offering, we were not subject to the periodic reporting
requirements of the Securities Exchange Act. As a result of this offering, we
will become subject to those requirements and in accordance therewith will be
required to file reports and other information with the Commission. Reports and
other information filed with the Commission, including copies of the
registration statement, may be inspected without charge and copied at
prescribed rates at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the regional offices of Commission located at Suite 1400, Citicorp Center, 500
West Madison Street, Chicago, Illinois 60661-2551 and Room 1300, 7 World Trade
Center, New York, New York 10048. Copies of these materials at prescribed rates
will also be available by mail from the public reference branch of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. The Commission
maintains a World Wide Web site that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission. The address of the site is http://www.sec.gov.

As a foreign private issuer, we are exempt under the Securities Exchange Act
from, among other things, the rules governing the furnishing and content of
proxy statements adopted under Section 14 of the Securities Exchange Act and
the short-swing profit recovery provisions set forth in Section 16 of the
Securities Exchange Act.

We will furnish Citibank, the depositary for our ADSs, with annual reports in
English, which will include a review of operations and annual audited
consolidated financial statements prepared in conformity with U.S. GAAP. We
will also furnish to Citibank in English all notices of shareholders' meetings
and other reports and communications that are made generally available to our
shareholders. Citibank will make those notices, reports and communications
available to holders of ADSs in the manner we request and will mail to all
record holders of ADSs a notice containing a summary of the information
contained in any notice of a shareholders' meeting received by Citibank.
See "Description of American Depositary Shares."

88
<PAGE>

INTERSHOP COMMUNICATIONS AG AND SUBSIDIARIES

Index to Consolidated Financial Statements

<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Public Accountants................................. F-2

Consolidated Balance Sheets.............................................. F-3

Consolidated Statements of Operations.................................... F-4

Consolidated Statements of Convertible Redeemable Preferred Stock and
Shareholders' Equity.................................................... F-5

Consolidated Statements of Cash Flows.................................... F-6

Notes to Consolidated Financial Statements............................... F-7
</TABLE>

F-1
<PAGE>

Report of Independent Public Accountants

To INTERSHOP Communications Aktiengesellschaft:

We have audited the accompanying balance sheets of INTERSHOP Communications
Aktiengesellschaft (a German corporation) and subsidiaries as of December 31,
1998 and 1999, and the related consolidated statements of operations,
shareholders' stock equity and cash flows for each of the three years in the
period ended December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of INTERSHOP Communications
Aktiengesellschaft and subsidiaries as of December 31, 1998 and 1999, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1999 in conformity with accounting principles
generally accepted in the United States.

ARTHUR ANDERSEN
Wirtschaftsprufungsgesellschaft
Steuerberatungsgesellschaft mbH

Nendza Bolash
Wirtschaftsprufer Certified Public
Accountant

Hamburg, February 24, 2000

F-2
<PAGE>

INTERSHOP COMMUNICATIONS AG AND SUBSIDIARIES

Consolidated Balance Sheets

(in thousands, except share and per share amounts)

<TABLE>
<CAPTION>
As of December 31,
----------------------------
1998 1999 1999
------- ------- ----------
(Euro) (Euro) US$
(unaudited)
<S> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents........................ 34,185 12,065 12,065
Restricted cash.................................. 114 1,437 1,437
Trade receivables, net of allowances for doubtful
accounts of (Euro)443, (Euro)1,614 and US$1,614,
respectively.................................... 5,886 23,333 23,333
Prepaid expenses and other current assets........ 2,542 3,870 3,870
------- ------- -------
Total current assets........................... 42,727 40,705 40,705
PROPERTY AND EQUIPMENT, net...................... 3,667 5,610 5,610
INVESTMENTS...................................... 512 6,222 6,222
OTHER ASSETS..................................... 315 1,252 1,252
------- ------- -------
Total assets................................... 47,221 53,789 53,789
======= ======= =======

CURRENT LIABILITIES
Current portion of capital lease obligation...... 25 33 33
Notes payable to shareholder..................... -- 7,000 7,000
Accounts payable................................. 2,710 5,149 5,149
Accrued liabilities.............................. 3,224 9,960 9,960
Deferred revenue................................. 5,059 8,543 8,543
------- ------- -------
Total current liabilities...................... 11,018 30,685 30,685
NOTES PAYABLE TO SHAREHOLDERS AND CAPITAL LEASE
OBLIGATIONS..................................... 230 20 20
DEFERRED REVENUE................................. 1,748 220 220
------- ------- -------
Total liabilities.............................. 12,996 30,925 30,925
------- ------- -------

COMMITMENTS AND CONTINGENCIES (Note 7)

SHAREHOLDERS' EQUITY
Common stock, stated value (Euro)1--authorized:
29,932,501 shares; outstanding: 15,584,901
shares in 1998 and 16,878,104 shares in 1999.... 13,281 16,878 16,878
Paid-in capital.................................. 50,225 48,169 48,169
Notes receivable from shareholders............... (1,428) (141) (141)
Deferred compensation............................ (799) (273) (273)
Accumulated deficit.............................. (27,017) (45,406) (45,406)
Accumulated other comprehensive income (loss).... (37) 3,637 3,637
------- ------- -------
Total shareholders' equity .................... 34,225 22,864 22,864
------- ------- -------
Total liabilities and shareholders' equity..... 47,221 53,789 53,789
======= ======= =======
</TABLE>

The accompanying notes are an integral part of these financial statements. All
balances for years prior to 1999 have been restated from Deutsche marks into
euros using the exchange rate as of January 1, 1999.

F-3
<PAGE>

INTERSHOP COMMUNICATIONS AG AND SUBSIDIARIES

Consolidated Statements of Operations

(in thousands, except per share amounts)

<TABLE>
<CAPTION>
For the Year Ended December 31,
-------------------------------------
1997 1998 1999 1999
------ ------- ------- -----------
(Euro) (Euro) (Euro) US$
(unaudited)
<S> <C> <C> <C> <C>
Revenues:
Licenses.............................. 2,947 11,295 29,534 29,534
Services, maintenance and other
revenues............................. 2,088 6,577 16,732 16,732
------ ------- ------- -------
Total revenues...................... 5,035 17,872 46,266 46,266
------ ------- ------- -------
Cost of revenues:
Licenses.............................. 442 1,742 4,786 4,786
Services, maintenance and other
revenues............................. 2,245 3,766 8,465 8,465
------ ------- ------- -------
Total cost of revenues.............. 2,687 5,508 13,251 13,251
------ ------- ------- -------
Gross profit............................ 2,348 12,364 33,015 33,015
Operating expenses:
Research and development.............. 1,006 4,368 7,115 7,115
Sales and marketing................... 4,705 18,368 34,771 34,771
General and administrative............ 3,454 6,729 11,206 11,206
Legal settlement costs................ -- 1,866 -- --
------ ------- ------- -------
Total operating expenses............ 9,165 31,331 53,092 53,092
------ ------- ------- -------
Operating loss.......................... (6,817) (18,967) (20,077) (20,077)
Other income (expense):
Interest income....................... 122 968 515 515
Interest expense...................... (292) (797) (42) (42)
Other income (expense)................ (28) 1,488 1,215 1,215
------ ------- ------- -------
Total other income (expense), net... (198) 1,659 1,688 1,688
------ ------- ------- -------
Net loss................................ (7,015) (17,308) (18,389) (18,389)
Accretion of redeemable preferred
stock.................................. (149) (220) -- --
------ ------- ------- -------
Net loss attributable to common
shareholders........................... (7,164) (17,528) (18,389) (18,389)
====== ======= ======= =======
Basic and diluted net loss per AG share
....................................... (1.19) (1.44) (0.97) (0.97)
====== ======= ======= =======
Basic and diluted net loss per ADS
share.................................. (0.12) (0.14) (0.10) (0.10)
====== ======= ======= =======
Shares used in per AG share calculations
....................................... 6,034 12,145 18,948 18,948
====== ======= ======= =======
Shares used in per ADS share
calculations........................... 60,340 121,450 189,480 189,480
====== ======= ======= =======
</TABLE>

F-4
<PAGE>

INTERSHOP COMMUNICATIONS AG AND SUBSIDIARIES

Consolidated Statements Of Convertible Redeemable Preferred Stock And
Shareholders' Equity

(in thousand euro, except share data)

<TABLE>
<CAPTION>
Convertible
Redeemable
Preferred Stock
------------------
Shares Amount
---------- ------
<S> <C> <C>
Balance, December
31, 1996......... 6,720,000 1,355
Net loss........ -- --
Foreign currency
translation
adjustments..... -- --
Issuance of
common stock.... -- --
Exercise of
stock options... -- --
Issuance of
Series C
preferred
stock........... 1,200,000 3,482
Accretion of
preferred
stock........... -- 149
---------- ------
Balance, December
31, 1997......... 7,920,000 4,986
========== ======
Net loss........ -- --
Foreign currency
translation
adjustments..... -- --
Issuance of
common stock of
Inc............. -- --
Issuance of
Series D
preferred
stock........... 233,910 1,873
Issuance of
common stock for
cash to member
of supervisory
board...........
Issuance of
common stock for
cash and
forgiveness of
legal settlement
obligation...... -- --
Accretion of
preferred
stock........... -- 220
Conversion of
preferred stock
of subsidiary to
common stock of
parent, net of
share amounts
not converted... (7,568,310) (7,079)
Shares not
converted....... (585,600) --
Reclassification
for formation of
AG.............. -- --
Issuance of
common stock in
initial public
offering, net... -- --
Exercise of
stock options... -- --
Deferred
compensation.... -- --
Amortization of
deferred
compensation.... -- --
---------- ------
Balance, December
31, 1998......... -- --
========== ======
Net loss........ -- --
Foreign currency
translation
adjustments..... -- --
Unrealized gain
on marketable
securities...... -- --
Conversion of
common stock of
subsidiary to
common stock of
parent.......... -- --
Exercise of
stock options... -- --
Change in stated
value of common
stock........... -- --
Collections on
notes receivable
from
shareholders.... -- --
Amortization of
deferred
compensation.... -- --
---------- ------
Balance, December
31, 1999......... -- --
========== ======
<CAPTION>
Shareholders' Equity
----------------------------------------------------------------------------------------------------------
Common Stock Notes Accumulated
-------------------------- Receivable Other Total
Stated From Deferred Accumulated Comprehensive Shareholders' Comprehensive
Shares Value APIC Shareholders Compensation Deficit Income (Loss) Equity Loss
----------- ------ ------- ------------ ------------ ----------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December
31, 1996......... 6,000,000 -- 51 -- -- (2,325) (40) (2,314) --
Net loss........ -- -- -- -- -- (7,015) -- (7,015) (7,015)
Foreign currency
translation
adjustments..... -- -- -- -- -- -- (132) (132) (132)
Issuance of
common stock.... 22,500 -- 17 -- -- -- -- 17 --
Exercise of
stock options... 605,310 -- 400 (400) -- -- -- -- --
Issuance of
Series C
preferred
stock........... -- -- -- -- -- -- -- -- --
Accretion of
preferred
stock........... -- -- -- -- -- (149) -- (149) --
----------- ------ ------- ------------ ------------ ----------- ------------- ------------- -------------
Balance, December
31, 1997......... 6,627,810 -- 468 (400) -- (9,489) (172) (9,593) (7,147)
=========== ====== ======= ============ ============ =========== ============= ============= =============
Net loss........ -- -- -- -- -- (17,308) -- (17,308) (17,308)
Foreign currency
translation
adjustments..... -- -- -- -- -- -- 135 135 135
Issuance of
common stock of
Inc............. 60,000 -- 186 -- -- -- -- 186 --
Issuance of
Series D
preferred
stock........... -- -- -- -- -- -- -- -- --
Issuance of
common stock for
cash to member
of supervisory
board........... 50,001 43 596 -- -- -- -- 639 --
Issuance of
common stock for
cash and
forgiveness of
legal settlement
obligation...... 180,090 153 5,661 -- -- -- -- 5,814 --
Accretion of
preferred
stock........... -- -- -- -- -- (220) -- (220) --
Conversion of
preferred stock
of subsidiary to
common stock of
parent, net of
share amounts
not converted... 7,568,310 -- 7,079 -- -- -- -- 7,079 --
Shares not
converted....... (2,646,000) -- -- -- -- -- -- -- --
Reclassification
for formation of
AG.............. -- 9,894 (9,894) -- -- -- -- -- --
Issuance of
common stock in
initial public
offering, net... 3,000,000 2,557 44,774 -- -- -- -- 47,331 --
Exercise of
stock options... 744,690 634 394 (1,028) -- -- -- -- --
Deferred
compensation.... -- -- 961 -- (961) -- -- -- --
Amortization of
deferred
compensation.... -- -- -- -- 162 -- -- 162 --
----------- ------ ------- ------------ ------------ ----------- ------------- ------------- -------------
Balance, December
31, 1998......... 15,584,901 13,281 50,225 (1,428) (799) (27,017) (37) 34,225 (17,173)
=========== ====== ======= ============ ============ =========== ============= ============= =============
Net loss........ -- -- -- -- -- (18,389) -- (18,389) (18,389)
Foreign currency
translation
adjustments..... -- -- -- -- -- -- 652 652 652
Unrealized gain
on marketable
securities...... -- -- -- -- -- -- 3,022 3,022 3,022
Conversion of
common stock of
subsidiary to
common stock of
parent.......... 446,700 416 (416) -- -- -- -- -- --
Exercise of
stock options... 846,503 732 1,027 -- -- -- -- 1,759 --
Change in stated
value of common
stock........... -- 2,449 (2,449) -- -- -- -- -- --
Collections on
notes receivable
from
shareholders.... -- -- -- 1,287 -- -- -- 1,287 --
Amortization of
deferred
compensation.... -- -- (218) -- 526 -- -- 308 --
----------- ------ ------- ------------ ------------ ----------- ------------- ------------- -------------
Balance, December
31, 1999......... 16,878,104 16,878 48,169 (141) (273) (45,406) 3,637 22,864 (14,715)
=========== ====== ======= ============ ============ =========== ============= ============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements. All
balances for years prior to 1999 have been restated from Deutsche marks into
euros using the exchange rate as of January 1, 1999.

F-5
<PAGE>

INTERSHOP COMMUNICATIONS AG AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(in thousands)

<TABLE>
<CAPTION>
For the Year Ended December 31,
------------------------------------
1997 1998 1999 1999
------ ------- ------- ----------
(Euro) (Euro) (Euro) US$
(unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss................................ (7,015) (17,308) (18,389) (18,389)
Adjustments to reconcile net loss to
cash provided by (used in) operating
activities:
Depreciation.......................... 510 1,657 2,076 2,076
Provision for doubtful accounts....... 67 269 2,037 2,037
Amortization of deferred
compensation......................... -- 162 308 308
Legal settlement costs................ -- 1,866 -- --
Change in:
Accounts receivable................... (2,244) (4,080) (18,220) (18,220)
Prepaid expenses and other current
assets............................... (822) (1,695) (1,474) (1,474)
Other assets.......................... (38) (58) (830) (830)
Accounts payable...................... 1,880 436 2,228 2,228
Deferred revenue...................... 9,819 (3,245) 1,542 1,542
Accrued expenses and other
liabilities.......................... 451 1,013 6,298 6,298
------ ------- ------- -------
Net cash provided by (used in) operating
activities............................. 2,608 (20,983) (24,424) (24,424)
------ ------- ------- -------

CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in unaffiliated company...... -- (512) (1,199) (1,199)
Purchases of equipment, net of capital
leases................................. (1,902) (3,302) (3,625) (3,625)
Restricted cash......................... (117) -- (1,227) (1,227)
Purchase of marketable securities....... -- -- (1,490) (1,490)
------ ------- ------- -------
Net cash used in investing activities... (2,019) (3,814) (7,541) (7,541)
------ ------- ------- -------

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of preferred stock... 3,377 1,873 -- --
Proceeds from sale of common stock...... -- 52,104 1,759 1,759
Proceeds from debt issuance............. 1,765 1,975 7,937 7,937
Collections on notes receivable from
shareholders........................... -- -- 1,287 1,287
Repayments of indebtedness.............. (1,027) (3,233) (1,144) (1,144)
------ ------- ------- -------
Net cash provided by financing
activities............................. 4,115 52,719 9,839 9,839
------ ------- ------- -------
Effect of change in exchange rates on
cash................................... 140 1,205 6 6
------ ------- ------- -------
Net change in cash and cash
equivalents............................ 4,844 29,127 (22,120) (22,120)
Cash and cash equivalents, beginning of
year................................... 214 5,058 34,185 34,185
------ ------- ------- -------
Cash and cash equivalents, end of year.. 5,058 34,185 12,065 12,065
====== ======= ======= =======
</TABLE>

F-6
<PAGE>

INTERSHOP COMMUNICATIONS AG AND SUBSIDIARIES

Notes to Consolidated Financial Statements

1. ORGANIZATION AND OPERATIONS OF THE COMPANY

INTERSHOP Communications AG, a German stock corporation (the "Company"), is
the successor to INTERSHOP Communications, Inc. and INTERSHOP Communications
GmbH. INTERSHOP Communications GmbH was originally founded in 1992 as
NetConsult Communications GmbH in Germany as a limited liability company.
NetConsult Communications GmbH established a wholly owned subsidiary,
NetConsult Communications, Inc., a Delaware corporation, in March 1996. These
companies were subsequently renamed INTERSHOP Communications GmbH and INTERSHOP
Communications, Inc. (the predecessor company), respectively.

In December 1996, INTERSHOP Communications, Inc. (U.S. Inc.) entered into a
share exchange agreement with INTERSHOP Communications GmbH (GmbH) to acquire
100% of GmbH's outstanding shares. The shareholders of GmbH's common shares
received common shares in U.S. Inc. Holders of existing debt (approximately
(Euro)1.14 million) and capital (approximately (Euro)211,000) in GmbH, totaling
approximately (Euro)1.4 million, received 6,720,000 shares of preferred stock
in U.S. Inc. The fair value of the preferred stock issued was equal to the
carrying value of the debt and capital for which it was exchanged. The share
exchange did not alter the relative ownership interest of the parent company.
Upon completion of the transaction, U.S. Inc. became the parent company of GmbH
and its subsidiaries.

In June 1998, the holders of 79.26% of the shares of U.S. Inc. exchanged
their shares of preferred and common stock of U.S. Inc., totaling 20,591,348,
into 12,345,810 shares of the Company. As a result of this transaction, U.S.
Inc. became a majority-owned subsidiary of the Company. Two stockholders,
including Stephan Schambach, our founder and Chief Executive Officer, did not
contribute all of their shares of U.S. Inc. due to certain tax consequences,
and, as of December 31, 1999, still hold 16.4% and 1.5%, respectively, of U.S.
Inc.'s common stock. These two stockholders are entitled to exchange their
shares in U.S. Inc. for shares in the Company at a ratio of 5:3, using
conditional capital specifically approved for this purpose. The instruments
held by these individuals are considered to be part of the majority interest in
AG given the related party nature of the holdings, their conversion rights and
their probable conversion, given the fact that they are subject to repurchase
at US $0.01 per share if not converted by 2004. Accordingly, the cost basis of
such shares is included in additional paid in capital in the accompanying
consolidated financial statements. Conversions of U.S. Inc. shares to AG shares
subsequent to the initial conversion in June 1998 are treated as an increase to
the stated value of the common stock and a corresponding decrease to additional
paid in capital. During 1999, these stockholders converted 744,500 common
shares of U.S. Inc. for 446,700 shares of the Company. As of December 31, 1999,
these stockholders held 4,641,500 shares in U.S. Inc., and these shares are
convertible into 2,784,900 shares of the Company at any time. If these two
shareholders were to have converted their shares as of December 31, 1999, they
would own approximately 14% of the Company.

The accompanying consolidated financial statements reflect the consolidated
results of the Company and its wholly and majority owned subsidiaries, which
have been prepared according to United States generally accepted accounting
principles ("U.S. GAAP"). All significant intercompany transactions and
balances between the companies have been eliminated.

The Company has previously prepared and reported its consolidated financial
statements as of and for the year ended December 31, 1997 in U.S. Dollars, as
the parent company at that time was Intershop Communications, Inc. These
financial statements were restated and presented in Deutsche marks ("DM") after
the Company acquired the majority of the outstanding shares of INTERSHOP
Communications, Inc. in 1998. With the introduction of the euro ((Euro)) on
January 1, 1999, the Company has elected to present the accompanying
consolidated financial statements in euro. Accordingly, the Deutsche mark
consolidated financial statements for each period presented have been restated
into euro using the Deutsche mark/euro exchange rate as of January 1, 1999 of
(Euro)1 = DM 1.95583. The Company's restated financial statements in euro
depict the

F-7
<PAGE>

INTERSHOP COMMUNICATIONS AG AND SUBSIDIARIES

Notes to Consolidated Financial Statements--(Continued)

same trends as would have been presented if it had continued to present its
consolidated financial statements in Deutsche marks. The consolidated financial
statements will, however, not be comparable to financial statements for periods
prior to January 1, 1999 in euro of other companies that previously reported
their financial information in a currency other than Deutsche marks.

The financial information expressed in US Dollars is presented for the
convenience of the reader and is translated from euro at the Noon buying rate
in New York City for cable transfers in euro as certified for custom purposes
by the Federal Reserve Bank of New York on December 31, 1999 which was
(Euro)1.00 to US$1.00. The translated amounts should not be construed as a
representation that the euro has been, could have been, or could be in the
future, converted into US Dollars at this or any other rate of exchange.

Unless otherwise noted, all references to the "Company" refer to INTERSHOP
Communications AG and its subsidiaries, as well as its predecessors. The
Supervisory Board has authorized the filing of a registration statement with
the U.S. Securities and Exchange Commission to register shares of its common
stock in the form of American Depositary Shares ("ADSs"). Each ADS will
represent 1/10 of one AG share.

The Company is a global provider of electronic commerce software applications
that enable businesses to sell their products and services over the Internet.
The Company's products can be integrated with existing business systems to
allow its customers to sell goods and services over the Internet without
replacing their existing business systems. The merchandising capabilities of
the Company's products, such as customer profiling and cross-selling, help
allow its customers to maximize sales revenues. The Company also provides
professional services for its customers to assist in the installation and
ongoing maintenance of our software applications.

During 1997, the Company commenced commercial shipment of its products and
emerged from the development stage. Although no longer in the development
stage, the Company continues to be subject to the risks and challenges similar
to other companies in a comparable stage of development. These risks include,
but are not limited to, operating in a new and rapidly evolving market,
competition from larger companies, dependence on new products, dependence on
key personnel, uncertain profitability, and a limited operating history.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

Foreign Currency Translation

The functional currency of the Company's operations outside of Germany is the
local country's currency. Consequently, assets and liabilities of operations
outside Germany are translated into euros using exchange rates at the end of
each reporting period. Revenues and expenses are translated at the average
exchange rates prevailing during the period. Cumulative translation gains and
losses are reported as a separate component of shareholders' equity.

F-8
<PAGE>

INTERSHOP COMMUNICATIONS AG AND SUBSIDIARIES

Notes to Consolidated Financial Statements--(Continued)

Statement of Cash Flows

The Company paid (Euro)229,000, (Euro)540,000 and (Euro)37,000 in cash for
interest in 1997, 1998 and 1999, respectively. The Company paid (Euro)9,000,
(Euro)13,000 and (Euro)61,000 in cash for taxes in 1997, 1998 and 1999,
respectively. The Company sold equipment and leased it back in 1997 in a non-
cash transaction. The Company recognized no gain or loss on the transactions
and the value of the leased equipment is (Euro)119,000.

The Company considers all investments with original maturities of 90 days or
less to be cash equivalents.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentrations
of credit risk consist primarily of accounts receivable. The Company performs
ongoing credit evaluations of its customer's financial condition and the risk
with respect to trade receivables is further mitigated by the fact that the
Company's customer base is diversified.

Fair Value of Financial Instruments

The carrying amounts of the Company's financial instruments, including cash
and cash equivalents, accounts receivable, accounts payable and long-term debt
approximate their fair values.

Marketable securities designated as available for sale are recorded at market
with any unrealized gain or loss being recorded in the shareholders' equity
section of the Balance Sheet.

Property and Equipment

Property and equipment are stated at cost. Capital leases are recorded at the
present value of the future minimum lease payments at the date of acquisition.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets, generally three years. Capital leases and leasehold
improvements are amortized on a straight-line basis over the shorter of the
lease terms or their estimated useful life.

Software Development Costs

The Company accounts for internally generated software development costs in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 86,
"Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise
Marketed." Capitalization of software development costs begins upon the
establishment of technological feasibility of the product, which the Company
defines as the development of a working model and further defines as the
development of a beta version of the software. The establishment of
technological feasibility and the ongoing assessment of the recoverability of
these costs requires considerable judgment by management with respect to
certain external factors, including, but not limited to, anticipated future
gross product revenue, estimated economic life and changes in technology. Such
costs are reported at the lower of unamortized cost or net realizable value. To
date, internal software development costs that were eligible for capitalization
have not been significant and the Company has charged all software development
costs to research and development expense as incurred.

The Company expenses all research and development costs as incurred.

F-9
<PAGE>

INTERSHOP COMMUNICATIONS AG AND SUBSIDIARIES

Notes to Consolidated Financial Statements--(Continued)

Advertising Costs

Advertising costs are expensed as incurred. Advertising expenses of (Euro)0.9
million, (Euro)1.5 million and (Euro)4.2 million were included with sales and
marketing expenses for 1997, 1998 and 1999, respectively.

Stock-Based Compensation

The Financial Accounting Standards Board issued SFAS No. 123, "Accounting for
Stock-Based Compensation," in October 1995. This accounting standard permits
the use of either a fair value based method of accounting or the method defined
in Accounting Principles Board Opinion 25, "Accounting for Stock Issued to
Employees" ("APB 25") to account for stock-based compensation arrangements.
Companies that elect to employ the method proscribed by APB 25 are required to
disclose the pro forma net income (loss) that would have resulted from the use
of the fair value based method. The Company has elected to continue to account
for its stock-based compensation arrangements under the provisions of APB 25,
and, accordingly, it has included in Note 8 the pro forma disclosures required
under SFAS No. 123.

Revenue Recognition

The Company generates the following types of revenue:

Licenses. License fees are earned under software license agreements primarily
to end-users, and to a lesser extent resellers and distributors. Revenues from
licenses to end-users are recognized upon shipment of the software if
persuasive evidence of an arrangement exists, collection of the resulting
receivable is probable and the fee is fixed and determinable. If an acceptance
period is required, revenues are recognized upon the earlier of customer
acceptance or the expiration of the acceptance period. As of January 1, 1998,
the Company adopted the provisions of the American Institute of Certified
Public Accountants ("AICPA") Statement Of Position ("SOP") 97-2, "Software
Revenue Recognition" ("SOP 97-2").

Service and maintenance. Services consist of support arrangements and
consulting and education services. Support agreements generally call for the
Company to provide technical support and provide certain rights to unspecified
software updates to customers. Revenue on technical support and software update
rights is recognized ratably over the term of the support agreement. The
Company provides consulting and education services to its customers; revenue
from such services is generally recognized as the services are performed.

For arrangements that include multiple elements, the fee is allocated to the
various elements based on vendor-specific objective evidence of fair market
value established by independent sale of the elements when sold separately.

In June 1997, the Company entered into a software license agreement with a
shareholder for total license fees of (Euro)10.1 million, which was received in
cash in 1997. The Company is recognizing the revenue associated with this
agreement over the three-year term of the agreement. In 1997, the Company
recognized (Euro)1.7 million of revenue associated with this agreement,
representing 33% of consolidated revenue in 1997. In 1998, the Company
recognized (Euro)3.4 million of revenue associated with this agreement, and
(Euro)0.8 million related to other agreements with this customer, which
combined represented 23% of consolidated revenue in 1998. In 1999, the Company
recognized (Euro)4.2 million of revenue associated with this agreement
representing 9% of consolidated revenue in 1999. In 1999, an executive from
this customer became a member of our Supervisory Board. Another member of our
Supervisory Board is also an executive with another one of our customers. Sales
to this customer represented 13%, 6% and 2% of consolidated revenue in 1997,
1998 and 1999, respectively. Besides these two customers, no other customer
accounted for 10% or more of consolidated revenues for any year presented.

F-10
<PAGE>

INTERSHOP COMMUNICATIONS AG AND SUBSIDIARIES

Notes to Consolidated Financial Statements--(Continued)

Comprehensive Income (Loss)

In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income," which the Company adopted beginning on
January 1, 1998. SFAS No. 130 establishes standards for reporting and display
of comprehensive income and its components in a full set of general purpose
financial statements. The objective of SFAS No. 130 is to report a measure of
all changes in equity of an enterprise that results from transactions and other
economic events of the period other than transactions with shareholders
("comprehensive income"). Comprehensive income is the total of net income
(loss) and all other non-owner changes in shareholders' equity.

Accumulated other comprehensive income (loss) consists of the following (in
thousands):

<TABLE>
<CAPTION>
Year Ended
December 31,
----------------------
1998 1999
--------- -----------
<S> <C> <C>
Foreign currency translation adjustment.............. (Euro)(37) (Euro) 615
Unrealized gain on available-for-sale securities..... -- 3,022
--------- -----------
(Euro)(37) (Euro)3,637
========= ===========
</TABLE>

In the years ended December 31, 1997 and 1998, the only component of other
comprehensive income is the net foreign currency translation, which was
(Euro)132,000 and (Euro)135,000, respectively. A summary of the components of
other comprehensive income for the year ended December 31, 1999 is as follows
(in thousands):

<TABLE>
<CAPTION>
Before Tax Income After Tax
Amount Tax Amount
----------- ------ -----------
<S> <C> <C> <C>
Unrealized gain on available-for-sale
securities................................ (Euro)3,022 -- (Euro)3,022
Foreign currency translation adjustment.... 652 -- 652
----------- ---- -----------
(Euro)3,674 -- (Euro)3,674
=========== ==== ===========
</TABLE>

Earnings Per Share

Basic net loss per common share is presented in conformity with SFAS No. 128
"Earnings Per Share" for all periods presented. Basic net loss per share is
computed using the weighted-average number of vested outstanding shares of
common stock. Diluted net loss per share is computed using the weighted-average
number of vested shares of common stock outstanding and, when dilutive,
unvested common stock outstanding, potential common shares from options and
warrants to purchase common stock using the treasury stock method and from
convertible securities using the as-if-converted basis. The options exercised
that result in shares subject to repurchase have been excluded in computing the
number of weighted average shares outstanding for earnings per share purposes.
Weighted average shares subject to repurchase were 233,000, 525,000 and 550,000
for 1997, 1998 and 1999, respectively. All potential common shares have been
excluded from the computation of diluted net loss per share for all periods
presented because the effect would be antidilutive. Pursuant to the Securities
and Exchange Commission (SEC) Staff Accounting Bulletin No. 98, common stock
and convertible preferred stock issued for nominal consideration, prior to the
anticipated effective date of the offering, are included in the calculation of
basic and diluted net loss per share as if they were outstanding for all
periods presented. To date, the Company has not had any issuances or grants for
nominal consideration.

Earnings per share data has been presented on both a per weighted AG share
and per weighted ADS share basis. The ADS weighted share amounts were computed
by dividing all AG weighted share amounts by ten to reflect the conversion
ratio between AG shares and ADS shares. The total number of shares excluded
from the

F-11
<PAGE>

INTERSHOP COMMUNICATIONS AG AND SUBSIDIARIES

Notes to Consolidated Financial Statements--(Continued)

calculations of diluted net loss per AG share were approximately 1,299,000,
1,125,000 and 473,000 for the years ended December 31, 1997, 1998 and 1999,
respectively. Shares excluded in the per ADS loss per share calculation were
approximately 12,990,000, 11,250,000 and 4,730,000, respectively. See Note 8
for further information on these securities.

Recent Accounting Pronouncements

In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which requires
companies to record derivative financial instruments on the balance sheet as
assets or liabilities, measured at fair value. Gains or losses resulting from
changes in the values of those derivatives would be accounted for depending on
the use of the derivative and whether it qualifies for hedge accounting. The
key criterion for hedge accounting is that the hedging relationship must be
highly effective in achieving offsetting changes in fair value or cash flows.
In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities--Deferral of the Effective Date of FASB
Statements No. 133," which amends SFAS No. 133 to be effective for all fiscal
quarters of all fiscal years beginning after June 15, 2000 (or January 1, 2001
for INTERSHOP). The Company has no derivative financial and commodity
instruments, forward contracts or hedging arrangements in cash and cash
equivalents. This statement should not have a material impact on the financial
condition or results of INTERSHOP's operations.

In December 1998, the AICPA issued SOP 98-9, "Modification of SOP 97-2,
Software Revenue Recognition, with Respect to Certain Transactions." SOP 98-9
amends SOP 97-2 and SOP 98-4 by extending the deferral of the application of
certain provisions of SOP 97-2 amended by SOP 98-4 through fiscal years
beginning on or before March 15, 1999. All other provisions of SOP 98-9 are
effective for transactions entered into in fiscal years beginning after March
15, 1999. These statements will not have a material impact on the financial
condition or results of INTERSHOP's operations.

Reclassifications

Certain 1997 and 1998 balances have been reclassified to conform to the
presentation used in 1999.

3. PROPERTY AND EQUIPMENT

Property and equipment consists of the following (in thousands):

<TABLE>
<CAPTION>
Year Ended
December 31,
------------------------
1998 1999
----------- -----------
<S> <C> <C>
Computer equipment................................. (Euro)4,834 (Euro)7,724
Furniture and fixtures............................. 1,138 2,552
Leasehold improvements............................. 36 332
----------- -----------
6,008 10,608
Accumulated depreciation and amortization.......... (2,341) (4,998)
----------- -----------
Property and equipment, net........................ (Euro)3,667 (Euro)5,610
=========== ===========
</TABLE>

Equipment under capital leases included in property and equipment as of
December 31, 1998 and 1999 was (Euro)114,000. Accumulated amortization of
leased equipment was (Euro)26,000 and (Euro)81,000 as of December 31, 1998 and
1999, respectively.

F-12
<PAGE>

INTERSHOP COMMUNICATIONS AG AND SUBSIDIARIES

Notes to Consolidated Financial Statements--(Continued)

As of December 31, 1999, future minimum lease payments under capital leases
together with their present value were (in thousands):

<TABLE>
<S> <C>
Total minimum lease payments...................................... (Euro) 39
Amounts representing interest..................................... (6)
---------
Present value of minimum lease payments........................... 33
Less current portion.............................................. (33)
---------
(Euro)--
=========
</TABLE>

4. INVESTMENTS

During 1998 and 1999, the Company made investments in a non-public company in
Israel totaling (Euro)0.5 million and (Euro)1.2 million, respectively. The
total investment of (Euro)1.7 million in this entity represents an ownership
interest of approximately 12% as of December 31, 1999. The investments are
carried at their original cost basis.

In 1999, the Company acquired approximately (Euro)1.5 million of common stock
in a public company in the United Kingdom. These equity securities are
classified as available for sale securities. The Company recorded an unrealized
gain of (Euro)3.0 million during 1999 based on the market value at December 31,
1999 of the securities of (Euro)4.5 million. The unrealized gain was included
as a component of comprehensive income in the statement of shareholders' equity
for 1999.

5. ACCRUED LIABILITIES

Accrued liabilities consisted of the following as of December 31 (in
thousands):

<TABLE>
<CAPTION>
1998 1999
----------- -----------
<S> <C> <C>
VAT payable.......................................... (Euro) -- (Euro)2,476
Accrued commissions.................................. 170 1,817
Employee compensation................................ 947 2,068
Other................................................ 2,107 3,599
----------- -----------
(Euro)3,224 (Euro)9,960
=========== ===========
</TABLE>

6. NOTES PAYABLE TO SHAREHOLDERS

During 1999, the Company entered into a secured loan agreement for (Euro)7.0
million with an officer of the Company who is also a shareholder and a member
of the management board. Interest on the note is payable quarterly at 6%. The
loan is callable with three months notice beginning December 31, 2000. There is
a prepayment penalty of three months interest if the loan is paid down prior to
December 31, 2000.

During 1996, the Company entered into a series of unsecured loans with
certain shareholders. Interest is payable quarterly at 10%. The outstanding
principal on the notes are classified as long-term and were (Euro)179,000 and
(Euro)20,000 at December 31, 1998 and 1999, respectively. The loans may be
repaid at any time, at the discretion of the Company, but no later than
February 2004.

F-13
<PAGE>

INTERSHOP COMMUNICATIONS AG AND SUBSIDIARIES

Notes to Consolidated Financial Statements--(Continued)

7. COMMITMENTS AND CONTINGENCIES

Operating Leases

Facilities and certain furniture and equipment are leased under operating
leases. As of December 31, 1999, future minimum annual lease payments
(excluding the lease payments relating to capitalized facilities discussed in
Note 3) are as follows (in thousands):

<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
<S> <C>
2000.......................................................... (Euro) 5,035
2001.......................................................... 4,122
2002.......................................................... 4,237
2003.......................................................... 4,311
2004.......................................................... 4,244
Subsequent years.............................................. 8,151
------------
Total....................................................... (Euro)30,100
============
</TABLE>

Rent expense was (Euro)492,000, (Euro)1,277,000 and (Euro)2,022,000 for the
years ended December 31, 1997, 1998 and 1999, respectively.

Legal Matters

The Company is a defendant in various legal matters arising in the normal
course of business. In the opinion of management, after consultation with legal
counsel, the ultimate resolution of these matters is not expected to have a
material effect on these consolidated financial statements.

8. SHAREHOLDERS' EQUITY

Stock Splits and Change in Stated Value

In conjunction with the share exchange discussed in Note 1 between the
shareholders of INTERSHOP Communications, Inc. and the Company in June 1998,
the shares of INTERSHOP Communications, Inc. were exchanged for shares of the
Company on a 1-for-5 basis. In June 1999, the Company changed the stated value
of its common stock from DM 5 per share to (Euro)1 per share and effected a 3-
for-1 stock split. Unless otherwise noted, all share and per share amounts
presented have been restated to retroactively reflect this conversion ratio and
stock split for all periods presented.

The adjustment to the stated value of the Company's common stock is reflected
in the Consolidated Statements of Convertible Redeemable Preferred Stock and
Shareholders' Equity as an increase to the stated value of the common stock for
(Euro)2.4 million and a corresponding decrease to additional paid in capital as
of June 1999.

Convertible Redeemable Preferred Stock

During 1997, the Company issued 1,200,000 shares of preferred stock at
approximately (Euro)3 per share resulting in aggregate proceeds of (Euro)3.5
million. In March 1998, the Company sold 233,910 shares of preferred stock in
INTERSHOP Communications, Inc. at approximately (Euro)8 per share resulting in
aggregate proceeds of (Euro)1.9 million.

Significant rights, restrictions, and preferences of preferred stock included
cash dividends at a rate of 8% per annum, as defined, liquidation preferences,
voting rights, and conversion and redemption features.

F-14
<PAGE>

INTERSHOP COMMUNICATIONS AG AND SUBSIDIARIES

Notes to Consolidated Financial Statements--(Continued)

Prior to the share exchange between the shareholders of INTERSHOP
Communications, Inc. and the Company in June 1998, all outstanding shares of
preferred stock converted to the same number of shares of common stock of
INTERSHOP Communications, Inc. After considering the conversion ratio and stock
split discussed above, shares of INTERSHOP Communications, Inc. common stock
were converted to shares of the Company on a 5-for-3 basis.

Convertible Promissory Note

In April 1998, U.S. Inc. entered into a convertible promissory note, which
bears interest at 7%, with a member of the Company's Supervisory Board for
US$500,000. The principal and accrued interest were convertible at the option
of the holder, in whole or in part, into shares of U.S. Inc.'s next series of
preferred stock issued in connection with a third party financing at the
purchase price per share paid by the third party investors. The principal and
interest would automatically convert into common stock in the event that U.S.
Inc. completed an underwritten public offering, as defined, at the initial
public offering price less a 25% discount. In the event that a new series of
preferred stock were not issued, or a public offering did not occur, then the
outstanding principal and accrued interest were convertible at the option of
the holder, in whole or in part, into common stock of U.S. Inc. at (Euro)8.01
per share. All principal and unpaid interest was due and payable, to the extent
not converted, on October 28, 1998.

In conjunction with the legal entity reorganization that occurred in June
1998, the U.S. Inc. repaid the note to the board member, and the board member
purchased 50,001 shares of the Company's common stock for (Euro)12.78 per
share, resulting in aggregate proceeds of (Euro)639,118.

Legal settlement obligation

In May 1998, we entered into a legal settlement related to a trademark
dispute that obligated us to pay (Euro)1.9 million. An investor paid this
amount on behalf of the Company. In exchange, this investor purchased 180,090
shares from the Company. The final purchase price for these shares was
determined based on the average trading price for one month following the
Company's initial public offering in Germany. Based on this average trading
price, the investor paid an additional (Euro)4.0 million in cash for these
shares. The Company has recorded the legal settlement cost of (Euro)1.9 million
and the additional cash received of (Euro)4.0 million as an increase in equity
in exchange for the 180,090 shares issued.

Deferred Compensation

In connection with the grant of certain stock options to employees prior to
the initial public offering in July 1998, the Company recorded deferred
compensation of approximately (Euro)1.0 million representing the intrinsic
value of the options, i.e., the difference between the deemed value of the
common stock for accounting purposes and the option exercise price of such
options at the date of grant. This amount is presented as a reduction of
shareholders' equity and amortized ratably over the vesting period of the
applicable options. Approximately (Euro)162,000 and (Euro)308,000 was expensed
during the years ended December 31, 1998 and 1999, respectively, and the
balance will be expensed ratably over the remaining vesting periods.
Compensation expense is decreased in the period of forfeiture for any accrued
but unvested compensation arising from the early termination of an option
holder's services. No compensation expense related to any other periods
presented has been recorded.

F-15
<PAGE>

INTERSHOP COMMUNICATIONS AG AND SUBSIDIARIES

Notes to Consolidated Financial Statements--(Continued)

1997 Equity Incentive Plan

The Company had originally reserved 2,000,000 shares of common stock for
issuance to employees, directors and consultants under its 1997 Equity
Incentive Plan (the 1997 Plan). The Board of Directors may grant incentive or
non-statutory stock options at prices not less than 100% or 85%, respectively,
of fair market value as determined by the Board of Directors, at the date of
grant. Options vest ratably over periods determined by the Board, generally
three years. The Board also has the authority to set exercise dates (no longer
than ten years from the date of grant), payment terms, and other provisions for
each grant. The Company generally had the right of first refusal for all common
stock issued under the 1997 Plan should the holder desire to sell or otherwise
transfer any of the shares. The Company's right of first refusal terminated
upon the effective date July 16, 1998, of the Company's initial public
offering.

1999 Equity Incentive Plan

Effective as of June 21, 1999, the Company adopted a new stock option plan
(the 1999 Plan) covering board members, executive officers and certain
employees. The options under the 1999 Plan vest ratably over a four year period
beginning six months from the date of grant; however, pursuant to the German
Stock Corporation Act, no options will be exercisable, even though a portion is
vested, prior to the second anniversary of the date of grant. The exercise
price of the options is equal to 120% of the market price of the shares on the
date of grant, where the market price is determined to be the average closing
price as quoted on the Neuer Markt for the 10 trading days prior to the date of
grant.

There are two pools of shares authorized under the 1999 Plan. There are
133,000 shares for grants of stock options to members of the management board
and general managers of subsidiaries and 1,500,000 shares for grants of stock
options to all other employees. During the year ended December 31, 1999, the
Company granted 158,000 options with a weighted average exercise price of
(Euro)128.41 per share. No shares under the 1999 Plan were exercised, expired
or cancelled in 1999.

Stock-Based Compensation

The Company applies APB Opinion No. 25 and related interpretations in
accounting for the Plan. If compensation cost for the Plan had been determined
based on the minimum value at the grant dates for the awards calculated in
accordance with the method prescribed by SFAS No. 123, the impact on the
Company's net loss and net loss per share would have been as follows (in
thousands, except per share amounts):

<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------
1997 1998 1999
------------ ------------- -------------
<S> <C> <C> <C>
Net loss attributable to
common shareholders
As reported................. (Euro)(7,164) (Euro)(17,528) (Euro)(18,389)
Pro forma................... (7,337) (17,563) (21,204)
Basic and diluted earnings per
AG share
As reported................. (Euro) (1.19) (Euro) (1.44) (Euro) (0.97)
Pro forma................... (1.22) (1.45) (1.12)
Basic and diluted earnings per
ADS
As reported................. (Euro) (0.12) (Euro) (0.14) (Euro) (0.10)
Pro forma................... (0.13) (0.15) (0.11)
</TABLE>

F-16
<PAGE>

INTERSHOP COMMUNICATIONS AG AND SUBSIDIARIES

Notes to Consolidated Financial Statements--(Continued)

Option activity under the plans was as follows (in thousands, except per
share data):

<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------------
1997 1998 1999
---------------------- ---------------------- -----------------------
Weighted Weighted Weighted
Number of Average Number of Average Number of Average
Shares Exercise Shares Exercise Shares Exercise
Outstanding Price Outstanding Price Outstanding Price
----------- ---------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year................ -- -- 1,299 (Euro)0.57 1,125 (Euro) 2.93
Granted................. 2,106 (Euro)0.65 792 4.21 447 78.30
Exercised............... (606) 0.65 (744) 1.15 (847) 2.15
Canceled................ (201) 1.12 (222) 1.01 (252) 5.54
----- ---------- ----- ---------- ----- -----------
Outstanding at end of
year................... 1,299 (Euro)0.57 1,125 (Euro)2.93 473 (Euro)73.90
===== ========== ===== ========== ===== ===========
</TABLE>

The following table summarizes information with respect to the stock options
outstanding at December 31, 1999:

<TABLE>
<CAPTION>
Weighted
Average
Remaining Weighted Weighted
Number of Contractual Average Number Average
Range of Options Life Exercise Exercisable Exercise
Exercise Prices Outstanding (Years) Price at 12/31/99 Price
--------------- ----------- ----------- -------- ----------- --------
(000s) (Euro) (000s) (Euro)
<S> <C> <C> <C> <C> <C>
0.08 - 0.16 21 7.6 0.14 6 0.09
0.79 - 1.57 13 8.0 1.49 3 1.51
3.14 66 8.2 3.14 9 3.14
6.29 26 8.6 6.29 2 6.29
23.02 - 34.60 26 8.9 27.28 19 27.49
36.12 - 54.20 77 9.2 45.95 34 46.00
56.48 - 76.45 86 9.4 64.16 19 64.01
92.20 - 134.72 135 4.7 113.99 -- --
149.66 - 223.30 16 4.9 181.64 -- --
232.86 - 319.98 7 5.0 257.68 -- --
--- ---
473 7.5 73.90 92 36.53
=== ===
</TABLE>

The 1997 Plan allows for the issuance of options that are immediately
exercisable through execution of a restricted stock purchase agreement. Shares
purchased subject to a restricted stock purchase agreement generally vest over
three years. In the event of termination of employment, the Company may
repurchase unvested shares at a price equal to the original issuance price. As
of December 31, 1999, 357,802 shares of common stock issued and outstanding
were unvested and subject to repurchase by the Company at (Euro).08 to
(Euro)6.29 per share. All shares that were exercised early are held by a
trustee on behalf of the employee. In the event that an employee leaves the
Company with unvested shares, the unvested shares are sold in the open market,
and the proceeds of the sale are contributed to the Company.

The fair value of each option grant is estimated on the date of grant
utilizing risk-free interest rates on the date of grant (5.8%-6.5% in 1997,
4.2%-5.6% in 1998 and 4.6%-6.2% in 1999) with maturities equal to the expected
option term of 4.5 years. The dividend assumed is estimated at 0% in 1997, 1998
and 1999 and the volatility is assumed to be 0% through the date of the
Company's initial public offering in 1998 and 69% for all periods subsequent to
that date.

F-17
<PAGE>

INTERSHOP COMMUNICATIONS AG AND SUBSIDIARIES

Notes to Consolidated Financial Statements--(Continued)

Shares Reserved for Future Issuance

As of December 31, 1999, the Company had conditional capital of 4,771,397
shares. Conditional capital is equivalent to shares reserved for future
issuance, as follows:

<TABLE>
<S> <C>
Conversion of remaining INTERSHOP Communications Inc. shares... 2,784,900
Stock options.................................................. 1,986,497
---------
4,771,397
=========
</TABLE>

9. INCOME TAXES

The Company accounts for income taxes using an asset and liability approach
under which deferred income taxes are provided based upon enacted tax laws and
rates applicable to the periods in which taxes become payable.

The income tax benefit differs from the amounts which would result by
applying the applicable German statutory rates to the loss before taxes, as
follows (in thousands):

<TABLE>
<CAPTION>
1997 1998 1999
------------ ------------- ------------
<S> <C> <C> <C>
Provision (benefit) at German
statutory rate................ (Euro)(2,919) (Euro)(10,079) (Euro)(9,783)
Foreign losses benefited at a
lower tax rate................ 13 3,480 2,998
Change in valuation allowance.. 3,186 8,749 9,854
Tax credits.................... (4) (17) --
Nondeductible expense.......... 9 40 214
Deductible IPO costs........... -- (2,173) (79)
Change in statutory tax rate... -- -- (2,490)
Other.......................... (285) -- (714)
------------ ------------- ------------
Provision (benefit) for income
taxes......................... (Euro) -- (Euro) -- (Euro) --
============ ============= ============
</TABLE>

The components of the deferred tax asset were as follows (in thousands):

<TABLE>
<CAPTION>
1998 1999
----------- ------------
<S> <C> <C>
Net operating loss carryforwards.................. (Euro)9,797 (Euro)18,973
Tax credit carryforwards.......................... 42 82
Accruals not currently deductible................. 506 1,287
Capitalized start-up costs........................ 17 16
Other............................................. 43 (99)
----------- ------------
10,405 20,259
Valuation allowance............................... (10,405) (20,259)
----------- ------------
Net deferred tax asset............................ (Euro) -- (Euro) --
=========== ============
</TABLE>

A valuation allowance has been recorded for the entire deferred tax asset as
a result of uncertainties regarding the realization of the asset including the
limited operating history of the Company and the lack of profitability to date.

F-18
<PAGE>

INTERSHOP COMMUNICATIONS AG AND SUBSIDIARIES

Notes to Consolidated Financial Statements--(Continued)

For the year ended December 31, 1999, the Company had net operating loss
carryforwards for tax reporting purposes in various tax jurisdictions as
follows (in thousands):

<TABLE>
<S> <C>
U.S. Federal.................................................. (Euro)37,275
U.S. state.................................................... 19,938
German........................................................ 6,597
Other......................................................... 4,236
------------
Total....................................................... (Euro)68,046
============
</TABLE>

In addition, as of December 31, 1999, the Company had U.S. Federal and U.S.
state income tax credit carryforwards of approximately (Euro)70,000 and
(Euro)48,000, respectively. U.S. Federal and state net operating losses
carryforwards expire in various periods through 2019. The German net operating
loss carry forwards for tax purposes relate to corporate income tax and
municipal trade tax and carry forward indefinitely. The Tax Reform Act of 1986
and German tax law contains provisions which may limit the net operating loss
and tax credit carryforwards to be used in any given year upon the occurrence
of certain events, including a significant change in ownership interest.

10. INDUSTRY SEGMENT AND GEOGRAPHIC INFORMATION

During 1998, the Company adopted SFAS No. 131, "Disclosures About Segments of
and Enterprise and Related Information."

The Company is organized based upon the nature of the products and services
it offers. Under this organizational structure, the Company operates in two
fundamental business segments: product and service. The product segment
includes the development and sale of the Company's software products. The
service segment provides service and support for the Company's products. The
Company's products are primarily developed at its facilities in Jena, Germany,
and are sold through a direct sales force and independent distributors in
Europe, North America, South America, Australia and Asia.

The information in the following tables is derived directly from the
Company's internal financial reporting used by the Company's chief decision
makers for corporate management purposes. The Company evaluates its segments'
performance based on several factors, of which the primary financial measure is
gross margin. Unallocated costs include corporate and other costs not allocated
to business segments for management reporting purposes. The accounting policies
followed by the Company's business segments are the same as those described in
Note 2 to the consolidated financial statements. The Company does not allocate
assets by segment for management reporting purposes.

<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------
1997 1998 1999
----------- ------------ ------------
(in thousands)
<S> <C> <C> <C>
Revenues from unaffiliated
customers:
Product.......................... (Euro)2,947 (Euro)11,295 (Euro)29,534
Services......................... 2,088 6,577 16,732
----------- ------------ ------------
Total revenue.................. (Euro)5,035 (Euro)17,872 (Euro)46,266
=========== ============ ============
Gross margin:
Product.......................... (Euro)2,505 (Euro) 9,553 (Euro)24,748
Services......................... (157) 2,811 8,267
----------- ------------ ------------
Total gross margin............. (Euro)2,348 (Euro)12,364 (Euro)33,015
=========== ============ ============
</TABLE>

F-19
<PAGE>

INTERSHOP COMMUNICATIONS AG AND SUBSIDIARIES

Notes to Consolidated Financial Statements--(Continued)

Revenues by geographic location are attributed to the country from which the
sale is made and are presented below (in thousands):

<TABLE>
<CAPTION>
For the Year Ended
December 31,
--------------------
1997 1998 1999
------ ------ ------
(Euro) (Euro) (Euro)
<S> <C> <C> <C>
Germany................................................. 3,895 10,232 17,190
United States........................................... 961 5,940 18,366
United Kingdom.......................................... -- 797 7,000
Other*.................................................. 179 903 3,710
----- ------ ------
Total................................................. 5,035 17,872 46,266
===== ====== ======
</TABLE>
- --------
* Revenues for other geographic locations are substantially derived from France
in 1997 and 1998 and France and Sweden in 1999.

Long-lived assets located by geographic location are as follows (in
thousands):

<TABLE>
<CAPTION>
As of December 31,
--------------------
1997 1998 1999
------ ------ ------
(Euro) (Euro) (Euro)
<S> <C> <C> <C>
Germany................................................. 1,256 1,404 1,644
United States........................................... 802 2,074 2,671
United Kingdom.......................................... -- 48 716
Other................................................... 33 141 579
----- ----- -----
Total................................................. 2,091 3,667 5,610
===== ===== =====
</TABLE>

F-20
<PAGE>

[INTERSHOP LOGO APPEARS HERE]

<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13. Other Expenses of Issuance and Distribution

The following table sets forth the estimated expenses in connection with the
issuance and distribution of the securities being registered which are to be
paid by INTERSHOP, other than underwriting discounts and commissions.

<TABLE>
<S> <C>
Securities and Exchange Commission registration fee.............. $ 93,207
The Nasdaq Stock Market's National Market listing fee............ 5,000
National Association of Securities Dealers, Inc. filing fee...... 30,500
Printing and engraving expenses.................................. 150,000
Legal fees and expenses.......................................... 625,000
Accounting fees and expenses..................................... 350,000
Miscellaneous.................................................... 43,293
----------
Total........................................................ $1,300,000
==========
</TABLE>

Item 14. Indemnification of Directors and Officers

The laws of Germany make no provisions for indemnification of officers and
directors. Our articles of association or by-laws do not provide for the
indemnification of any controlling person, director or officer. We carry an
insurance policy with AIG Europe for DM 5 million of coverage which covers
officers and directors. Other than the insurance policy with AIG, there are no
indemnification agreements with our officers and directors.

Item 15. Recent Sales of Unregistered Securities

All of INTERSHOP's securities that were sold by INTERSHOP within the past
three years which were not registered under the Securities Act are described
below:

On July 15, 1998 we commenced an initial public offering on the Neuer Markt
of the Frankfurt Stock Exchange and placed a total of 2,339,100 of our common
shares at a price of DM 100 per share. All shares sold in the United States
were private placements and therefore did not require registration under the
Securities Act pursuant to the exemption provided for in Section 4(2) of the
Securities Act. The underwriters were Bank J. Vontobel & Co AG, Commerzbank
Aktiengesellschaft, Hambrecht & Quist Euromarkets S.A. and Sal. Oppenheim jr. &
Cie. Kommanditgesellschaft auf Aktien.

Item 16. Exhibits and Financial Statement Schedules

The following exhibits are filed as part of this Registration Statement:

<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
1.1* Form of Underwriting Agreement

3.1** Summary Translation of Articles of Association (Satzung)

4.1** Form of Share Certificate for Ordinary Shares

4.2* Form of Deposit Agreement including Form of ADR Certificate
(incorporated by reference from the Registrant's Registration
Statement on Form F-6 (Registration No. 333-11642))

5.1* Opinion of Haarmann, Hemmelrath & Partner

8.1* Opinion of Shearman & Sterling relating to tax matters
</TABLE>

II-1
<PAGE>

<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
10.1** 1997 Equity Incentive Plan

10.2** 1999 Stock Option Plan

10.3** Summary Translation of Intershop Communications Reorganization
Agreement (Post-Formation Acquisition and Capital Contribution
Agreement)

10.4** Intershop Communications Reorganization Agreement

10.5** Summary Translation of Trademark Agreement between Intershop Holding
AG, Intershop Communications, Inc. and Intershop Communications GmbH

10.6** Summary Translation of Loan Agreement between Wilfried Beeck and
Intershop Communications AG

10.7** Summary Translation of Loan Agreement between Stephan Schambach and
Intershop Communications AG

10.8** Software License, Services and Support Agreement between Persistence
Software and Intershop Communications AG(1)

10.9** Asset Purchase Agreement from Fountainhead Management, Aaron Kaufman
and Intershop Communications AG(1)

10.10** Cooperation Agreement with Deutsche Telekom AG and Intershop
Communications AG(1)

10.11** Summary Translation of Reseller Agreement with Sybase GmbH and
Intershop Communications AG(1)

10.12** Summary Translation of Reseller Agreement with Oracle Deutschland GmbH
and Intershop Communications AG(1)

10.13** Technology License and Distribution Agreement with Sun Microsystems
and Intershop Communications AG(1)

21.1** List of Subsidiaries

23.1* Consent of Arthur Andersen Wirtschaftsprufungsgesellschaft
Steuerberatungsgesellschaft mbH

23.2* Consent of Haarmann, Hemmelrath & Partner (included in exhibit 5.1)

23.3* Consent of Shearman & Sterling (included in exhibit 8.1)

23.4* Consent of International Data Corporation
</TABLE>
- --------

* Filed herewith

** Previously filed
(1) The Registrant has applied for confidential treatment for portions of this
agreement. Accordingly, portions thereof have been omitted and filed
separately.

Item 17. Undertakings

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to INTERSHOP's directors, officers and controlling persons
pursuant to the provisions described under "Item 14, Indemnification of
Directors and Officers" above, or otherwise, INTERSHOP has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by a

II-2
<PAGE>

director, officer or controlling person in connection with the securities being
registered, INTERSHOP 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 is against public policy
as expressed in the Securities Act and will be governed by the final
adjudication of such issue.

INTERSHOP hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by INTERSHOP pursuant to Rule 424(b)(1) or (4)
or 497(h) under the 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 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.

(3) It will 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.

II-3
<PAGE>

SIGNATURE

Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form F-1 and has caused this Registration Statement
on Form F-1 to be signed on its behalf by the undersigned, thereunto duly
authorized, in San Francisco, California, on March 29, 2000.

INTERSHOP COMMUNICATIONS AKTIENGESELLSCHAFT

By: /s/ Stephan Schambach
_____________________________________________
Stephan Schambach
Chief Executive Officer
(Vorstandsvorsitzender)

By: /s/ Wilfried Beeck
_____________________________________________
Wilfried Beeck
Chief Financial Officer (Finanzvorstand)

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENT, that each person whose signature appears below
constitutes and appoints Stephan Schambach and Wilfried Beeck, and each of them
severally, his true and lawful attorney-in-fact and agents, with full power of
substitution and resubstitution, for him and his name, place and stead, in any
and all capacities, to sign and all amendments (including post-effective
amendments) to this registration statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, including any subsequent registration
statement filed pursuant to Rule 462(b), granting unto said attorneys-in-fact
and agents, and each of them, full power and authority to do and perform each
and every act and thing requisite or necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and
agents of either of them, or their or his substitues, may lawfully do or cause
to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities indicated
on the dates indicated.

<TABLE>
<CAPTION>
Signature Title Date
--------- --------------------------------- ---------------
<C> <S> <C>
/s/ Stephan Schambach March 29, 2000
------------------------------------
Stephan Schambach Chairman of the Management Board,
Chief Executive Officer and
Vorstandsversitzender (Principal
executive officer)
/s/ Wilfried Beeck March 29, 2000
------------------------------------
Wilfried Beeck Member of the Management Board
and Finanzvorstand (Principal
financial officer and principal
accounting officer)
</TABLE>

II-4
<PAGE>

SIGNATURE AUTHORIZED REPRESENTATIVE OF THE REGISTRANT

Pursuant to the requirements of the Securities Act of 1933, the undersigned,
the duly authorized representative in the United States of the registrant, has
signed this Registration Statement on Form F-1, or amendment thereto, in his
capacity as an authorized officer of INTERSHOP Communications, Inc., in San
Francisco, California, on March 29, 2000.

INTERSHOP COMMUNICATIONS, INC

By: /s/ Keith C. Costello
_____________________________________________
Keith C. Costello
President

II-5
<PAGE>

EXHIBIT INDEX

<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
1.1* Form of Underwriting Agreement

3.1** Summary Translation of Articles of Association (Satzung)

4.1** Form of Share Certificate for Ordinary Shares

4.2* Form of Deposit Agreement including Form of ADR Certificate
(incorporated by reference from the Registrant's Registration
Statement on Form F-6 (Registration No. 333-11642))

5.1* Opinion of Haarmann, Hemmelrath & Partner

8.1* Opinion of Shearman & Sterling relating to tax matters

10.1** 1997 Equity Incentive Plan

10.2** 1999 Stock Option Plan

10.3** Summary Translation of Intershop Communications Reorganization
Agreement (Post-Formation Acquisition and Capital Contribution
Agreement)

10.4** Intershop Communications Reorganization Agreement

10.5** Summary Translation of Trademark Agreement between Intershop Holding
AG, Intershop Communications, Inc. and Intershop Communications GmbH

10.6** Summary Translation of Summary of Loan Agreement between Wilfried
Beeck and Intershop Communications AG

10.7** Summary Translation of Loan Agreement between Stephan Schambach and
Intershop Communications AG

10.8** Software License, Services and Support Agreement between Persistence
Software and Intershop Communications AG(1)

10.9** Asset Purchase Agreement from Fountainhead Management, Aaron Kaufman
and Intershop Communications AG(1)

10.10** Cooperation Agreement with Deutsche Telekom AG and Intershop
Communications AG(1)

10.11** Summary Translation of Reseller Agreement with Sybase GmbH and
Intershop Communications AG(1)

10.12** Summary Translation of Reseller Agreement with Oracle Deutschland GmbH
and Intershop Communications AG(1)

10.13** Technology License and Distribution Agreement with Sun Microsystems
and Intershop Communications AG(1)

21.1** List of Subsidiaries

23.1* Consent of Arthur Andersen Wirtschaftsprufungsgesellschaft
Steuerberatungsgesellschaft mbH

23.2* Consent of Haarmann, Hemmelrath & Partner (Included in exhibit 5.1)

23.3* Consent of Shearman & Sterling (included in exhibit 8.1)

23.4* Consent of International Data Corporation
</TABLE>
- --------

* Filed herewith

** Previously filed
(1) The Registrant has applied for confidential treatment for portions of this
agreement. Accordingly, portions thereof have been omitted and filed
separately.

<PAGE>

EXHIBIT 1.1

[FORM OF UNDERWRITING AGREEMENT]

4,350,000 AMERICAN DEPOSITARY SHARES REPRESENTING

435,000 BEARER ORDINARY SHARES

INTERSHOP COMMUNICATIONS

AKTIENGESELLSCHAFT

UNDERWRITING AGREEMENT

March ___, 2000

CREDIT SUISSE FIRST BOSTON CORPORATION
CHASE SECURITIES INC.
U.S. BANCORP PIPER JAFFRAY INC.,
As Representatives of the Several Underwriters,
c/o Credit Suisse First Boston Corporation
Eleven Madison Avenue,
New York, N.Y. 10010-3629

Dear Sirs:

1. INTRODUCTORY. INTERSHOP Communications Aktiengesellschaft, a company
organized under the laws of the Federal Republic of Germany ("COMPANY"),
proposes to issue and sell 4,350,000 of its American Depositary Shares ("FIRM
SECURITIES"), each ADS (collectively, "ADSs") representing 0.1 of the Company's
Bearer Ordinary Shares, no par value ("SECURITIES"). The ADSs purchased by the
Underwriters will be evidenced by American Depositary Receipts ("ADRs") to be
issued pursuant to a Deposit Agreement, dated as of ____________ (the "DEPOSIT
AGREEMENT"), to be entered into by and among the Company, Citibank, N.A., as
depositary (the "DEPOSITARY"), and all holders from time to time of the ADRs.

Pursuant to Article ___ of the Company's Articles of Association
(Satzung), the Management Board (VORSTAND) of the Company, is authorized, with
the prior consent of the Supervisory Board (AUFSICHTSRAT), to increase the
stated share capital of the Company on one or more occasions by up to EUR ___
until _____ (the "AUTHORISED CAPITAL"). The increase in the stated share capital
is to be effected by the issuance of new shares against cash contributions.
Under certain circumstances, the Management Board of the Company is authorized
to exclude pre-emption rights of the shareholders.

On , 2000, the Management Board of the Company resolved to increase the
stated share capital of the Company by making use of the Authorised Capital by
up to EUR 4,350,000 to EUR the ("CAPITAL INCREASE") by issuing up to 435,000 new
Securities (the "NEW SHARES"). The New Shares are to be issued at an issue price
(AUSGABEBETRAG) of EUR 1, per New Share (the "ISSUE PRICE"). The Supervisory
Board approved the resolution of the Management Board on , 2000.

Wilfried Beeck (the ("EXISTING SHAREHOLDER") proposes to grant to the
Underwriters, at the option of the Underwriters, an aggregate of not more than
65,000 additional existing Securities ("ADDITIONAL SHARES"), by way of a
securities loan. The Underwriters may require the Company to issue up to 65,000
additional new Securities (the "ADDITIONAL NEW SHARES") from the Authorised
Capital under exclusion of the shareholders' pre-emptive rights in order to
cover over-allotments. The Firm Securities and the

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Additional New Shares are herein collectively called the "OFFERED SECURITIES."
Whenever computations are contemplated herein that involve both numbers of ADSs
and numbers of shares of Securities in ordinary form, they shall be made on a
consistent basis, by first converting the number of ADSs into the number of
shares of Securities in ordinary form they represent.

As part of the offering contemplated by this Agreement, U.S. Bancorp
Piper Jaffray Inc. (the "DESIGNATED UNDERWRITER") has agreed to reserve out of
the Firm Securities purchased by it under this Agreement, up to 250,000 ADSs,
for sale to the Company's directors, officers, employees and other parties
associated with the Company (collectively, "PARTICIPANTS"), as set forth in the
Prospectus (as defined herein) under the heading "Underwriting" (the "DIRECTED
SHARE PROGRAM"). The Firm Securities to be sold by the Designated Underwriter
pursuant to the Directed Share Program (the "DIRECTED SHARES") will be sold by
the Designated Underwriter pursuant to this Agreement at the public offering
price. Any Directed Shares not orally confirmed for purchase by a Participant by
the end of the business day on which this Agreement is executed will be offered
to the public by the Underwriters as set forth in the Prospectus.

The Company and the Existing Shareholder hereby agree with the several
Underwriters named in Schedule A hereto ("UNDERWRITERS") as follows:

2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE EXISTING
SHAREHOLDER.

(a) The Company represents and warrants to, and agrees with,
the several Underwriters that:

(i) A registration statement (No. 333-32034) on Form
F-1 relating to the Offered Securities in ordinary form, including a form of
prospectus, has been filed with the Securities and Exchange Commission
("COMMISSION") and either (A) has been declared effective under the Securities
Act of 1933 ("ACT") and is not proposed to be amended or (B) is proposed to be
amended by amendment or post-effective amendment. If such registration statement
("INITIAL REGISTRATION STATEMENT") has been declared effective, either (A) an
additional registration statement ("ADDITIONAL REGISTRATION STATEMENT") relating
to the Offered Securities in ordinary form may have been filed with the
Commission pursuant to Rule 462(b) ("RULE 462(b)") under the Act and, if so
filed, has become effective upon filing pursuant to such Rule and the Offered
Securities in ordinary form will all have been duly registered under the Act
pursuant to the initial registration statement and, if applicable, the
additional registration statement or (B) such an additional registration
statement is proposed to be filed with the Commission pursuant to Rule 462(b)
and will become effective upon filing pursuant to such Rule and upon such filing
the Offered Securities will all have been duly registered under the Act pursuant
to the initial registration statement and such additional registration
statement. If the Company does not propose to amend the initial registration
statement or if an additional registration statement has been filed and the
Company does not propose to amend it, and if any post-effective amendment to
either such registration statement has been filed with the Commission prior to
the execution and delivery of this Agreement, the most recent amendment (if any)
to each such registration statement has been declared effective by the
Commission or has become effective upon filing pursuant to Rule 462(c) ("RULE
462(c)") under the Act or, in the case of the additional registration statement,
Rule 462(b). For purposes of this Agreement, "EFFECTIVE TIME" with respect to
the initial registration statement or, if filed prior to the execution and
delivery of this Agreement, the additional registration statement means (A) if
the Company has advised the Representatives that it does not propose to amend
such registration statement, the date and time as of which such registration
statement, or the most recent post-effective amendment thereto (if any) filed
prior to the execution and delivery of this Agreement, was declared effective by
the Commission or has become effective upon filing pursuant to Rule 462(c), or
(B) if the Company has advised the Representatives that it proposes to file an
amendment or post-effective amendment to such registration statement, the date
and time as of which such registration statement, as amended by such amendment
or post-effective amendment, as the case may be, is declared effective by the

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<PAGE>

Commission. If an additional registration statement has not been filed prior to
the execution and delivery of this Agreement but the Company has advised the
Representatives that it proposes to file one, "EFFECTIVE TIME" with respect to
such additional registration statement means the date and time as of which such
registration statement is filed and becomes effective pursuant to Rule 462(b).
"EFFECTIVE DATE" with respect to the initial registration statement or the
additional registration statement (if any) means the date of the Effective Time
thereof. The initial registration statement, as amended at its Effective Time,
including all information contained in the additional registration statement (if
any) and deemed to be a part of the initial registration statement as of the
Effective Time of the additional registration statement pursuant to the General
Instructions of the Form on which it is filed and including all information (if
any) deemed to be a part of the initial registration statement as of its
Effective Time pursuant to Rule 430A(b) ("RULE 430A(b)") under the Act, is
hereinafter referred to as the "INITIAL REGISTRATION STATEMENT." The additional
registration statement, as amended at its Effective Time, including the contents
of the initial registration statement incorporated by reference therein and
including all information (if any) deemed to be a part of the additional
registration statement as of its Effective Time pursuant to Rule 430A(b), is
hereinafter referred to as the "ADDITIONAL REGISTRATION STATEMENT." The Initial
Registration Statement and the Additional Registration Statement are herein
referred to collectively as the "REGISTRATION STATEMENTS" and individually as a
"REGISTRATION STATEMENT." The form of prospectus relating to the Offered
Securities, as first filed with the Commission pursuant to and in accordance
with Rule 424(b) ("RULE 424(b)") under the Act or (if no such filing is
required) as included in a Registration Statement, is hereinafter referred to as
the "PROSPECTUS." No document has been or will be prepared or distributed in
reliance on Rule 434 under the Act.

(ii) If the Effective Time of the Initial Registra-
tion Statement is prior to the execution and delivery of this Agreement: (A) on
the Effective Date of the Initial Registration Statement, the Initial
Registration Statement conformed in all respects to the requirements of the Act
and the rules and regulations of the Commission ("RULES AND REGULATIONS") and
did not include any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading, (B) on the Effective Date of the Additional Registration
Statement (if any), each Registration Statement conformed, or will conform, in
all respects to the requirements of the Act and the Rules and Regulations and
did not include, or will not include, any untrue statement of a material fact
and did not omit, or will not omit, to state any material fact required to be
stated therein or necessary to make the statements therein not misleading and
(C) on the date of this Agreement, the Initial Registration Statement and, if
the Effective Time of any Additional Registration Statement is prior to the
execution and delivery of this Agreement, each such Additional Registration
Statement conforms, and 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 any
Additional Registration Statement in which the Prospectus is included, each
Registration Statement and the Prospectus will conform, in all respects to the
requirements of the Act and the Rules and Regulations, and neither of such
documents includes, or will include, any untrue statement of a material fact or
omits, or will omit, to state any material fact required to be stated therein or
necessary to make the statements therein not misleading. If the Effective Time
of the Initial Registration Statement is subsequent to the execution and
delivery of this Agreement: on the Effective Date of the Initial Registration
Statement, the Initial Registration Statement and the Prospectus will conform in
all respects to the requirements of the Act and the Rules and Regulations,
neither of such documents will include any untrue statement of a material fact
or will omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, and no Additional
Registration Statement has been or will be filed. The two preceding sentences do
not apply to statements in or omissions from a Registration Statement or the
Prospectus based upon written information furnished to the Company by any
Underwriter through the Representatives specifically for use therein, it being
understood and agreed that the only such information is that described as such
in Section 7(b) hereof.

(iii) A registration statement on Form F-6
(No. 333- ) relating to the ADSs has been filed with the Commission (such
registration statement, including all exhibits thereto, as amended at the time
such registration statement becomes effective, being hereinafter called the "ADS
REGISTRATION STATEMENT"); the ADS Registration Statement, as of its effective
date, complied or will comply, and each amendment or supplement thereto, when it
is filed with the Commission or becomes

3
<PAGE>

effective, as the case may be, will comply, in all material respects, with the
applicable requirements of the Act and the Rules and Regulations, and did not or
will not, as of its effective date, contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein not misleading.

(iv) The Company is a stock corporation
(Aktiengesellschatt) duly registered with the Commercial Register in Frankfurt
am Main, Germany, and is validly existing and in good standing under the laws of
the Federal Republic of Germany, with corporate power and authority under such
laws to own its properties and conduct its business as described in the
Prospectus; and the Company is duly qualified to do business as a foreign
corporation in good standing in all other jurisdictions in which its ownership
or lease of property or the conduct of its business requires such qualification,
except to the extent the failure to be so qualified would not have a material
adverse effect on the condition (financial or other), business, properties or
results of operations of the Company and its subsidiaries taken as a whole (a
"MATERIAL ADVERSE EFFECT").

(v) Each subsidiary of the Company has been duly
organized and is validly existing and in good standing under the laws of the
jurisdiction of its organization, with corporate power and authority under such
laws to own its properties and conduct its business as described in the
Prospectus; and each subsidiary of the Company is duly qualified to do business
as a foreign corporation in good standing in all other jurisdictions in which
its ownership or lease of property or the conduct of its business requires such
qualification, except to the extent the failure to be so qualified would not
have a Material Adverse Effect; all of the issued and outstanding capital stock
of each subsidiary of the Company has been duly authorized and validly issued
and is fully paid and nonassessable; and the capital stock of each subsidiary
owned by the Company, directly or through subsidiaries, is owned free from
liens, encumbrances and defects

(vi) The Offered Securities, including those
represented by the ADSs, and all other outstanding shares of capital stock of
the Company have been duly authorized; all outstanding shares of capital stock
of the Company are, and, when the Offered Securities have been delivered and
paid for in accordance with this Agreement on each Closing Date (as defined
below), such Offered Securities, including those represented by the ADSs, will
have been, validly issued, fully paid and nonassessable and will conform to the
description thereof contained in the Prospectus; and the shareholders of the
Company have no preemptive rights with respect to the Securities, including
those represented by the ADSs, other than rights that have been waived or
otherwise extinguished with respect to the Offered Securities.

(vii) The Deposit Agreement has been duly authorized,
executed and delivered by the Company and, when duly and validly authorized,
executed and delivered by the Depositary, will constitute a valid and legally
binding agreement of the Company enforceable against the Company in accordance
with its terms and subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability relating to
or affecting creditors' rights and to general equity principles; upon due
issuance by the Depositary of ADRs evidencing ADSs against the deposit of
Securities in respect thereof in accordance with the Deposit Agreement, such
ADRs will be duly and validly issued and the holders thereof will be entitled to
the rights specified therein and in the Deposit Agreement; and the Deposit
Agreement and the ADRs conform to the descriptions thereof contained in the
Prospectus.

(viii) Except as disclosed in the Prospectus, there
are no contracts, agreements or understandings between the Company and any
person that would give rise to a valid claim against the Company or any
Underwriter for a brokerage commission, finder's fee or other like payment in
connection with this offering.

(ix) There are no contracts, agreements or under-
standings between the Company and any person granting such person the right to
require the Company to file a registration statement under the 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 a Registration

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<PAGE>

Statement or the ADS Registration Statement or in any securities being
registered pursuant to any other registration statement filed by the Company
under the Act.

(x) The ADSs have been approved for listing on
The Nasdaq Stock Market's National Market subject to notice of issuance, and the
Offered Securities in ordinary form, including those deposited in respect of
ADSs, have been approved for listing/quotation on the Neuer Markt of the
Frankfurt Stock Exchange.

(xi) No consent, approval, authorization, or order
of, or filing with, any governmental agency or body or any court is required for
the consummation of the transactions contemplated by the Deposit Agreement or
this Agreement in connection with the issuance and sale of the Offered
Securities by the Company, including the deposit of any Securities represented
by the ADSs with the Depositary and the issuance of the ADRs evidencing the
ADSs, except such as have been obtained and made under the Act and such as may
be required under state securities laws.

(xii) Except as disclosed in the Prospectus, under
current laws and regulations of the Federal Republic of Germany and any
political subdivision thereof, all dividends and other distributions declared
and payable on the Offered Securities, including those represented by the ADSs,
may be paid by the Company to the holder thereof in United States
dollars/Deutsche Marks/Euros that may be converted into foreign currency and
freely transferred out of the Federal Republic of Germany and all such payments
made to holders thereof or therein who are non-residents of the Federal Republic
of Germany will not be subject to income, withholding or other taxes under laws
and regulations of the Federal Republic of Germany or any political subdivision
or taxing authority thereof or therein and will otherwise be free and clear of
any other tax, duty, withholding or deduction in the Federal Republic of Germany
or any political subdivision or taxing authority thereof or therein and without
the necessity of obtaining any governmental authorization in the Federal
Republic of Germany or any political subdivision or taxing authority thereof or
therein.

(xiii) The execution, delivery and performance of
the Deposit Agreement and this Agreement, and the issuance and sale of the
Offered Securities, including the deposit of any Securities represented by the
ADSs with the Depositary and the issuance of the ADRs evidencing the ADSs, (A)
will not result in a breach or violation of any of the terms and provisions of,
or constitute a default under, any statute, any rule, regulation or order of any
governmental agency or body or any court, domestic or foreign, having
jurisdiction over the Company or any subsidiary of the Company or any of their
properties, (B) will not result in a breach or violation of any agreements or
instruments filed as exhibits to the Registration Statement pursuant to item
601(b)(10) of Regulation S-K, which agreements or instruments represent all
material agreements or instruments to which the Company or any subsidiary is
subject or bound, or (C) will not result in a breach or violation of the charter
or by-laws of the Company or any such subsidiary, and the Company has full power
and authority to authorize, issue and sell the Offered Securities, including the
ADSs, as contemplated by the Deposit Agreement and this Agreement.

(xiv) This Agreement has been duly authorized,
executed and delivered by the Company.

(xv) Except as disclosed in the Prospectus, the
Company and its subsidiaries have good and marketable title to all real
properties and all other properties and assets owned by them, in each case free
from liens, encumbrances and defects that would materially affect the value
thereof or materially interfere with the use made or to be made thereof by them;
and except as disclosed in the Prospectus, the Company and its subsidiaries hold
any leased real or personal property under valid and enforceable leases with no
exceptions that would materially interfere with the use made or to be made
thereof by them.

(xvi) The Company and its subsidiaries possess
adequate certificates, authorities or permits issued by appropriate governmental
agencies or bodies necessary to conduct the business now operated by them and
have not received any notice of proceedings relating to the revocation

5
<PAGE>

or modification of any such certificate, authority or permit that, if determined
adversely to the Company or any of its subsidiaries, would individually or in
the aggregate have a Material Adverse Effect.

(xvii) No labor dispute with the employees of
the Company or any of its subsidiaries that might have a Material Adverse Effect
exists or, to the knowledge of the Company, is imminent.

(xviii) Except as disclosed in the Prospectus, the
Company and its subsidiaries own, possess or can acquire on reasonable terms,
adequate trademarks, trade names and other rights to inventions, know-how,
patents, copyrights, confidential information and other intellectual property
(collectively, "INTELLECTUAL PROPERTY RIGHTS") necessary to conduct the business
now operated by them, or presently employed by them, and have not received any
notice of infringement of or conflict with asserted rights of others with
respect to any intellectual property rights that, if determined adversely to the
Company or any of its subsidiaries, would individually or in the aggregate have
a Material Adverse Effect.

(xix) Except as disclosed in the Prospectus, neither
the Company nor any of its subsidiaries is in violation of any statute, any
rule, regulation, decision or order of any governmental agency or body or any
court, domestic or foreign, relating to the use, disposal or release of
hazardous or toxic substances or relating to the protection or restoration of
the environment or human exposure to hazardous or toxic substances
(collectively, "ENVIRONMENTAL LAWS"), owns or operates any real property
contaminated with any substance that is subject to any environmental laws, is
liable for any off-site disposal or contamination pursuant to any environmental
laws, or is subject to any claim relating to any environmental laws, which
violation, contamination, liability or claim would individually or in the
aggregate have a Material Adverse Effect; and the Company is not aware of any
pending investigation which might lead to such a claim.

(xx) There are no pending actions, suits or proceed-
ings against or affecting the Company, any of its subsidiaries or any of their
respective properties that, if determined adversely to the Company or any of its
subsidiaries, would individually or in the aggregate have a Material Adverse
Effect, or would materially and adversely affect the ability of the Company to
perform its obligations under the Deposit Agreement or this Agreement, or which
are otherwise material in the context of the sale of the Offered Securities; and
no such actions, suits or proceedings are threatened or, to the Company's
knowledge, contemplated.

(xxi) The financial statements included in each
Registration Statement and the Prospectus present fairly the financial position
of the Company and its consolidated subsidiaries as of the dates shown and their
results of operations and cash flows for the periods shown, and, except as
otherwise disclosed in the Prospectus, such financial statements have been
prepared in conformity with the generally accepted accounting principles in the
United States applied on a consistent basis; and the schedules included in each
Registration Statement present fairly the information required to be stated
therein.

(xxii) Except as disclosed in the Prospectus, since
the date of the latest audited financial statements included in the Prospectus
there has been no material adverse change, nor any development or event
involving a prospective material adverse change, in the condition (financial or
other), business, properties or results of operations of the Company and its
subsidiaries taken as a whole, and, except as disclosed in or contemplated by
the Prospectus, there has been no dividend or distribution of any kind declared,
paid or made by the Company on any class of its capital stock.

(xxiii) The Company is not and, after giving effect
to the offering and sale of the Offered Securities and the application of the
proceeds thereof as described in the Prospectus, will not be an "investment
company" as defined in the Investment Company Act of 1940.

(xxiv) Furthermore, the Company represents and
warrants to the Underwriters that (A) the Registration Statement, the Prospectus
and any preliminary prospectus comply,

6
<PAGE>

and any further amendments or supplements thereto will comply, with any
applicable laws or regulations of foreign jurisdictions in which the Prospectus
or any preliminary prospectus, as amended or supplemented, if applicable, are
distributed in connection with the Directed Share Program, and that (B) no
authorization, approval, consent, license, order, registration or qualification
of or with any government, governmental instrumentality or court, other than
such as have been obtained, is necessary under the securities laws and
regulations of foreign jurisdictions in which the Directed Shares are offered
outside the United States.

(xxv) The Company has not offered, or caused the
Underwriters to offer, any offered Securities to any person pursuant to the
Directed Share Program with the specific intent to unlawfully influence (A) a
customer or supplier of the Company to alter the customer's or supplier's level
or type of business with the Company or (B) a trade journalist or publication to
write or publish favorable information about the Company or its products.

(xxvi) The Company (A) has notified each executive
officer, each member of the Management Board, each member of the Supervisory
Board and Roland Fassauerholder that pursuant to the Lock-up Agreements (defined
below), none of the shares held by such persons or entities may be sold or
otherwise transferred or disposed of for a period of 90 days after the date of
the initial public offering of the Offered Securities and (B) has imposed a
stop-transfer instruction with the Company's transfer agent in order to enforce
the foregoing lock-up provision imposed pursuant to the Option Plans.

(xxvii) All outstanding Securities, and all
securities convertible into or exercisable or exchangeable for Securities, that
are held by the Company's executive officers, members of the Management Board,
members of the Supervisory Board or Roland Fassauerholder are subject to valid
and binding agreements having substantially the form of EXHIBIT A (collectively,
"LOCK-UP AGREEMENTS") that restrict the holders thereof from selling, making any
short sale of, granting any option for the purchase of, or otherwise
transferring or disposing of, any of such Securities, or any such securities
convertible into or exercisable or exchangeable for Securities, for a period of
90 days after the date of the Prospectus without the prior written consent of
Credit Suisse First Boston Corporation ("CSFBC").

(b) The Existing Shareholder represents and warrants to, and
agrees with, the several Underwriters that:

(i) The Existing Shareholder has and on each Closing
Date hereinafter mentioned will have valid and unencumbered title to the
Additional Shares to be delivered by the Existing Shareholder on such Closing
Date and full right, power and authority to enter into this Agreement and to
sell, assign, transfer and deliver the Additional Shares to be delivered by the
Existing Shareholder on such Closing Date hereunder; and upon the delivery of
and payment for the Additional Shares on each Closing Date hereunder the several
Underwriters will acquire valid and unencumbered title to the Additional Shares
to be delivered by the Existing Shareholder on such Closing Date.

7
<PAGE>

include, any untrue statement of a material fact or omits, or will omit, to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading. If the Effective Time of the Initial
Registration Statement is subsequent to the execution and delivery of this
Agreement: on the Effective Date of the Initial Registration Statement, the
Initial Registration Statement and the Prospectus will conform in all respects
to the requirements of the Act and the Rules and Regulations, neither of such
documents will include any untrue statement of a material fact or will omit to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading. The two preceding sentences apply only to the
extent that any statements in or omissions from a Registration Statement or the
Prospectus are based on written information furnished to the Company by such
Existing Shareholder specifically for use therein.

(iii) Except as disclosed in the Prospectus, there
are no contracts, agreements or understandings between the Existing Shareholder
and any person that would give rise to a valid claim against the Existing
Shareholder or any Underwriter for a brokerage commission, finder's fee or other
like payment in connection with this offering.

3. SUBSCRIPTION, PURCHASE, SALE AND DELIVERY OF OFFERED SECURITIES.

(a) SUBSCRIPTION OF NEW SHARES.

(i) CSFB AG agrees to subscribe for the account of
the Underwriters the New Shares on or before March ___, 2000 at the Issue Price
of EUR 1 for each New Share.

(ii) For the purpose of the registration of the
Capital Increase with the Commercial Register CSFB AG agrees to:

(A) deliver to the Company two counterparts
of the subscription certificate for the New Shares, each signed by it on or
before March ___, 2000 pursuant to Section 185 of the German Stock Corporation
Act (Aktiengesetz - "AKTG"),

(B) credit 25% of the Issue Price for the New
Shares in the total aggregate amount of EUR 5,000 - to a special account to be
opened with CSFB AG "SONDERKONTO KAPITALERHOHUNG I" which bears no interest and
shall be without commission, and

(C) deliver to the Company the relevant bank
confirmations as required pursuant to ss.ss. 203 para 1, 188 para 2 in
connection with ss.ss. 36 para 2, 36a para 1 and 37 para 1 AktG.

(iii) The Company shall apply for the registration
of the completion (DURCHFUHRUNG) of the Capital Increase with the Commercial
Register immediately after delivery of the documents listed under subsections
3(a)(ii)(A) and 3(a)(ii)(C) above.

(iv) Immediately after the completion of the Capital
Increase has been registered with the Commercial Register, the Company shall
deliver, first by facsimile, to CSFBC a copy of the notice of the registration
and three certified excerpts from the Commercial Register reflecting the
registered increase of the stated share capital of the Company.

(b) SUBSCRIPTION OF ADDITIONAL NEW SHARES.

(i) The Company agrees to grant CSFBC an option (the
"OVER ALLOTMENT OPTION") pursuant to which the Company will ensure, to the
extent legally permissible, that CSFBC will, upon its request, receive ownership
of up to 75,000 new shares (the "ADDITIONAL NEW SHARES") to be issued by the
Company from the Authorised Capital. CSFBC shall notify the Company not later
than 2:00 p.m. (German time) on the 30th day after the First Closing Date of the
number of Additional New Shares which will be required to be issued. Following
receipt of the notification from CSFBC pursuant to the foregoing sentence, the
Management Board of the Company shall adopt, and the members of the Management
Board

8
<PAGE>

represent and warrant in their capacity as members of the Management Board to
CSFBC that they will adopt, without undue delay, but no later than within three
business days from the receipt of such notification, a resolution to increase
the share capital of the Company by drawing on its Authorised Capital in such
number of Additional New Shares as requested by CSFBC at an issue price of EUR 1
for each Additional New Share. The Company shall (A) procure the consent of the
Supervisory Board of the Company on the same day and (B) send to CSFBC
immediately by telefacsimile a copy of the resolution and the consent of the
Supervisory Board of the Company.

(ii) For the purpose of the registration with the
Commercial Register of the capital increase with respect to the Additional New
Shares, CSFB AG shall not later than 1:00 p.m. (German time) on the business day
following the delivery of a copy of the resolution of the Management Board
pursuant to subsection (b)(i) above and the consent of the Supervisory Board:

(A) deliver to the Company two counterparts of
the subscription certificate for the Additional New Shares signed by it
pursuant to Section 185 AktG,

(B) credit 25% of the issue price for the
Additional New Shares being EUR 0,25 for each Additional New Share to a
special account to be opened with CSFB AG "SONDERKONTO KAPITALERHOHUNG II" which
bears no interest and shall be without commission,

(C) deliver to the Company the relevant bank
confirmation as required pursuant to ss.ss. 203 para 1, 188 para 2 in connec-
tion with ss.ss. 36 para 2, 36a para 1 und 37 para 1 AktG.

(iii) The Company shall apply for the registration of
the completion (DURCHFUHRUNG) of the capital increase in respect of the
Additional New Shares with the Commercial Register immediately after delivery of
the documents listed under subsections 3(a)(ii)(A) and 3(a)(ii)(C) above.
Immediately after the completion of the capital increase with respect to the
Additional New Shares has been registered with the Commercial Register, the
Company shall deliver, first by facsimile, to CSFB AG a copy of the notice of
the registration and three certified excerpts from the Commercial Register
reflecting the registered increase of the stated share capital of the Company.

(iv) The delivery of and payment for the
Additional New Shares shall then be as follows:

(A) At 10 a.m. (German time) on the first
business day after the registration of the capital increase for the Additional
New Shares, or at such other time and date as the Company and CSFBC may agree,
CSFB AG shall credit to the SONDERKONTO KAPITALERHOHUNG II the difference
between (i) 25% of the issue price already paid in and (ii) the product of the
Offer Price per Security offered and the number of the Additional New Shares to
be issued to CSFB AG minus Commissions.

(B) Immediately following the payment as
described in subsection (b)(iv)(A) above, the Company shall issue and deliver to
CSFB AG a global bearer share certificate in respect of the Additional New
Shares which shall be deposited with Clearstream Banking AG.

(C) Immediately after the global bearer share
certificate with respect to the New Additional Shares issued has been deposited
with Clearstream Banking AG, CSFB AG shall give instructions to Clearstream
Banking AG as to the number of Additional New Shares to be credited to the
account of Wilfried Beeck (the "EXISTING SHAREHOLDER").

(v) In order to assure the availability of the
Additional Shares when and if needed by CSFBC to cover over allotments, the
Existing Shareholder hereby grants to CSFB AG an irrevocable option to request a
securities loan (WERTPAPIERDARLEHEN) of up to 75,000 Additional Shares (the
"Securities Loan"). The Securities Loan will be free of charge.

9
<PAGE>

(vi) The Existing Shareholder hereby agrees to
deposit such Additional Shares with a securities account maintained with CSFB AG
no later than by March ___ 2000. CSFB AG will hold such Additional Shares in
trust (TREUHANDERISCH) until the date the Drawing Notice (as defined below) is
delivered or the Securities Loan is terminated.

(vii) The Securities Loan may be drawn by a written
notice from CSFB AG to the Existing Shareholder (the "DRAWING NOTICE")
substantially in the form set forth in SCHEDULE C no later than April ____,
2000. The Drawing Notice shall state the number of Additional Shares to be
borrowed. The securities loan agreement will be concluded upon the receipt of
the Drawing Notice for such number of Additional Shares as set forth in the
relevant Drawing Notice. The Existing Shareholder represents and warrants that
he holds title to the Additional Shares free from any liens, encumbrances and
other rights of third parties and the Additional Shares have been fully paid in
and carry full dividend rights.

(viii) The Existing Shareholder authorizes CSFB AG
to transfer such number of Additional Shares set forth in any Drawing Notice to
the securities account specified in the Drawing Notice. The Parties hereby agree
that title to the Additional Shares shall pass to CSFB AG at the time at which
the Additional Shares are credited to the securities account specified by CSFB
AG and that CSFB AG is entitled to return securities of the same class. Upon
request of CSFB AG, the Existing Shareholder shall therefore issue to CSFB AG an
"Acquisition Authorisation" (ANEIGNUNGSERMACHTIGUNG) substantially in the form
as set forth in SCHEDULE D no later than on the date hereof.

(ix) CSFBC and CSFB AG shall be entitled to
compensation for damages due to non-performance or to rescind the Securities
Loan without being obligated to give notice or to grant any grace period to the
Existing Shareholder if (A) the Additional Shares are not timely delivered to
CSFB AG in accordance with subsection (vi), or (B) do not have the warranted
characteristics described in subsection (vii). In the event that CSFBC is
entitled to compensation for damages for non-performance as described in the
preceding sentence, CSFB AG shall also have the right to acquire on a stock
exchange or otherwise for the account of the Existing Shareholder such number of
shares equal to the number of Additional Shares as agreed upon pursuant to
subsection (v) hereof.

(x) The term of the Securities Loan with respect to
the Additional Shares in the number stated in the Drawing Notice shall be from
the time of transfer of ownership pursuant to subsection (viii) and, subject to
the provisions in the following sentence, terminates on the ______ calendar day
after the First Closing Date (the "SECOND CLOSING DATE"). The Securities Loan
may be terminated at any time, in whole or in part, by CSFB AG upon one business
day's prior notice to the Existing Shareholder; such termination notice must
state the date on which the relevant number of Shares will be returned by CSFB
AG.

(xi) If and to the extent that CSFBC has requested
the Company to issue Additional New Shares, CSFBC shall deliver the Additional
New Shares to the Existing Shareholder in order to fulfil the delivery claim of
the Existing Shareholder under the securities loan not later than the close of
business on the fourth business day after the global bearer share certificate
representing such Additional New Shares has been delivered to CSFBC by the
Company (it being understood that the global bearer share certificate
representing such Additional New Shares will only be issued after the completion
of the capital increase in respect of the Additional New Shares has been
registered with the Commercial Register). If and to the extent that CSFBC has
not requested the Company to issue Additional New Shares, CSFBC shall deliver
the Additional Shares borrowed not later than the close of business on the
fourth business day after the day of any termination of the Securities Loan. If
and to the extent that CSFBC has requested the Company to issue Additional New
Shares and (A) the Management Board fails to pass the resolution to increase the
stated share capital of the Company necessary to issue the Additional New Shares
within two banking days following receipt by the Company of such request or (B)
the Management Board passes the resolution to increase the stated share capital
of the Company necessary to issue the Additional New Shares but the Supervisory
Board of the Company fails to have consented to such resolution within three
banking days following receipt by the Company of the relevant request by CSFBC
or (C) the increase of the stated share capital is not registered with the
Commercial Register within 40 business days after CSFBC has

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<PAGE>

requested the Company to issue Additional New Shares, CSFBC shall be entitled,
instead of redelivering shares of the Company, to pay to the Existing
Shareholder an amount equal to the aggregate purchase price for the Additional
Shares minus Commissions both as to be determined in the Underwriting Agreement,
in which case the redelivery claim shall be extinguished to that extent.

(c) PURCHASE, SALE AND DELIVERY OF OFFERED SECURITIES. On the basis
of the representations, warranties and agreements herein contained, but subject
to the terms and conditions herein set forth, the Company agrees to sell to the
Underwriters, and the Underwriters agree, severally and not jointly, to purchase
from the Company, at a purchase price of U.S.$______ per ADS, the respective
numbers of ADSs constituting the Firm Securities and the Additional New Shares
set forth opposite the names of the Underwriters in Schedule A hereto.

The Company will deliver the Firm Securities to the Representatives for
the accounts of the Underwriters, at the office of
______________________________________, against payment of the purchase price in
U.S. dollars in Federal (same day) funds by official bank check or checks or
wire transfer to an account at a bank acceptable to Credit Suisse First Boston
Corporation ("CSFBC") drawn to the order of ___________________________ at the
office of ___________________________, at _______ A.M., New York time, on
_____________, or at such other time not later than seven full business days
thereafter as CSFBC and the Company determine, such time being herein referred
to as the "FIRST CLOSING DATE." For purposes of Rule 15c6-1 under the Securities
Exchange Act of 1934, the First Closing Date (if later than the otherwise
applicable settlement date) shall be the settlement date for payment of funds
and delivery of securities for all the Offered Securities sold pursuant to the
offering. The ADRs evidencing the Firm Securities so to be delivered will be in
definitive form, in such denominations and registered in such names as CSFBC
requests and will be made available for checking and packaging at the above
office of _______________________________ at least 24 hours prior to the First
Closing Date.

In addition, upon written notice from CSFBC given to the Company and
the Existing Shareholder from time to time not more than 30 days subsequent to
the date of the Prospectus, the Underwriters may purchase all or less than all
of the Additional New Shares at the purchase price per ADS (for any Additional
New Shares delivered in ADS form) or per ordinary share (for any Additional New
Shares delivered in ordinary form), as applicable to be paid for the Firm
Securities. The Company agrees to issue to the Underwriters such Additional New
Shares and the Underwriters agree, severally and not jointly, to subscribe such
Additional New Shares. Such Additional Shares shall be purchased for the account
of each Underwriter in the same proportion as the number of ADSs constituting
the Firm Securities set forth opposite such Underwriter's name bears to the
total number of ADSs constituting the Firm Securities (subject to adjustment by
CSFBC to eliminate fractions) and may be purchased by the Underwriters only for
the purpose of covering over-allotments made in connection with the sale of the
Firm Securities. No Additional New Shares shall be sold or delivered unless the
Firm Securities previously have been, or simultaneously are, sold and delivered.
The right to subscribe the Additional New Shares or any portion thereof may be
exercised from time to time and to the extent not previously exercised may be
surrendered and terminated at any time upon notice by CSFBC to the Company. It
is understood that CSFBC is authorized to make payment for and accept delivery
of such Additional New Shares on behalf of the Underwriters pursuant to the
terms of CSFBC's instructions to the Company.

Each time for the delivery of and payment for the Additional New
Shares, being herein referred to as an "OPTIONAL CLOSING DATE," which may be the
First Closing Date (the First Closing Date and each Optional Closing Date, if
any, being sometimes referred to as a "CLOSING DATE"), shall be determined by
CSFBC but shall be not later than five full business days after written notice
of election to subscribe the Additional New Shares is given. The Company and the
Existing Shareholder will deliver the Additional New Shares being purchased on
each Optional Closing Date to the Representatives for the accounts of the
several Underwriters, at the office of _____________________________, against
payment of the purchase price therefor in Federal (same day) funds by official
bank check or checks or wire transfer to an account at a bank acceptable to
CSFBC drawn to the order of _______________________________________, at the
above office of ____________________________________. The ADRs evidencing the
Additional New Shares being purchased on each Optional Closing Date will be in
definitive form, in such denominations

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<PAGE>

and registered in such names as CSFBC requests upon reasonable notice prior to
such Optional Closing Date and will be made available for checking and
packaging at the above office of _________________________________ at a
reasonable time in advance of such Optional Closing Date.

4. OFFERING BY UNDERWRITERS. It is understood that the several
Underwriters propose to offer the Offered Securities for sale to the public
as set forth in the Prospectus.

5. CERTAIN AGREEMENTS OF THE COMPANY. The Company agrees with the
several Underwriters that:

(a) If the Effective Time of the Initial Registration Statement is
prior to the execution and delivery of this Agreement, the Company will file the
Prospectus with the Commission pursuant to and in accordance with subparagraph
(1) (or, if applicable and if consented to by CSFBC, subparagraph (4)) of Rule
424(b) not later than the earlier of (A) the second business day following the
execution and delivery of this Agreement or (B) the fifteenth business day after
the Effective Date of the Initial Registration Statement.

The Company will advise CSFBC promptly of any such filing pursuant to
Rule 424(b). If the Effective Time of the Initial Registration Statement is
prior to the execution and delivery of this Agreement and an additional
registration statement is necessary to register a portion of the Offered
Securities under the Act but the Effective Time thereof has not occurred as of
such execution and delivery, the Company will file the additional registration
statement or, if filed, will file a post-effective amendment thereto with the
Commission pursuant to and in accordance with Rule 462(b) on or prior to 10:00
P.M., New York time, on the date of this Agreement or, if earlier, on or prior
to the time the Prospectus is printed and distributed to any Underwriter, or
will make such filing at such later date as shall have been consented to by
CSFBC.

(b) The Company will advise CSFBC promptly of any proposal to
amend or supplement the initial or any additional registration statement as
filed or the related prospectus or the Initial Registration Statement, the
Additional Registration Statement (if any) or the Prospectus or the ADS
Registration Statement and will not effect such amendment or supplementation
without CSFBC's consent; and the Company will also advise CSFBC promptly of the
effectiveness of each Registration Statement (if its Effective Time is
subsequent to the execution and delivery of this Agreement) and the ADS
Registration Statement (if its effectiveness is subsequent to the execution and
delivery of this Agreement) and of any amendment or supplementation of a
Registration Statement or the Prospectus or the ADS Registration Statement and
of the institution by the Commission of any stop order proceedings in respect of
a Registration Statement or the ADS Registration Statement and will use its best
efforts to prevent the issuance of any such stop order and to obtain as soon as
possible its lifting, if issued.

(c) If, at any time when a prospectus relating to the Offered
Securities is required to be delivered under the Act in connection with sales by
any Underwriter or dealer, any event occurs as a result of which the Prospectus
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 it is necessary at any time to amend the Prospectus to comply
with the Act, the Company will promptly notify CSFBC of such event and will
promptly prepare and file with the Commission, at its own expense, an amendment
or supplement which will correct such statement or omission or an amendment
which will effect such compliance. Neither CSFBC's consent to, nor the
Underwriters' delivery of, any such amendment or supplement shall constitute a
waiver of any of the conditions set forth in Section 6.

(d) As soon as practicable, but not later than the Availability Date
(as defined below), the Company will make generally available to its
securityholders an earnings statement covering a period of at least 12 months
beginning after the Effective Date of the Initial Registration Statement (or, if
later, the Effective Date of the Additional Registration Statement) which will
satisfy the provisions of Section 11(a) of the Act. For the purpose of the
preceding sentence, "AVAILABILITY DATE" means the 45th day after the end

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<PAGE>

of the fourth fiscal quarter following the fiscal quarter that includes such
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.

(e) The Company will furnish to the Representatives copies of each
Registration Statement and the ADS Registration Statement (three of each of
which will be signed and will include all exhibits), each related preliminary
prospectus, and, so long as a prospectus relating to the Offered Securities is
required to be delivered under the Act in connection with sales by any
Underwriter or dealer, the Prospectus and all amendments and supplements to such
documents, in each case in such quantities as CSFBC requests. The Prospectus
shall be so furnished on or prior to 3:00 P.M., New York time, on the business
day following the later of the execution and delivery of this Agreement or the
Effective Time of the Initial Registration Statement. All other documents shall
be so furnished as soon as available. The Company will pay the expenses of
printing and distributing to the Underwriters all such documents.

(f) The Company will arrange for the qualification of the Offered
Securities for sale under the laws of such jurisdictions as CSFBC designates and
will continue such qualifications in effect so long as required for the
distribution.

(g) During the period of three years hereafter, the Company will
furnish to the Representatives and, upon request, to each of the other
Underwriters, as soon as practicable after the end of each fiscal year, a copy
of its annual report to shareholders for such year; and the Company will furnish
to the Representatives (i) as soon as available, a copy of each report and any
definitive proxy statement of the Company filed with the Commission under the
Securities Exchange Act of 1934 or mailed to shareholders, and (ii) from time to
time, such other information concerning the Company as CSFBC may reasonably
request.

(h) The Company will pay all expenses incident to the performance
of its obligations under this Agreement and the Deposit Agreement, for any
filing fees and other expenses (including fees and disbursements of its counsel)
incurred in connection with qualification of the Offered Securities for sale
under the laws of such jurisdictions as CSFBC designates and the printing of
memoranda relating thereto, for the filing fee incident to, and the reasonable
fees and disbursements of counsel to the Underwriters in connection with, the
review by the National Association of Securities Dealers, Inc. of the Offered
Securities, for any travel expenses of the Company's officers and employees and
any other expenses of the Company in connection with attending or hosting
meetings with prospective purchasers of the Offered Securities and for expenses
incurred in distributing preliminary prospectuses and the Prospectus (including
any amendments and supplements thereto) to the Underwriters.

(i) The Company will indemnify and hold harmless the Underwriters
against any documentary, stamp or similar issue tax, including any interest and
penalties, on the creation, issue and sale of the Offered Securities and on the
execution and delivery of this Agreement. All payments to be made by the Company
hereunder shall be made without withholding or deduction for or on account of
any present or future taxes, duties or governmental charges whatsoever unless
the Company is compelled by law to deduct or withhold such taxes, duties or
charges. In that event, the Company shall pay such additional amounts as may be
necessary in order that the net amounts received after such withholding or
deduction shall equal the amounts that would have been received if no
withholding or deduction had been made.

(j) For a period of 90 days after the date of the initial public
offering of the Offered Securities, the Company will not offer, sell, contract
to sell, pledge or otherwise dispose of, directly or indirectly, or file with
the Commission a registration statement under the Act relating to, any
additional shares of its Securities or securities convertible into or
exchangeable or exercisable for any shares of its Securities, or publicly
disclose the intention to make any such offer, sale, pledge, disposition or
filing, without the prior written consent of CSFBC, except issuances of
Securities pursuant to the conversion or exchange of convertible or exchangeable
securities or the exercise of warrants or options, in each case outstanding on
the date hereof, grants of employee stock options pursuant to the terms of a
plan in effect on the date hereof, or issuances of Securities pursuant to the
exercise of such options.

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<PAGE>

(k) The Company will comply with the terms of the Deposit Agreement
so that the ADRs evidencing the ADSs will be executed by the Depositary and
delivered to the Underwriters, pursuant to this Agreement at the applicable
Closing Date.

(l) In connection with the Directed Share Program, the Company
will ensure that the Directed Shares will be restricted to the extent required
by the National Association of Securities Dealers, Inc. (the "NASD") or the NASD
rules from sale, transfer, assignment, pledge or hypothecation for a period of
three months following the date of the effectiveness of the Registration
Statement. The Designated Underwriter will notify the Company as to which
Participants will need to be so restricted. The Company will direct the transfer
agent to place stop transfer restrictions upon such securities for such period
of time.

(m) The Company will pay all fees and disbursements of counsel
incurred by the Underwriters in connection with the Directed Shares Program and
stamp duties, similar taxes or duties or other taxes, if any, incurred by the
underwriters in connection with the Directed Share Program.

Furthermore, the company covenants with the Underwriters that the
company will comply with all applicable securities and other applicable laws,
rules and regulations in each foreign jurisdiction in which the Directed Shares
are offered in connection with the Directed Share Program.

6. CONDITIONS OF THE OBLIGATIONS OF THE UNDERWRITERS. The obligations
of the several Underwriters to purchase and pay for the Firm Securities on the
First Closing Date and the Additional Shares to be purchased on each Optional
Closing Date will be subject to the accuracy of the representations and
warranties on the part of the Company herein, to the accuracy of the statements
of Company officers and Depositary made pursuant to the provisions hereof, to
the performance by the Company of its obligations hereunder and to the following
additional conditions precedent:

(a) The Representatives shall have received a letter, dated
the date of delivery thereof (which, if the Effective Time of the Initial
Registration Statement is prior to the execution and delivery of this Agreement,
shall be on or prior to the date of this Agreement or, if the Effective Time of
the Initial Registration Statement is subsequent to the execution and delivery
of this Agreement, shall be prior to the filing of the amendment or
post-effective amendment to the registration statement to be filed shortly prior
to such Effective Time), of Arthur Andersen Wirtschaftsprufungsgesellschaft
Steuerberatungsgesellschaft mbH confirming that they are independent public
accountants within the meaning of the Act and the applicable published Rules and
Regulations thereunder and stating to the effect that:

(i) in their opinion the financial statements examined by them
and included in the Registration Statements comply as to form in all material
respects with the applicable accounting requirements of the Act and the related
published Rules and Regulations;

(ii) they have performed the procedures specified by the
American Institute of Certified Public Accountants for a review of interim
financial information as described in Statement of Auditing Standards No. 71,
Interim Financial Information, on the quarterly results of operations included
in the Registration Statements;

(iii) on the basis of a reading of the latest available interim
financial statements of the Company, inquiries of officials of the Company who
have responsibility for financial and accounting matters and other specified
procedures, nothing came to their attention that caused them to believe that:

(A) at the date of the latest available balance sheet read
by such accountants, or at a subsequent specified date not more than three
business days prior to the date of such letter, there was any change in the
capital stock or any increase in short-term indebtedness or long-term debt of
the Company and its consolidated subsidiaries or, at the date of the latest
available balance sheet read by such accountants, there was any decrease in
consolidated net current assets or net assets, as compared with amounts shown on
the latest balance sheet included in the Prospectus; or

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<PAGE>

(B) for the period from the closing date of the latest
income statement included in the Prospectus to the closing date of the latest
available income statement read by such accountants there were any decreases, as
compared with the corresponding period of the previous year and with the
corresponding period of the previous quarter, in consolidated net sales, net
operating income in the total or per share amounts of consolidated income before
extraordinary items or net income;

except in all cases set forth in clauses (A) and (B) above for
changes, increases or decreases which the Prospectus discloses have occurred or
may occur or which are described in such letter; and

(iv) they have compared specified dollar amounts (or percen-
tages derived from such dollar amounts) and other financial information
contained in the Registration Statements (in each case to the extent that such
dollar amounts, percentages and other financial information are derived from the
general accounting records of the Company and its subsidiaries subject to the
internal controls of the Company's accounting system or are derived directly
from such records by analysis or computation) with the results obtained from
inquiries, a reading of such general accounting records and other procedures
specified in such letter and have found such dollar amounts, percentages and
other financial information to be in agreement with such results, except as
otherwise specified in such letter.

For purposes of this subsection, (i) if the Effective Time of the
Initial Registration Statement is subsequent to the execution and delivery of
this Agreement, "REGISTRATION STATEMENTS" shall mean the initial registration
statement as proposed to be amended by the amendment or post-effective amendment
to be filed shortly prior to its Effective Time, (ii) if the Effective Time of
the Initial Registration Statement is prior to the execution and delivery of
this Agreement but the Effective Time of the Additional Registration is
subsequent to such execution and delivery, "REGISTRATION STATEMENTS" shall mean
the Initial Registration Statement and the additional registration statement as
proposed to be filed or as proposed to be amended by the post-effective
amendment to be filed shortly prior to its Effective Time, and (iii)
"PROSPECTUS" shall mean the prospectus included in the Registration Statements.

(b) If the Effective Time of the Initial Registration Statement is
not prior to the execution and delivery of this Agreement, such Effective Time
shall have occurred not later than 10:00 P.M., New York time, on the date of
this Agreement or such later date as shall have been consented to by CSFBC. If
the Effective Time of the Additional Registration Statement (if any) is not
prior to the execution and delivery of this Agreement, such Effective Time shall
have occurred not later than 10:00 P.M., New York time, on the date of this
Agreement or, if earlier, the time the Prospectus is printed and distributed to
any Underwriter, or shall have occurred at such later date as shall have been
consented to by CSFBC. If the Effective Time of the Initial Registration
Statement is prior to the execution and delivery of this Agreement, the
Prospectus shall have been filed with the Commission in accordance with the
Rules and Regulations and Section 5(a) of this Agreement. The ADS Registration
Statement shall have been declared effective not later than 10:00 P.M., New York
time, on the date of this Agreement or such later date as shall have been
consented to by CSFBC. Prior to such Closing Date, no stop order suspending the
effectiveness of a Registration Statement or the ADS Registration Statement
shall have been issued and no proceedings for that purpose shall have been
instituted or, to the knowledge of the Company or the Representatives, shall be
contemplated by the Commission.

(c) Subsequent to the execution and delivery of this Agreement,
there shall not have occurred (i) a change in U.S., German or international
financial, political or economic conditions or currency exchange rates or
exchange controls as would, in the judgment of a majority in interest of the
Underwriters including the Representatives, be likely to prejudice materially
the success of the proposed issue, sale or distribution of the Offered
Securities, whether in the primary market or in respect of dealings in the
secondary market; (ii) any change, or any development or event involving a
prospective change, in the condition (financial or other), business, properties
or results of operations of the Company and its subsidiaries taken as one
enterprise which, in the judgment of a majority in interest of the Underwriters
including the Representatives, is material and adverse and makes it impractical
or inadvisable to proceed with completion of the public offering or the sale of
and payment for the Offered Securities; (iii) any

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<PAGE>

downgrading in the rating of any debt securities of the Company by any
"nationally recognized statistical rating organization" (as defined for purposes
of Rule 436(g) under the Act), or any public announcement that any such
organization has under surveillance or review its rating of any debt securities
of the Company (other than an announcement with positive implications of a
possible upgrading, and no implication of a possible downgrading, of such
rating); (iv) any material suspension or material limitation of trading in
securities generally on the New York Stock Exchange, or any setting of minimum
prices for trading on such exchange, or any suspension of trading of any
securities of the Company on any exchange or in the over-the-counter market; (v)
any banking moratorium declared by U.S. Federal, New York or German authorities;
or (vi) any outbreak or escalation of major hostilities in which the United
States or Germany is involved, any declaration of war by Congress or the German
BUNDESTAG, or any other substantial national or international calamity or
emergency if, in the judgment of a majority in interest of the Underwriters
including the Representatives, the effect of any such outbreak, escalation,
declaration, calamity or emergency makes it impractical or inadvisable to
proceed with completion of the public offering or the sale of and payment for
the Offered Securities.

If (i) any of the events described in this subsection (c)
shall occur or (ii) any of the conditions described in this secion 6 are not
satisfied after the delivery to the Commercial Register of all documents
required to effect the registration of the completion (DURCHFUHRUNG) of the
Capital Increase, CSFBC may by notice in writing to the Company require the
Company to use its best efforts to procure that the application for registration
of the completion of the Capital Increase be withdrawn. If the application is
successfully withdrawn, the obligations of CSFBC to subscribe the New Shares or
Additional New Shares which would otherwise have been registered shall
terminate. If at any time after the registration of the implementation
(DURCHFUHRUNG) of the Capital Increase with the Commercial Register, any of the
conditions in this subsection (c) occurs, CSFBC shall be entitled to terminate
this Agreement. In the event of such termination, the following procedure shall
apply:

(i) Each Underwriter shall be obligated to pay to CSFBC the
Issue Price per New Share pro rata to its underwriting commitment as set forth
in Schedule A.

(ii) During a period not exceeding business days after the
termination of this Agreement, the Company shall discuss with CSFBC whether and
for what period, the offer and sale of the New Shares under the exclusion of the
pre-emptive rights of the existing Sharheolders shall be postponed, whether a
rights offering with respect to such New Shares shall be conducted, or whether
the Company may designate a third party to purchase the New Shares in accordance
with the applicable laws and the Articles of Association of the Company.

(iii) If the Company and CSFBC fail to agree on the proce-
dure to be applied within a period of ___ business days, or if none of
the transactions as contemplated under (ii) above has taken place
within ___ months after termination of this Agreement, the Underwriters may
sell the New Shares, subject to mandatorily applicable provisions of the German
Stock Corporation Act, at their discretion. The Underwriters shall retain an
amount equal to the Issue Price of such New Shares, the costs incurred in
financing the Issue Price and the expenses incurred in connection witht he
subscription and placement of the New Shares. The Company shall receive the
remainder of the proceeds from such sale.

(iv) Whilst holding such New Shares, each Underwriter hereby
agrees to waive its rights as holder of New Shares, including but not limited
to, voting rights, rights to payments of dividends or pre-emptive rights.

(d) The Representatives shall have received an opinion, dated such
Closing Date, of Haarmann, Hemmelrath & Partner, counsel for the Company, to the
effect that:

(i) The Company is a stock corporation (Aktiengesellschaft)
duly registered with the Commercial Register in Frankfurt am Main, Germany, and
is validly existing and in good standing under the laws of the State of the
Federal Republic of Germany, with corporate power and authority to own its
properties and conduct its business as described in the Prospectus; and the
Company is

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<PAGE>

duly qualified to do business as a foreign corporation in good standing in all
other jurisdictions in which its ownership or lease of property or the conduct
of its business requires such qualification, except to the extent the failure to
be so qualified would not have a Material Adverse Effect;

(ii) The Deposit Agreement has been duly authorized, executed
and delivered by the Company and constitutes a valid and legally binding
obligation of the Company enforceable in accordance with its terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors' rights
and to general equity principles; upon issuance by the Depositary of ADRs
evidencing ADSs against the deposit of Securities in respect thereof in
accordance with the Deposit Agreement, such ADRs will be duly and validly issued
and will entitle the holders thereof to the rights specified therein and in the
Deposit Agreement; and the Deposit Agreement and the ADRs conform to the
descriptions thereof contained in the Prospectus;

(iii) The Offered Securities delivered on such Closing Date,
including those represented by ADSs, and all other outstanding ordinary shares
of the Company have been duly authorized and validly issued, are fully paid and
nonassessable and conform in all material respects to the description thereof
contained in the Prospectus; and the shareholders of the Company have no
preemptive rights with respect to the Offered Securities, including those
represented by ADSs, other than those that have been validly waived or otherwise
extinguished with respect to the Offered Securities;

(iv) No consent, approval, authorization or order of, or
filing with, any governmental agency or body or any court is required for the
consummation of the transactions contemplated by the Deposit Agreement or this
Agreement in connection with the issuance or sale of the Offered Securities by
the Company, including the deposit of any Securities represented by the ADSs
with the Depositary and the issuance of the ADRs evidencing the ADSs, except
such as have been obtained and made under the Act and such as may be required
under state securities laws;

(v) There are no pending actions, suits or proceedings against
or affecting the Company, any of its subsidiaries or any of their respective
properties that, if determined adversely to the Company or any of its
subsidiaries, would individually or in the aggregate have a Material Adverse
Effect, or would materially and adversely affect the ability of the Company to
perform its obligations under this Agreement, or which are otherwise material in
the context of the sale of the Offered Securities; and no such actions, suits or
proceedings are threatened or, to such counsel's knowledge, contemplated;

(vi) The execution, delivery and performance of the Deposit
Agreement and this Agreement and the issuance and sale of the Offered
Securities, including the deposit of any Securities represented by the ADSs with
the Depositary and the issuance of the ADRs evidencing the ADSs, will not result
in a breach or violation of (i) any of the terms and provisions of, or
constitute a default under, any statute, any rule, regulation or order of any
governmental agency or body or any court having jurisdiction over the Company or
any subsidiary of the Company or any of their properties, (ii) to such counsel's
knowledge, any agreements or instruments filed as exhibits to the Registration
Statement pursuant to item 601(b)(10) of Regulation S-K, which agreements or
instruments represent all material agreements or instruments to which the
Company or any subsidiary is subject or bound, or (iii) the charter or by-laws
of the Company or any such subsidiary, and the Company has full power and
authority to authorize, issue and sell the Offered Securities, including the
ADSs, as contemplated by the Deposit Agreement and this Agreement, respectively;

(vii) This Agreement has been dulyauthorized, executed and
delivered by the Company; and

(viii) The Company's agreement to the choice of law provi-
sions set forth in Section 14 of the Underwriting Agreement will be recognized
and given effect to by the courts of the Federal Republic of Germany; the
Company can sue and be sued in its own name under the laws of the Federal
Republic of Germany; the irrevocable submission of the Company to the exclusive
jurisdiction of a

17
<PAGE>

New York Court, the waiver by the Company of any objection to the laying of
venue of a proceeding of a New York Court, the appointment of the Authorized
Agent (as defined herein) as the authorized agent for the purposes described in
Section 14 of this Agreement, and the agreement of the Company that this
Agreement shall be governed by and construed in accordance with the laws of the
State of New York are legal, valid and binding; service of process effected in
the manner set forth in Section 14 of the Underwriting Agreement will be
effective, insofar as the law of the Federal Republic of Germany is concerned,
to confer valid personal jurisdiction over the Company; and judgment obtained in
a New York Court arising out of or in relation to the obligations of the Company
under the Underwriting Agreement would be enforceable against the Company in the
courts of the State of New York.

(e) The Representatives shall have received an opinion, dated such
Closing Date, of Shearman & Sterling LP, counsel for the Company, to the
effect that

(i) The Deposit Agreement, assuming due authorization, execu-
tion and delivery by the Company and the Depositary, constitutes a valid and
legally binding obligation of the Company enforceable in accordance with its
terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or affecting
creditors' rights and to general equity principles; upon issuance by the
Depositary of ADRs evidencing ADSs against the deposit of Securities in respect
thereof in accordance with the Deposit Agreement, such ADRs will be duly and
validly issued and will entitle the holders thereof to the rights specified
therein and in the Deposit Agreement; and the Deposit Agreement and the ADRs
conform to the descriptions thereof contained in the Prospectus;

(ii) To such counsel's knowledge, and except as disclosed 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 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 the ADS Registration Statement or in any securities
being registered pursuant to any other registration statement filed by the
Company under the Act;

(iii) The Company is not and, after giving effect to the offer-
ing and sale of the Offered Securities and the application of the proceeds
thereof as described in the Prospectus, will not be an "investment company" as
defined in the Investment Company Act of 1940;

(v) There are no pending actions, suits or proceedings
against or affecting the Company, any of its subsidiaries or any of their
respective properties that, if determined adversely to the Company or any of its
subsidiaries, would individually or in the aggregate have a Material Adverse
Effect, or would materially and adversely affect the ability of the Company to
perform its obligations under this Agreement, or which are otherwise material in
the context of the sale of the Offered Securities; and no such actions, suits or
proceedings are threatened or, to such counsel's knowledge, contemplated;

18
<PAGE>

knowledge, any agreements or instruments filed as exhibits to the Registration
Statement pursuant to item 601(b)(10) of Regulation S-K, which agreements or
instruments represent all material agreements or instruments to which the
Company or any subsidiary is subject or bound;

(vii) The Initial Registration Statement was declared
effective under the Act as of the date and time specified in such opinion, the
Additional Registration Statement (if any) was filed and became effective under
the Act as of the date and time (if determinable) specified in such opinion, the
Prospectus either was filed with the Commission pursuant to the subparagraph of
Rule 424(b) specified in such opinion on the date specified therein or was
included in the Initial Registration Statement or the Additional Registration
Statement (as the case may be), and, to the best of the knowledge of such
counsel, no stop order suspending the effectiveness of a Registration Statement,
the ADS Registration Statement or any part thereof has been issued and no
proceedings for that purpose have been instituted or are pending or contemplated
under the Act, and each Registration Statement, the ADS Registration Statement
and the Prospectus, and each amendment or supplement thereto, as of their
respective effective or issue dates, complied as to form in all material
respects with the requirements of the Act and the Rules and Regulations; such
counsel have no reason to believe that any part of a Registration Statement or
the ADS Registration Statement or any amendment thereto, as of its effective
date or as of such Closing Date, contained any untrue statement of a material
fact or omitted to state any material fact required to be stated therein or
necessary to make the statements therein not misleading or that the Prospectus
or any amendment or supplement thereto, as of its issue date or as of such
Closing Date, contained any untrue statement of a material fact or omitted to
state any material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading; the
descriptions in the Registration Statements and Prospectus of statutes, legal
and governmental proceedings and contracts and other documents are accurate and
fairly present the information required to be shown; and such counsel do not
know of any legal or governmental proceedings required to be described in a
Registration Statement or the Prospectus which are not described as required or
of any contracts or documents of a character required to be described in a
Registration Statement or the Prospectus or to be filed as exhibits to a
Registration Statement which are not described and filed as required; it being
understood that such counsel need express no opinion as to the financial
statements or other financial data contained in the Registration Statements or
the Prospectus; and

(viii) Under the laws of the State of New York relating to
submission of personal jurisdiction, the Company has, pursuant to Section 14 of
the Underwriting Agreement, (A) validly submitted to the personal jurisdiction
of any state court or federal court located in the Borough of Manhattan in the
City of New York, in any action or suit or proceeding brought by any Underwriter
arising out of or relating to the Agreement, (B) has validly waived any
objection to the establishment of venue of a proceeding in any such court and
any immunity to jurisdiction of any such court, and (C) has validly appointed
the Authorized Agent (as defined herein) as its authorized agent for the purpose
described in Section 14 of the Underwriting Agreement; and service of process
effected on such agent in the manner set forth in Section 14 of the Underwriting
Agreement will be effective to confer valid personal jurisdiction over the
Company in any action arising out of or relating to the Underwriting Agreement.

(f) The Representatives shall have received from Wilson Sonsini
Goodrich & Rosati, counsel for the Underwriters, or Oppenhof Raedler, German
counsel for the Underwriters, such opinions, dated such Closing Date, with
respect to the incorporation of the Company, the validity of the Offered
Securities delivered on such Closing Date, the Registration Statements, the ADS
Registration Statement, the Prospectus and other related matters as the
Representatives may require, and the Company shall have furnished to such
counsel such documents as they request for the purpose of enabling them to pass
upon such matters.

(g) The Representatives shall have received the opinion dated
the date hereof of , ____________________ counsel to the Existing Shareholder,
to the effect that:

(i) The Existing Shareholder has valid and unencumbered title
to the Additional Shares delivered by the Existing Shareholder on such Closing
Date and had full

19
<PAGE>

right, power and authority to sell, assign, transfer and deliver the Additional
Shares delivered by the Existing Shareholder on such Closing Date hereunder; and
the several Underwriters have acquired valid and unencumbered title to the
Additional Shares purchased by them from the Existing Shareholder on such
Closing Date hereunder;

(ii) No consent, approval, authorization or order of, or filing
with, any governmental agency or body or any court is required to be obtained or
made by the Existing Shareholder for the consummation of the transactions
contemplated by this Agreement in connection with the sale of the Additional
Shares to be sold by the Existing Shareholder, except such as have been obtained
and made under the Act and such as may be required under state securities laws;

(iii) The execution, delivery and performance of this Agreement
and the consummation of the transactions therein and herein contemplated will
not result in a breach or violation of any of the terms and provisions of, or
constitute a default under, any statute, any rule, regulation or order of any
governmental agency or body or any court having jurisdiction over the Existing
Shareholder or any of his properties or any agreement or instrument to which the
Existing Shareholder is a party or by which the Existing Shareholder is bound or
to which any of the properties of the Existing Shareholder is subject;

(iv) [The Power of Attorney] with respect to the Existing
Shareholder has been duly authorized, executed and delivered by the Existing
Shareholder and constitute valid and legally binding obligations of the Existing
Shareholder enforceable in accordance with their terms, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar laws of
general applicability relating to or affecting creditors' rights and to general
equity principles; and

(v) This Agreement has been duly authorized, executed and
delivered by the Existing Shareholder.

(h) The Underwriters shall have received an opinion, dated such
Closing Date, from counsel for the Depositary, to the effect that:

(i) The Deposit Agreement has been duly authorized, executed
and delivered by the Depositary and constitutes a valid and legally binding
obligation of the Depositary enforceable in accordance with its terms, subject
to bankruptcy, insolvency, reorganization, moratorium and similar laws of
general applicability relating to or affecting creditors' rights and to general
equity principles;

(ii) Upon issuance by the Depositary of the ADRs evidencing
the ADSs in accordance with the Deposit Agreement, such ADRs will be duly and
validly issued and will entitle the holders thereof to the rights specified
therein and in the Deposit Agreement; and the Deposit Agreement and ADRs conform
to the descriptions thereof in the Prospectus; and

(iii) The ADS Registration Statement was declared effective
under the Act as of the date and time specified in such opinion, and, to the
best of the knowledge of such counsel, no stop order suspending the
effectiveness of the ADS Registration Statement or any part thereof has been
instituted or is pending or contemplated under the Act, and the ADS Registration
Statement, and each amendment or supplement thereto, as of their respective
effective or issue dates, complied as to form in all material respects with the
requirements of the Act and the Rules and Regulations.

20
<PAGE>

(i) The Depositary shall have furnished or caused to be
furnished to the Underwriters a certificate satisfactory to CSFBC of one of its
authorized officers with respect to the deposit with it of the Securities
represented by the ADSs against issuance of the ADRs evidencing the ADSs, the
execution, issuance, countersignature and delivery of the ADRs evidencing the
ADSs pursuant to the Deposit Agreement and such other matters related thereto as
CSFBC reasonably requests.

(j) The Representatives shall have received a certificate,
dated such Closing Date, of the President or any Vice President and a principal
financial or accounting officer of the Company in which such officers, to the
best of their knowledge after reasonable investigation, shall state on behalf of
the Company and not on their own behalf that: the representations and warranties
of the Company in this Agreement are true and correct; the Company has complied
with all agreements and satisfied all conditions on its part to be performed or
satisfied hereunder at or prior to such Closing Date; no stop order suspending
the effectiveness of any Registration Statement or the ADS Registration
Statement has been issued and no proceedings for that purpose have been
instituted or are contemplated by the Commission; the Additional Registration
Statement (if any) satisfying the requirements of subparagraphs (1) and (3) of
Rule 462(b) was filed pursuant to Rule 462(b), including payment of the
applicable filing fee in accordance with Rule 111(a) or (b) under the Act, prior
to the time the Prospectus was printed and distributed to any Underwriter; and,
subsequent to the date of the most recent financial statements in the
Prospectus, there has been no material adverse change, nor any development or
event involving a prospective material adverse change, in the condition
(financial or other), business, properties or results of operations of the
Company and its subsidiaries taken as a whole except as set forth in or
contemplated by the Prospectus or as described in such certificate.

(k) The Representatives shall have received a letter, dated
such Closing Date, of Arthur Andersen Wirtschaftsprufungsgesellschaft
Steuerberatungsgesellschaft wbH which meets the requirements of subsection (a)
of this Section, except that the specified date referred to in such subsection
will be a date not more than three days prior to such Closing Date for the
purposes of this subsection.

The Company will furnish the Representatives with such conformed copies of such
opinions, certificates, letters and documents as the Representatives reasonably
requests. CSFBC may in its sole discretion waive on behalf of the Underwriters
compliance with any conditions to the obligations of the Underwriters hereunder,
whether in respect of an Optional Closing Date or otherwise.

7. INDEMNIFICATION AND CONTRIBUTION. (a) The Company will indemnify and
hold harmless each Underwriter, its partners, directors and officers and each
person, if any, who controls such Underwriter within the meaning of Section 15
of the Act, against any losses, claims, damages or liabilities, joint or
several, to which such Underwriter may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any Registration Statement,
the ADS Registration Statement, the Prospectus, or any amendment or supplement
thereto, or any related preliminary prospectus, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
and will reimburse each Underwriter for any legal or other expenses reasonably
incurred by such Underwriter in connection with investigating or defending any
such loss, claim, damage, liability or action as such expenses are incurred;
provided, however, that the Company will not be liable in any such case to the
extent that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement in or omission or alleged
omission from any of such documents in reliance upon and in conformity with
written information furnished to the Company by any Underwriter through the
Representatives specifically for use therein, it being understood and agreed
that the only such information furnished by any Underwriter consists of the
information described as such in subsection (b) below; and provided, further,
that with respect to any untrue statement or alleged untrue statement in or
omission or alleged omission from any preliminary prospectus the indemnity
agreement contained in this subsection (a) shall not inure to the benefit of any
Underwriter from whom the person asserting any such losses, claims, damages or
liabilities purchased the Offered Securities concerned, to the extent that a
prospectus relating to such Offered Securities was required to be delivered by
such Underwriter under the Act in connection with

21
<PAGE>

such purchase and any such loss, claim, damage or liability of such Underwriter
results from the fact that there was not sent or given to such person, at or
prior to the written confirmation of the sale of such Offered Securities to such
person, a copy of the Prospectus if the Company had previously furnished copies
thereof to such Underwriter.

The Company agrees to indemnify and hold harmless the Designated
Underwriter and each person, if any, who controls the Designated Underwriter
within the meaning of either Section 15 of the Securities Act or Section 20 of
the Exchange Act (the "DESIGNATED ENTITIES"), from and against any and all
losses, claims, damages and liabilities (including, without limitation, any
legal or other expenses reasonably incurred in connection with defending or
investigating any such action or claim) (i) caused by any untrue statement or
alleged untrue statement of a material fact contained in any material prepared
by or with the consent of the Company for distribution to Participants in
connection with the Directed Share Program or caused by any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading; (ii) caused by the
failure of any Participant to pay for and accept delivery of Directed Shares
that the Participant agreed to purchase; or (iii) related to, arising out of, or
in connection with the Directed Share Program, other than losses, claims,
damages or liabilities (or expenses relating thereto) that are finally
judicially determined to have resulted from the bad faith or gross negligence of
the Designated Entities.

(b) The Existing Shareholder will indemnify and hold harmless each
Underwriter, its partners, directors and officers and each person who controls
such Underwriter within the meaning of Section 15 of the Act, against any
losses, claims, damages or liabilities, joint or several, to which such
Underwriter may become subject, under the Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon any untrue statement or alleged untrue statement of any
material fact contained in any Registration Statement, the Prospectus, or any
amendment or supplement thereto, or any related preliminary prospectus, or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, in each case to the extent, but only to the extent, that
such untrue statement or alleged untrue statement or omission or alleged
omission was made in any Registration Statement or the Prospectus or any such
amendment or supplement in reliance upon and in conformity with written
information furnished to the Company by such Existing Shareholder expressly for
use therein; and will reimburse each Underwriter for any legal or other expenses
reasonably incurred by such Underwriter in connection with investigating or
defending any such loss, claim, damage, liability or action as such expenses are
incurred; provided, however, that the Existing Shareholder will not be liable in
any such case to the extent that any such loss, claim, damage or liability
arises out of or is based upon an untrue statement or alleged untrue statement
in or omission or alleged omission from any of such documents in reliance upon
and in conformity with written information furnished to the Company by an
Underwriter through the Representatives specifically for use therein, it being
understood and agreed that the only such information furnished by any
Underwriter consists of the information described as such in subsection (c)
below.

(c) Each Underwriter will severally and not jointly indemnify and
hold harmless the Company, its directors and officers and each person, if any
who controls the Company within the meaning of Section 15 of the Act, against
any losses, claims, damages or liabilities to which the Company may become
subject, under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
any Registration Statement, the ADS Registration Statement, the Prospectus, or
any amendment or supplement thereto, or any related preliminary prospectus, or
arise out of or are based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, in each case to the extent, but only to the
extent, that

22
<PAGE>

such 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 such Underwriter through the Representatives
specifically for use therein, and will reimburse any legal or other expenses
reasonably incurred by the Company and the Existing Shareholder in connection
with investigating or defending any such loss, claim, damage, liability or
action as such expenses are incurred, it being understood and agreed that the
only such information furnished by any Underwriter consists of the following
information in the Prospectus furnished on behalf of each Underwriter: the
concession and reallowance figures appearing in the third paragraph under the
caption "Underwriting" and the information contained in the eighth, fifteenth
and sixteenth paragraphs under the caption "Underwriting."

(d) Promptly after receipt by an indemnified party under this
Section of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying party
under subsection (a), (b) or (c) above, notify the indemnifying party of the
commencement thereof; but the omission so to notify the indemnifying party will
not relieve it from any liability which it may have to any indemnified party
otherwise than under subsection (a), (b) or (c) above. In case any such action
is brought against any indemnified party and it notifies the indemnifying party
of the commencement thereof, the indemnifying party will be entitled to
participate therein and, to the extent that it may wish, jointly with any other
indemnifying party similarly notified, to assume the defense thereof, with
counsel satisfactory to such indemnified party (who shall not, except with the
consent of the indemnified party, be counsel to the indemnifying party), and
after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party will not be
liable to such indemnified party under this Section for any legal or other
expenses subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation. Notwithstanding
anything contained herein to the contrary, if indemnity may be sought pursuant
to the last paragraph in Section 7(a) hereof in respect of such action or
proceeding, then in addition to such separate firm for the indemnified parties,
the indemnifying party shall be liable for the reasonable fees and expenses of
not more than one separate firm (in addition to any local counsel) for the
Designated Underwriter for the defense of any losses, claims, damages and
liabilities arising out of the Directed Share Program, and all persons, if any,
who control the Designated Underwriter within the meaning of either Section 15
of the Act of Section 20 of the Exchange Act. No indemnifying party shall,
without the prior written consent of the indemnified party, effect any
settlement of any pending or threatened action in respect of which any
indemnified party is or could have been a party and indemnity could have been
sought hereunder by such indemnified party unless such settlement (i) includes
an unconditional release of such indemnified party from all liability on any
claims that are the subject matter of such action and (ii) does not include a
statement as to, or an admission of, fault, culpability or a failure to act by
or on behalf of an indemnified party.

(e) If the indemnification provided for in this Section is
unavailable or insufficient to hold harmless an indemnified party under
subsection (a), (b) or (c) above, then each indemnifying party shall contribute
to the amount paid or payable by such indemnified party as a result of the
losses, claims, damages or liabilities referred to in subsection (a), (b) or (c)
above (i) in such proportion as is appropriate to reflect the relative benefits
received by the Company and the Existing Shareholder on the one hand and the
Underwriters on the other from the offering of the Securities 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 and
the Existing Shareholder on the one hand and the Underwriters on the other in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities as well as any other relevant equitable
considerations. The relative benefits received by the Company and the Existing
Shareholder on the one hand and the Underwriters on the other shall be deemed to
be in the same

23
<PAGE>

proportion as the total net proceeds from the offering (before deducting
expenses) received by the Company and the Existing Shareholder bear to the total
underwriting discounts and commissions received by the Underwriters. The
relative fault shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by the
Company, the Existing Shareholder or the Underwriters and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such untrue statement or omission. The amount paid by an indemnified party as a
result of the losses, claims, damages or liabilities referred to in the first
sentence of this subsection (e) shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any action or claim which is the subject of this
subsection (e). Notwithstanding the provisions of this subsection (e), no
Underwriter shall be required to contribute any amount in excess of the amount
by which the total price at which the Securities underwritten by it and
distributed to the public were offered to the public exceeds the amount of any
damages which such Underwriter has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters' obligations in
this subsection (e) to contribute are several in proportion to their respective
underwriting obligations and not joint.

(f) The obligations of the Company and the Existing Shareholder
under this Section shall be in addition to any liability which the Company and
the Existing Shareholder may otherwise have and shall extend, upon the same
terms and conditions, to each person, if any, who controls any Underwriter
within the meaning of the Act; and the obligations of the Underwriters under
this Section shall be in addition to any liability which the respective
Underwriters may otherwise have and shall extend, upon the same terms and
conditions, to each director of the Company, to each officer of the Company who
has signed a Registration Statement and to each person, if any, who controls the
Company within the meaning of the Act.

8. DEFAULT OF UNDERWRITERS. If any Underwriter or Underwriters default
in their obligations to purchase Offered Securities hereunder on either the
First Closing Date or any Optional Closing Date and the aggregate number of ADSs
constituting the Offered Securities that such defaulting Underwriter or
Underwriters agreed but failed to purchase does not exceed 10% of the number of
ADSs constituting the Offered Securities that the Underwriters are obligated to
purchase on such Closing Date, CSFBC may make arrangements satisfactory to the
Company and the Existing Shareholder for the purchase of such Offered Securities
by other persons, including any of the Underwriters, but if no such arrangements
are made by such Closing Date, the non-defaulting Underwriters shall be
obligated severally, in proportion to their respective commitments hereunder, to
purchase the Offered Securities that such defaulting Underwriters agreed but
failed to purchase on such Closing Date. If any Underwriter or Underwriters so
default and the aggregate number of ADSs constituting the Offered Securities
with respect to which such default or defaults occur exceeds 10% of the total
number of ADSs constituting the Offered Securities that the Underwriters are
obligated to purchase on such Closing Date and arrangements satisfactory to
CSFBC, the Company and the Existing Shareholder for the purchase of such Offered
Securities by other persons are not made within 36 hours after such default,
this Agreement will terminate without liability on the part of any
non-defaulting Underwriter, the Company or the Existing Shareholder, except as
provided in Section 9 (provided that if such default occurs with respect to the
Additional Shares after the First Closing Date, this Agreement will not
terminate as to the Firm Securities or any Additional Shares purchased prior to
such termination). As used in this Agreement, the term "Underwriter" includes
any person substituted for an Underwriter under this Section. Nothing herein
will relieve a defaulting Underwriter from liability for its default.

9. SURVIVAL OF CERTAIN REPRESENTATIONS AND OBLIGATIONS. The respective
indemnities, agreements, representations, warranties and other statements of the
Existing Shareholder, of the Company or its officers and of the several
Underwriters set forth in or made pursuant to this Agreement will remain in full
force and

24
<PAGE>

effect, regardless of any investigation, or statement as to the results thereof,
made by or on behalf of any Underwriter, the Existing Shareholder, or the
Company or any of their respective representatives, officers or directors or any
controlling person, and will survive delivery of and payment for the Offered
Securities. If this Agreement is terminated pursuant to Section 8 or if for any
reason the purchase of the Offered Securities by the Underwriters is not
consummated, the Company and the Existing Shareholder shall remain responsible
for the expenses to be paid or reimbursed by it pursuant to Section 5 and the
respective obligations of the Company, the Existing Shareholder and the
Underwriters pursuant to Section 7 shall remain in effect, and if any Offered
Securities have been purchased hereunder the representations and warranties in
Section 2 and all obligations under Section 5 shall also remain in effect. If
the purchase of the Offered Securities by the Underwriters is not consummated
for any reason other than solely because of the termination of this Agreement
pursuant to Section 8 or the occurrence of any event specified in clause (iii),
(iv) or (v) of Section 6(c), the Company and the Existing Shareholder will,
jointly and severally reimburse the Underwriters for all out-of-pocket expenses
(including fees and disbursements of counsel) reasonably incurred by them in
connection with the offering of the Offered Securities.

10. NOTICES. All communications hereunder will be in writing and, if
sent to the Underwriters, will be mailed, delivered or telegraphed and confirmed
to the Representatives, c/o Credit Suisse First Boston Corporation, Eleven
Madison Avenue, New York, N.Y. 10010-3629, Attention: Investment Banking
Department--Transactions Advisory Group, or, if sent to the Company or the
Existing Shareholder, will be mailed, delivered or telegraphed and confirmed to
it at ________________________, Attention: ____________________; provided,
however, that any notice to an Underwriter pursuant to Section 7 will be mailed,
delivered or telegraphed and confirmed to such Underwriter.

11. SUCCESSORS. This Agreement will inure to the benefit of and be
binding upon the parties hereto and their respective successors and the officers
and directors and controlling persons referred to in Section 7, and no other
person will have any right or obligation hereunder.

12. REPRESENTATION OF UNDERWRITERS. The Representatives will act
for the several Underwriters in connection with this financing, and any
action under this Agreement taken by the Representatives jointly or by
CSFBC will be binding upon all the Underwriters. [ ] will act for
-----------
the Existing Shareholder in connection with such transactions, and any action
under or in respect of this Agreement taken by [ ] will
--------------------------
be binding upon the Existing Shareholder.

13. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all such
counterparts shall together constitute one and the same Agreement.

14. APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAWS.

The Company hereby submits to the non-exclusive jurisdiction of the
Federal and state courts in the Borough of Manhattan in The City of New York in
any suit or proceeding arising out of or relating to this Agreement or the
transactions contemplated hereby. The Company irrevocably appoints
[___________________] (the "AUTHORIZED AGENT"), as its authorized agent in the
Borough of Manhattan in The City of New York upon which process may be served in
any such suit or proceeding, and agrees that service of process upon such agent,
and written notice of said service to the Company by the person serving the same
to the address provided in Section 10, shall be deemed in every respect
effective service of process upon the Company in any such suit or proceeding.
The Company further agrees to take any and all action as may be necessary to
maintain such designation and appointment of such agent in full force and effect
for a period of seven years from the date of this Agreement.

The obligation of the Company in respect of any sum due to any
Underwriter shall, notwithstanding any judgment in a currency other than United
States dollars, not be discharged until the first business day, following
receipt by such Underwriter of any sum adjudged to be so due in such other
currency, on which (and only to the extent that) such Underwriter may in
accordance with normal banking

25
<PAGE>

procedures purchase United States dollars with such other currency; if the
United States dollars so purchased are less than the sum originally due to such
Underwriter hereunder, the Company agrees, as a separate obligation and
notwithstanding any such judgment, to indemnify such Underwriter against such
loss. If the United States dollars so purchased are greater than the sum
originally due to such Underwriter hereunder, such Underwriter agrees to pay to
the Company an amount equal to the excess of the dollars so purchased over the
sum originally due to such Underwriter hereunder.

26
<PAGE>

If the foregoing is in accordance with the Representatives'
understanding of our agreement, kindly sign and return to the Company one of the
counterparts hereof, whereupon it will become a binding agreement among the
Company, the Existing Shareholder and the several Underwriters in accordance
with its terms.

Very truly yours,

INTERSHOP COMMUNICATIONS
AKTIENGESELLSCHAFT

By:
------------------------------------------
Stephan Schambach, Chief Executive Officer

By:
------------------------------------------
Name:
----------------------------------------
Title: Director, on behalf of Supervisory Board
-----------------------------------------

By:
--------------------------------------------
--------------------------------------------
As Attorney-in-Fact acting on behalf of the
Existing Shareholder named in Schedule B
to this Agreement.

The foregoing Underwriting Agreement is hereby
confirmed and accepted as of the date first above
written.

CREDIT SUISSE FIRST BOSTON CORPORATION
CHASE SECURITIES INC.
U.S. BANCORP PIPER JAFFRAY INC.

Acting on behalf of themselves and as the
Representatives of the several
Underwriters

By: CREDIT SUISSE FIRST BOSTON CORPORATION

By:
----------------------------------------
Title: Managing Director
------------------------------------

27
<PAGE>

SCHEDULE A

Underwriter Maximum Maximum
----------- Number of Number of
Firm ADSs Additional New Shares
--------- ---------------------
<S> <C> <C>

Credit Suisse First Boston Corporation.......................
Chase Securities Inc.........................................................
U.S. Bancorp Piper Jaffray Inc...............................................

Total.............................
=========================

</TABLE>

28
<PAGE>

SCHEDULE B

Number of
Existing Shareholder Additional New Shares
-------------------- ---------------------
<S> <C> <C>

Wilfried Beeck...............................................................

</TABLE>

29
<PAGE>

SCHEDULE C

FORM OF DRAWING NOTICE

An
Wilfried Beeck

LEIHERKLARUNG

Gema(beta) dem Underwriting Agreement vom o 2000 ("AGREEMENT") uben wir hiermit
das Recht aus, von Ihnen die Uberlassung von Stuck ______ Inhaber-Stammaktien
der INTERSHOP COMMUNICATIONS AG im Wege der Wertpapierleihe zu verlangen.

CSFB AG wird auf der Grundlage der von Ihnen erteilten Aneignungsermachtigung
die o.g. Stuck _____ Aktien wie folgt auf ein Wertpapierdepot von CSFB AG
ubertragen:

- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>

Stuck Aktien zu Lasten Depot Zugunsten Depot
... CSFB AG
(Depot Nr. ...) (Depot Nr. ...)

- ----------------------------------------------------------------------------------------------------------------
</TABLE>

Das Eigentum an den ubertragenen Inhaber-Stammaktien geht in dem Zeitpunkt, in
dem sie auf das genannte Wertpapierdepot von CSFB AG gebucht sind, auf CSFB AG
uber CSFB AG wird jeweils Aktien gleicher Gattung an Sie in der in dem Agreement
genannten Frist zuruckliefern, sofern CSFB AG nicht die ihr in diesem Agreement
eingeraumte Erwerbsoption gegenuber Ihnen ausubt.

Frankfurt am Main, den ______ o 2000

- --------------------------------
CSFB AG

30
<PAGE>

SCHEDULE C

FORM OF DRAWING NOTICE

To
Wilfried Beeck

BORROWING NOTICE

Pursuant to the Underwriting Agreement dated March ___, 2000 (the
"AGREEMENT"), we hereby exercise the right to demand the transfer of
ownership of ________ ordinary bearer shares of INTERSHOP
COMMUNICATIONS AG by way of a securities loan.

On the basis of the acquisition authorisation issued by you, CSFB AG
will transfer the ________ shares named above to a securities account
of CSFB AG as follows:

--------------------------------------------------------------------------------------------------------
<S> <C> <C>

Number of shares debited securities account Credited securities account
CSFB AG

(account number______) (account number______)

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

</TABLE>

Ownership of the ordinary bearer shares shall pass to CSFB AG at the
point in time in which they are booked on the securities account of
CSFB AG. To the extent that CSFB AG does not exercise its option
granted in the Agreement to acquire shares, CSFB AG shall redeliver
shares of the same class within the period of time specified in the
Agreement.

Frankfurt am Main, April ___, 2000

CREDIT SUISSE FIRST BOSTON AG

By:
Name:
Title:

31
<PAGE>

SCHEDULE D

FORM OF ACQUISITION AUTHORISATION

An
Credit Suisse First Boston AG

Sehr geehrte Damen und Herren,

ich habe bei Ihnen ein Wertpapierdepot Nr. ______ eroffnet, auf das im Rahmen
der anstehenden Plazierung der Aktien der INTERSHOP COMMUNICATIONS AG von mir
Stuck ______ Aktien der INTERSHOP COMMUNICATIONS AG ubertragen worden sind.

Ich ermachtige Sie hiermit, das Eigentum an bis zu Stuck ______ auf den Inhaber
lautender Stammaktien in Form von Stuckaktien ohne Nennwert der INTERSHOP
COMMUNICATIONS AG auf sich durch entsprechenden Depotubertrag zu ubertragen. Dem
Ubertrag hat eine Leiherklarung voranzugehen, die im wesentlichen den in der
ANLAGE ersichtlichen Inhalt hat. Mit der Ausubung dieser Ermachtigung soll das
Eigentum an den Aktien entsprechend dem Depotubertrag auf die CSFB AG ubergehen.

[Ort _____________,] ______ o 2000

- --------------------------------------
(Unterschrift des Existing Shareholder)

32
<PAGE>

SCHEDULE D

FORM OF ACQUISITION AUTHORISATION

To
Credit Suisse First Boston AG

Ladies and Gentlemen:

I have opened a securities account No. _______ with you, into which I have
transferred shares of INTERSHOP COMMUNICATIONS AG in connection with the
upcoming placement of INTERSHOP COMMUNICATIONS AG's shares.

I hereby authorise you to transfer ownership in up to _______ ordinary no par
value bearer shares of INTERSHOP COMMUNICATIONS AG to you by means of a
corresponding securities account transfer. The transfer must be preceded by a
drawing notice, the essential content of which is set forth in the attached
document. Upon exercise of this authorisation, ownership of the shares as per
the securities account transfer shall pass to Credit Suisse First Boston AG.

Place__________________________, April ___, 2000

- --------------------------------
Wilfried Beeck

<PAGE>

EXHIBIT 5.1

[Letterhead of Haarmann, Hemmelrath & Partner]

INTERSHOP Communications AG
Amsinckstrasse 57-59

20097 Hamburg

24 March 2000

Ladies and Gentlemen,

We have acted as German corporate counsel for INTERSHOP Communications AG, a
German stock corporation (Aktiengesellschaft) (the "Company"), in connection
with the filing with the Securities and Exchange Commission (the "SEC") of a
Registration Statement on Form F-1 (Registration No. 333-32034) (the
"Registration Statement") covering the registration under the Securities Act of
1933, as amended (the "Securities Act"), of up to 500,000 ordinary no-par bearer
shares of the Company, 435,000 of which are to be issued out of the Company's
authorized capital (the "New Shares") and 65,000 of which will be made available
by an existing shareholder (the "Existing Shares") (the New Shares and the
Existing Shares collectively referred to as the "Shares").
<PAGE>

24 March 2000
- - 2 -

In arriving at the opinion below we have examined the following documents:

(a) the Company's articles of association (Satzung) as of June 21, 1999;

(b) an excerpt no. HRB 67465 from the commercial register at the municipal
court (Amtsgericht) of Hamburg (the "Commercial Register") regarding the
Company as of March 15, 2000;

(c) the certificate of incorporation, dated April 23, 1998 regarding the
foundation of the Company (UR-No. 934/1998 of the Hamburg Notary Public
Dr. Axel Pfeifer);

(d) protocols of the stockholders' meetings (Hauptversammlungen) of the
Company held on May 26, June 23, July 7 and July 14, 1998 and June 21,
1999 (UR-Nos. 1187/1998 of the Hamburg Notary Public Dr. Til Braeutigam,
1482/1998 of the Hamburg Notary Public Dr. Axel Pfeifer, 1639/1998 of the
Hamburg Notary Public Dr. Axel Pfeifer, 1741C/1998 of the Munich Notary
Public Dr. Heinz Korte and 1183/1999 of the Hamburg Notary Public Dr. Axel
Pfeifer);

(e) subscription certificate (Zeichnungsschein) signed by Mr. Wilfried Beeck
on June 22, 1998;

(f) the resolution by the Company's supervisory board (Aufsichtsrat) of June
21, 1999 approving the post formation and share contribution agreement of
June 22, 1998; and

(g) the resolutions by the Company's management and supervisory board adopted
on March 8 and 13, 2000, respectively, regarding the issuance of 435,000
new shares out of the Company's authorized capital I (the "Resolutions").

In rendering this opinion, we have assumed

(a) the genuineness of all signatures;

(b) the authenticity of all agreements, certificates, instruments and
documents submitted to us as originals;

(c) conformity to the originals of all agreements, certificates, instruments
and documents submitted to us as copies;
<PAGE>

24 March 2000
- - 3 -

(d) that (i) all persons who executed documents referred to hereinabove were,
and (ii) all persons who will execute the documents referred to
hereinafter will be, capable (geschaftsfahig) to, and had or will have, as
the case may be, the power (vertretungsberechtigt) to, enter into legal
transactions;

(e) that prior to the issuance of the New Shares

(i) Credit Suisse First Boston AG ("CSFB AG") acting on behalf of the
underwriters listed in the Section "Underwriting" of the
Registration Statement (the "Underwriters") (x) will have subscribed
in duplicate for the New Shares substantially in the form attached
as Exhibit A and (y) will have paid 25 per cent of the total issue
price (Ausgabebetrag), i.e. (EURO)108,750 at the management board's
free disposal (zur freien Verfugung) in accordance with the
Resolutions; and

(ii) the capital increase contemplated by the Resolutions will have been
duly filed with, and entered in, the Commercial Register pursuant to
Sections 203, 188, 36, 36a, and 37 of the German Stock Corporation
Act (Aktiengesetz); and

(f) that after the issuance of the New Shares CSFB AG will have paid to the
company the remaining 75 per cent of the total issue price; i. e.
(EURO)326,250 and the proceeds from the sale of the New Shares.

Based on the foregoing, we are of the opinion that the Existing Shares have
been, and when issued and delivered to CSFB AG in accordance with the above-
mentioned assumptions the New Shares will be, validly issued, fully paid and
nonassessable.

The foregoing opinion is limited to the laws of the Federal Republic of Germany.

We hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement and to the reference to our firm under the heading "Legal
Matters" in the Registration Statement. In giving this consent, we do not hereby
concede that we come within the category of persons whose consent is required by
the Securities Act or the General Rules and Regulations promulgated thereunder.
<PAGE>

24 March 2000
- - 4 -

This opinion refers to the laws, statutes, documents, agreements, certificates,
registrations etc. as referred above and as of the date hereof. We do not assume
any liability to amend or update our opinion or to inform or to give notice in
connection with any change in the legal situation or with any change of facts.

Yours sincerely,

Haarmann, Hemmelrath & Partner

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

Exhibit A
---------

Zeichnungsschein

Durch Beschluss der Hauptversammlung der Gesellschaft vom 23. Juni/7. Juli 1998,
geandert durch Beschlusse der Hauptversammlungen vom 14. Juli 1998 und 21. Juni
1999, ist der Vorstand fur den Zeitraum bis zum 9. August 2003 ermachtigt, das
Grundkapital der Gesellschaft mit Zustimmung des Aufsichtsrats einmalig oder
mehrmalig um bis zu insgesamt (EURO)1.500.000 durch Ausgabe von bis zu 1.500.000
neuen, auf den Inhaber lautenden Stuckaktien gegen Bareinlagen zu erhohen. Der
Vorstand ist ermachtigt, das Bezugsrecht der Aktionare mit Zustimmung des
Aufsichtsrats auszuschliessen, sofern die neuen Aktien zu einem Ausgabebetrag
ausgegeben werden, der den Borsenpreis nicht wesentlich unterschreitet. Uber den
Inhalt der jeweiligen Aktienrechte und die sonstigen Bedingungen der
Aktienausgabe entscheidet der Vorstand mit Zustimmung des Aufsichtsrats. Die
Beschlusse sind am 10. August 1998 und 12. August 1999 in das bei dem
Amtsgericht Hamburg gefuhrte Handelsregister unter HRB 67 465 eingetragen
worden.

Unter teilweiser Ausnutzung der vorstehend wiedergegebenen Ermachtigung hat der
Vorstand der Gesellschaft am 8. Marz 2000 mit Zustimmung des Aufsichtsrats der
Gesellschaft vom 13. Marz 2000 beschlossen, das Grundkapital der Gesellschaft
von (EURO)17.004.212 um (EURO)435.000 auf (EURO)17.439.212 durch Ausgabe von
435.000 neuen auf den Inhaber lautenden Stuckaktien mit einem rechnerischen
Anteil am Grundkapital von je (EURO)1,00 je Aktie (die "Neuen Aktien") gegen
Bareinlagen zu erhohen.

Der Ausgabebetrag fur die Neuen Aktien wird auf (EURO)1 je Neuer Aktie
festgelegt, wobei auf die Einlage gemass (S) 36a Abs. 1 AktG zunachst nur ein
Viertel des geringsten Ausgabebetrages in Hohe von (EURO)0,25 je Aktie zu
erbringen ist. Die Neuen Aktien sind vom Beginn des Geschaftsjahres 2000 an
gewinnberechtigt.

Das Bezugsrecht der Aktionare wurde ausgeschlossen und Credit Suisse First
Boston Aktiengesellschaft ist zur Zeichnung und Ubernahme der neuen Aktien gegen
Bareinlage zugelassen worden.

Hiermit zeichnet und ubernimmt Credit Suisse First Boston Aktiengesellschaft

435.000
(in Worten: vierhundertfunfunddreissigtausend)
<PAGE>

neue, auf den Inhaber lautende Stuckaktien mit einem rechnerischen Anteil am
Grundkapital von (EURO)1 je Aktien zum Ausgabebetrag von (EURO)1
(Gesamtausgabebetrag (EURO)435.000).

Auf den Gesamtausgabebetrag haben wir auf das Konto der Gesellschaft Nr. 2588
960 00 bei der Commerzbank AG, Jena, einen Teilbetrag in Hohe von (EURO)0,25 je
Aktie, mithin (EURO)108.750 eingezahlt. Credit Suisse First Boston
Aktiengesellschaft ist verpflichtet, die noch ausstehende Einlage in Hohe von
(EURO)0,75 je Aktie sowie den Plazierungsmehrerlos an die Gesellschaft
auszukehren.

Die vorstehende Zeichnung wird unverbindlich, wenn die Durchfuhrung der
Kapitalerhohung nicht bis zum 31. Dezember 2000 in das Handelsregister
eingetragen worden ist.

[Ort], den __. Marz 2000

- --------------------------------------------- ---------------------------------------------
[Name] [Name]
Credit Suisse First Boston Aktiengesellschaft Credit Suisse First Boston Aktiengesellschaft
</TABLE>
<PAGE>

Zeichnungsschein
(Zweitschrift fur das Handelsregister)

Das Bezugsrecht der Aktionare wurde ausgeschlossen und Credit Suisse First
Boston Aktiengesellschaft ist zur Zeichnung und Ubernahme der neuen Aktien gegen
Bareinlage zugelassen worden.

Hiermit zeichnet und ubernimmt Credit Suisse First Boston Aktiengesellschaft
<PAGE>

435.000
(in Worten: vierhundertfunfunddreissigtausend)

neue, auf den Inhaber lautende Stuckaktien mit einem rechnerischen Anteil am
Grundkapital von (EURO)1 je Aktien zum Ausgabebetrag von (EURO)1
(Gesamtausgabebetrag (EURO)435.000).

Die vorstehende Zeichnung wird unverbindlich, wenn die Durchfuhrung der
Kapitalerhohung nicht bis zum 31. Dezember 2000 in das Handelsregister
eingetragen worden ist.

[Ort], den __. Marz 2000

<PAGE>

EXHIBIT 8.1

[Shearman & Sterling Letterhead]

March 14, 2000

Intershop Communications Aktiengesellschaft
Amsinckstra e 57
D-20097 Hamburg
Federal Republic of Germany

Ladies and Gentlemen:

You have requested our opinion regarding the material United States and
German tax considerations in connection with the offering of up to 5,000,000
American Depositary Shares by Intershop Communications Aktiengesellschaft (the
"Company") pursuant to the Company's Registration Statement on Form F-1 (the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), filed with the Securities and Exchange Commission (the
"Commission") on March 9, 2000.

In delivering this opinion, we have reviewed and relied upon facts and
descriptions set forth in the Registration Statement and related documents
pertaining to the Registration Statement. Based on the foregoing and the tax
laws of the United States and the Federal Republic of Germany as in effect on
the date hereof, we are of the opinion that the discussion under the captions
"German Taxation" and "Taxation of U.S. Investors" in the Registration
Statement, insofar as it relates to statements of law and legal conclusions, is
correct in all material respects.

We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and the reference to this firm under the caption "Legal
Matters" in the Registration Statement. In giving such consent, we do not
thereby admit that we come within the category of persons whose consent is
required under Section 7 of the Securities Act or the rules and regulations of
the Commission promulgated thereunder.

This opinion has been delivered to you solely for the purpose of being
included as an exhibit to the Registration Statement. It may not be relied upon
for any other purpose or by any other person or entity, other than the holders
of the Company's American Depositary Shares issued pursuant to the offering
referenced herein, and may not be made available to any other person or entity
without our prior written consent. In accordance with customary practice
relating to opinion letters, our opinion speaks only as of the date hereof, and
we disclaim any duty to update such opinion.

Very truly yours,

/s/ Shearman & Sterling

L.C.
H.B.

<PAGE>

EXHIBIT 23.1

Consent of Independent Public Accountants

As independent public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in or made a part of this
registration statement.

ARTHUR ANDERSEN
Wirtshaftsprufungsgesellschaft
Steuerberatungsgesellschaft mbH

Nendza Bolash
Wirtshaftsprufer Certified Public Accountant

Hamburg, Germany

March 29, 2000

<PAGE>

EXHIBIT 23.4

[LETTERHEAD OF INTERNATIONAL DATA CORPORATION]

Maragaret Coyle
Credit Suisse First Boston Technology Group
2400 Hanover Street
Palo Alto, CA 94304

Dear Ms. Coyle,

Per our discussion, you have permission to use the following statistics as
stated below:

According to IDC the market for Internet commerce applications is expected to
grow from $1.7 billion in 1999 to $13.2 billion in 2003.

IDC estimates that the Internet commerce market is expected to grow from $111
billion to $1.3 trillion by 2003.

In 1998, Customers using our products established over 5,500 new electronic
commerce sites. According to IDC, this places us (Intershop) in the top three
companies cited in the survey in terms of number of sites established.

The data for the above statistics can be found in the following reports:

. IDC report entitled "Internet Commerce Software Applications Market Review
and Forecast, 1998-2003"

. IDC bulletin entitled "The State of the Internet Economy--Trends Forecast,
1998-2003: Investments Will Fuel Commerce"

/s/ Alexa McCloughan
Alexa McCloughan
Sr. Vice President
March 6, 2000