EXTENSITY INC, S-1/A, 2000-01-24

EXTENSITY INC
S-1/A, 2000-01-24
PREPACKAGED SOFTWARE

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 24, 2000

REGISTRATION NO. 333-90979
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- --------------------------------------------------------------------------------

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

AMENDMENT NO. 5

FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

EXTENSITY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S> <C> <C>
DELAWARE 7372 68-0368868
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER IDENTIFICATION
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) NUMBER)
</TABLE>

2200 POWELL STREET, SUITE 400
EMERYVILLE, CALIFORNIA 94608
(510) 594-5700
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)

ROBERT A. SPINNER
PRESIDENT AND CHIEF EXECUTIVE OFFICER
EXTENSITY, INC.
2200 POWELL STREET, SUITE 400
EMERYVILLE, CALIFORNIA 94608
(510) 594-5700
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)

COPIES TO:

<TABLE>
<S> <C>
HOWARD S. ZEPRUN, ESQ. JOHN W. CAMPBELL III, ESQ.
CAINE T. MOSS, ESQ. CRAIG S. MORDOCK, ESQ.
ASHLEY C. GOULD, ESQ. BRANDON C. PARRIS, ESQ.
WILSON SONSINI GOODRICH & ROSATI MORRISON & FOERSTER LLP
PROFESSIONAL CORPORATION 19900 MACARTHUR BOULEVARD, 12TH FLOOR
650 PAGE MILL ROAD IRVINE, CALIFORNIA 92612
PALO ALTO, CALIFORNIA 94304 (949) 251-7500
(650) 493-9300
</TABLE>

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

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration 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 delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT 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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- --------------------------------------------------------------------------------
<PAGE> 2

THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION BECOMES EFFECTIVE. THIS
PRELIMINARY PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES NOR DOES
IT SEEK OFFERS TO BUY THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER
OR SALE IS NOT PERMITTED.

Subject to Completion, Dated January 24, 2000

LOGO

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4,000,000 SHARES
COMMON STOCK
- --------------------------------------------------------------------------------

This is the initial public offering of Extensity, Inc. and we are offering
4,000,000 shares of our common stock. We anticipate that the initial public
offering price will be between $16.00 and $18.00 per share. We have applied to
list our common stock on the Nasdaq National Market under the symbol "EXTN."

INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE 4.

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS EXTENSITY
<S> <C> <C> <C>
Per Share $ $ $
Total $ $ $
</TABLE>

We have granted the underwriters the right to purchase up to 600,000 additional
shares to cover over-allotments.
DEUTSCHE BANC ALEX. BROWN
BEAR, STEARNS & CO. INC.
CHASE H&Q

THE DATE OF THIS PROSPECTUS IS , 2000
<PAGE> 3

DESCRIPTION OF GRAPHICS FOR BACK-INSIDE COVER

At the top right-hand margin of the page appears the Extensity logo and to the
right of the logo appears "Extensity." On the right margin below the Extensity
logo and name appears the phrase in large print "Extensity at Work." Below and
to the far left-hand margin of "Extensity at Work" appears a small graphic
depiction of a human. Below the graphic depiction of the human appears the
phrase "1. Plan Business Trip." Below this phrase appears a graphic depiction of
a computer screen that contains the graphic of the Extensity Travel Plans
user-interface. To the lower right of this graphic appears the phrase "2. Book
Airline Tickets through Travel Service Partner." Below this phrase appears a
graphic depiction of a computer screen that contains the graphic of the
Extensity Travel Plans user-interface, which contains information regarding an
itinerary of a flight from San Francisco to New York. To the lower right of this
graphic appears the phrase "3. Order Supplies to Support Customer." Below this
phrase appears a graphic depiction of a computer screen that contains the
graphic of the Extensity Purchase Reqs user-interface. To the lower-left of this
graphic appears a graphic depiction of a Palm VII hand-held computing device.
Appearing on the screen of the Palm VII is the Extensity Expense Reports
user-interface, which contains purchase information for a hypothetical
transaction. To the right of this graphic appears the phrase "4. Enter Billable
Time on Handheld Device." To the left of the Palm VII graphic is a graphic
depiction of a computer screen that contains the graphic of the Extensity
Expense Reports user-interface. Below this graphic appears the phrase "5.
Complete Expense Report in Minutes and Get Paid in Days." To the upper left of
this graphic appears a graphic depiction of a computer screen that contains a
detailed report of the hypothetical trip as reported by Extensity Expense
Reports. At the top of this graphic appears the phrase "6. Gain Management
Insights from Reporting." The background of the entire graphic is a swirling set
of eight lines. Below all of the graphics appears the table of contents.

DESCRIPTION OF GRAPHICS FOR INSIDE-FRONT COVER

At the top left-hand margin of the page appears the Extensity logo and to the
right of the logo appears "Extensity." Below the Extensity name and logo appears
the phrase in large print "Internet-Based Workforce Optimization Software."
Below this phrase appear five bullet points in a vertical row. To the right of
the first bullet point appears the phrase "Designed and Delivered Using the
Internet." To the right of the second bullet point appears the phrase "Improving
Employee Productivity and Satisfaction." To the right of the third bullet point
appears the phrase "Enhancing Enterprise Operating Efficiency." To the right of
the fourth bullet point appears the phrase "Increasing Control Over Internal
Processes." To the right of the fifth bullet point appears the phrase
"Universally Accessible via Networked and Mobile PCs and Handheld Devices."
Below the five bullet points appears the graphic depiction of a very large oval
that is set at a forty-five degree angle. The oval is separated into four
sections, each a different shade. In the top-left section appears a graphic of
one square intersected by another square. On the top of the squares appears the
graphic depiction of a one hundred dollar bill. In the upper-left hand portion
of this section appears the phrase "Extensity Expense Reports Automates

<PAGE> 4

the Creation, Approval and Payment of Expense Reports While Enforcing Company
Policy." In the top right-hand section appears a graphic of one square
intersected by another square. On the top of the squares appears the graphic
depiction of an airplane. In the upper-right hand portion of this section
appears the phrase "Extensity Travel Plans Automates the Planning, Approval, and
Procurement Process for Corporate Travel Prior to Travel Expenses Being
Incurred." In the lower right-hand section appears a graphic of one square
intersected by another square. On the top of the squares appears the graphic
depiction of a wrist watch around another smaller square. In the lower-right
hand portion of this section appears the phrase "Extensity Timesheets Automates
the Reporting and Tracking of Billable Hours to Ensure Timely and Accurate
Client Billing." In the lower left-hand section appears a graphic of one square
intersected by another square. On the top of the squares appears the graphic
depiction of a computer screen, a computer mouse and a pencil. In the lower
left-hand portion of this section appears the phrase "Extensity Purchase Reqs
Automates and Optimizes the Requisitioning of Non-Production Goods and Services
While Enforcing Company Procurement Policies." Extending from the right of the
large sphere are four lines connecting to a half of a cloud which is located on
the far right-hand margin of the page. Extending to, and over the cloud, and to
the upper center of the page are four diagonal lines.

DESCRIPTION OF GRAPHICS FOR BACK GATEFOLD

On the inside back cover of the gatefold at the top left-hand margin of the page
appears the Extensity logo and to the right of the logo appears "Extensity."
Below the Extensity name and logo appears the phrase in large print "Extensity
Network of Employee Desktops." Below this phrase appears the phrase "Thousands
of Employees Across Multiple Organizations Leveraging Extensity's Integrated
Applications." Below this phrase appears the graphic depiction of a very large
oval that is set at a forty-five degree angle. The oval is separated into four
sections, each a different shade. In the top-left section appears a graphic of
one square intersected by another square. On the top of the squares appears the
graphic depiction of a one hundred dollar bill. In the upper-left hand portion
of this section appears the phrase "Extensity Expense Reports Allows Remote
Employees to Submit Expense Reports and Get Paid in Days." In the top right-hand
section appears a graphic of one square intersected by another square. On the
top of the squares appears the graphic depiction of an airplane. In the
upper-right hand portion of this section appears the phrase "Extensity Travel
Plans Allows Business Managers to Enforce Travel Policy Through Software and to
Deal with Exceptions Only." In the lower right-hand section appears a graphic of
one square intersected by another square. On the top of the squares appears the
graphic depiction of a wrist watch around another smaller square. In the
lower-right hand portion of this section appears the phrase "Extensity
Timesheets Allows Consultants to Easily Enter Time Worked and Accelerates Client
Bill-Back Cycle." In the lower left-hand section appears a graphic of one square
intersected by another square. On the top of the squares appears the graphic
depiction of a computer screen, a computer mouse and a pencil. In the lower
left-hand portion of this section appears the phrase "Extensity Purchase Reqs
Enables Procurement Managers to View Purchasing Reports and Gain Insights into
Buying Patterns." In the center of the oval appears the phrase in large print
"Extensity Workforce Optimization Applications Suite." Below this phrase appears
three vertically stacked bullet points. To the right of the first bullet point
appears the phrase "Consistent User Interface." To the right of the

<PAGE> 5

second bullet point appears the phrase "Integration into ERP, Financial, Credit
Card and Legacy Systems." To the right of the third bullet point appears the
phrase "Integrated Reporting and Management Intelligence." Extending from the
upper left-hand margin of the page to down and around the large oval are a
number of graphic depictions of human figures. Underneath and around the large
oval appear ten swirling lines. Extending from the right of the large oval to
the left hand margin of the page appear four lines. Within the four lines
appears the incomplete phrase "Provide Access to Pre-Qualified Users," which,
when connected to the inside back cover, creates the phrase "Providing Access to
Valuable, Pre-Qualified Users." Extending from the upper right hand margin of
the page and to the center of the right hand margin are four diagonal lines.

On the inside front cover of the gatefold extending from the left-hand margin of
the page to the lower right-hand margin of the page appears four diagonal lines.
The lines extend to, and over, a cloud. Extending from the right of the cloud to
the left hand margin appear four lines (connecting to the gatefold). Within the
four lines appears the incomplete phrase "Valuable, Users," which when connected
to the preceding page of the gatefold creates the phrase "Providing Access to
Valuable, Pre-Qualified Users." Below the cloud appears the phrase "Extensity
Content and Commerce Gateway for the Enterprise Workforce." To the right of the
cloud appear four lines, two of which extend to the top of the page, and two of
which extend to the right hand margin of the page. In between the two lines that
extend to the top of the page appears a graphic depiction of a bridge in a
square. Below the square appears the phrase "Content Providers." To the right of
the square, in the right-hand corner of the page appears the phrase "Extensity
Partner Network Third Party Content, Service and Commerce Providers." Below this
phrase appears a graphic depiction of a computer monitor within a square. Below
the square appears the phrase "Service Providers." To the lower right of this
square appears the graphic depiction of a one hundred dollar bill within a
square. Below the square appears the phrase "Commerce Providers."

<PAGE> 6

DESCRIPTION OF GRAPHICS FOR PAGE 47

The top left-hand margin of the graphic contains the phrase "Extensity
Architecture" in large bold font. Below the phrase "Extensity Architecture"
appears the graphic of three desktop computers. Each computer is linked together
by a solid bold line. Underneath the graphic depiction of the three computers
appears the phrase "Remote LAN." The solid bold line connecting the three
computers extends down below the computers to a cloud. Inside the cloud appears
the phrase "Internet." Extending from the left of the cloud is another solid
bold line connecting to a graphic depiction of a large rectangular box and a
small cube which represent a computer server. Under the rectangle and the cube
graphics appears the phrase "Content Partner." Extending from the cloud to the
lower left-hand corner of the graphic is a lightening bolt connecting the cloud
to a graphic depiction of a laptop computer. Underneath the laptop computer
appears the phrase "Mobile Travelers." Extending from the cloud to the lower
right-hand corner of the graphic is a lightening bolt connecting the cloud to a
graphic depiction of a handheld computing device. Underneath the handheld
computing device appears the phrase "Palm and Visor." Extending from the right
of the cloud is another solid line connecting the cloud to a graphic depiction
of a large rectangular box which represents a computer server. Under the
rectangle appears the phrase "Firewall." Extending from the right of the large
rectangular box is a solid bold line connecting to a large vertical solid bold
line. Appearing at the top of the large vertical solid bold line and extending
to the right of the graphic is another solid bold line connecting to the graphic
depiction of three desktop computers. Underneath the three computers appears the
phrase "LAN." Extending from the middle of the three computers up to the right
diagonally is a solid bold line. This solid bold line connects to a large
rectangular box in the right hand corner of the graphic. Within the large
rectangular box appears the phrase "Thin Client" in the upper left-hand corner
and two smaller rectangular boxes, one stacked upon the other, appear in the
bottom center of the box. In the center of the top stacked box appears the
phrase "GUI Presentation." In the center of the lower stacked box appears the
phrase "Business Rules." Appearing at the middle of the large vertical solid
bold line and extending to the right are three solid bold lines each connecting
to a rectangle box, each which represent a computer server. Under the three
rectangle boxes appears the phrase "Extensity Application Server(s)." Extending
from the right of the front rectangle box is a solid bold line connecting to a
large rectangular box. Within the large rectangular box appears the phrase
"Application Server" in the upper left-hand corner, and three smaller cubes
within another rectangular box in the lower center of the large rectangular box.
In the left-hand box appears the phrase "Business Rule System." In the center
box appears the phrase "Workflow System." In the right-hand box appears the
phrase "Advanced Data Management." Extending from the top of the large
rectangular box is a solid bold line connecting to another large rectangular
box. Within the large rectangular box appears the phrase "Extensity
Applications" in the upper left-hand corner, and four smaller rectangular boxes
stacked two-by-two in the center of the large rectangular box. In the upper
left-hand box appears the phrase "Extensity Expense Reports." In the lower
left-hand box appears the phrase "Extensity Travel Plans." In the upper
right-hand box appears the phrase "Extensity Purchase Reqs." . In the lower
right-hand box appears the phrase "Extensity Timesheets." Appearing at the
bottom of the large vertical solid bold line is a solid bold line extending to
the right and connecting to a rectangular box and a small cube, which represent
a computer server. Appearing under this rectangle and cube appears the phrase
"Enterprise Applications." Extending from the right of this rectangle and cube
is another solid bold line connecting to another rectangular box and a small
cube, which represent a computer server. Appearing under the rectangle and cube
appears the phrase "Database Server."

<PAGE> 7

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Management............................ 52
Certain Transactions.................. 63
Principal Stockholders................ 65
Description of Capital Stock.......... 68
Shares Eligible for Future Sale....... 71
Underwriting.......................... 73
Legal Matters......................... 75
Experts............................... 75
Where You Can Find Additional
Information......................... 76
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
<PAGE> 8

PROSPECTUS SUMMARY

This summary highlights selected information contained elsewhere in this
prospectus. This summary may not contain all of the information that you should
consider before investing in our common stock. You should carefully read the
entire prospectus, including "Risk Factors" and the financial statements, before
making an investment decision.

OUR BUSINESS

Extensity provides Internet-based software applications designed to improve
the productivity of employees across an enterprise and to enhance enterprise
operating efficiency. We sell an integrated application suite that automates
expense reporting, travel management, procurement and billable time management.
These applications streamline traditionally inefficient and largely paper-based
processes, and capture cost savings by automatically enforcing spending policies
and tracking information valuable to management.

In the intensely competitive global business environment, businesses have
increasingly adopted the Internet to streamline their business processes and
make their employees more productive. According to preliminary estimates by
International Data Corporation, the worldwide market for workforce management
applications will grow from $766 million in 1998 to $4.0 billion in 2003, and
the Internet commerce procurement applications market will grow from $147
million in 1998 to $5.3 billion in 2003.

Our objective is to become the leading Internet-based point of
interactivity between a company's workforce and third-party content, commerce
and service providers. We have designed our applications to be readily
integrated with Internet-based third-party content, commerce and services. This
will enable us and our partners to deliver relevant and timely content and
business-to-business services targeted at the specific needs of employees. For
example, a consultant planning an engagement can obtain internal travel expense
approval, book airline tickets and hotel reservations through a travel service
partner, plan business entertainment through a content partner, track billable
time and record additional expenses for rapid approval and reimbursement - all
through our integrated application suite accessible at the office or on the
road. The growing network of organizations and employees using our applications
will constitute a valuable target market for our Internet-based content,
commerce and service partners.

Our applications can be readily integrated with enterprise resource
planning and other information technology software applications commonly used in
organizations, including older, legacy systems. Our applications are universally
accessible through a variety of devices including networked and mobile PCs and
handheld computing devices, such as a PalmPilot or Visor. The architecture of
our products typically enables us to fully install our applications for use by
our customers in less than 90 days. Since the introduction of our first
application in 1998, we have licensed our products to 70 customers, the largest
of which, based on contract value, include AT Kearney, Cisco Systems, Gelco
Information Network, Sara Lee and TransCanada PipeLines.

1
<PAGE> 9

THE OFFERING

Common stock offered by
Extensity.......................... 4,000,000 shares

Common stock to be outstanding
after this offering................ 22,800,455 shares

Use of proceeds.................... For repayment of indebtedness and general
corporate purposes, including working
capital, expansion of our sales and
marketing efforts and, potentially, for
acquisition opportunities that may arise
in the future.

Proposed Nasdaq National Market
Symbol............................. EXTN

The number of shares to be outstanding upon completion of this offering is
based on shares outstanding as of December 31, 1999. This number assumes the
conversion into common stock of all of our preferred stock outstanding on that
date and excludes:

- 7,000,000 shares of common stock that will be reserved for issuance under
our 1996 Stock Option Plan upon completion of this offering, of which
2,942,582 shares were subject to outstanding options;

- 500,000 shares of common stock that will be reserved for issuance under
our Employee Stock Purchase Plan 2000 upon completion of this offering;
and

- 183,888 shares subject to outstanding warrants to purchase preferred stock
which will convert into warrants to purchase common stock upon completion
of this offering.

SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------
1995(1) 1996 1997 1998 1999
------- ------ ------- -------- --------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenues:
Licenses......................................... $ -- $ -- $ -- $ 718 $ 3,750
Services and maintenance......................... -- -- -- 409 3,064
------ ------ ------- -------- --------
Total revenues............................ -- -- -- 1,127 6,814
Gross profit (loss)................................ -- -- -- (517) 1,861
Loss from operations............................... (4) (854) (3,335) (11,060) (23,555)
Net loss........................................... (1) (830) (3,228) (11,032) (23,389)
Net loss attributable to common stockholders....... -- -- -- -- (24,889)
Net loss per share attributable to common
stockholders:
Basic and diluted................................ $(0.01) $(3.79) $ (4.35) $ (8.25) $ (11.20)
Weighted average shares.......................... 167 219 742 1,338 2,222
Pro forma net loss per share attributable to common
stockholders (unaudited):
Basic and diluted................................ $ (1.13) $ (1.76)
Weighted average shares.......................... 9,778 14,160
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31, 1999
---------------------------------------
PRO FORMA
ACTUAL PRO FORMA(2) AS ADJUSTED(3)
------- ------------ --------------
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments........... $24,285 $24,285 $85,825
Working capital............................................. 13,227 13,227 74,767
Total assets................................................ 31,661 31,661 93,201
Notes payable and capital lease obligations, noncurrent
portion................................................... 1,285 1,285 1,285
Mandatorily redeemable convertible preferred stock.......... 49,648 -- --
Total stockholders' equity (deficit)........................ (35,061) 14,587 76,127
</TABLE>

- -------------------------
(1) Period from inception (November 13, 1995) to December 31, 1995.

(2) The pro forma column gives effect to the conversion of our preferred stock
outstanding as of December 31, 1999 into common stock upon the closing of
this offering. See Note 7 of Notes to Consolidated Financial Statements.

(3) The pro forma as adjusted column also reflects the receipt of the net
proceeds from the sale of 4,000,000 shares of common stock offered by us at
an assumed initial public offering price of $17.00 per share and the
application of the net proceeds from the offering, after deducting
underwriting discounts and commissions and estimated offering expenses.

2
<PAGE> 10

We were incorporated in Delaware as Celerity, Inc. on November 13, 1995,
changed our name to At Large Software, Inc. on April 12, 1996 and changed our
name to Extensity, Inc. on September 2, 1997. Our principal executive offices
are located at 2200 Powell Street, Suite 400, Emeryville, California 94608. Our
telephone number at that location is (510) 594-5700. Our website is located at
www.extensity.com. The information contained on our website does not constitute
part of this prospectus.

Extensity is a registered trademark, and Extensity Expense Reports,
Extensity Travel Plans, Extensity Timesheets, Extensity Purchase Reqs, and
Extensity System Administration Tool are trademarks of Extensity. All other
brand names or trademarks appearing in this prospectus are the property of their
respective holders.

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

Unless otherwise indicated, all information in this prospectus assumes:

- that the underwriters have not exercised their option to purchase
additional shares;

- conversion of all shares of preferred stock into shares of common stock
upon completion of this offering; and

- the filing of an amended and restated certificate of incorporation upon
completion of this offering to increase our authorized common stock and
decrease our authorized preferred stock.

3
<PAGE> 11

RISK FACTORS

Any investment in our common stock involves a high degree of risk. You
should consider carefully the following information about these risks, together
with the other information contained in this prospectus, before you decide
whether to buy our common stock. If any of the following risks actually occur,
our business, results of operations and financial condition could suffer
significantly. In any such case, the market price of our common stock could
decline, and you may lose all or part of the money you paid to buy our common
stock.

RISKS RELATED TO OUR BUSINESS

OUR EXTREMELY LIMITED OPERATING HISTORY AND THE FACT THAT WE OPERATE IN A NEW
INDUSTRY MAKES OUR BUSINESS PROSPECTS DIFFICULT TO EVALUATE.

We were incorporated in 1995 and commenced licensing of our software
applications in March 1998. Accordingly, we have an extremely limited operating
history. An investor in our common stock must consider the risks, uncertainties,
expenses and difficulties frequently encountered by companies in their early
stages of development, particularly companies in new and rapidly evolving
markets such as the market for Internet-based software applications. Risks and
difficulties include our ability to:

- expand our base of customers with fully installed and deployed systems
that can serve as reference accounts for our ongoing sales efforts;

- expand our pipeline of sales prospects in order to promote greater
predictability in our period-to-period sales levels;

- continue to offer new products that complement our existing product line,
in order to make our suite of applications more attractive to customers;

- continue to develop and upgrade our technology to add additional features
and functionality;

- continue to attract and retain qualified personnel;

- expand sales channels through geographic expansion and the development of
indirect channels such as relationships with OEM customers and
application service providers;

- increase awareness of our brand; and

- maintain our current, and develop new, third-party relationships.

We cannot assure you that our business strategy will be successful or that
we will successfully address these risks or difficulties. If we fail to address
these risks or difficulties adequately, our business will likely suffer.

WE HAVE A HISTORY OF LOSSES AND NEGATIVE CASH FLOW AND EXPECT THIS TO CONTINUE
FOR THE FORESEEABLE FUTURE.

Our business is new; we have offered products for a relatively short period
of time; and our base of customers and prospective customers is still relatively
small. We have spent significant funds to date to develop our current products
and to develop our sales and market resources. We have incurred significant
operating losses and have not achieved profitability. As of December 31, 1999,
we had an accumulated deficit of $40.0 million. We expect to continue to invest
in research and development to enhance current products and develop future
products.

4
<PAGE> 12

We also plan to continue to grow our sales force and to spend significant funds
in marketing to promote our company and our products. We expect to continue to
hire additional people in all other areas of our company in order to support our
growing business. As a result, we will need to increase our revenues
significantly to achieve profitability. In addition, because we expect to
continue to invest in our business ahead of anticipated future revenues, we
expect that we will continue to incur operating losses for the foreseeable
future.

OUR BUSINESS IS CHANGING RAPIDLY, WHICH COULD CAUSE OUR QUARTERLY OPERATING
RESULTS TO VARY AND OUR STOCK PRICE TO FLUCTUATE.

Our revenues and operating results may vary significantly from quarter to
quarter due to a number of factors, many of which are beyond our control. We
expect to continue to expend significant sums in all areas of our business,
particularly in our sales and marketing operations, in order to promote future
growth. Because the expenses associated with these activities are relatively
fixed in the short-term, we may be unable to adjust spending quickly enough to
offset any unexpected shortfall in revenue growth or any decrease in revenue
levels. As a result, we expect our quarterly operating results to fluctuate.
Moreover, because we use the percentage-of-completion method of contract
accounting with respect to recognition of license and implementation fees, if
our professional service organization is unable to implement our applications
for use by customers within our anticipated time frames, our recognition of
revenue for that customer could be deferred, which could cause our quarterly
revenue to fluctuate. Our financial results may as a consequence of quarterly
revenue fluctuations fall short of the expectations of public market analysts or
investors. If this occurs, the price of our common stock may drop.

We also seek to develop and maintain a significant pipeline of potential
sales prospects, but it is difficult to predict when individual customer orders
will be closed. Our base of customers and the number of additional customer
licenses we enter into each quarter are still relatively small. Accordingly, the
loss or deferral of a small number of anticipated large customer orders in any
quarter could result in a significant shortfall in revenues for that quarter and
future quarters, which could result in a drop in the price of our stock.

Other important factors which could cause our quarterly results and stock
price to fluctuate materially include:

- our ability to grow our customer base and our base of referencing
customers, in light of our relatively limited number of customers to
date;

- our ability to successfully develop alternative sales channels for our
products (such as OEM sales through application service providers and
application vendors) in light of our limited sales to date other than
direct sales;

- our ability to expand our implementation and consulting resources through
third-party relationships, in light of the fact that we have no
third-party implementation or consulting relationships currently in
place; and

- technical difficulties or "bugs" affecting the operation of our software.

Due to our limited operating history, the early stage of our market and the
factors discussed above, you should not rely on quarter-to-quarter comparisons
of our results of operations as indicators of our future performance.

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<PAGE> 13

OUR BUSINESS WILL SUFFER IF WE DO NOT SIGNIFICANTLY EXPAND OUR SALES
CAPABILITIES.

We sell our workforce optimization applications primarily through our
direct sales force. We must significantly expand our direct sales operations to
increase our revenues. We cannot be certain that we will be successful in these
efforts. Our products and services require sophisticated sales efforts and our
ability to increase our direct sales operation will depend on our ability to
recruit, train and retain top sales people with effective sales skills and
advanced technical knowledge. Competition for qualified personnel is intense in
our industry. Moreover, new sales personnel require training and take time to
achieve full productivity. If we are unable to hire or retain qualified sales
personnel, if newly hired personnel fail to develop the necessary skills, or if
they reach productivity more slowly than anticipated, we may be unable to grow
our revenues as rapidly as planned, if at all, and our business could be harmed.

WE FACE INTENSE COMPETITION, WHICH COULD AFFECT OUR ABILITY TO INCREASE REVENUE,
MAINTAIN OUR MARGINS AND INCREASE OUR MARKET SHARE.

The market for our Internet-based workforce optimization applications is
intensely competitive and we expect competition to increase in the future.
Competitors vary in size and in the scope and breadth of the products and
services they offer. Companies offering one or more products directly
competitive with our products include Ariba, Captura Software, Concur
Technologies and IBM. We also expect to encounter competition in the near future
from major enterprise software vendors such as Oracle, PeopleSoft and SAP, to
the extent they enhance their existing product offerings with competitive
workforce optimization applications. As a result of the large market opportunity
for workforce optimization applications, we also expect competition from other
established and emerging companies. For example, as the emergence of the
application service provider (ASP) market enables hosted solutions from our
competitors to become broadly available, our future success may also depend upon
our ability to establish successful relationships with leading ASPs.

Many of our current and potential competitors have longer operating
histories, significantly greater financial, technical, marketing and other
resources, significantly greater name recognition and a larger installed base of
customers than us. In addition, many of our competitors have well-established
relationships with our current and potential customers and have extensive
knowledge of our industry. 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.
Accordingly, it is possible that new competitors or alliances among competitors
may emerge and rapidly acquire significant market share. We also expect that
competition will increase as a result of industry consolidation. Increased
competition may result in price reductions, reduced margins and loss of market
share, any one of which could seriously harm our business.

IF WE DO NOT PROVIDE SOFTWARE APPLICATIONS AND RELATED SERVICES THAT MEET THE
CHANGING DEMANDS OF OUR CUSTOMERS, THE MARKET FOR OUR PRODUCTS WILL NOT GROW OR
MAY DECLINE, AND OUR PRODUCT SALES WILL SUFFER.

To successfully implement our business strategy, we have to provide
software applications and related services that meet the demands of our
customers and prospective customers as the market and customer requirements
evolve. We expect that competitive factors will create a continuing need for us
to improve and add to our suite of software applications. Not only will we have
to expend significant funds and other resources to continue to improve our
existing suite of applications, but we must also properly anticipate, address
and respond to consumer preferences and demands. As organizations' needs change
with respect to their enterprise applications, our existing suite of software
applications may become obsolete or inefficient relative to our

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<PAGE> 14

competitors' offerings and may require modifications or improvements. The
addition of new products and services will also require that we continue to
improve the technology underlying our applications. These requirements could be
significant, and we may fail to fulfill them quickly and efficiently. If we fail
to expand the breadth of our applications quickly in response to customer needs,
or if these offerings fail to achieve market acceptance, the market for our
products will not grow or may decline, and our business may suffer
significantly.

Our workforce optimization software products and related services have
accounted for all of our revenues to date. We anticipate that revenues from
these products and related services will continue to constitute substantially
all of our revenues for the foreseeable future. Consequently, our future
financial performance will depend, in significant part, upon the successful
development, introduction and customer acceptance of enhanced versions of our
workforce optimization applications and any new products or services that we may
develop or acquire. We cannot assure you that we will be successful in
enhancing, upgrading or continuing to effectively market our workforce
optimization applications, or that any new products or services that we may
develop or acquire will achieve market acceptance.

OUR REVENUES HAVE BEEN DERIVED FROM A RELATIVELY SMALL NUMBER OF CUSTOMERS, AND
THE LOSS OF A SMALL NUMBER OF MAJOR CUSTOMERS OR POTENTIAL CUSTOMERS COULD
ADVERSELY IMPACT OUR REVENUES OR OPERATING RESULTS.

We licensed our first workforce optimization application in March 1998 and
have fully implemented our applications for only a limited number of customers
to date. As of December 31, 1999 we had licensed our applications to a total of
70 customers and had implemented the solutions for a total of 30 of these
customers. Moreover, as of December 31, 1999, we had not completed an
implementation of our Extensity Purchase Reqs or Extensity Timesheets
applications for any customers. We expect that we will continue to derive a
significant portion of our revenues from a relatively small number of customers
in the future. Accordingly, the loss of a small number of major customers could
materially and adversely affect our business, and the deferral or loss of
anticipated orders from a small number of prospective customers could materially
and adversely impact our revenues and operating results in any period.

IF WE FAIL TO ACHIEVE POSITIVE MARGINS ON SERVICE REVENUES IN THE FORESEEABLE
FUTURE, OUR RESULTS OF OPERATIONS COULD SUFFER.

Our margins on service revenues to date have been negative and are expected
to continue to be negative for the foreseeable future. We cannot assure you that
we will achieve positive margins on our service revenues. Failure to achieve
positive margins on service revenues could cause our business to suffer. For
more information related to our costs associated with our service revenues, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Results of Operations."

WE HAVE LIMITED EXPERIENCE WITH LARGE-SCALE IMPLEMENTATIONS, WHICH ARE IMPORTANT
TO OUR FUTURE SUCCESS.

We have limited experience in implementing our applications on a large
scale. As of December 31, 1999, our largest implementation included
approximately 3,000 employee users. We believe that the ability of large
customers to roll-out our products across large numbers of users is critical to
our future success. If our customers cannot successfully deploy our applications
on a large scale, or if they determine for any reason that our products cannot
accommodate large-scale deployment, our business could be harmed.

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<PAGE> 15

WE HAVE ONLY RECENTLY UNDERTAKEN TO CREATE A CONTENT AND COMMERCE GATEWAY
BETWEEN OUR CUSTOMERS' EMPLOYEES AND THIRD-PARTY PROVIDERS, AND OUR FUTURE
OPERATING RESULTS WILL DEPEND ON OUR ABILITY TO SUCCEED IN THIS STRATEGY.

A key component of our business strategy includes establishing an
integrated point of access, or gateway, between the network of customer
employees that utilize our workforce optimization solution and third-party
content, commerce and service providers who consider this employee base to be
potentially valuable business customers. We have only begun to establish this
gateway and, to date, we have only established relationships with two content
providers (from which we have not yet derived revenues). We cannot assure you
that we will be successful in developing this gateway. Moreover, we cannot
assure you that our customers will consider a content and commerce gateway to be
a valuable feature of our workforce optimization applications, or that
third-party providers will choose to access our network of customer employees to
generate e-commerce. If a market for such a gateway develops and we are unable
to establish a compelling product offering within this market, or if we build a
gateway and the market for such an offering fails to mature, our business could
be seriously harmed.

We expect to depend increasingly on a number of third parties to expand our
content and commerce gateway and thereby generate revenues. We cannot assure you
that third parties will regard our relationship with them as important to their
own respective businesses and operations. They may choose not to partner with us
or, after having established a partnership with us, they may reassess their
commitment to us at any time in the future and may develop their own competitive
services or products. Also, we cannot assure you that the content, products or
services of those companies that provide access or links to our network will
achieve market acceptance or commercial success. Accordingly, we cannot assure
you that our existing or prospective relationships will result in sustained
business partnerships, successful product or service offerings or the generation
of significant revenues for us.

IF WE FAIL TO EXPAND OUR RELATIONSHIPS WITH THIRD PARTIES THAT CAN PROVIDE
IMPLEMENTATION AND CONSULTING SERVICES TO OUR CUSTOMERS, WE MAY BE UNABLE TO
GROW OUR REVENUES AND OUR BUSINESS COULD BE HARMED.

In order for us to focus more effectively on our core business of
developing and licensing software solutions, we need to establish relationships
with third parties that can provide implementation and consulting services to
our customers. Third-party implementation and consulting firms can also be
influential in the choice of workforce optimization applications by new
customers. If we are unable to establish and maintain effective, long-term
relationships with implementation and consulting providers, or if these
providers do not meet the needs or expectations of our customers, we may be
unable to grow our revenues and our business could be seriously harmed. As a
result of the limited resources and capacities of many third-party
implementation providers, we may be unable to attain sufficient focus and
resources from the third-party providers to meet all of our customers' needs,
even if we establish relationships with these third parties. If sufficient
resources are unavailable, we will be required to provide these services
internally, which could limit our ability to expand our base of customers. A
number of our competitors have significantly more established relationships with
these third parties and, as a result, these third parties may be more likely to
recommend competitors' products and services rather than our own. Even if we are
successful in developing relationships with third-party implementation and
consulting providers, we will be subject to significant risk, as we cannot
control the level and quality of service provided by third-party implementation
and consulting partners.

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<PAGE> 16

CUSTOMER SATISFACTION AND DEMAND FOR OUR PRODUCTS WILL DEPEND ON OUR ABILITY TO
EXPAND OUR PROFESSIONAL SERVICES ORGANIZATION.

We believe that growth in our product sales depends on our ability to
provide our customers with professional services to assist with support,
training, consulting and initial implementation and deployment of our products
and to educate third-party systems integrators in the use of our products. As a
result, we plan to increase the number of professional services personnel to
meet these needs. New professional services personnel will require training and
take time to reach full productivity. We may not be able to attract or retain a
sufficient number of highly qualified professional services personnel.
Competition for qualified professional services personnel is intense due to the
limited number of people who have the requisite knowledge and skills. To meet
our customers' needs for professional services, we may also need to use more
costly third-party consultants to supplement our own professional services
group. In addition, we could experience delays in recognizing revenue if our
professional services group fails to complete implementations in a timely
manner.

OUR EXPECTATIONS OF FUTURE GROWTH DEPEND ON OUR ABILITY TO EXPAND
INTERNATIONALLY, AND FACTORS SPECIFIC TO OUR INTERNATIONAL EXPANSION MAY PREVENT
US FROM ACHIEVING OUR ANTICIPATED GROWTH.

We intend to expand our international operations to achieve our anticipated
growth, but we may face significant challenges to our international expansion.
The expansion of our existing international operations and entry into additional
international markets will require significant management attention and
financial resources. To achieve broad acceptance in international markets, our
products must be internationalized to handle a variety of factors specific to
each international market, such as tax laws and local regulations. The
incorporation of these factors into our products is a complex process and often
requires assistance from third parties. We have limited experience in
internationalizing our products and we may not adequately address all of the
factors necessary to achieve broad acceptance in our target international
markets. Further, to achieve broad usage by employees across international
organizations, our products must be localized to handle native languages and
cultures in each international market. Localizing our products is also a complex
process and we intend to work with third parties to develop localized products.
To date, we have not localized our products for any international market and we
cannot assure you that our localization efforts will be successful.

We have only a limited history of marketing, selling and supporting our
products and services internationally. In the second quarter of 1999, we opened
a sales office in the United Kingdom and established a relationship with an
international reseller. As of December 31, 1999, we had eight employees in the
United Kingdom office. To date, we have not derived any revenues from our
international operations. To expand internationally we must hire and train
experienced international personnel as well as export qualified domestic
personnel to staff and manage our international operations. However, we may
experience difficulties in recruiting and training an international staff. We
must also be able to enter into strategic relationships with companies in
international markets. If we are not able to maintain successful strategic
relationships internationally or recruit additional companies to enter into
strategic relationships, our future growth could be limited.

We also face other risks inherent in conducting business internationally,
such as:

- difficulties in collecting accounts receivable and longer collection
periods;

- seasonal business activity in certain parts of the world;

- fluctuations in currency exchange rates; and

- trade barriers.

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<PAGE> 17

Any of these factors could seriously harm our international operations and,
consequently, our business.

WE ARE GROWING RAPIDLY, AND OUR FAILURE TO MANAGE THIS GROWTH COULD HARM OUR
BUSINESS.

We have experienced and are currently experiencing a period of significant
growth. Our full-time employees increased from 35 at December 31, 1997 to 83 at
December 31, 1998 to 175 at December 31, 1999. This growth has placed a
significant strain on our resources. We expect that any future growth would
cause similar or increased strains on our resources. As part of this growth, we
will have to implement new operational and financial systems and procedures and
controls; expand, train and manage our employee base; and maintain close
coordination among our technical, accounting, finance, marketing and sales
staffs. If we are unable to manage our growth effectively, our business, results
of operations and financial condition could be adversely affected.

Several members of our senior management joined us in 1999, including David
Yarnold, our Vice President of Business Development and Mark Oney, our Vice
President of Engineering. Although we believe that these individuals are
currently integrated with the other members of our management team, we cannot
assure you that our management team will be able to continue to work together
effectively or to manage our growth successfully. We believe that the successful
integration of our management team is critical to our ability to manage our
operations effectively and support our anticipated future growth.

WE MAY BE UNABLE TO ATTRACT OR RETAIN HIGHLY SKILLED EMPLOYEES THAT ARE
NECESSARY FOR THE SUCCESS OF OUR GROWTH PLAN.

In addition to our dependence on our sales and professional services
personnel as previously discussed, our ability to execute our growth plan and be
successful also depends on our continuing ability to attract and retain highly
skilled employees. We depend on the continued services of senior management and
other personnel, particularly Robert A. Spinner, our Chief Executive Officer. As
we continue to grow, we will need to hire additional personnel in all
operational areas. Competition for personnel in our industry is intense. We have
in the past experienced, and we expect to continue to experience in the future,
difficulty in hiring and retaining highly skilled employees with appropriate
qualifications. If we do not succeed in attracting or retaining personnel, our
business could be adversely affected.

OUR SALES CYCLES ARE LONG AND UNPREDICTABLE, WHICH MAKES PERIOD-TO-PERIOD
REVENUES DIFFICULT TO PREDICT.

Because the market for our workforce optimization software products and
related services is new, we experience long and unpredictable sales cycles. The
sales cycle for our workforce optimization applications typically ranges from
two to six months. In the early stages of this market, our customers have
frequently viewed the purchase of our products as part of a long-term strategic
decision regarding the management of their workforce-related operations and
expenditures. This decision process has sometimes resulted in customers taking a
long period of time to assess alternative solutions by our competitors or
deferring a purchase decision until the market evolves. Sales cycles continue to
be long and the timing of purchase decisions by individual customers remains at
times uncertain. We must continue to educate potential customers on the use and
benefits of our products and services, as well as the integration of our
products and services with additional software applications utilized by the
individual customers. Because the sales cycle is long and the time of individual
orders is uncertain, our period-to-period revenues are difficult to predict.

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<PAGE> 18

EVOLVING TECHNOLOGICAL DEVELOPMENTS AND EMERGING INDUSTRY STANDARDS WILL REQUIRE
US TO ENHANCE THE FUNCTIONALITY OF OUR WORKFORCE OPTIMIZATION APPLICATIONS, AND
ANY INABILITY TO ENHANCE FUNCTIONALITY COULD CAUSE OUR SALES TO DECLINE.

Because the market for our products is emerging and subject to rapid
technological change and evolving industry standards, the life cycles of our
products are difficult to predict. Competitors may introduce new products or
enhancements to existing products employing new technologies, which could render
our existing products and services obsolete and unmarketable. For example, our
currently available software applications are written entirely in the Java
computer language. While we believe that this provides our solution with
significant advantages in terms of functionality and flexibility, the market for
Java-based software is still relatively new and it is not clear whether
Java-based systems will continue to maintain commercial acceptance.

To be successful, our products and services must keep pace with
technological developments and emerging industry standards, address the
ever-changing and increasingly sophisticated needs of our customers and achieve
market acceptance. Our results of operations would be seriously harmed if we are
unable to develop, release and market new software product enhancements on a
timely and cost-effective basis, or if new products or enhancements do not
achieve market acceptance or fail to respond to evolving industry or technology
standards.

In developing new products and services, we may also fail to develop and
market products that respond to technological changes or evolving industry
standards in a timely or cost-effective manner, or experience difficulties that
could delay or prevent the successful development, introduction and marketing of
these new products and services.

SOFTWARE DEFECTS COULD LEAD TO LOSS OF REVENUE OR DELAY THE MARKET ACCEPTANCE OF
OUR APPLICATIONS.

Our enterprise applications software is complex and, accordingly, may
contain undetected errors or failures when first introduced or as new versions
are released. This may result in loss of, or delay in, market acceptance of our
products. We have in the past discovered software errors in our new releases and
new products after their introduction. In the event that we experience
significant software errors in future releases, we could experience delays in
release, customer dissatisfaction and potentially lost revenues during the
period required to correct these errors. We may in the future discover errors,
including Year 2000 errors and additional scalability limitations, in new
releases or new products after the commencement of commercial shipments. Any of
these errors or defects could cause our business to be materially harmed.

WE MAY BECOME INCREASINGLY DEPENDENT ON THIRD-PARTY SOFTWARE INCORPORATED IN OUR
PRODUCTS AND, IF SO, IMPAIRED RELATIONS WITH THESE THIRD PARTIES, ERRORS IN
THIRD PARTY SOFTWARE OR INABILITY TO ENHANCE THE SOFTWARE OVER TIME COULD HARM
OUR BUSINESS.

We incorporate third-party software into our products. Currently, the
third-party software we use includes application server software that we license
from BEA Systems. We expect to incorporate additional third-party software into
our products as we expand our product line and broaden the content and services
accessible through our gateway. The operation of our products would be impaired
if errors occur in the third-party software that we license. It may be more
difficult for us to correct any errors in third-party software because the
software is not within our control. Accordingly, our business would be adversely
affected in the event of any errors in this software. Furthermore, it may be
difficult for us to replace any third-party software if a vendor seeks to
terminate our license to the software.

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<PAGE> 19

OUR SUCCESS DEPENDS IN PART UPON OUR ABILITY TO PROTECT OUR INTELLECTUAL
PROPERTY, BUT WE MAY NOT BE ABLE TO DO SO ADEQUATELY.

Our success depends in large part upon our proprietary technology. We rely
on a combination of copyright, trademark and trade secret protection,
confidentiality and nondisclosure agreements and licensing arrangements to
establish and protect our intellectual property rights. We license rather than
sell our solutions 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 requiring those persons with access to our proprietary information to
execute nondisclosure 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 patents, although we have filed eight provisional
patent applications with the U.S. Patent and Trademark Office relating to
various features and processes embodied in our applications. A provisional
patent application is a type of application under which a patent will not issue,
but which provides a priority date for a regular patent application that is
filed within a one year period following the filing of the provisional patent
application. We cannot assure you that any regular patents will be filed based
on our provisional applications, or that any patents will issue on our pending
provisional applications from any such regular patent applications. Further, we
cannot provide any assurance that any patents, if issued, will prevent the
development of competitive products or that our patents will not be successfully
challenged by others or invalidated through administrative process or
litigation.

Despite our efforts to protect our proprietary rights, unauthorized parties
may attempt to copy aspects of our products or to obtain and use information
that we regard as proprietary. Policing unauthorized use of our products is
difficult, and while we are unable to determine the extent to which piracy of
our software products exists, software piracy can be expected to be a persistent
problem. In addition, the laws of some foreign countries do not protect our
proprietary rights to as great an extent as do the laws of the United States.
Our means of protecting our proprietary rights may not be adequate and our
competitors may independently develop similar technology, duplicate our
products, or design around our proprietary intellectual property.

WE MAY FACE COSTLY DAMAGES OR LITIGATION COSTS IF A THIRD PARTY CLAIMS THAT WE
INFRINGE ITS INTELLECTUAL PROPERTY.

There has been a substantial amount of litigation in the software industry
and the Internet industry regarding intellectual property rights. It is possible
that in the future, third parties may claim that we or our current or potential
future products infringe upon their intellectual property. We expect that
software product developers and providers of Internet-based software
applications will increasingly be subject to infringement claims as the number
of products and competitors in our industry segment grows and the functionality
of products in different industry segments overlaps. Any claims, with or without
merit, could be time consuming, result in costly litigation, cause product
shipment delays or require us to enter into royalty or licensing agreements.
Royalty or licensing agreements, if required, may not be available on terms
acceptable to us or at all, which could seriously harm our business.

UNDETECTED YEAR 2000 ISSUES COULD INVOLVE SIGNIFICANT TIME AND EXPENSE AND MAY
AFFECT OUR OPERATIONS.

The risks posed by Year 2000 issues could adversely affect our business in
a number of significant ways. We believe after examining and testing our
products that our internally
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<PAGE> 20

developed technology, as well as the third-party technology incorporated into
our products, is Year 2000 compliant. Moreover, to date we have not detected any
disruptions in our software applications or in the applications of our vendors
arising from the roll-over to the Year 2000. Nonetheless, our products could
experience unexpected Year 2000 issues that we have failed to uncover to date
which could cause our products to be impaired. We also use third-party financial
and other systems in our internal business operations. Although we have received
assurances from most of our vendors that these systems are Year 2000 compliant,
and to our knowledge these products have not experienced Year 2000 disruptions
following the roll-over to the Year 2000, these systems could in the coming
weeks or months suffer from unexpected Year 2000 issues. Any such Year 2000
issues could materially adversely affect our business. Moreover, we may in the
future be required to defend our products or services in litigation or
arbitration proceedings involving our products or services related to Year 2000
compliance issues, or to negotiate resolutions of claims based on Year 2000
issues. Defending or resolving Year 2000-related disputes, regardless of the
merits of such disputes, and any liability we have for Year 2000-related
damages, including consequential damages, could be expensive.

Moreover, we will experience fewer sales if potential customers, who might
otherwise purchase our software solutions, delay the purchase and implementation
of our solutions in the event their information technology budgets have been
diverted to address Year 2000 issues. If our potential customers delay
purchasing or implementing solutions as a result of the Year 2000 issue, our
business would be seriously harmed.

We cannot guarantee that any of our participating partners or other
Internet vendors are Year 2000 compliant. We also cannot guarantee that our
customers will be able to utilize our software solutions without disruptions
arising from the Year 2000 issue. Moreover, the costs related to Year 2000
compliance, which thus far have not been material, could ultimately be
significant. In the event that we experience disruptions as a result of the Year
2000 issue, our business could be harmed. For more information regarding the
state of our Year 2000 readiness, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

ANY FUTURE ACQUISITIONS OF COMPANIES OR TECHNOLOGIES MAY RESULT IN DISTRACTION
OF OUR MANAGEMENT AND DISRUPTIONS TO OUR BUSINESS.

We may acquire or make investments in complementary businesses,
technologies, services or products if appropriate opportunities arise. From time
to time we may engage in discussions and negotiations with companies regarding
our acquiring or investing in such companies' businesses, products, services or
technologies. We cannot make assurances that we will be able to identify future
suitable acquisition or investment candidates, or if we do identify suitable
candidates, that we will be able to make such acquisitions or investments on
commercially acceptable terms or at all. If we acquire or invest in another
company, we could have difficulty assimilating that company's personnel,
operations, technology or products and service offerings. In addition, the key
personnel of the acquired company may decide not to work for us. These
difficulties could disrupt our ongoing business, distract our management and
employees, increase our expenses and adversely affect our results of operations.
Furthermore, we may incur indebtedness or issue equity securities to pay for any
future acquisitions. The issuance of equity securities could be dilutive to our
existing stockholders. As of the date of this prospectus, we have no agreement
to enter into any material investment or acquisition transaction.

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<PAGE> 21

WE HAVE ANTI-TAKEOVER PROVISIONS IN OUR CHARTER AND IN OUR CONTRACTS THAT COULD
DELAY OR PREVENT AN ACQUISITION OF OUR COMPANY, EVEN IF SUCH AN ACQUISITION
WOULD BE BENEFICIAL TO OUR STOCKHOLDERS.

Provisions of our certificate of incorporation, our bylaws, Delaware law
and the employment agreements of some of our key officers could make it more
difficult for a third party to acquire us, even if doing so might be beneficial
to our stockholders. Please see "Description of Capital Stock" and "Compensation
Committee Interlocks and Insider Participation."

OUR BUSINESS MAY FACE ADDITIONAL RISKS AND UNCERTAINTIES NOT PRESENTLY KNOWN TO
US WHICH COULD CAUSE OUR BUSINESS TO SUFFER.

In addition to the risks specifically identified in this Risk Factors
section or elsewhere in this prospectus, we may face additional risks and
uncertainties not presently known to us or that we currently deem immaterial
which ultimately may impair our business, results of operations and financial
condition.

RISKS RELATED TO OUR INDUSTRY

OUR SUCCESS WILL DEPEND UPON THE GROWTH AND ACCEPTANCE OF THE MARKET WE ADDRESS
AND OUR ABILITY TO MEET THE NEEDS OF THE EMERGING MARKET FOR OUR SOLUTIONS.

The market for our workforce optimization applications and services is at
an early stage of development. Our success will depend upon the continued
development of this market and the increasing acceptance by customers of the
benefits to be provided by workforce optimization applications and services. In
addition, as the market evolves, it is unclear whether the market will accept
our suite of applications as a preferred solution for workforce optimization
needs. Accordingly, our products and services may not achieve significant market
acceptance or realize significant revenue growth. Unless a critical mass of
organizations and their suppliers use our solutions and recommend them to new
customers, our solutions may not achieve widespread market acceptance, which may
cause our business to suffer.

CUSTOMERS MAY NOT ACCEPT THE INTERNET AS A MEANS TO ACCESS ENTERPRISE
APPLICATIONS, AND THIS WOULD LIKELY CAUSE OUR BUSINESS MODEL TO BE UNSUCCESSFUL.

To date, enterprises have generally managed operational functions through
internal computer systems rather than over the Internet. Our business model
assumes that enterprises and their employees will increasingly adopt the
Internet or corporate intranets as a means of managing important business
functions. This business model is not yet proven, and if we are unable to
successfully implement our business model, our business will be materially
adversely affected.

SECURITY RISKS AND CONCERNS MAY DETER THE USE OF THE INTERNET FOR CONDUCTING
ELECTRONIC COMMERCE.

A significant barrier to electronic commerce and communications is the
secure transmission of confidential information over public networks. Advances
in computer capabilities, new discoveries in the field of cryptography or other
events or developments could result in compromises or breaches of our security
systems or those of other websites to protect proprietary information. If any
well-publicized compromises of security were to occur, it could have the effect
of substantially reducing the use of the Internet for commerce and
communications. Anyone who circumvents our security measures could
misappropriate

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<PAGE> 22

proprietary information or cause interruptions in our services or operations.
The Internet is a public network, and data is sent over this network from many
sources. In the past, computer viruses and software programs that disable or
impair computers have been distributed and have rapidly spread over the
Internet. Computer viruses could be introduced into our systems or those of our
customers or suppliers, which could disrupt our software solutions or make them
inaccessible to customers or suppliers. We may be required to expend significant
capital and other resources to protect against the threat of security breaches
or to alleviate problems caused by breaches. To the extent that our activities
may involve the storage and transmission of proprietary information, such as
credit card numbers, security breaches could expose us to a risk of loss or
litigation and possible liability. Our security measures may be inadequate to
prevent security breaches, and our business would be harmed if we do not prevent
them.

INCREASING GOVERNMENT REGULATION COULD LIMIT THE MARKET FOR, OR IMPOSE SALES AND
OTHER TAXES ON THE SALE OF, OUR PRODUCTS AND SERVICES.

As Internet commerce evolves, we expect that federal, state or foreign
agencies will adopt regulations covering issues such as user privacy, pricing,
taxation of goods and services provided over the Internet, and content and
quality of products and services. It is possible that legislation could expose
companies involved in electronic commerce to liability, which could limit the
growth of electronic commerce generally. Legislation could dampen the growth in
Internet usage and decrease its acceptance as a communications and commercial
medium. If enacted, these laws, rules or regulations could limit the market for
our products and services.

RISKS RELATED TO THIS OFFERING

INVESTORS WILL BE RELYING ON OUR MANAGEMENT'S JUDGMENT REGARDING THE USE OF
PROCEEDS FROM THIS OFFERING.

We do not have a definitive quantified plan with respect to the use of the
net proceeds of this offering and have not committed the substantial majority of
these proceeds to any particular purpose apart from the repayment of
approximately $3.1 million of outstanding debt and the allocation of up to
approximately $58.4 million for general working capital and business expenses,
as more fully described in "Use of Proceeds." Accordingly, our management will
have broad discretion with respect to the use of the net proceeds from this
offering, and investors will be relying on the judgment of our management
regarding the application of these proceeds. Some of the uses we currently
anticipate include expansion of our sales and marketing operations, increased
spending in the areas of research and development and customer support,
broadening our operational and administrative infrastructure, the leasing of
additional facilities and for working capital and other general corporate
purposes. We may also use a portion of the proceeds for strategic alliances and
acquisitions. These investments may not yield a favorable return. We have only
made preliminary determinations of the amount of net proceeds to be used
specifically for each of the foregoing purposes based upon our current
expectations regarding our financial performance and business needs over the
foreseeable future. These expectations may prove to be inaccurate, as our
financial performance may differ from our current expectations or our business
needs may change as our business and the industry we address evolve. As a
result, the proceeds we receive in this offering may be used in a manner
significantly different from our current allocation plans.

THE LIQUIDITY OF OUR COMMON STOCK IS UNCERTAIN SINCE IT HAS NOT BEEN PUBLICLY
TRADED.

There has not been a public market for our common stock. We cannot predict
the extent to which investor interest in our company will lead to the
development of an active, liquid trading
15
<PAGE> 23

market. Active trading markets generally result in lower price volatility and
more efficient execution of buy and sell orders for investors. The initial
public offering price for the shares will be determined by negotiations between
us and the representatives of the underwriters and may not be indicative of
prices that will prevail in the trading market.

OUR NEED FOR ADDITIONAL FINANCING IS UNCERTAIN AS IS OUR ABILITY TO RAISE
FURTHER FINANCING IF REQUIRED.

We currently anticipate that our available cash resources, combined with
the net proceeds from this offering, will be sufficient to meet our anticipated
working capital and capital expenditure requirements for at least 12 months
after the date of this prospectus. We may need to raise additional funds,
however, to respond to business contingencies which may include the need to:

- fund more rapid expansion;

- fund additional marketing expenditures;

- develop new or enhance existing products and services;

- enhance our operating infrastructure;

- hire additional personnel;

- respond to competitive pressures; or

- acquire complementary businesses or necessary technologies.

If additional funds are raised through the issuance of equity or
convertible debt securities, the percentage ownership of our stockholders will
be reduced, and these newly-issued securities may have rights, preferences or
privileges senior to those of existing stockholders, including those acquiring
shares in this offering. We cannot assure you that additional financing will be
available on terms favorable to us, or at all. If adequate funds are not
available or are not available on acceptable terms, our ability to fund our
operations, take advantage of unanticipated opportunities, develop or enhance
our products and services or otherwise respond to competitive pressures would be
significantly limited.

MARKET PRICES OF INTERNET AND TECHNOLOGY COMPANIES HAVE BEEN HIGHLY VOLATILE,
AND THE MARKET FOR OUR STOCK MAY EXHIBIT VOLATILITY AS WELL.

The stock market has experienced significant price and trading volume
fluctuations, and the market prices of technology companies generally, and
Internet-related companies particularly, have been extremely volatile. Recent
initial public offerings by technology companies have been accompanied by
exceptional share price and trading volume changes in the first days and weeks
after the securities were released for public trading. Investors may not be able
to resell their shares at or above the initial public offering price. In the
past, following periods of volatility in the market price of a public company's
securities, securities class action litigation has often been instituted against
that company. Such litigation could result in substantial costs and a diversion
of management's attention and resources.

NEW INVESTORS WILL SUFFER IMMEDIATE AND SUBSTANTIAL DILUTION IN THE TANGIBLE NET
BOOK VALUE OF THEIR SHARES.

We expect the initial public offering price to be substantially higher than
the net tangible book value per share of the common stock. The net tangible book
value of a share of common

16
<PAGE> 24

stock purchased at an assumed initial public offering price of $17.00 per share
will be only $3.34. Additional dilution may be incurred if holders of stock
options, whether currently outstanding or subsequently granted, exercise their
options or if warrantholders exercise their warrants to purchase common stock.

THE LARGE NUMBER OF SHARES ELIGIBLE FOR PUBLIC SALE AFTER THIS OFFERING COULD
CAUSE OUR STOCK PRICE TO DECLINE.

The market price of our common stock could decline as a result of sales by
our existing stockholders of a large number of shares of our common stock in the
market after this offering or the perception that such sales could occur. These
sales also might make it more difficult for us to sell equity securities in the
future at a time and at a price that we deem appropriate. Please see "Shares
Eligible for Future Sale" for a description of sales that may occur in the
future.

MANY CORPORATE ACTIONS WILL BE CONTROLLED BY OFFICERS, DIRECTORS AND AFFILIATED
ENTITIES REGARDLESS OF THE OPPOSITION OF OTHER INVESTORS OR THE DESIRE OF OTHER
INVESTORS TO PURSUE AN ALTERNATIVE CAUSE OF ACTION.

Our executive officers, directors and entities affiliated with them will,
in the aggregate, beneficially own approximately 43.8% of our common stock
following this offering. If they were to act together, these stockholders would
be able to exercise control over most matters requiring approval by our
stockholders, including the election of directors and approval of significant
corporate transactions. This concentration of ownership may also have the effect
of delaying or preventing a change in control of our company, which could have a
material adverse effect on our stock price. These actions may be taken even if
they are opposed by the other investors, including those who purchase shares in
this offering.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
AND INDUSTRY DATA

We make many statements in this prospectus under the captions "Prospectus
Summary," "Risk Factors," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business" and elsewhere that are
forward-looking and are not based on historical facts. These statements relate
to our future plans, objectives, expectations and intentions. We may identify
these statements by the use of words such as "believe," "expect," "will,"
"anticipate," "intend" and "plan" and similar expressions. These forward-
looking statements involve a number of risks and uncertainties. Our actual
results could differ materially from those anticipated in these forward-looking
statements as a result of various factors, including those we discuss in "Risk
Factors" and elsewhere in this prospectus. These forward-looking statements
speak only as of the date of this prospectus, and we caution you not to rely on
these statements without also considering the risks and uncertainties associated
with these statements and our business that are addressed in this prospectus.

This prospectus contains estimates of market growth related to the Internet
and e-commerce, as well as cost savings expected to be realized through
e-commerce. These estimates have been included in studies published by the
market research and other firms including American Express, Forrester Research,
International Data Corporation and Killen & Associates. These estimates have
been produced by industry analysts based on trends to date, their knowledge of
technologies and markets, and customer research, but these are forecasts only
and are subject to inherent uncertainty.

17
<PAGE> 25

USE OF PROCEEDS

The net proceeds to us from the sale of the 4,000,000 shares being offered
by us at an assumed initial public offering price of $17.00 per share, after
deducting estimated underwriting discounts and commissions and estimated
offering expenses, are estimated to be approximately $61.5 million, or
approximately $71.0 million if the underwriters' over-allotment option is
exercised in full.

We do not have specific uses committed for the preponderance of the net
proceeds of this offering. The size of the offering has been determined
primarily based upon our desire to raise a sufficient amount of capital to
afford to us significant business flexibility in the future.

The principal purposes of this offering are:

- to obtain additional working capital;

- to create a public market for our common stock;

- to facilitate future access by Extensity to public equity markets; and

- to enhance our ability to use our stock to make future acquisitions due
to the fact that our shares will be publicly traded.

We intend to use a portion of the net proceeds of this offering to repay in
full outstanding indebtedness to Comdisco Ventures of approximately $1.8 million
under a loan and security agreement and approximately $1.3 million under various
capital leases. Indebtedness under the loan and security agreement has been
accruing interest at fixed rates ranging from 11.32% to 11.5% and matures
through March 25, 2001, and indebtedness under the capital leases accrue
interest at fixed rates ranging from 7.03% to 7.42% and mature at various dates
from March 2002 to July 2003.

We expect to use the remainder of the net proceeds for working capital and
general corporate purposes, including increased spending on sales and marketing,
customer support, research and development, expansion of our operational and
administrative infrastructure, and the leasing of additional facilities. In
addition, we may use a portion of the net proceeds to acquire or invest in
complementary businesses, technologies, product lines or products. However, we
have no current plans, agreements or commitments with respect to any such
acquisition, and we are not currently engaged in any negotiations with respect
to any such transaction.

Based on our current business model, we expect that we will spend
approximately $27.4 million of the net proceeds of this offering on sales and
marketing, $12.9 million on research and development, $12.9 million on service
and maintenance, and $5.2 million on general and administrative costs. These
figures are subject to change, however, depending upon our rate of revenue
growth, overall financial performance and evolving business needs. These
expectations may prove to be inaccurate, as our financial performance may differ
from our current expectations or our business needs may change as our business
model and the industry we address evolve. As a result, the proceeds we receive
from this offering may be used in a manner significantly different from our
current allocation plans. Pending use, we intend to invest the net proceeds in
short-term, interest-bearing, investment grade securities, certificates of
deposit or direct or guaranteed obligations of the U.S. government.

The amounts we actually spend for these purposes may vary significantly and
will depend on a number of factors, including our future revenue and cash
generated by operations and the other factors described in "Risk Factors."
Therefore, we will have broad discretion in the way we use the net proceeds.

18
<PAGE> 26

DIVIDEND POLICY

The payment of dividends is within the discretion of our board of
directors. Our ability to pay any future dividends will depend on our earnings,
operating and financial condition, projected capital requirements, and
restrictions under our credit facilities. In this regard, our credit facility
with Comdisco Ventures restricts our ability to declare cash dividends without
the consent of Comdisco Ventures. Notwithstanding the foregoing, we have never
declared or paid any cash dividends on shares of our capital stock and do not
intend to do so at any time in the foreseeable future.

19
<PAGE> 27

CAPITALIZATION

The following table sets forth the following information:

- our actual capitalization as of December 31, 1999;

- our pro forma capitalization as of that date after giving effect to the
conversion of all outstanding shares of convertible preferred stock into
14,594,549 shares of common stock upon completion of this offering; and

- our pro forma capitalization as adjusted to reflect the receipt of the
net proceeds from our sale of 4,000,000 shares of common stock at an
assumed initial public offering price of $17.00 per share in this
offering, less underwriting discounts and commissions and estimated
offering expenses payable by us.

<TABLE>
<CAPTION>
DECEMBER 31, 1999
------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Notes payable and capital lease obligations,
noncurrent........................................... $ 1,285 $ 1,285 $ 1,285
Mandatorily redeemable convertible preferred stock;
14,594,549 shares issued and outstanding actual;
none issued and outstanding pro forma and pro forma
as adjusted........................................ 49,648 -- --
Stockholders' equity (deficit):
Common stock; $0.001 par value, 30,000,000 shares
authorized, 4,205,906 shares issued and
outstanding actual; 18,800,455 shares issued and
outstanding pro forma and 22,800,455 shares
issued and outstanding pro forma as adjusted.... 4 19 23
Additional paid-in capital........................... 10,903 60,536 122,072
Notes receivable from stockholders................... (130) (130) (130)
Deferred stock compensation.......................... (5,853) (5,853) (5,853)
Cumulative translation adjustment.................... (5) (5) (5)
Accumulated deficit.................................. (39,980) (39,980) (39,980)
-------- -------- --------
Total stockholders' equity (deficit)............ (35,061) 14,587 76,127
-------- -------- --------
Total capitalization.......................... $ 15,872 $ 15,872 $ 77,412
======== ======== ========
</TABLE>

This table does not include:

- 2,942,582 shares subject to outstanding options as of December 31, 1999
at a weighted average exercise price of $2.02;

- 1,649,215 additional shares available for grant as of December 31, 1999
under our 1996 Stock Option Plan;

- 183,888 shares of common stock subject to outstanding warrants at a
weighted average exercise price of $3.08;

- 500,000 shares to be available for grant under our Employee Stock
Purchase Plan 2000 upon completion of this offering; and

- the amendment to our certificate of incorporation upon completion of this
offering to increase our authorized common stock and to decrease our
authorized preferred stock.

Upon completion of this offering, each outstanding share of convertible
preferred stock will convert into one share of common stock.

20
<PAGE> 28

DILUTION

Our pro forma net tangible book value as of December 31, 1999, after giving
effect to the automatic conversion of our preferred stock upon the closing of
this offering, was $14.6 million, or $0.78 per share of common stock. Net
tangible book value per share is determined by dividing our tangible book value
(total tangible assets less total liabilities) by the number of outstanding
shares of common stock at that date. After giving effect to the sale of the
4,000,000 shares of our common stock offered hereby at an assumed initial public
offering price of $17.00 per share and after deducting estimated underwriting
discounts and commissions and estimated offering expenses, our net tangible book
value at December 31, 1999 would have been $76.1 million, or $3.34 per share.
This represents an immediate increase in net tangible book value to existing
stockholders of $2.56 per share and an immediate dilution to new investors of
$13.66 per share. The following table illustrates the per share dilution:

<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $17.00
Pro forma net tangible book value per share as of December
31, 1999.................................................... $0.78
Increase per share attributable to new investors.......... 2.56
-----
Pro forma net tangible book value per share after this
offering.................................................. 3.34
------
Net tangible book value dilution per share to new
investors................................................. $13.66
======
</TABLE>

The following table summarizes, on a pro forma basis as of December 31,
1999, the differences between the number of shares of common stock purchased
from us, the total consideration paid and the average price per share paid by
the existing stockholders and by the new public investors (based upon an assumed
initial public offering price of $17.00 per share and before deducting estimated
underwriting discounts and commissions and estimated offering expenses):

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ----------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ------------ ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders... 18,800,455 82.5% $ 49,302,000 42% $ 2.62
New public investors.... 4,000,000 17.5% 68,000,000 58% 17.00
---------- ---- ------------ ---- ------
Total................. 22,800,455 100% $117,302,000 100% $ 5.14
========== ==== ============ ==== ======
</TABLE>

The above discussion and tables assume no exercise of stock options or
warrants outstanding as of December 31, 1999 and gives effect to the conversion
of all shares of our preferred stock outstanding as of that date into common
stock upon completion of this offering. As of December 31, 1999, there were
options outstanding to purchase a total of 2,942,582 shares of common stock at a
weighted average exercise price of $2.02 per share under our 1996 Stock Plan,
1,649,215 additional shares were reserved for grant of future options under such
plan, and an aggregate of 500,000 shares of our common stock will be reserved
for issuance under our Employee Stock Purchase Plan 2000 upon completion of the
offering. To the extent that any of these options or warrants are exercised,
there will be further dilution to the new public investors. See
"Capitalization," "Management -- Compensation Plans" and Note 9 of Notes to
Consolidated Financial Statements.

21
<PAGE> 29

SELECTED CONSOLIDATED FINANCIAL DATA

The selected consolidated financial data set forth below should be read
together with the consolidated financial statements and related notes,
Management's Discussion and Analysis of Financial Condition and Results of
Operations and the other information contained in this prospectus. The statement
of operations data set forth below with respect to the years ended December 31,
1997, 1998, and 1999 and the balance sheet data at December 31, 1998 and 1999
are derived from, and are qualified by reference to, the audited consolidated
financial statements included elsewhere in this prospectus. The selected balance
sheet data at December 31, 1995, 1996 and 1997 are derived from our audited
balance sheets not included herein. The statement of operations data for the
period from inception (November 13, 1995) to December 31, 1995 and for the year
ended December 31, 1996 are derived from our statement of operations not
included herein.

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------
1995(1) 1996 1997 1998 1999
------- ------ ------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
REVENUES:
Licenses............................................... -- $ -- $ -- $ 718 $ 3,750
Services and maintenance............................... -- -- -- 409 3,064
------ ------ ------- -------- --------
Total revenues....................................... -- -- -- 1,127 6,814
------ ------ ------- -------- --------
COST OF REVENUES:
Licenses............................................... -- -- -- 90 195
Services and maintenance (Exclusive of non-cash stock
based compensation of $344 in 1999).................. -- -- -- 1,554 4,758
------ ------ ------- -------- --------
Total cost of revenues............................... -- -- -- 1,644 4,953
------ ------ ------- -------- --------
Gross profit (loss)...................................... -- -- -- (517) 1,861
OPERATING EXPENSES:
Sales and marketing (Exclusive of non-cash stock based
compensation of $989 in 1999)........................ -- 102 1,082 4,703 11,202
Research and development (Exclusive of non-cash stock
based compensation of $1,045 in 1999)................ -- 519 1,713 4,401 7,052
General and administrative (Exclusive of non-cash stock
based compensation of $1,974 in 1999)................ 4 233 540 1,439 2,810
Amortization of non-cash stock based compensation...... -- -- -- -- 4,352
------ ------ ------- -------- --------
Total operating expenses............................. 4 854 3,335 10,543 25,416
------ ------ ------- -------- --------
Loss from operations................................. (4) (854) (3,335) (11,060) (23,555)
Interest income, net..................................... 3 24 107 28 166
------ ------ ------- -------- --------
Net loss........................................... $ (1) $ (830) $(3,228) $(11,032) $(23,389)
====== ====== ======= ======== ========
Dividend relating to beneficial conversion feature of
Series F preferred stock............................... -- -- -- -- (1,500)
------ ------ ------- -------- --------
Net loss attributable to common stockholders............. $ -- $ -- $ -- $ -- $(24,889)
====== ====== ======= ======== ========
Net loss per share attributable to common stockholders:
Basic and diluted...................................... $(0.01) $(3.79) $ (4.35) $ (8.25) $ (11.20)
====== ====== ======= ======== ========
Weighted average shares................................ 167 219 742 1,338 2,222
Pro forma net loss per share attributable to common
stockholders (unaudited):
Basic and diluted...................................... $ (1.13) $ (1.76)
======== ========
Weighted average shares................................ 9,778 14,160
</TABLE>

- ---------------
(1) Period from inception (November 13, 1995) to December 31, 1995

22
<PAGE> 30

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------
1995(1) 1996 1997 1998 1999
------- ------- ------ ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents............................... $1,005 $ 32 $2,560 $10,883 $ 24,285
Working capital....................................... 988 26 2,061 7,319 13,227
Total assets.......................................... 1,005 197 3,584 13,811 31,661
Notes payable and capital lease obligations,
noncurrent.......................................... -- -- -- 2,471 1,285
Mandatorily redeemable convertible preferred
stock............................................... 1,000 1,000 6,983 21,269 49,648
Total stockholders' deficit........................... (1) (841) (4,040) (15,012) (35,061)
</TABLE>

- ---------------
(1) Period from inception (November 13, 1995) to December 31, 1995

23
<PAGE> 31

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and
results of operations should be read together with "Selected Consolidated
Financial Data" and our financial statements and related notes appearing
elsewhere in this prospectus. This discussion and analysis contains forward-
looking statements that involve risks, uncertainties and assumptions. The actual
results may differ materially from those anticipated in these forward-looking
statements as a result of many factors, including but not limited to those set
forth under "Risk Factors" and elsewhere in this prospectus.

OVERVIEW

Extensity was formed in November 1995 and introduced its first commercial
product for general availability in March 1998. During this period, our
operating activities consisted of the design and development of our product
architecture and our first application, the building of our corporate
infrastructure, and the development of our professional services and customer
support organizations. Our first application, Extensity Expense Reports, was
released for general availability in March 1998. We released Extensity Travel
Plans in December 1998, and Extensity Timesheets and Extensity Purchase Reqs in
July 1999.

We generate revenue principally from licensing our applications and
providing related services, including product installation, maintenance and
support, consulting and training. We license our applications individually or as
an integrated suite of products. The pricing of our software and services
fluctuates on a per transaction basis depending on various factors, such as the
number of seats covered by a contract and the frequency of users (i.e., the
number of times a customer's employees are likely to access our applications).
The dollar amounts of our contracts depends on number of users and applications
being used. License revenues comprised 64% and 55% of our total revenues in the
years ended December 31, 1998 and 1999, respectively, while services and other
revenues comprised 36% and 45% of our total revenues for the same periods.

Our software products typically require significant customization,
installation and other services. Prior to the release in July 1999 of Version
4.0 of our application suite, it was difficult to generate dependable estimates
of the costs necessary to complete product implementations. Therefore, we
accounted for our software licenses and implementation revenues using the
completed contract method of contract accounting as required under the
provisions of SOP 97-2 and SOP 81-1, Accounting for Performance of
Construction-Type and Certain Production-Type Contracts.

Following the release of Version 4.0 in July 1999, we were able to generate
dependable estimates of the costs necessary to complete Version 4.0 product
implementations. Consequently, we are accounting for our Version 4.0 software
licenses and implementation revenues using the percentage-of-completion method
of contract accounting.

In cases where a sale of a license does not include implementation services
(i.e., a sale of additional seats), revenue is recorded upon delivery with an
appropriate deferral for maintenance services, if applicable.

We defer amounts billed for maintenance and recognize such amounts ratably
over the maintenance period.

We have entered into two distribution arrangements under which the
distributors would receive unspecified future products over the life of the
arrangements (two or three years) in consideration for agreed-upon,
non-refundable fees. We recognize such fees ratably, on a subscription basis,
over the life of these related agreements.

24
<PAGE> 32

Payments received in advance of revenue recognition are recorded as
deferred revenues. Our deferred revenues balances were $2.5 million and $10.1
million at December 31, 1998 and December 31, 1999. At December 31, 1999, this
deferred revenues balance included $1.4 million of amounts to be recognized
under the completed contract method, which we expect to recognize through the
period ending June 30, 2000, $2.9 million to be recognized under the percentage
of completion method, $1.8 million to be recognized upon delivery of specified
future products, $3.4 million to be recognized under subscription arrangements
and $645,000 to be recognized as maintenance. For the year ended December 31,
1999, we recognized $3.5 million related to contracts accounted for using the
completed contract method, $2.0 million related to contracts accounted for using
the percentage-of-completion method, $330,000 related to sales of additional
business and subscription arrangements and $551,000 recognized as maintenance
revenue. All of our customers enter into one-year maintenance and support
contracts when they purchase their initial Extensity applications and have the
option to purchase additional contracts after completion of the initial contract
period. Although we do not grant any rights to our customers to return products,
we do provide a 90-day warranty that our products will function according to
written documentation.

We promote and sell our software products through our direct sales force
and through indirect channels, including third-party outsourcers of expense
management services. We also have co-marketing arrangements with a number of
companies including Cisco Systems, First USA, GetThere.com and Netscape.

In the second quarter of 1999, we expanded our presence in international
markets by opening a sales office in the United Kingdom and by establishing a
relationship with a provider of enterprise financial applications. We hired our
Vice President and General Manager of European Operations in July 1999. We have
continued to hire staff in our United Kingdom office and expect to continue to
do so in advance of anticipated revenues. Hence, we expect our costs for
establishing international sales to exceed related revenues as we invest in
international operations. We have derived no revenues from international sales
to date.

We have incurred substantial research and development costs since inception
and have more recently invested in our sales and marketing and professional
services organizations in order to support our long-term growth strategy. Our
full-time employees increased from 35 at December 31, 1997 to 83 at December 31,
1998 to 175 at December 31, 1999. As a result of these investments, we have
incurred net losses in each fiscal quarter since inception and, as of December
31, 1999, we had an accumulated deficit of $40.0 million. We anticipate that our
operating expenses will continue to increase as we continue to expand our
product development and sales and marketing efforts. Accordingly, we expect to
continue to incur quarterly net losses for the foreseeable future.

25
<PAGE> 33

RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, the statement of
operations data as a percentage of total revenues.

<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
--------------
1998 1999
---- ----
<S> <C> <C>
Revenues:
Licenses.................................................... 64% 55%
Services and maintenance.................................. 36 45
---- ----
Total revenues......................................... 100 100
---- ----
Cost of revenues:
Licenses.................................................. 8 3
Services and maintenance (exclusive of non-cash stock
based compensation).................................... 138 70
---- ----
Total cost of revenues................................. 146 73
---- ----
Gross profit (loss)......................................... (46) 27
---- ----
Operating expenses:
Sales and marketing (exclusive of non-cash stock based
compensation).......................................... 417 164
Research and development (exclusive of non-cash stock
based compensation).................................... 391 103
General and administrative (exclusive of non-cash stock
based compensation).................................... 128 41
Amortization of non-cash stock based amortization......... -- 64
---- ----
Total operating expenses............................... 935 373
---- ----
Loss from operations........................................ (981) (331)
Interest income, net........................................ 2 2
---- ----
Net loss.................................................... 979% (332)%
==== ====
</TABLE>

FISCAL YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997

Revenues

Total revenues increased to $6.8 million for the year ended December 31,
1999 from $1.1 million for the year ended December 31, 1998. The 1998 revenues
resulted from licenses and related services for our first product, Extensity
Expense Reports, which was released in March 1998. We did not recognize any
revenues in 1997, as we had not yet released any of our products for commercial
availability. For the year ended December 31, 1998 sales to Scopus Technology,
Baltimore Gas & Electric, Gelco Information Network and Franklin Resources
accounted for 20%, 19%, 14% and 13% of total revenues. For the year ended
December 31, 1999, sales to Sara Lee accounted for 11% of our total revenues.

LICENSE REVENUES. Our license revenues increased to $3.8 million for the
year ended December 31, 1999 from $718,000 for the year ended December 31, 1998,
an increase of 422%. The increase was attributable to an increase of
approximately 180% in new customers from 1998 to 1999 and to the recognition of
approximately $1.5 million in revenue that was deferred as of December 31, 1998.
The majority of our 1998 customers signed contracts with us in the period from
September to December 1998 and had amounts that were deferred as of December 31,
1998. Approximately 25% of our license revenues in 1999 were attributable to the
recognition of revenues that were deferred as of December 31, 1998.

SERVICE AND MAINTENANCE REVENUES. Our service and maintenance revenues
increased to $3.1 million for the year ended December 31, 1999 from $409,000 for
the year ended December 31, 1998, an increase of 649%. The increase was
primarily attributable to an

26
<PAGE> 34

increase in the number of new customers in 1999 as compared to 1998, to the
recognition of service revenues deferred as of December 31, 1998, and to a
lesser extent, to increased maintenance and support fees associated with our
increased customer base. As previously mentioned, the majority of our 1998
customers signed contracts with us in the period from September to December 1998
and had amounts that were deferred as of December 31, 1998. Approximately 35% of
our service and maintenance revenues were attributable to revenues that were
deferred as of December 31, 1998. Approximately 20% of the increase in service
and maintenance revenues was attributable to higher maintenance revenues
associated with an increased customer base.

Cost of Revenues

Total cost of revenues increased to $5.0 million for the year ended
December 31, 1999 from $1.6 million for the year ended December 31, 1998, an
increase of 201%.

COST OF LICENSE REVENUES. Cost of license revenues consists primarily of
third-party license and support fees and, to a lesser extent, costs of
duplicating media and documentation. This cost increased to $195,000 for the
year ended December 31, 1999 from $90,000 for the year ended December 31, 1998.
As a percentage of license revenues, cost of license revenues decreased to 5.2%
for 1999 from 12.5% for 1998.

COST OF SERVICE AND MAINTENANCE REVENUES. Cost of service and maintenance
revenues consists of compensation and related overhead costs for personnel
engaged in consulting, training, maintenance and support services for our
customers as well as costs for third parties contracted to provide such services
to our customers. This cost, net of non-cash stock based compensation of
$344,000 in 1999, increased to $4.8 million for the year ended December 31, 1999
from $1.6 million for the year ended December 31, 1998, an increase of 206%. As
a percentage of service revenues, cost of service revenues decreased from 380%
for 1998 to 155% for 1999. Approximately 60% of the increase in the cost of
service revenues was due to an increase in personnel and approximately 30% was
to due to an increase in costs for third party consultants. These additional
costs were necessary to support our expanding customer base. Total costs have
exceeded our service and maintenance revenues as we have built our consulting
and customer support groups in advance of growing contract volume. Although cost
of service revenues declined as a percentage of service revenues over time, this
cost has continued to exceed the amount of related service revenues. We are
seeking to reduce our cost of service revenues and are also seeking to engage
third parties to provide a substantial portion of services related to our
applications. We expect, however, that cost of service revenues will continue to
exceed service revenues for the foreseeable future. In addition, we have not yet
established significant relationships with any third-party service provider, and
we may not be successful in doing so in the future.

Operating Expenses

SALES AND MARKETING. Sales and marketing expenses consist primarily of
compensation and related costs for sales and marketing personnel, including
commissions and marketing program costs. Sales and marketing expenses, net of
non-cash stock based compensation of $989,000 in 1999, increased to $11.2
million for the year ended December 31, 1999 from $4.7 million for the year
ended December 31, 1998, an increase of 138%. Sales and marketing expenses as a
percentage of total revenues were 417% and 164% for the years ended December 31,
1998 and 1999, respectively. Approximately 60% of the increase in sales and
marketing expenses was attributable to increased compensation, commissions and
other related costs associated with hiring additional sales representatives,
management and marketing personnel. Approximately 15% of the increase was due to
increased spending on marketing programs. We expect that the absolute dollar
amount of sales and marketing expenses will

27
<PAGE> 35

continue to increase as we expand our domestic and international sales force and
marketing efforts to capitalize on the growth of our market.

RESEARCH AND DEVELOPMENT. Research and development expenses consist
primarily of compensation and related personnel costs and fees associated with
contractors. Research and development expenses, net of non-cash stock based
compensation of $1,045,000 in 1999, increased to $7.1 million for the year ended
December 31, 1999 from $4.4 million for the year ended December 31, 1998, an
increase of 60%. Research and development expenses as a percentage of total
revenues were 391% and 103% for the years ended December 31, 1998 and 1999,
respectively. Approximately 65% of the increase was attributable to the addition
of personnel and approximately 25% was due to an increase in consulting
services. These increases resulted as we continued to add enhancements to our
existing software applications and to develop software applications that
incorporate new functionality into an integrated suite. We expect that the
absolute dollar amount of research and development expenses will continue to
increase as we make additional investments in our technology and products.

GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
primarily of compensation and related costs for our executive, finance and
administrative personnel and other related expenses. General and administrative
expenses, net of non-cash stock based compensation of $1,974,000 in 1999,
increased to $2.8 million for the year ended December 31, 1999 from $1.4 million
for the year ended December 31, 1998, an increase of 102%. Approximately 55% of
the increase was attributable to hiring additional executive and financial
personnel. General and administrative expenses as a percentage of total revenues
were 124% and 41% for the years ended December 31, 1998 and 1999, respectively.
We expect that the absolute dollar amount of general and administrative expenses
will continue to increase as we expand our operations and incur the typical
incremental costs of being a public company.

Amortization of Non-Cash Stock Based Compensation

We granted certain stock options to our officers and employees at prices
deemed to be below the fair value of the underlying stock. The cumulative
difference between the fair value of the underlying stock at the date the
options were granted and the exercise price of the granted options was $10.2
million at December 31, 1999. This amount is being amortized, using the multiple
option method, over the four-year vesting period of the granted options.
Accordingly, our results from operations will include deferred compensation
expense at least through 2003. We recognized $4.4 million of this expense during
the year ended December 31, 1999.

Subsequent to December 31, 1999, we granted options to purchase 461,104 and
157,350 shares of our common stock at exercise prices of $9.00 and $12.00,
respectively. Such grants will result in an additional $1.9 million deferred
compensation charge to be recorded in the first quarter of fiscal 2000.

Interest and Other Income, Net

Net interest and other income was $166,000 for the year ended December 31,
1999, and $28,000 for the year ended December 31, 1998. The nominal income for
the year ended December 31, 1998 resulted primarily from the interest generated
from funds raised in the May 1998 private placement of our preferred stock,
partially offset by interest expense from our subordinated debt facility and
capital equipment loans and leases. Interest income for the year ended December
31, 1999 primarily resulted from interest earned on the proceeds from both the
May 1998, July 1999 and December 1999 private placements of our preferred stock,
partially offset by interest expense from these same debt facilities.

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<PAGE> 36

INCOME TAXES

Since inception, we have incurred net losses for federal and state tax
purposes and have not recognized any material tax provision or benefit. As of
December 31, 1999, we had net operating loss carryforwards of approximately
$33.0 million and $18.0 million for federal and state income tax purposes,
respectively. The federal and state net operating loss carryforwards, if not
utilized, expire through 2019 and 2004, respectively. We also have research and
development credit carryforwards of approximately $720,000 and $450,000 for
federal and state tax purposes. Federal and state tax laws impose significant
restrictions on the utilization of net operating loss carryforwards in the event
of a shift in our ownership that constitutes an ownership change, as defined in
Section 382 of the Internal Revenue Code. See Note 4 of Notes to Consolidated
Financial Statements for additional information regarding these carryforwards.

We have placed a valuation allowance against our net deferred tax assets
due to the uncertainty of the realization of these assets. The allowance totaled
$13.8 million at December 31, 1999, resulting in no net deferred asset. We
evaluate on a quarterly basis the recoverability of net deferred tax assets and
the level of the valuation allowance. When we have determined that it is more
likely than not that the net deferred tax assets are realizable, we will reduce
the valuation allowance.

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<PAGE> 37

QUARTERLY RESULTS OF OPERATIONS

The following table sets forth unaudited consolidated statement of
operations data for the seven quarters following the general availability of our
products in March 1998 through December 31, 1999, as well as this information
expressed as a percentage of total revenues for the periods indicated. This
information has been derived from our unaudited consolidated financial
statements. The unaudited consolidated quarterly financial statements have been
prepared on the same basis as the audited consolidated financial statements
contained in this prospectus and include all adjustments, consisting only of
normal recurring adjustments, that we considered necessary for a fair
presentation of such information when read in conjunction with our audited
consolidated financial statements and related notes. Operating results for any
quarter are not necessarily indicative of results for any future period.

<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------------------------------
JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
1998 1998 1998 1999 1999 1999 1999
-------- --------- -------- --------- -------- --------- --------
(IN THOUSANDS, UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues:
Licenses......................................... $ 75 $ 160 $ 176 $ 220 $ 437 $ 1,282 $ 1,811
Service and maintenance.......................... 49 118 226 206 673 795 1,390
------- ------- ------- ------- ------- ------- -------
Total revenues............................. 124 278 402 426 1,110 2,077 3,201
Cost of revenues:
Licenses......................................... 9 22 55 28 40 77 50
Services and maintenance, exclusive of non-cash
stock based compensation....................... 344 475 564 758 1,087 1,229 1,684
------- ------- ------- ------- ------- ------- -------
Total cost of revenues..................... 353 497 619 786 1,127 1,306 1,734
Gross profit (loss)............................... (229) (219) (217) (360) (17) 771 1,467
Operating expenses:
Sales and marketing, exclusive of non-cash stock
based compensation............................. 1,001 1,263 1,436 1,319 2,009 3,079 4,795
Research and development, exclusive of non-cash
stock based compensation....................... 860 1,268 1,537 1,408 1,727 1,851 2,066
General and administrative, exclusive of non-cash
stock based compensation....................... 342 376 495 427 658 870 855
Amortization of non-cash stock based
compensation................................... -- -- -- 315 578 2,014 1,444
------- ------- ------- ------- ------- ------- -------
Total operating expenses................... 2,203 2,907 3,468 3,469 4,972 7,814 9,160
------- ------- ------- ------- ------- ------- -------
Loss from operations.............................. (2,432) (3,126) (3,685) (3,829) (4,989) (7,043) (7,693)
Interest income (expense), net.................... (62) 57 27 (27) (49) 94 148
------- ------- ------- ------- ------- ------- -------
Net loss.......................................... $(2,494) $(3,069) $(3,658) $(3,856) $(5,038) $(6,949) $(7,545)
======= ======= ======= ======= ======= ======= =======
</TABLE>

<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------------------------------
JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
1998 1998 1998 1999 1999 1999 1999
-------- --------- -------- --------- -------- --------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
PERCENTAGE OF REVENUES:
Revenues:
Licenses........................................ 60% 58% 44% 52% 39% 62% 57%
Service and maintenance......................... 40 42 56 48 61 38 43
------ ------ ---- ---- ---- ---- ----
Total revenues............................ 100 100 100 100 100 100 100
Cost of revenues:
Licenses........................................ 7 8 14 7 4 4 2
Services and maintenance, exclusive of non-cash
stock based compensation...................... 277 171 140 178 98 59 53
------ ------ ---- ---- ---- ---- ----
Total cost of revenues.................... 285 179 154 185 102 63 54
Gross profit (loss).............................. (185) (79) (54) (85) (2) 37 46
------ ------ ---- ---- ---- ---- ----
Operating expenses:
Sales and marketing, exclusive of non-cash stock
based compensation............................ 807 454 357 310 181 148 150
Research and development, exclusive of non-cash
stock based compensation...................... 694 456 382 331 156 89 65
General and administrative, exclusive of
non-cash stock based compensation............. 276 135 123 100 59 42 27
Amortization of non-cash stock based
compensation.................................. -- -- -- 74 52 97 45
------ ------ ---- ---- ---- ---- ----
Total operating expenses.................. 1,777 1,046 863 814 448 376 286
------ ------ ---- ---- ---- ---- ----
Loss from operations............................. (1,961) (1,124) (917) (899) (449) (339) (240)
Interest income (expense), net................... (50) 20 7 (6) (4) 5 5
------ ------ ---- ---- ---- ---- ----
Net loss......................................... (2,011)% (1,104)% (910)% (905)% (454)% (335)% (236)%
====== ====== ==== ==== ==== ==== ====
</TABLE>

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<PAGE> 38

SEVEN QUARTERS ENDED DECEMBER 31, 1999

Revenues

LICENSE REVENUES. Our license revenues have increased in every quarter
following the introduction of our first product in March 1998. These increases
are attributable to the increasing market awareness of the benefits of workforce
optimization software and increasing market acceptance of our solutions. License
revenues in the third and fourth quarters of 1999 increased significantly as we
had established a more visible market presence and expanded our sales and
marketing resources.

SERVICE AND MAINTENANCE REVENUES. Our service and maintenance revenues have
increased in each quarter in the periods presented, except for the first quarter
of 1999. The generally increasing trend resulted from increases in the number of
installations being completed for our growing customer base, and to a lesser
extent, a growing base of maintenance revenues. The increase in service revenues
on an absolute dollar basis and as a percentage of revenues from the quarter
ended September 30, 1998 to the quarter ended December 31, 1998 resulted from a
higher mix of service revenues for contracts completed in the quarter ended
December 31, 1998 as compared to other quarters. The decrease in service
revenues as a percentage of revenues in the quarter ended September 30, 1999 as
compared to the preceding quarter was due to a lower mix of service revenues for
contracts completed in the quarter ended September 30, 1999 as compared to
previous quarters.

Cost of Revenues

COST OF LICENSE REVENUES. Cost of license revenues has fluctuated within a
small absolute dollar range of $9,000 to $77,000 for the seven quarters ended
December 31, 1999. With a more substantial level of license revenues during the
third and fourth quarters of 1999, our cost of license revenues as a percentage
of license revenues was less than 7%.

COST OF SERVICE AND MAINTENANCE REVENUES. Cost of service and maintenance
revenues, net of non-cash stock based compensation of $0 in 1998 and $27,000,
$50,000, $111,000 and $155,000 for the first, second, third and fourth quarters
of 1999, has increased each quarter in the seven quarters ended December 31,
1999. The increase in cost of service revenues as a percentage of revenues in
the quarter ended March 31, 1999 was attributable to the expansion of our
professional services organization in advance of recognized revenues from
implementations during that period.

Operating Expenses

SALES AND MARKETING. Sales and marketing expenses, net of non-cash stock
based compensation of $0 in 1998 and $63,000, $116,000, $256,000 and $554,000
for the first, second, third and fourth quarters of 1999, have increased
steadily since the commercial introduction of our products in March 1998 as we
have continued to build our sales and marketing resources. The primary reasons
for these increases are increased personnel and associated sales commissions,
expanded marketing programs, expansion of regional sales offices and the
addition of an international sales office. Our sales and marketing expenses
decreased slightly to $1.3 million in the first quarter of 1999 from $1.4
million in the last quarter of 1998 due primarily to larger commissions and
bonuses in the fourth quarter of 1998. We expect our sales and marketing
expenses to increase in absolute dollars for the foreseeable future.

RESEARCH AND DEVELOPMENT. Research and development expenses, net of
non-cash stock based compensation of $0 in 1998 and $99,000, $181,000, $400,000
and $365,000 in the first, second, third and fourth quarters of 1999, continued
to grow during the seven quarters

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<PAGE> 39

ended December 31, 1999 as we continued to build on our underlying technology
platform, develop new applications and enhance existing applications.

GENERAL AND ADMINISTRATIVE. General and administrative expenses, net of
non-cash stock based compensation of $0 in 1998 and $126,000, $231,000, $1.2
million and $370,000 in the first, second, third and fourth quarters of 1999
have generally grown consistently during the seven quarters ended December 31,
1999. We have continued to increase the number of general and administrative
personnel to support our growing organization and transaction volume. We expect
general and administrative costs to increase in absolute dollars as we continue
to build the infrastructure necessary to support the growth of our business and
to operate as a public company.

You should not rely on quarter-to-quarter comparisons of our results of
operations as indicators of future performance due to our limited operating
history, the early stage of our market and the factors discussed in the section
entitled "Risk Factors" above. In particular, because our base of customers and
the number of additional customer licenses we enter into each quarter are still
relatively small, the loss or deferral of a small number of anticipated large
customer orders in any quarter could result in a significant shortfall in
revenues for that quarter. If in some future periods our operating results are
below the expectations of public market analysts and investors, the price of our
common stock may underperform or fall.

LIQUIDITY AND CAPITAL RESOURCES

Since inception, we have financed our operations and funded our capital
expenditures through the private sale of equity securities, supplemented by loan
facilities and equipment leases. Aggregate net proceeds to date from private
equity financings total $42.3 million. As of December 31, 1999, we had $24.3
million in cash, cash equivalents and short term investments and $13.3 million
in working capital.

Net cash used in operating activities was $2.5 million in 1997, $8.6
million in 1998 and $11.3 million in 1999. For such periods, net cash used in
operating activities was primarily used to fund ongoing operations including
increases in deferred revenues.

Net cash used in investing activities was $917,000 in 1997, $6.1 million in
1998 and $9.5 million in 1999. Investing activities consisted primarily of
purchases of short term investments and capital expenditures.

Net cash provided by financing activities was $6.0 million in 1997, $17.4
million in 1998 and $26.1 million in 1999, and consisted primarily of proceeds
from the issuance of preferred stock and proceeds from loans as offset by
repayments on loans and capital leases. In December 1999, we raised $4.5 million
in proceeds through the private sale of our Series F Preferred Stock. During
1998, we entered into a loan and security agreement with Comdisco Ventures for
$3.5 million and borrowed the total amount. These borrowings bear an average
annual interest rate of approximately 11.4% and are payable in equal monthly
installments through 2001. We have also entered into capital lease agreements
with Comdisco to finance up to $1,850,000 of capital expenditures. Interest
accrues under the terms of these agreements at an average of approximately 7.4%
per annum based on the outstanding utilized capital lease line. Each borrowing
under the capital lease line shall have a term of up to four years, with
interest and principal payable monthly. As of December 31, 1999, we had drawn
approximately $1,748,000 of these lines. We plan to repay all amounts
outstanding under these loans and capital leases with part of the proceeds of
this offering. In connection with these financings, we issued to Comdisco
warrants to purchase a total of 160,303 shares of our Series D Preferred Stock,
each at an exercise price of $3.30 per share, subject to adjustments.

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<PAGE> 40

As we execute our strategy, we expect significant increases in our
operating expenses, especially in sales, marketing and engineering. Presently,
we anticipate that our existing capital resources and the proceeds from this
offering will meet our operating and investing needs for at least the next 12
months. After that time, we cannot be certain that additional funding will be
available on acceptable terms or at all. If we require additional capital
resources to grow our business, execute our operating plans, or acquire
complimentary technologies or businesses at any time in the future, we may seek
to sell additional equity or debt securities or secure additional lines of
credit, which may result in additional dilution to our stockholders.

YEAR 2000 COMPLIANCE

Many currently installed computer systems and software products are coded
to accept only two-digit entries in the date code field and cannot reliably
distinguish dates beginning on January 1, 2000 from dates prior to 2000. Many
companies' software and computer systems have been required to be upgraded or
replaced in order to correctly process dates beginning in 2000.

ASSESSMENT. We define Year 2000 compliance to mean that systems or products
can accurately process date data from, into and between the years 1999 and 2000,
including leap years, provided that all other products with which they are used,
such as hardware, software, operating systems and firmware, properly exchange
date data with the systems or products.

We designed all of our products from inception for Year 2000 compliance and
have tested our applications for Year 2000 compliance. We have tested software
obtained from third parties that is incorporated into our applications and
obtained assurances from our vendors that licensed software is Year 2000
compliant. We have received assurances from our vendors of financial systems,
databases, development tools, groupware and hardware systems regarding Year 2000
compliance. We were unable to obtain assurances from the vendor of our customer
support and defect tracking system regarding Year 2000 compliance, but have
performed internal testing and detected no material errors. We have completed
our Year 2000 compliance initiatives and have not become aware of any material
errors in our applications, the third-party software incorporated into our
products or our internal management systems. Moreover, to date we have not
detected any disruptions in our software applications or the software
applications of our software vendors arising from the roll-over to the Year
2000. However, despite our testing and assurances from our vendors, and the lack
of any Year 2000 issues arising from the Year 2000 roll-over to date, we cannot
be certain that our applications or the products we use to run our business do
not contain undetected errors associated with processing date-sensitive data.

COSTS. We have not incurred any material costs directly associated with
Year 2000 compliance efforts, except for compensation costs for certain
employees who have dedicated time to our assessment of Year 2000 compliance and
associated remedies. We do not expect to incur additional material costs
associated with Year 2000 compliance; however, in the event that we have not
identified and corrected any significant Year 2000 compliance issues, these
unresolved issues could harm our business.

RISKS. Numerous risks associated with Year 2000 issues could negatively
impact our business. These risks include, but are not limited to:

- reduced contract sales during first quarter of 2000 as potential or
existing customers may have been or continue to be focused on remedying
Year 2000 issues;

- inability of our products to process date-sensitive information, despite
our efforts to ensure Year 2000 compliance of our products and despite
the lack of any Year 2000 issues to date;

33
<PAGE> 41

- claims from our customers asserting our liability, with potential legal
costs or settlements, regardless of whether our applications have Year
2000 compliance issues;

- diversion of information system, engineering or management resources to
remedy unanticipated problems that we may detect in the future;

- undetected management information system failures; infrastructure
failures, including our phone system; or external system failures,
including utilities and transportation, that would hinder our operations;
or

- damage to our reputation resulting from any of the above.

The most significant potential adverse situation would include the
inability of our customers to use our products, material legal fees or
settlements, or system failures that disrupt our business.

CONTINGENCY PLANS. We have not developed contingency plans for the Year
2000 compliance risks previously discussed, either because our assessments have
not detected material issues or because we have not determined cost effective
solutions in light of our assessment of the risks. In the event that we
encounter significant Year 2000 compliance issues for which we have not
developed contingency plans, our business and financial condition could be
materially harmed.

MARKET RISK

We develop products in the United States and market our products in North
America and, to a lesser extent, in Europe and the rest of the world. As a
result, our financial results could be affected by factors such as changes in
foreign currency rates or weak economic conditions in foreign markets. Because
all of our revenues are currently denominated in U.S. dollars, a strengthening
of the dollar could make our products less competitive in foreign markets.

INTEREST RATE RISK

We have an investment portfolio of money market funds and fixed income
certificates of deposit. The fixed income certificates of deposit, like all
fixed income securities, are subject to interest rate risk and will fall in
value if market interest rates increase. We attempt to limit this exposure by
investing primarily in short-term securities. In view of the nature and mix of
our total portfolio, a 10% movement in market interest rates would not have a
significant impact on the total value of our portfolio as of December 31, 1999.

Our interest expense is not sensitive to changes in the general level of
U.S. interest rates because all of our debt arrangements are based on fixed
rates of interest.

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<PAGE> 42

BUSINESS

OVERVIEW

Extensity provides a suite of Internet-based software applications that
automates expense reporting, travel management, procurement and billable time
management for the enterprise employee. These workforce optimization
applications increase employee productivity by streamlining these traditionally
paper-based processes, and enhance operational efficiency by enforcing spending
policies and tracking information that is valuable to management. We have
designed our software from inception to leverage the ease-of-use, accessibility
and open architecture of the Internet. By taking advantage of the Internet as an
application platform, we enable employees to use our applications in their
environment, whether at the office through a networked PC, at home or on the
road through a laptop or with a handheld device, such as a PalmPilot or Visor.
Further, our software design allows our application to be readily integrated
with enterprise resource planning and other information technology systems.

Since the introduction of our first application in 1998, we have licensed
our applications to 70 customers, the largest of which, based on contract value,
include AirTouch, AT Kearney, BEA Systems, Brigham Young University, Cendant
Business Services, Cisco Systems, Clarify, Documentum, Gelco Information
Network, Genesys Telecommunications, Home Box Office, Sara Lee, Sybase,
TransCanada PipeLines and the University of California. Our customers' employees
constitute a growing network of targeted business users who could benefit from
access to relevant content, commerce and services in completing their daily
tasks associated with expense reporting, travel planning, procurement and time
sheet management. Our objective is to become a leading provider of applications
that optimize an enterprise's workplace and that facilitate exchange between our
customers' employees and third-party content, commerce and service providers. We
refer to this point of exchange as a content and commerce gateway.

INDUSTRY BACKGROUND

Growth of the Internet as a Platform for Efficient Business-to-Business
E-Commerce

The Internet has emerged as a universal communications medium and has
become a catalyst for fundamental business change for companies of all sizes.
The efficient, pervasive and interactive nature of the Internet make it a
necessary platform for relevant content exchange and e-commerce transactions
from business to business. Forrester Research estimates that
business-to-business e-commerce will generate $1.3 trillion in revenues by 2003.
In the intensely competitive global business environment, businesses have
increasingly adopted the Internet to streamline their business processes and
make their employees more productive. According to preliminary estimates by
International Data Corporation, the worldwide market for workforce management
applications will grow from $766 million in 1998 to $4.0 billion in 2003, and
the Internet commerce procurement applications market will grow from $147
million in 1998 to $5.3 billion in 2003.

Traditional Areas of Business Process Automation

Businesses have traditionally made significant investments in ERP and other
enterprise software applications to automate processes in functions such as
manufacturing, sales, human resources and finance. These systems typically have
been focused on specific individual functional areas and only address the
business processes unique to each functional area. Also, they offer limited
integration of information across functional areas. These systems have been
significantly limited in their ability to integrate information external to the
enterprise. ERP and other enterprise software systems have also traditionally
required lengthy and expensive customization and implementation and are
expensive to maintain because their client-server

35
<PAGE> 43

architecture requires installation and continued maintenance on each desktop.
While these systems are in place in many companies, they have not focused
historically on certain pervasive business processes, such as expense reporting,
travel management, procurement and billable time management, which touch large
numbers of employees in any organization.

These employee-centric business processes have been left largely
unautomated to date, resulting in processes that are time-consuming, inefficient
and costly. Most organizations today conduct travel expense, procurement and
billable time management through paper-based processes that require actions by
many individuals both inside and outside the enterprise. These processes involve
re-keying of data, manual tracking of forms, limited data capture and reporting,
and limitations on the ability to track and enforce corporate spending policies.
Without business process automation, expense reporting, procurement and time
management transactions can have significant processing costs. For example,
American Express has estimated that the average company spends $36 to process an
expense report using traditional paper-based methods. In addition, traditional
processes do not generally feature automated spending and procurement controls
and, as a result, may fail to direct spending to preferred vendors and may
permit spending on unapproved goods and services. The inefficiencies associated
with traditional processes can involve significant total cost, as operating
resource expenditures typically represent 33% of a company's total costs,
according to Killen & Associates.

Opportunity for Workforce Optimization Applications

A significant market opportunity exists for workforce optimization
applications that streamline processes within the organization and across the
extended enterprise and provide integrated access to third-party content,
commerce and services. At the same time, the rapid adoption of the Internet by
businesses has radically changed the business environment. The growth of the
Internet in conjunction with increasing business globalization and technological
advancements has increased competitive pressures for all businesses by lowering
barriers to market entry, rewarding innovative business models and providing an
easily accessible commerce channel over the Internet. Accordingly, the rapid
growth of the Internet has both enabled the introduction of Internet-based
workforce optimization solutions and made their adoption a strategic imperative.

A comprehensive workforce optimization solution must provide benefits
inside and outside a business organization, to employee users, business managers
and third-party content, commerce and service providers. Such a solution must:

- give companies a highly scalable, easily implemented and widely
accessible set of applications that streamlines workforce processes by
linking employees, approvers and administrative personnel;

- reduce the time employees spend on general workforce management tasks,
freeing them to focus on their core responsibilities;

- provide data to business managers for contract negotiation and for
enforcing discounts with preferred vendors;

- provide business managers with information on individual employee and
overall workforce utilization, in order to better manage employee
productivity and profitability;

- enable business administrators to enforce policies actively and
efficiently; and

- provide an end-to-end solution by connecting the employee to third-party
content, commerce and service providers over the Internet.

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A comprehensive workforce optimization solution should benefit both
employees and third-party providers by directing information, services and
focused commerce opportunities to employees while delivering valuable business
customers and business spending to participating providers. We refer to this
integrated point of exchange between employees and third-party providers as a
content and commerce gateway.

THE EXTENSITY SOLUTION

We provide an integrated suite of Internet-based, workforce optimization
software applications designed to improve the productivity of employees across
the enterprise and to enhance enterprise operating efficiency. Our Extensity
Application Suite currently includes applications for expense reporting,
business travel, procurement and billable time management. In addition, our
solution can leverage the Internet to serve as a gateway between employees and
third-party content, commerce and service providers through buying exchanges,
online marketplaces, specialized portals and supplier sites. We believe our
solution makes our customers' employees more productive and companies more
efficient, while providing better information to management.

The Extensity Application Suite

Our application suite is currently comprised of the Extensity Expense
Reports, Extensity Travel Plans, Extensity Timesheets and Extensity Purchase
Reqs applications and the Extensity System Administration Tool. The application
suite is fully integrated so that each application works with and shares
information with all the other applications. In addition, our applications
aggregate and integrate information for management reporting and analysis. Our
applications are easy to learn for the user, as users can access all
applications through a common, intuitive, browser-based user interface. The
integration of the suite to online services such as travel bookings, credit card
feeds and content services provides a true end-to-end workforce optimization
solution. Our applications are designed to be rapidly implemented by us for our
customers, and cost-effectively deployed by our customers to their end users.
Moreover, our applications are designed to be scalable for organizations of all
sizes. We offer a guarantee to all of our customers that we will complete a
standard implementation for each application within 90 days.

Our workforce optimization solution provides direct and indirect cost
savings by:

- streamlining and automating traditional paper-based processes, thereby
reducing the time and personnel requirements associated with processing
expense reports, travel plans, purchase requisitions and timesheets;

- increasing accuracy through automation of error-checking, data import and
business rule compliance;

- providing greater control of expenditure policy administration and
enforcement;

- supporting analysis of business purchasing and utilization patterns to
enhance decision-making capabilities and to increase leverage in
negotiating vendor and service provider contracts; and

- promoting and enforcing the use of preferred vendors.

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Our workforce optimization solution also increases productivity throughout
the enterprise by:

- reducing employee time spent on tasks outside of their core
responsibilities;

- providing a consistent, intuitive, browser-based user interface to all
applications;

- supporting remote access via Palm Pilot and other mobile computing
devices; and

- enabling exception-based management that allows business managers to
review only those expenditures which fall outside of a company's
policies.

The Extensity Partner Network

We have recently begun to develop our Extensity Partner Network to
establish an Internet gateway between a company's workforce and third-party
content, commerce and service providers. We believe this network will benefit
both our customers' employees and third-party providers by directing relevant
information, services and focused commerce opportunities to our customers'
employees while delivering valuable business customers and spending to
participating providers.

We will continue to develop this gateway to provide benefits to employees
and third-party providers by:

- providing users with seamless, integrated access to relevant content,
services and e-commerce capabilities;

- delivering to our partners access to a network of employees that are
likely to engage in specific commercial transactions;

- reducing transaction costs to both our customers' employees and content,
commerce and service providers by utilizing the Internet to enhance
information flow; and

- enabling open access to multiple online markets to minimize reliance on a
single marketplace.

As more companies implement our solution, the Extensity network of our
customers' employees continues to grow. We believe that this network of
employees will become a valuable aggregated base of potential customers for
additional third-party content, commerce and service providers. As these
providers offer additional products and services through our network, customers
are encouraged to join, establishing a cycle that increases the value of the
Extensity solution to both our customers and third-party providers.

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EXTENSITY STRATEGY

Our objectives are to gain broad market acceptance of our workforce
optimization applications and to build the largest Internet-based network of
organizations and employees. By building this network, we plan to become the
leading content and commerce gateway for the enterprise workforce. This will
allow our partners and us to deliver valuable content and business-to-business
services to our growing network.

Key elements of our growth strategy include:

EXPANDING OUR WORKFORCE OPTIMIZATION SOLUTIONS. We intend to continue
to enhance the Internet-based architecture of our technology platform in
order to provide a comprehensive, functionally-rich solution for
employee-centric business processes. We also intend to continue to enhance
the functionality of our existing application suite and, by leveraging the
existing platform, to introduce additional integrated workforce
optimization applications.

AGGRESSIVELY PENETRATING THE LARGE AND UNTAPPED WORKFORCE OPTIMIZATION
MARKET. We believe that the market for automated workforce optimization
solutions is large and underpenetrated for enterprises of all sizes. In
order to address this market opportunity, we intend to aggressively expand
our direct and indirect sales channels. We plan to focus our direct sales
efforts on large multinational organizations across a variety of
industries. In addition, we plan to address small and mid-size
organizations through a combination of telesales and relationships with
application service providers, OEMs and other resellers.

STRENGTHENING INTERNATIONAL PRESENCE THROUGH STRATEGIC PARTNERSHIPS
AND DIRECT DISTRIBUTION. We plan to capitalize on international market
opportunities by establishing additional international sales offices,
expanding our international direct sales force and building strategic
overseas partnerships. We will continue to staff our international
organization with senior local management and experienced domestic
management with specific product and market expertise. Our application
suite is internationalized and we plan to localize it for certain European
languages during 2000.

INCREASING MARKET ADOPTION THROUGH STRATEGIC PARTNERSHIPS WITH
APPLICATION SERVICE PROVIDERS. Because customers are increasingly utilizing
application service providers to host or outsource their applications, we
intend to partner with application service providers as an additional
indirect sales channel. We believe that our readily-implemented,
Internet-based architecture and easy-to-learn end-user solution is
attractive to application service providers. We currently have two
application service provider partners, Gelco Information Network and
Cendant Business Services, and intend to develop strategic relationships
with others.

OFFERING A SINGLE GATEWAY FOR THE MOST COMPREHENSIVE NETWORK OF
EXTERNAL CONTENT, COMMERCE AND SERVICE PROVIDERS. Our applications are
designed to provide a single, Internet standards-based point of access, or
gateway, for online providers of indirect goods and services, including
travel and entertainment, office equipment and supplies, professional
services, information and technology equipment, and other repeat purchase
items. This gateway will give our customers flexibility in the suppliers
with which they choose to integrate, without requiring point-to-point
integration or a commitment to a proprietary single solution. We believe
our gateway will provide to our customers a superior e-commerce solution as
online transactions gain market acceptance and as online vertical
marketplaces emerge.

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EXTENSITY PRODUCT AND SERVICES

Integrated Suite of Applications

We provide an integrated suite of Internet-based workforce optimization
applications designed to enhance employee productivity and corporate efficiency.
Our product suite currently includes the Extensity Expense Reports, Extensity
Travel Plans, Extensity Timesheets and Extensity Purchase Reqs applications and
the Extensity System Administration Tool. Our applications can be licensed
individually or in any combination to provide a complete solution. All
applications share a consistent and easy-to-use, browser-based graphical user
interface and are launched from a unifying screen. The applications share a
common underlying technology architecture and a common data model which allow
them to work together and share information. In addition, our applications are
universally accessible, allowing employees to work anywhere, through desktop or
mobile computing and via Palm Pilots or other handheld devices.

Once deployed, our applications are quickly configured, easily customized,
and easily upgraded, regardless of the degree of customization. Our
Internet-based architecture also keeps system administration costs to a minimum.
For example, customers can automatically install and update new versions via the
Internet.

Our application suite provides real-time comprehensive data regarding
spending, suppliers, policy violations, resource utilization and budgets. We
offer pre-configured reports, and our database approach facilitates further
query and analysis using standard report writing applications. We believe that
this information can improve an organization's strategic management and
decision-making processes and can enhance vendor negotiation.

COMMON FEATURES OF OUR APPLICATIONS

<TABLE>
<CAPTION>
FEATURES DESCRIPTION
-------- -----------
<S> <C>
Employee self service Employees can track in real time the status of any document
that has been submitted, reducing the number of calls and
inquiries to managers and processing departments.
Document linking Documents can be linked -- for example, a travel plan for
conference attendance and an expense report for the trip, a
time sheet and expense report for a project or purchase
requisition and an expense report associated with the
purchase.
Proxy user creation Employees can appoint another person to create documents for
them.
Project and cost center allocation Expenses and time can be allocated across multiple cost
centers and project codes as percentages or absolute dollar
amounts.
Configurable interface and data capture The application suite is fully configurable to incorporate
each organization's specific data capture needs.
Intelligent personalization Each employee's application becomes customized, maintaining
previously used information, such as prior travel
itineraries, cities traveled to, purposes and previously
used vendors.
Online help Context sensitive online help is provided for all
applications.
</TABLE>

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<PAGE> 48

EXTENSITY EXPENSE REPORTS. Extensity Expense Reports is a
full-featured application providing automation of the entire expense
reporting process. Extensity Expense Reports brings accuracy, efficiency
and control to this process. Using Extensity Expense Reports, employees,
whether operating as a remote, off-line or local user, can quickly and
easily create an expense report. This process is expedited and made more
accurate through the use of online credit card data for automatic data
entry. Compliance to business policy is checked as the expense report is
created. Compliant reports can be automatically approved, and only
noncompliant reports are routed to managers for approval. In reviewing
noncompliant reports, managers need only focus on highlighted exceptions.
Re-keying data and auditing of expense reports are reduced or eliminated so
the accounting team can spend time analyzing the centralized travel and
entertainment expense data and leveraging that knowledge into cost savings.
Employees can receive reimbursement rapidly through seamless integration
with the organization's financial, payroll and human resources systems.

<TABLE>
<CAPTION>
FEATURES DESCRIPTION
-------- -----------
<S> <C>
Credit card integration and pre- Uses the data feed from corporate card vendors to
population enable travelers to select charges and automatically
populate the expense report, reducing creation time
and avoiding data entry errors.
Foreign currency support Enables users to complete reports using local
currencies.
Itemization and allocation Supports expense itemization for more accurate
accounting and allows allocations to be made at the
line item level without requiring a separate expense
report for each project.
Receipt reconciliation Guides users through itemizing receipts to ensure
the expense is fully allocated.
</TABLE>

EXTENSITY TRAVEL PLANS. Extensity Travel Plans automates the planning,
approval and procurement process for corporate travel. The application
enables users to plan, request and book travel and allows managers to
approve business travel through a streamlined method that enforces
corporate travel policies before travel expenses are incurred. Extensity
Travel Plans provides an immediate link to information and resources needed
by a business traveler, such as corporate travel policies, online booking
systems and general travel information resources. Extensity Travel Plans
can be seamlessly integrated with Extensity Expense Reports for an
end-to-end business travel solution. Through this integration with
Extensity Expense Reports, Extensity Travel Plans is designed to provide a
seamless flow of information, from pre-trip planning to post-trip expense
reimbursement, and a view of projected and actual costs for variance
analysis, providing an efficient and accurate travel management system.

<TABLE>
<CAPTION>
FEATURES DESCRIPTION
-------- -----------
<S> <C>
Industry average cost data Integrates benchmark costs into the product to
create an accurate itinerary for domestic and
international travel, which allows the user to
better estimate travel costs.
Policy enforcement Streamlines pre-trip approval process for cost
savings and increased business efficiency, warning
the user of out-of-policy items before costs are
incurred.
Integrated with Extensity Expense Reports Automatically approves expense reports that fall
within the specified parameters of an approved
travel plan.
</TABLE>

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EXTENSITY PURCHASE REQS. Extensity Purchase Reqs automates and
optimizes the requisitioning of non-production goods and services while
enforcing a company's procurement policies. The application is designed to
minimize rogue purchasing and to ensure usage of preferred vendors for
volume discounts. Extensity Purchase Reqs allows employees to quickly and
easily submit purchase requisitions so that materials and services can be
obtained when they are needed. Corporate expenditure policies are
automatically applied, approvals are accelerated and employees can have
their orders fulfilled in a fraction of the time required for paper-based
procurement. Extensity Purchase Reqs centrally captures key purchasing
information that can be analyzed to continually evaluate and improve the
procurement processes for further optimization and savings. Through
automation, Extensity Purchase Reqs significantly reduces administrative
hassle, freeing purchasing professionals to focus on more strategic
activities such as reducing redundant sources, selecting better vendors and
negotiating contracts.

<TABLE>
<CAPTION>
FEATURES DESCRIPTION
-------- -----------
<S> <C>
Purchase requisition templates Accelerates document creation by pre-populating
requests with a user's most frequent purchases or
with template purchases such as "new hire" packages.
Sourcing requests Generates requests for quotes from professional
buyers using the organization's specific
requirements.
Catalog repository Creates a catalog as items are ordered or supports a
centrally created catalog for easy reference by
employees.
Default shipment locales Creates default shipping locations from the user
profile for additional control over corporate
purchasing. Any change to a ship-to address can be
treated as a policy exception.
</TABLE>

EXTENSITY TIMESHEETS. Extensity Timesheets is a full-featured time
management application that quickly and accurately tracks billable hours.
Extensity Timesheets streamlines processes to ensure timely and accurate
client billing, which helps improve cash flow. Users can quickly identify
charge codes from potentially thousands of options with an easy-to-use
project code chooser. Extensity Timesheets centralizes time and expense
information so that project managers can leverage critical data to evaluate
employee utilization and productivity, as well as profitability on
individual, project and organizational levels. Resources can then be
deployed more effectively and projects can be managed to finish on time and
under budget. Extensity Timesheets integrates with existing financial
systems and with Extensity Expense Reports to ensure accurate bill-back to
clients and reduction of administrative errors. By integrating with
Extensity Expense Reports, Extensity Timesheets provides a complete time
and expense management solution for service organizations.

<TABLE>
<CAPTION>
FEATURES DESCRIPTION
-------- -----------
<S> <C>
Templates for timesheet creation Allows users to create a template with commonly used
project codes, minimizing data entry and eliminating
errors.
Drill-down project chooser Enables users to quickly identify detailed project
and task codes from thousands of options using
drill-down menus and business rules to ensure
accuracy.
Multiple viewing and data entry options Allows users to enter and track time by line item or
calendar view. Accommodates customized billing
periods and billing rates and multiple work
schedules.
</TABLE>

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<PAGE> 50

EXTENSITY SYSTEM ADMINISTRATION TOOL. The Extensity System
Administration Tool is a robust application administration tool designed to
allow the business users within an organization to maintain the Extensity
applications, minimizing reliance on the internal information technology
staff. The interface is graphical and easy to use. Single or multiple
administrators can be created for various departments, groups or functional
areas. All systems changes are recorded in an audit log for further
security.

<TABLE>
<CAPTION>
FEATURES DESCRIPTION
-------- -----------
<S> <C>
User and group setup and maintenance Maintains all aspects of user and group information,
such as department identification, group-specific
business rules and individual approval authority.
Allows administrators to perform group-wide editing.
Corporate data setup and maintenance Enables a system administrator to modify corporate
data values such as cost centers, departments,
mileage rates and permitted charge codes.
Business rules setup and maintenance Enables a system administrator to modify business
rules and policies.
Document viewing and modification Allows an administrator to view and modify work
items by reassigning access privileges of a
particular document.
</TABLE>

Services

Our customer satisfaction is essential to our long-term success and we
offer customers a comprehensive selection of implementation services, support
and training. Our professional services organization consisted of 37
professionals as of December 31, 1999.

EXTENSITY EXPRESS -- GUARANTEED 90-DAY IMPLEMENTATION. Extensity
Express is our rapid implementation program that allows us to guarantee to
our customers that we will implement any of our applications within 90
days. A standard implementation requires tailoring of business rules,
configuring the workflow, integrating customer data and integration with a
financial system, a human resources system and an external corporate credit
card system. We guarantee to our customers that, for a standard
implementation, we will complete the process within 90 days, or we will
refund a portion of the implementation fee for each day over 90 days until
completion, up to a full refund of the implementation fee. To date, we have
never failed to meet our implementation guarantee.

ENHANCED IMPLEMENTATION SERVICES. Customizations beyond our standard
implementation, such as integration with more than one financial system,
can be completed by our professional services organization and are billed
based on a daily rate.

CUSTOMER SUPPORT AND MAINTENANCE. We provide support and maintenance
services for each customer to whom we license an application. Support and
maintenance contracts are required for one year and can be renewed by the
customer thereafter. Our customer support provides timely and accurate
resolution of customer inquiries and is available via telephone and e-mail
during normal business hours. We also provide self-service Internet
support. At a customer's request and for an additional fee, we provide more
comprehensive 24 hours per day, 7 days per week customer support services.

TRAINING. We offer a comprehensive training program designed to
quickly train our customers' end-users, support staff and internal
trainers. The training program includes an end-user curriculum to teach
end-users how to use all key application features; an application
administration curriculum that teaches accounting personnel, help desk
staff and the implementation team how to modify the dynamic aspects of
Extensity applications; and a trainer curriculum that prepares company
trainers for the roll-out and delivery of our applications within the
organization. The curriculum is also available as computer-based

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<PAGE> 51

training, providing convenient access to training for local and remote
users, new employees, travelers and managers.

CUSTOMERS

We have licensed our applications to 70 customers in a broad range of
industries. The following is a list of our current customers.

<TABLE>
<CAPTION>
TECHNOLOGY FINANCIAL SERVICES CONSUMER PRODUCTS/MANUFACTURING
<S> <C> <C>
America Online Advent International Ademco
BEA Systems Atlantic Mutual Insurance Bestfoods
Channelpoint Software Eaton Vance Embraer Aircraft
Cisco Systems Franklin Resources Gannett
Clarify MBIA International Home Foods
Cybercash John Hancock Sara Lee
Documentum Royal Bank of Canada
Epoch Internet Volpe, Brown, Whelan & Company PUBLIC SECTOR
Excite@Home Weiss, Peck & Greer
Exodus Communications Wellington Management Brigham Young University
Extreme Networks Center for Technology Access
Icarian SERVICES/ENTERTAINMENT/RETAIL Lawrence Berkeley National Laboratories
Ikos Systems Lawrence Livermore National Laboratories
Incyte Pharmaceuticals AMB Property University of California
Litton Data Systems AT Kearney University of Pennsylvania
Macromedia Cendant Business Services
Mylex Four Seasons TELECOMMUNICATIONS/UTILITIES
NEC Systems Gelco Information Network
Sterling Commerce Home Box Office AirTouch Support Services
Sybase Ogilvy & Mather Worldwide Aspect Communications
Trimble Navigation Parson Group BT North America
Wall Data SFX Entertainment Baltimore Gas & Electric
WhiteOak Semiconductor Starz Encore Media Group Berk-Tek
Tribune Company Genesys Telecommunications
WORLDSPAN RELTEC Corporation
TransCanada PipeLines
</TABLE>

Customer case studies

BESTFOODS. International food giant Bestfoods, with revenue of $8.4
billion, uses our applications to streamline its travel expense reporting
and automatically enforce corporate travel expense policies. In North
America, Bestfood's 3,000 regular travelers generate over 68,000 expense
reports each year. In 1998, Bestfoods began to evaluate several Internet-
based software applications to implement on its worldwide corporate
intranet, including expense report applications. After evaluating several
expense reporting applications, Bestfoods selected Extensity because of its
web-based solution and high ratings from its user panel. Bestfoods chose
Extensity Expense Reports in November 1998, re-engineered its expense
reporting procedures and began to deploy our application to its U.S. users
in May 1999.

By using Extensity Expense Reports, Bestfoods can now reimburse
employees within three days of travel and enforces Bestfood's travel and
expense policies in a less intrusive way. Bestfoods integrates Extensity
Expense Reports with American Express, allowing traveling employees to
automatically download their receipts from American Express on a daily
basis, fill out their reports and submit them without waiting for monthly
credit card statements to arrive by mail. Using Extensity business rules,
the application is set up to authorize expenses within certain parameters.
If the report falls within those guidelines it is automatically approved by
the system and managers only need to review expense reporting exceptions.
Because employees are reimbursed within two to three days, Bestfoods is
able to eliminate most travel advances and a significant amount of
accounting overhead. Bestfoods also uses the reporting capabilities to
minimize re-keying of data and auditing of

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<PAGE> 52

expense reports, so it can spend time analyzing travel and entertainment
data and leverage that knowledge into cost savings.

EXCITE@HOME. Excite@Home is a leading provider of broadband Internet
services over the cable television infrastructure. One of Excite@Home's key
operational goals is to implement best practices and eliminate paper-based
processes across its organization. In March 1998, Excite@Home selected
Extensity Expense Reports to manage travel, entertainment and other
corporate expenses. Prior to the merger with Excite, @Home had its employee
base on the Extensity applications. As the two companies continue to
integrate their systems, all Excite@Home employees will become users of the
Extensity application. Excite@Home currently has 500 employees on the
Extensity system. By using our application, Excite@Home has been able to
process more than twice the volume of expense reports in half the time
without increasing its accounting staff. Excite@Home is integrating its
accounting system with Extensity for seamless information flow and plans to
implement direct deposit capabilities to further remove paper from its
workforce processes. Due to our database approach, finance personnel can
query their centralized database using their standard tools and can gather
valuable information for consolidation and budgeting. This analysis has
proven to be extremely valuable in negotiations with airline and lodging
vendors.

TECHNOLOGY

Our applications are fully standards-based, designed for the Internet and
built upon an underlying architecture that is written entirely in Java. Our
applications run on standard Web browsers and servers and support leading
relational database management systems (RDBMS), including Oracle, Sybase and
Microsoft SQL Server. The multi-tier architecture connects browser-based
applications to application servers and the RDBMS through a corporate local area
network (LAN), wide area network (WAN), intranet or a secure Internet
connection. Our technology performs messaging between clients and the
application engine in real time over TCP/IP, and makes database connections via
standard Java database drivers. Our applications are inherently scalable, due to
our multi-tier architecture employing thin clients, multi-threaded application
servers and relational databases. In addition, our Java-based architecture
enables the Extensity Application Suite to operate across multiple platforms
within any organization, including Windows 95, 98 or NT, Macintosh, Solaris and
Palm Pilot operating systems.

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<PAGE> 53

The Extensity Architecture

Building on a standards-based foundation, we have designed a
component-based application infrastructure composed of readily-configurable
business rules, a workflow system and advanced data management capabilities.
Each of these core elements plays a crucial role in deploying enterprise-wide
solutions that can model a company's unique policies and processes and manage
key business functions.

The following diagram illustrates the multi-tiered architecture of our
software applications, the use of the Internet for deployment and the
relationship of the application server to our other application components.

[EXTENSITY LOGO]

BUSINESS RULES SYSTEM. Our business rules system allows each Extensity
application to be configured so that companies can effectively monitor
their processes and policies. This system is also flexible and can be
edited and modified as a company's processes and policies evolve. Employees
are presented with appropriate warnings, explanations and message prompts
to guide data entry and encourage conformance with corporate policies. The
business rules dramatically reduce reworking of procedures, track and
resolve policy exceptions online and eliminate re-keying of data into
back-end systems. The business rules system permits management by
exception, in which items requiring managerial attention are automatically
highlighted so that managers need not review items that are clearly in
compliance with established business rules.

WORKFLOW SYSTEM. Our workflow system ensures that information flows
through the organization in a timely, secure and efficient manner. Robust
enterprise applications require database-driven workflow, rather than
e-mail-based messaging, to provide increased

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<PAGE> 54

security and reliability, data and transaction integrity, real-time
availability, optimization for high performance and usage reporting.
Workflow processes can be configured to reflect the unique process flow of
documents and business processes in any organization. Our applications also
permit e-mail notification to users of the status of a procedure or of
events requiring attention, alteration and action, such as notifying the
creator of an expense report of its location in the process cycle or
notifying a manager of a document requiring attention.

ADVANCED DATA MANAGEMENT. Data management ensures that all Extensity
applications can be customized and extended to add, delete or modify
buttons, type-in fields or other controls on an application's user
interface, in each case as required by a customer's unique business
objectives. New functionality can also be assigned to existing controls, or
new controls, with little application modification and minimal programming.
The Extensity Application Suite can integrate with enterprise systems such
as ERP systems and other financial, human resources (for user information
and organizational structure) and project accounting systems and corporate
credit card systems. These interfaces allow for the automatic exchange of
data between the Extensity system and other enterprise systems and for the
downloading of data managed by these enterprise systems into the Extensity
application suite. These integration processes are scheduled according to
the needs of our customer's information services and finance departments.

STRATEGIC RELATIONSHIPS

To rapidly deliver a comprehensive, robust solution to our customers, we
have established strategic relationships with companies in three general
categories: e-business providers; content, commerce and service providers; and
marketing and distribution partners.

E-BUSINESS PROVIDERS. We have established relationships with key solutions
providers to deliver integrated workforce optimization solutions to our
customers. Cisco Systems has selected Extensity as one of four solutions
providers to support its workforce optimization effort. We have an agreement
with Cisco that establishes Extensity as Cisco's strategic Internet business
solutions software partner and Cisco as Extensity's strategic networking
partner. This relationship includes a mutual agreement to integrate each party's
sales and marketing plans and obligates each party to review the other party's
respective architectures for possible product integration. In this initiative,
Cisco has taken an active role in communicating to its customers the benefits of
Extensity Expense Reports. Cisco also supports Extensity through sales
assistance, customer referrals and co-marketing activities. In the procurement
card market, we work with American Express to integrate the Extensity
Application Suite with the American Express Procurement card. We have agreed to
a product integration workplan with American Express, which enhances the quality
of integration for our customers. We are also a strategic partner with IBM, a
leader in defining e-business in the marketplace. We have a marketing agreement
with IBM that is designed to ensure compatibility of our complementary
solutions. This agreement obligates Extensity to support IBM's DB2 database, and
obligates IBM to pay a marketing fee to Extensity for agreed upon marketing
activities.

CONTENT, COMMERCE AND SERVICE PROVIDERS. We have formed strategic
relationships with several content, commerce and service providers to allow our
network of customer employees to conduct commerce efficiently over the Internet.

Commerce One -- We support Commerce One's open platform by bringing
employee buyers and suppliers of indirect goods and services together. Our
suite of products is integrated with MarketSite.net, Commerce One's online
marketplace. In addition, Commerce One has chosen us to be the preferred
provider of expense reporting applications to its customers and prospects.
Commerce One also refers its prospects to us for joint selling.

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Under a fee agreement, Commerce One and Extensity have each agreed to pay
to the other party reciprocal business referral fees.

GetThere.com -- We partner with GetThere.com to deliver an online booking
solution as a key integrated component in our Extensity Travel Plans
application. As a leader in business-to-business online booking,
GetThere.com provides airline, hotel and car rental bookings for our
customers.

Ontheroad.com -- Ontheroad.com is a premier provider of travel information
for the business traveler. Ontheroad.com provides travel information
content for the Extensity Application Suite.

Runzheimer International -- Extensity is the only integrated application
suite that provides access to Runzheimer benchmarking travel data. This
data is integrated with our application suite to provide cost comparison
detail for hotels, cars and meals both domestically and internationally.
Runzheimer and Extensity also have entered a marketing referral agreement.

MARKETING AND DISTRIBUTION PARTNERS. We have established relationships
with solutions providers to resell our products and to provide prospect
referrals to us.

J.D. Edwards -- We recently entered into a worldwide distribution
arrangement with J.D. Edwards World Solution Company. J.D. Edwards is
headquartered in Denver, Colorado and has over 50 offices worldwide
supporting its 5,500 customers in more than 100 countries. Under the
agreement, J.D. Edwards purchases our products at a discount and resells
the products to its customers. J.D. Edwards also purchased $4.5 million of
our Series F Preferred Stock in December 1999.

QSP -- We have a worldwide distribution arrangement in place with QSP. QSP
is headquartered in the United Kingdom and has satellite offices in London,
Raleigh, NC, and Sydney, Australia supporting its 200 worldwide customers.
QSP purchases Extensity's applications at a discount and resells them
together with implementation services to QSP's customers.

Niku -- We have an OEM arrangement in place with Niku Corporation. Niku is
a leading provider of e-business software applications that serve
professional service organizations and individuals. Under this agreement,
Niku has a non-exclusive right to bundle Extensity's applications with
Niku's products. We receive royalty fees from Niku for sales of Niku
products that incorporate Extensity applications.

We also have marketing referral arrangements in place with US Bank, Xtra
Online, Sabre BTS and Rosenbluth International and a joint marketing arrangement
in place with Visa International.

MARKETING AND SALES

We focus our marketing efforts on achieving brand recognition, market
awareness and lead generation. The market for our Extensity Application Suite
includes enterprises of all sizes in many industries. We typically market to the
senior financial officer in an organization, such as the Chief Financial Officer
or Vice President of Finance. We also conduct public relations campaigns to keep
the market aware of our product developments and major initiatives. Programs we
use to attract customers include advertising in business and financial
publications, trade shows, seminars, and direct mail. We also participate in
various co-marketing initiatives with strategic partners. We maintain close
relationships with industry analysts and frequently participate in industry
conferences and events. Our website serves as another sales tool for prospective
customers.

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<PAGE> 56

We sell our Extensity Application Suite primarily through our direct sales
organization. Our U.S. sales force is organized under three regional directors
and a Vice President of Sales. We have sales offices in Boston, Chicago,
Emeryville, CA, London, Los Angeles and Mahwah, NJ. Our U.S. sales organization
included 21 direct sales representatives as of December 31, 1999. Our direct
sales representatives are supported by field-based sales engineers and sales
development staff. Our European sales organization includes a general manager,
two sales professionals and a marketing manager.

PRODUCT DEVELOPMENT

We have been developing and enhancing the Java-based architecture of our
applications for the Internet since 1996. We released our first Extensity
application, Extensity Expense Reports, in March 1998. Extensity Expense Reports
was one of the first workforce optimization applications to be architected
specifically for the Internet. We introduced Extensity Travel Plans in December
1998 and Extensity Timesheets and Extensity Purchase Reqs in July 1999. These
four applications, together with the Extensity System Administration Tool,
comprise our Extensity Application Suite, Version 4.0.

As of December 31, 1999, our engineering organization consisted of 53
employees and is grouped according to the following areas of focus: product
development, core technology, release engineering, mobile engineering,
architecture, tools development, quality assurance and technical documentation.
Each group within Extensity's engineering organization regularly shares
resources and collaborates with other groups on code development, quality
assurance and documentation. Our engineering organization includes a number of
key individuals that have developed Internet applications and services and have
extensive experience with Java-based application development. We believe that a
technically skilled and experienced engineering organization is a key factor in
the market acceptance of our applications and, accordingly, we plan to continue
to make significant investments in our engineering organization and efforts to
promote the success of our products. If we are unsuccessful in hiring and
training a sufficient number of personnel to staff our engineering organization,
our business could suffer.

To date, we have made significant investments in our technology
architecture and applications, and we believe they provide us with a significant
competitive advantage. Our research and development expenses totaled $7.1
million in 1999, $4.4 million in 1998 and $1.7 million in 1997. We intend to
maintain our competitive advantage by continuing to focus on and refine our
development efforts. Our engineering organization employs a defined product
development methodology to each application, which includes technology and
architectural roadmaps, product planning, requirement specifications,
prototyping, design specifications, code review, identified program review
points and beta testing.

To successfully implement our business strategy, we have to provide
software applications and related services that meet the demands of our
customers and prospective customers. We expect that competitive factors will
create a continuing need for us to improve and add to our suite of software
solutions. We will have to, among other things, expend significant funds and
engineering and other resources to continue to improve our suite of
applications, and properly anticipate and respond to consumer preferences and
demands. As organizations' needs change with respect to their enterprise
applications, our existing suite of software applications may require
modifications or improvements. The addition of new products and services will
also require that we continue to improve the technology underlying our
applications. These requirements are significant, and we may fail to execute on
them quickly and efficiently. If we fail to expand the breadth of our
applications quickly in response to customer needs, or these offerings fail to
achieve market acceptance, our business will suffer significantly.

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COMPETITION

The markets for Internet-based workforce optimization applications are
intensely competitive, and we expect the intensity of competition to increase in
the future. Increased competition may result in price reductions, reduced
margins and loss of market share, any one of which could seriously harm our
business. Competitors vary in size and in the scope and breadth of the products
and services offered. Companies offering one or more products directly
competitive with our products include Ariba, Captura Software, Concur
Technologies and IBM. We also expect to encounter competition in the near future
from major enterprise software vendors such as Oracle Corporation, PeopleSoft
Corporation and SAP Corporation, to the extent they enhance their existing
product offerings with competitive workforce optimization applications. As a
result of the large market opportunity, we also expect competition from other
established and emerging companies. For example, as the emergence of the ASP
market enables hosted solutions from our competitors to become broadly
available, our future success may also depend upon our ability to establish
successful relationships with leading ASPs.

We believe that the key competitive factors affecting our market include a
significant base of reference customers, breadth and depth of products and
product features, product quality and performance, core technology underlying
our applications, customer service and ability to rapidly implement our
solutions. We believe that our workforce optimization applications currently
compete favorably with respect to these factors. However, because the market for
our solutions is at an early stage of development and evolving rapidly, we
cannot assure you that we will be able to maintain our competitive position
against our current and potential competitors, particularly those with greater
financial, marketing, technical service and other resources.

Many of our current and potential competitors have longer operating
histories, significantly greater financial, technical, marketing and other
resources, significantly greater name recognition and a larger installed base of
customers than us. In addition, many of our competitors have well-established
relationships with our current and potential customers and have extensive
knowledge of our industry. Moreover, 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. Accordingly, it is possible that new competitors or alliances among
competitors may emerge and rapidly acquire significant market share. We also
expect that competition will increase as a result of industry consolidations. We
may fail to successfully compete against our current and future competitors.

INTELLECTUAL PROPERTY RIGHTS

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<PAGE> 58

any patents will issue on our pending provisional applications from any such
regular applications. Further, we cannot provide any assurance that any patents,
if issued, will prevent the development of competitive products or that our
patents will not be successfully challenged by others or invalidated through
administrative process or litigation.

Despite our efforts to protect our proprietary rights, unauthorized parties
may attempt to copy aspects of our products or to obtain and use information
that we regard as proprietary. Policing unauthorized use of our products is
difficult, and while we are unable to determine the extent to which piracy of
our software products exists, software piracy can be expected to be a persistent
problem. In addition, the laws of some foreign countries do not protect our
proprietary rights to as great an extent as do the laws of the United States.
Our means of protecting our proprietary rights may not be adequate and our
competitors may independently develop similar technology, duplicate our products
or design around our proprietary intellectual property.

EMPLOYEES

As of December 31, 1999, we had a total of 175 employees, including 53 in
research and development, 64 in sales and marketing and business development, 37
in professional services and 21 in finance and administration. None of our
employees are subject to a collective bargaining agreement and we believe our
relations with our employees are good.

FACILITIES

Our primary administrative, sales, marketing, research and development
facility is located in Emeryville, California and consists of approximately
24,000 square feet of office space held under a lease that expires in June 2003.
As of December 31, 1999, we also leased sales offices in Boston, Chicago,
London, Los Angeles and Mahwah, NJ. We believe our existing facilities meet our
current needs and that we will be able to obtain additional commercial space as
needed.

LEGAL PROCEEDINGS

Although we are not currently a party to any litigation, we may from time
to time become involved in litigation relating to claims arising from our
ordinary course of business. These claims, even if not meritorious, could result
in the expenditure of significant financial and managerial resources.

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MANAGEMENT

EXECUTIVE OFFICERS, DIRECTORS AND OTHER KEY EMPLOYEES

The names, ages and positions of our executive officers and other key
employees as of December 31, 1999 are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Executive Officers and Directors
Robert A. Spinner............... 42 President and Chief Executive Officer and Director
Sharam I. Sasson................ 44 Chairman of the Board of Directors and Founder
Kenneth R. Hahn................. 33 Chief Financial Officer
Elizabeth A. Ireland............ 41 Vice President of Marketing
Allen F. Nordgren............... 54 Vice President of Professional Services
Eric C. Ruud.................... 40 Vice President of Sales
Christopher D. Brennan.......... 42 Director
John R. Hummer.................. 51 Director
Mitchell E. Kertzman............ 50 Director
Ted E. Schlein.................. 35 Director
Maynard G. Webb................. 44 Director

Other Key Employees
Brian H. Mort................... 41 Vice President and General Manager of European
Operations
Mark K. Oney.................... 41 Vice President of Engineering
Donald E. Smith................. 41 Vice President of Hosted Operations
David A. Yarnold................ 39 Vice President of Business Development
</TABLE>

Executive Officers

ROBERT A. SPINNER has served as Extensity's President, Chief Executive
Officer and as director since April 1999. Prior to joining Extensity, from
January 1995 to January 1999, Mr. Spinner served as Senior Vice President of
Worldwide Sales and International Operations at Clarify, Inc., a provider of
integrated sales and service solutions for the front office. From October 1988
to December 1994, Mr. Spinner served as Director of Western Regional Sales at
Sybase, Inc., a relational database management software company. Mr. Spinner has
also held technical positions at Applied Data Research, Inc. and Chevron
Corporation. Mr. Spinner received a B.A. in mathematics from Washington
University.

SHARAM I. SASSON is the founder and Chairman of the board of directors of
Extensity and has served as a director since our inception in 1995. Mr. Sasson
served as our President and Chief Executive Officer until March 1999. Prior to
founding Extensity, Mr. Sasson was an executive at Scopus Technology, a provider
of enterprise customer information management systems which he co-founded in
1991. Mr. Sasson has also served as a research scientist at Lockheed Missile and
Space Company and as a developer of structural modeling software at PMB/Bechtel
Corporation. Mr. Sasson received a B.S. in civil engineering from Queen Mary
College, University of London, an M.S. in structural engineering from City
University in London, and an M.Eng. from the University of California at
Berkeley.

KENNETH R. HAHN was appointed Extensity's Chief Financial Officer in
December 1999, has served as Vice President of Finance and Administration since
January 1999 and previously served as Corporate Controller from January 1998 to
January 1999. From September 1995 to
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<PAGE> 60

December 1997, Mr. Hahn was employed as a management consultant with The Boston
Consulting Group, a strategy consulting firm. Mr. Hahn attended the Stanford
Graduate School of Business, where he earned an MBA and was named an Arjay
Miller Scholar. Mr. Hahn also held various positions at PriceWaterhouse LLP,
most recently as an Audit Manager. He received a B.A. in business administration
from California State University, Fullerton and is a Certified Public Accountant
and a Certified Management Accountant.

ELIZABETH A. IRELAND has served as Extensity's Vice President of Marketing
since January 1998. Prior to joining Extensity, Ms. Ireland was employed at
MapInfo Corporation, a software company, from 1989 to October 1997, most
recently as Vice President and General Manager of Internet Business. Additional
positions held by Ms. Ireland at MapInfo Corporation include Vice President of
Marketing and Business Development and Vice President of Information Products.
Ms. Ireland received a B.S. in business administration from the University of
South Carolina and is a Certified Public Accountant.

ALLEN F. NORDGREN has served as Extensity's Vice President of Professional
Services since November 1997. Prior to joining Extensity, Mr. Nordgren was
employed from June 1996 to November 1997 at Logica, Inc., a systems integrator,
as Vice President and General Manager of Western U.S. Operations. From October
1992 to May 1996, Mr. Nordgren was employed at Sybase, most recently as Practice
Director of Professional Services for the Northwest Region. Mr. Nordgren
attended Bernard Baruch University and served four years in the U.S. Military.

ERIC C. RUUD has served as Extensity's Vice President of Sales since June
1997. Prior to joining Extensity, from September 1995 to June 1997, Mr. Ruud
served as Sales Director for Documentum, a provider of document management
solutions. From September 1992 to June 1995, Mr. Ruud served as District Sales
Manager at Sybase. Mr. Ruud has also worked at System Industries and Xerox
Corporation. Mr. Ruud received a B.S. from the University of Utah.

Other Key Employees

BRIAN H. MORT has served as Extensity's Vice President and General Manager
of European Operations since July 1999. Prior to joining Extensity, Mr. Mort was
employed from June 1996 to June 1999 at SAP (UK) Ltd., a provider of ERP
applications, most recently as Global Access Director. From February 1994 to May
1996, Mr. Mort served as Global Account Sales Manager at Oracle Corporation, a
relational database and software applications provider. Mr. Mort has also held
senior sales positions at Dell Computer Corporation, Xerox Corporation and
Granada Plc. Mr. Mort received a B.A. in history and politics from London
University.

MARK K. ONEY has served as Extensity's Vice President of Engineering since
July 1999. Prior to joining Extensity, from May 1999 to June 1999, Mr. Oney
served as the Vice President of Engineering for Ringer Software, a consumer
information Internet company. From September 1998 through January 1999, Mr. Oney
was a co-founder of and served as Vice President of Software Engineering for
Crag Technologies, Inc., a developer and supplier of data storage solutions.
Crag Technologies was acquired by Western Digital Corporation in February 1999.
From July 1997 through May 1998, Mr. Oney was a co-founder of and served as Vice
President of Software Engineering for Ridge Technologies, a Windows NT storage
company which was acquired by Adaptec, Inc., in May 1998. Prior to founding
Ridge, from May 1988 through June 1997, Mr. Oney served in a variety of
engineering and management roles at Apple Computer, Inc., most recently as
Director of Software Development for the PowerBook line of business. Mr. Oney
received a B.S. in electrical engineering from Rochester Institute of
Technology.

DONALD E. SMITH has served as Extensity's Vice President of Hosted
Operations since January 2000. Mr. Smith co-founded Clarify, Inc. in 1990, and
held various management

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<PAGE> 61

positions at Clarify until January 2000, including Vice President of Sales and
Engineering and Director of Quality Assurance, Product Design and Customer
Support. Mr. Smith received a B.S.E.E. from the University of Nebraska at
Lincoln.

DAVID A. YARNOLD has served as Extensity's Vice President of Business
Development since August 1999. Prior to joining Extensity, from January 1996 to
July 1999, Mr. Yarnold was employed at Clarify, Inc., most recently as Vice
President of Northern American Sales. From January 1993 to October 1995, Mr.
Yarnold served as Regional Vice President of Platinum Software Corporation, a
financial software provider. Mr. Yarnold received a B.S. in accounting from San
Francisco State University and is a Certified Public Accountant.

Directors

CHRISTOPHER D. BRENNAN has served as a director of Extensity since January
2000. Mr. Brennan is currently the Chief Financial Officer of Genesys
Telecommunications Laboratories, a provider of interaction management software
applications for enterprises, which he joined in April 1999. Prior to joining
Genesys, Mr. Brennan was Chief Financial Officer and Corporate Secretary of
Diamond Lane Communications, a provider of digital subscriber line high speed
access products, from September 1997 to April 1999. From April 1994 to July
1997, Mr. Brennan held various senior executive positions, including President
and Chief Operating Officer and Chief Financial Officer, of UB Networks, a
wholly-owned subsidiary of Tandem Computers that merged with Newbridge Networks.

JOHN R. HUMMER has served as a director of Extensity since January 1996.
Mr. Hummer is a managing member of Hummer Winblad Venture Partners, a venture
capital firm, which he co-founded in 1989. Mr. Hummer played professional
basketball for the Buffalo Braves and Seattle Supersonics. Mr. Hummer holds a
B.A. in English from Princeton and an MBA from Stanford University.

MITCHELL E. KERTZMAN has served as a director of Extensity since August
1998. Mr. Kertzman has been President, Chief Executive Officer and a director of
Liberate Technologies, a developer and marketer of software products, since
November 1998. Prior to joining Liberate, Mr. Kertzman was a member of the board
of directors of Sybase, from March 1995 to November 1998, and served as chairman
of the board of directors from July 1997 to November 1998. Between February 1998
and August 1998, Mr. Kertzman served as Co-Chief Executive Officer of Sybase,
and from July 1996 until February 1997 he served as Chief Executive Officer.
From July 1996 until July 1997 he also served as President of Sybase. Between
February 1995 and July 1996, Mr. Kertzman served as an Executive Vice President
of Sybase. Prior to joining Sybase in March 1995 upon the acquisition by Sybase
of Powersoft Corporation, Mr. Kertzman served as Chief Executive Officer and
chairman of the board of directors of Powersoft, a provider of application
development tools which he founded. Mr. Kertzman is also a director of CNET,
Inc.

TED E. SCHLEIN has served as a director of Extensity since May 1997. Mr.
Schlein is a general partner at Kleiner Perkins Caufield & Byers, a venture
capital firm, which he joined in November 1996. Mr. Schlein also manages the
KPCB Java Fund, formed to invest in Java technology-based companies and related
Internet, intranet, networking and communications companies. From June 1986 to
October 1996, Mr. Schlein served in a variety of executive positions at Symantec
Corporation, a provider of Internet security technology and business management
technology solutions, most recently as Vice President, Networking and Client/
Server Solutions. Mr. Schlein holds a B.S. in economics from the University of
Pennsylvania.

MAYNARD G. WEBB has served as a director of Extensity since November 1999.
Mr. Webb is currently President of eBay Technologies, which he joined in August
1999. Prior to his tenure

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<PAGE> 62

at eBay, Mr. Webb was Senior Vice President and Chief Information Officer at
Gateway, Incorporated from July 1998 to August 1999. From February 1995 to July
1998, Mr. Webb served as Vice President and Chief Information Officer at Bay
Networks. Mr. Webb holds a B.A. degree in criminal justice from Florida Atlantic
University.

BOARD OF DIRECTORS

Our board of directors is currently comprised of seven directors. In
October 1999, the board of directors designated a Compensation Committee and an
Audit Committee. Prior thereto, there were no such committees of the board of
directors, and decisions regarding the compensation of executive officers were
made by the board of directors as a whole. The Compensation Committee, which
consists of Messrs. Hummer, Kertzman and Schlein, makes recommendations to the
Board concerning the compensation of our officers and directors and the
administration of our 1996 Stock Option Plan and Employee Stock Purchase Plan
2000. The Audit Committee, which consists of Messrs. Hummer, Kertzman and
Schlein, reviews our financial controls, evaluates the scope of the annual
audit, reviews audit results, consults with management and our independent
auditors prior to the presentation of financial statements to stockholders and,
as appropriate, initiates inquiries into aspects of our internal accounting
controls and financial affairs.

DIRECTOR COMPENSATION

Directors currently do not receive any cash compensation from Extensity for
their services as members of the board of directors, although members are
reimbursed for expenses in connection with attendance at board of directors and
committee meetings. Directors are eligible to participate in Extensity's stock
plans. On August 20, 1998, Mr. Kertzman was granted an option to purchase
100,000 shares of common stock at an exercise price of $0.33 per share, pursuant
to the 1996 Stock Option Plan. On November 18, 1999, Maynard Webb was granted an
option to purchase 50,000 shares of common stock at an exercise price of $6.00
per share, pursuant to the 1996 Stock Option Plan. On January 17, 2000, each of
Messrs. Brennan, Hummer and Schlein was granted an option to purchase 50,000
shares of common stock at an exercise price of $9.00 per share. Option grants to
directors are at the discretion of Extensity, and we have no specific plans
regarding amounts to be granted to our directors in the future.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Compensation Committee currently consists of Messrs. Hummer, Kertzman
and Schlein. Prior to the formation of the Compensation Committee, the board of
directors performed the functions typically assigned to a compensation
committee. Each of Mr. Sasson and Mr. Spinner participated in the board's
deliberations concerning compensation of officers other than themselves. No
member of the Compensation Committee and none of our executive officers has a
relationship that would constitute an interlocking relationship with executive
officers and directors of another entity.

Hummer Winblad Venture Partners and its affiliated funds collectively have
purchased an aggregate of 3,931,891 shares of our series A through E preferred
stock for an aggregate of $9,214,617. One of our directors, John R. Hummer, is a
managing member of Hummer Winblad Venture Partners.

Kleiner Perkins Caufield & Byers and its affiliated funds have collectively
purchased an aggregate of 2,909,040 shares of our series B through E preferred
stock for an aggregate of $6,249,982. One of our directors, Ted E. Schlein, is a
general partner of Kleiner Perkins Caufield & Byers.

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<PAGE> 63

Upon the closing of this offering, each outstanding share of series A, B,
C, D and E preferred stock will convert into one share of common stock.

We have entered into indemnification agreements with our officers and
directors, including Messrs. Hummer, Kertzman, Schlein, Sasson and Spinner.
These indemnification agreements contain provisions that may require us, among
other things, to indemnify our officers and directors against certain
liabilities that may arise by reason of their status or service as officers or
directors.

We entered into an offer letter with Robert Spinner, our President and
Chief Executive Officer on February 16, 1999. Pursuant to his offer letter Mr.
Spinner is entitled to an initial annual base salary of $300,000 and up to
$100,000 in performance bonuses based upon satisfaction of agreed upon
milestones. However, Mr. Spinner elected to reduce his initial annual base
salary to $275,000 effective June 16, 1999 and declined an initial $50,000 bonus
to which he was otherwise entitled payable in November 1999. Pursuant to the
offer letter, Mr. Spinner was granted (1) an option to purchase 1,188,764 shares
of common stock, subject to vesting over a four year period, and (2) a special
option to purchase an additional 77,306 shares of common stock vesting on March
1, 2006 or sooner if milestones set by the board relating to his performance are
achieved. Each option has an exercise price of $0.33 per share. In the event
that Extensity terminates Mr. Spinner's employment other than for cause or Mr.
Spinner's employment is constructively terminated, then Mr. Spinner is entitled
to receive severance payment equal to six months' continuation of salary. In
addition, in the event that Extensity involuntarily terminates Mr. Spinner's
employment within one year following a change of control of Extensity, Mr.
Spinner is entitled to accelerated vesting of one half of the portion of the
option to purchase 1,188,764 shares of common stock that is otherwise unvested
on the date of termination.

We entered into a loan agreement with Mr. Spinner on March 12, 1999.
Pursuant to this agreement, Mr. Spinner was loaned an aggregate of $100,000 in
order to early exercise 303,030 shares of common stock which were granted to him
under his offer letter. In connection with this loan, Mr. Spinner executed a
promissory note in favor of Extensity. The promissory note bore interest at a
rate of 4.77%, compounded semi-annually, was to mature on February 28, 2004 and
was secured by a pledge of the common stock purchased by Mr. Spinner for cash,
under the terms of a security agreement between Mr. Spinner and Extensity. Mr.
Spinner repaid this loan in full, including interest of $3,081, on November 9,
1999. Mr. Spinner also early exercised at such time 454,576 shares for an
aggregate of $150,000 in cash.

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EXECUTIVE COMPENSATION

The following table sets forth in summary form information concerning the
compensation paid by us during the fiscal years ended December 31, 1999, 1998
and 1997 to our Chief Executive Officer and each of our other most highly
compensated executive officers. These individuals are referred to as the named
executive officers in this prospectus.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION SECURITIES
NAME AND -------------------- UNDERLYING
PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS
------------------ ---- -------- -------- ------------
<S> <C> <C> <C> <C>
Robert A. Spinner......................... 1999 $210,417 $ -- 1,266,070
President & Chief Executive Officer 1998 -- -- --
1997 -- -- --
Sharam I. Sasson.......................... 1999 142,365 -- --
Chairman of the Board of Directors 1998 120,000 -- --
1997 120,000 -- --
Elizabeth A. Ireland...................... 1999 151,218 45,000 110,000
Vice President of Marketing 1998 135,872 40,000 150,000
1997 -- -- --
Allen F. Nordgren......................... 1999 151,250 42,897 85,000
Vice President of Professional Services 1998 125,000 15,000 75,000
1997 12,820 -- 100,000
Eric C. Ruud.............................. 1999 125,000 213,697 50,000
Vice President of Sales 1998 125,000 107,675 50,000
1997 32,211 30,000 200,000
</TABLE>

Mr. Spinner joined Extensity as its President and Chief Executive Officer
in April 1999. Mr. Sasson served as President and Chief Executive Officer of
Extensity from November 1995 until March 1999. In March 1999, Mr. Sasson
resigned as President and Chief Executive Officer and was appointed Chairman of
the board of directors.

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OPTION GRANTS IN LAST FISCAL YEAR

The following table sets forth, as to the named executive officers,
information concerning stock options granted during the fiscal year ended
December 31, 1999.

The information regarding stock options granted to named executive officers
as a percentage of total options granted to employees in the fiscal year, as
disclosed in the table is based upon options to purchase an aggregate of
3,487,545 shares of common stock that were granted to all employees and
directors as a group, including the named executive officers, in the fiscal year
ended December 31, 1999.

<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------------------------------------- POTENTIAL REALIZABLE VALUE
NUMBER OF PERCENT OF DEEMED AT ASSUMED ANNUAL RATE OF
SECURITIES TOTAL OPTIONS FAIR MARKET STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE VALUE ON FOR OPTION TERM
OPTIONS EMPLOYEES IN PRICE PER DATE OF EXPIRATION ------------------------------------
GRANTED FISCAL YEAR SHARE GRANT DATE 0% 5% 10%
---------- ------------- --------- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Robert A. Spinner........ 1,188,764 34.1% $0.33 $1.95 2/18/09 $1,925,798 $3,383,632 $5,620,236
77,306 2.2 0.33 $1.95 2/18/09 125,236 220,040 365,487

Sharam I. Sasson......... -- -- -- -- -- -- -- --

Elizabeth A. Ireland..... 50,000 1.4 0.70 $5.22 7/1/09 226,000 390,142 641,967
60,000 1.7 6.00 $7.65 10/28/09 99,000 387,663 830,528

Allen F. Nordgren........ 85,000 2.4 6.00 $7.65 10/28/09 140,250 549,189 1,176,581

Eric C. Ruud............. 50,000 1.4 6.00 $7.65 10/28/09 82,500 323,052 692,106
</TABLE>

The 0%, 5% and 10% assumed annual rates of compounded stock appreciation
are mandated by the rules of the Securities and Exchange Commission based on the
deemed value of the common stock used by us for accounting purposes and do not
represent our estimate or projection of our future stock prices. Actual gains,
if any, on stock option exercises will be dependent on the future performance of
our common stock. The amount shown in the "0%" column reflects the difference
between the exercise price and the deemed fair market value as of the date of
option grant. All options were granted at an exercise price which our board of
directors believed to be equal to the fair market value of our common stock on
the date of grant. Based upon a subsequent review, we determined that the fair
value of the common stock as of the date of grant would be deemed for financial
accounting purposes to be the number indicated in the "Deemed Fair Market Value
on Date of Grant" column. In such subsequent determination of the deemed fair
market value, we considered, among other things, valuations at which we have
issued our preferred stock, the relative rights and preferences of our preferred
stock as compared to our common stock, estimated discounts from our preferred
stock valuations, the stability and tenure of our management team, the
development and size of the market for our products, and the offering price to
the public in this offering.

Except for options granted to Mr. Spinner, all options indicated in the
table above have a ten year term, vest as to 25% of the shares one year from the
vesting commencement date and vest at the rate of 1/48 of the shares at the end
of each month thereafter, subject to continued service as an employee or
consultant. Our board of directors has permitted Robert Spinner, Elizabeth
Ireland, Allen Nordgren and Eric Ruud to exercise these options prior to vesting
in exchange for shares of restricted common stock. We have a right to repurchase
all unvested shares of restricted stock if executive officers are terminated for
any reason. The repurchase right must be exercised by us within ninety days of
termination of the executive officer. Our repurchase right lapses on the same
terms as the option vesting period discussed above.

In February 1999, Extensity granted to Mr. Spinner an option to purchase
1,188,764 shares of common stock, which vested as to 12.5% on September 1, 1999
and vest as to 1/48 of these shares on each month thereafter, so that all of
these shares are fully vested and exercisable on the fourth anniversary of the
vesting commencement date. Extensity also granted Mr. Spinner at such time an
option to purchase an additional 77,306 shares of common stock.

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<PAGE> 66

These shares vest in full on March 1, 2006, provided that if the board of
directors determines that Mr. Spinner has achieved performance milestones
specified for his first year as Chief Executive Officer of Extensity, then these
shares shall vest in accordance with the same schedule as Mr. Spinner's option
to purchase 1,188,764 shares of common stock. For additional details on Mr.
Spinner's employment agreement, see "Compensation Committee Interlocks and
Insider Participation."

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES

The following table sets forth information concerning option exercises and
unexercised options for the fiscal year ended December 31, 1999 with respect to
each of the named executive officers.

The value realized represents the difference between the deemed value of
the common stock on the date of exercise used by us for accounting purposes and
the exercise price of the option.

The value of unexercised in-the-money options was calculated by determining
the difference between $17.00 (the assumed initial public offering price) and
the exercise price of the option.

<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT FISCAL YEAR END AT FISCAL YEAR END
ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Robert A. Spinner..... 900,433 $1,863,896 -- 365,637 $ -- $6,095,169
Sharam I. Sasson...... -- -- -- -- -- --
Elizabeth A.
Ireland............. 75,000 168,000 -- 110,000 -- 1,475,000
Allen F. Nordgren..... 75,000 155,250 -- 85,000 -- 935,000
Eric C. Ruud.......... 75,000 168,000 12,500 87,500 208,750 1,176,250
</TABLE>

COMPENSATION PLANS

1996 STOCK OPTION PLAN

Extensity's 1996 Stock Option Plan provides for the granting to employees
of incentive stock options within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the Code), and for the granting to employees,
directors and consultants of nonstatutory stock options and stock purchase
rights (SPRs). The 1996 Option Plan was approved by the board of directors in
February 1996 and by the stockholders in February 1996. Unless terminated
sooner, the 1996 Option Plan will terminate automatically in 2006. A total of
6,100,000 shares of our common stock is currently reserved for issuance pursuant
to the 1996 Option Plan. In October 1999, our board of directors approved an
amendment, subject to stockholder approval, to amend the 1996 Stock Option Plan
to increase the maximum number of shares issuable under the plan to 7,000,000.
This amendment will be effective at the completion of this offering. The
following discussion reflects additional changes to the Plan made by such
amendment. In addition, the 1996 Option Plan provides for automatic annual
increases in the number of shares reserved for issuance under the plan, in an
amount each year equal to the lesser of (1) 4% of the outstanding shares on such
date, (2) 1,300,000 shares and (3) such lesser amount as may be determined by
the board.

The 1996 Option Plan may be administered by the board of directors or a
committee of the Board (as applicable, the Administrator), which shall, in the
case of options intended to qualify as "performance-based compensation" within
the meaning of Section 162(m) of the Code, consist of two or more "outside
directors" within the meaning of Section 162(m) of the Code.

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<PAGE> 67

The Administrator has the power to determine the terms of the options or SPRs
granted, including the exercise price, the number of shares subject to each
option or SPR, the exercisability thereof, and the form of consideration payable
upon such exercise. In addition, the Administrator has the authority to amend,
suspend or terminate the 1996 Option Plan, provided that no such action may
affect any share of common stock previously issued and sold or any option
previously granted under the 1996 Option Plan.

Options and SPRs granted under the 1996 Option Plan are not generally
transferable by the optionee, and each option and SPR is exercisable during the
lifetime of the optionee only by the optionee. Options granted under the 1996
Option Plan must generally be exercised within three months of the end of
optionee's status as an employee or consultant of Extensity, or within twelve
months after an optionee's termination by death or disability, but in no event
later than the expiration of the option's ten year term. In the case of SPRs,
unless the Administrator determines otherwise, the restricted stock purchase
agreement shall grant Extensity a repurchase option exercisable upon the
voluntary or involuntary termination of the purchaser's employment with us for
any reason (including death or disability). The purchase price for shares
repurchased under the restricted stock purchase agreement shall be the original
price paid by the purchaser and may be paid by cancellation of any indebtedness
of the purchaser to us. The repurchase option shall lapse at a rate determined
by the Administrator. The exercise price of all incentive stock options granted
under the 1996 Option Plan must be at least equal to the fair market value of
the common stock on the date of grant. The exercise price of nonstatutory stock
options and SPRs granted under the 1996 Option Plan is determined by the
Administrator, but with respect to nonstatutory stock options intended to
qualify as "performance-based compensation" within the meaning of Section 162(m)
of the Code, the exercise price must at least be equal to the fair market value
of the common stock on the date of grant. With respect to any participant who
owns stock possessing more than 10% of the voting power of all classes of our
outstanding capital stock, the exercise price of any incentive stock option
granted must equal at least 110% of the fair market value on the grant date and
the term of such incentive stock option must not exceed five years. The term of
all other options granted under the 1996 Option Plan may not exceed ten years.

The 1996 Option Plan provides that in the event of a merger of Extensity
with or into another corporation, a sale of substantially all of our assets,
each option or right shall be assumed or an equivalent option or right
substituted by the successor corporation. If the outstanding options or rights
are not assumed or substituted, the Administrator shall provide for the Optionee
to have the right to exercise the option or SPR as to all of the optioned stock,
including shares as to which it would not otherwise be exercisable for a period
of at least 15 days from the date of such notice, and the option or SPR will
terminate upon the expiration of such period.

EMPLOYEE STOCK PURCHASE PLAN 2000

Extensity's Employee Stock Purchase Plan 2000 was adopted by the board of
directors and stockholders of Extensity in November 1999 and will become
effective upon the closing of this offering. A total of 500,000 shares of common
stock have been reserved for issuance under the Purchase Plan. The Purchase Plan
provides for automatic annual increases in the number of shares reserved for
issuance under the plan, in an amount each year equal to the lesser of (1) 1.5%
of the outstanding shares on such date, (2) 500,000 shares or (3) such lesser
amount as may be determined by the board.

The Purchase Plan, which is intended to qualify under Section 423 of the
Code, contains consecutive, overlapping, twenty-four month offering periods.
Each offering period generally includes four six-month purchase periods. The
offering periods generally start on the first trading day after April 15 and
October 15 of each year, except for the first such offering period.
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<PAGE> 68

The first offering period commences on the first trading day on or after the
effective date of this offering and ends on the last trading day on or before
April 15, 2002. The first purchase period ends on the last trading day on or
before October 15, 2000.

Employees are eligible to participate in the Purchase Plan if they are
customarily employed by Extensity or any participating subsidiary for at least
20 hours per week and more than five months in any calendar year. However, any
employee who (1) immediately after grant owns stock possessing 5% or more of the
total combined voting power or value of all classes of our capital stock, or (2)
whose rights to purchase stock under all of our employee stock purchase plans
accrues at a rate which exceeds $25,000 worth of stock for each calendar year
may be not be granted an option to purchase stock under the Purchase Plan. The
Purchase Plan permits participants to purchase common stock through payroll
deductions of up to 15% of the participant's "compensation." Compensation is
defined as the participant's total compensation including base straight time
gross earnings, bonuses and commissions, overtime, shift premium payments,
incentive compensation, incentive payments and other compensation. The maximum
aggregate number of shares that may be issued to employees during the first
purchase period is 1.5% of the then outstanding shares of capital stock;
thereafter, the maximum number of shares that may be issued to employees during
a single purchase period is 1%.

Amounts deducted and accumulated by the participant are used to purchase
shares of common stock at the end of each purchase period. The price of stock
purchased under the Purchase Plan is generally 85% of the lower of the fair
market value of the common stock (1) at the beginning of the offering period or
(2) at the end of the purchase period. In the event the fair market value at the
end of a purchase period is less than the fair market value at the beginning of
the offering period, the participants will be withdrawn from the current
offering period following exercise and automatically re-enrolled in a new
offering period. The new offering period will use the lower fair market value as
of the first date of the new offering period to determine the purchase price for
future purchase periods. Participants may end their participation at any time
during an offering period, and they will be paid their payroll deductions to
date. Participation ends automatically upon termination of employment with us.

Rights granted under the Purchase Plan are not transferable by a
participant other than by will, the laws of descent and distribution, or as
otherwise provided under the Purchase Plan. The Purchase Plan provides that, in
the event of a merger of Extensity with or into another corporation or a sale of
substantially all of our assets, each outstanding option may be assumed or
substituted for by the successor corporation. If the successor corporation
refuses to assume or substitute for the outstanding options, the offering period
then in progress will be shortened and a new exercise date will be set. The
Purchase Plan will terminate in 2009. The board of directors has the authority
to amend or terminate the Purchase Plan, except that no such action may
adversely affect any outstanding rights to purchase stock under the Purchase
Plan.

LIMITATION ON LIABILITY AND INDEMNIFICATION MATTERS

Our certificate of incorporation limits the liability of directors to the
maximum extent permitted by Delaware law. Delaware law provides that directors
of a corporation will not be personally liable for monetary damages for breach
of their fiduciary duties as directors, except for any liability arising with
respect to (1) any breach of their duty of loyalty to the corporation or its
stockholders, (2) acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law or (3) any transaction from
which the director derived an improper personal benefit.

Our certificate of incorporation further provides that we are authorized to
indemnify our directors and executive officers and may indemnify our other
officers and employees and agents to the fullest extent permitted by Delaware
law. We believe that indemnification under our

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<PAGE> 69

certificate of incorporation covers negligence and gross negligence on the part
of indemnified parties.

We have entered into agreements to indemnify our directors and officers, in
addition to indemnification provided for in our certificate of incorporation.
These agreements, among other things, require us to indemnify these directors
and officers for certain expenses (including attorneys' fees), judgments, fines
and settlement amounts incurred by any such person in any action or proceeding,
including any action by or in the right of Extensity, arising out of that
person's services as a director or officer of Extensity, any subsidiary of
Extensity or any other company or enterprise to which the person provides
services at the request of Extensity.

At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent of Extensity where indemnification would be
required or permitted. We are not aware of any pending or threatened litigation
or proceeding that might result in a claim for such indemnification. We believe
that these provisions and agreements are necessary to attract and retain
qualified directors and officers.

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<PAGE> 70

CERTAIN TRANSACTIONS

PREFERRED STOCK SALES

The share numbers and price per share set forth below reflect the
two-for-one stock split of our capital stock effected in April 1996.

Series A Convertible Preferred Stock. In December 1995, we sold shares of
our Series A Preferred Stock convertible into an aggregate of 2,000,000 shares
of common stock at a price of $0.50 per share, to raise capital to finance our
operations. The holders of our Series A Preferred Stock were allotted one seat
on our board of directors, currently filled by John Hummer, in connection with
their investment. This right expires upon closing of this offering.

Series B and Series C Convertible Preferred Stock. In September 1997, we
sold shares of our Series B Preferred Stock convertible into an aggregate of
3,750,000 shares of common stock at a price of $1.59 per share, to raise capital
to finance our operations. In September 1997 we also sold warrants to purchase
937,500 shares of our Series C Preferred Stock at an exercise price of $2.00 per
share to raise capital to finance our operations. The Series C warrants were
converted to Series C Preferred Stock at the time of our Series D financing and
are convertible into an aggregate of 937,500 shares of common stock. The holders
of our Series B Preferred Stock and Series C Preferred Stock, voting together,
were allotted one seat on our board of directors, currently filled by Ted
Schlein, in connection with their investment. This right expires upon closing of
this offering.

Series D Convertible Preferred Stock. In June 1998, we sold shares of our
Series D Preferred Stock convertible into an aggregate of 3,674,229 shares of
common stock at a price of $3.30 per share, to raise capital to finance our
operations. The holders of our Series D Preferred Stock were allotted one seat
on our board of directors, currently filled by Mitchell Kertzman, in connection
with their investment. This right expires upon closing of this offering.

Series E Convertible Preferred Stock. In July 1999, we sold shares of our
Series E Preferred Stock convertible into an aggregate of 3,732,820 shares of
common stock at a price of $6.00 per share, to raise capital to finance our
operations.

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<PAGE> 71

The following 5% stockholders purchased shares in the financings:

<TABLE>
<CAPTION>
NO. OF NO. OF NO. OF NO. OF NO. OF
SHARES OF SHARES OF SHARES OF SHARES OF SHARES OF
SERIES A SERIES B SERIES C SERIES D SERIES E TOTAL AGGREGATE
PURCHASER PREFERRED PREFERRED PREFERRED PREFERRED PREFERRED SHARES CONSIDERATION
--------- --------- --------- --------- --------- --------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Funds Affiliated with Hummer
Winblad Venture Partners
Hummer Winblad Venture
Partners II, L.P. ............ 1,728,000 600,000 150,000 257,575 -- 2,735,575 $3,537,998

Hummer Winblad Technology
Fund II, L.P. ............ 72,000 21,250 5,312 4,242 -- 102,804 $ 119,999

Hummer Winblad Technology
Fund IIA, L.P. ........... -- 3,750 938 4,242 -- 8,930 $ 19,999

Hummer Winblad Venture
Partners III, L.P. ....... -- -- -- 341,603 725,000 1,066,603 $5,477,290

Hummer Winblad Technology
Fund III, L.P. ........... -- -- -- 17,979 -- 17,979 $ 59,331

Funds Affiliated with Weiss
Peck & Greer

WPG Enterprise Fund III,
L.L.C. ................... -- 550,162 137,543 204,654 128,640 1,020,999 $2,345,198

Weiss Peck & Greer Venture
Associates IV, L.L.C. .... -- 596,438 149,107 234,006 147,090 1,126,641 $2,628,760

WP&G Venture Associates IV
Cayman, L.P. ............. -- 78,400 19,600 29,543 18,570 146,113 $ 336,912

WPG Information Sciences
Entrepreneur Fund,
L.P. ..................... -- 25,000 6,250 9,068 5,700 46,018 $ 64,124

Funds Affiliated with Kleiner
Perkins Caufield & Byers

KPCB Java Fund, L.P......... -- 1,203,125 300,782 196,969 183,333 1,884,209 $3,674,996

Kleiner Perkins Caufield &
Byers VIII, L.P. ......... -- 446,799 111,700 176,878 164,633 900,010 $2,327,745

KPCB Information Sciences
Zaibatsu Fund II, L.P..... -- 42,969 10,742 9,848 9,166 72,725 $ 156,244

Kleiner Perkins Caufield &
Byers VIII Founder's Fund,
L.P. ..................... -- 25,857 6,464 10,242 9,533 52,096 $ 90,997

Berkeley International Capital
Limited..................... -- -- -- -- 1,333,333 1,333,333 $7,999,998

Funds Affiliated with Lehman
Brothers Venture Capital
Partners

LBI Group, Inc.............. -- -- -- 863,207 -- 863,207 $2,848,583

Lehman Brothers MBG Venture
Capital Partners 1998(A)
L.P....................... -- -- -- 40,522 -- 40,522 $ 133,723

Lehman Brothers MBG Venture
Capital Partners 1998(B)
L.P....................... -- -- -- 748 -- 748 $ 2,468

Lehman Brothers MBG Venture
Capital Partners 1998(C)
L.P....................... -- -- -- 4,613 -- 4,613 $ 15,223

Lehman Brothers VC Partners
L.P....................... -- -- -- -- 166,667 166,667 $1,000,002
</TABLE>

In connection with the above transactions, we entered into agreements with
the investors providing for registration rights with respect to these shares.
The most recent such agreement is an Amended and Restated Investor Rights
Agreement dated December 16, 1999, which restates and incorporates the
registration rights of all investors. For more information regarding this
agreement, see "Description of Capital Stock -- Registration Rights."

For more information regarding transactions with some of our officers and
directors and their affiliates, see "Compensation Committee Interlocks and
Insider Participation."

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<PAGE> 72

PRINCIPAL STOCKHOLDERS

The following table sets forth certain information with respect to the
beneficial ownership of our common stock as of December 31, 1999 and as adjusted
to reflect the sale of common stock offered for (1) each person who we know to
beneficially own more than 5% of our common stock, (2) each of our directors,
(3) each of the named executive officers and (4) all directors and executive
officers as a group. Except as indicated in the table below or the footnotes
thereto and pursuant to applicable community property laws, the stockholders
named in the table have sole voting and investment power with respect to the
shares set forth opposite each stockholder's name.

<TABLE>
<CAPTION>
PERCENTAGE
OF SHARES
OUTSTANDING(2)
NUMBER OF SHARES -------------------
BENEFICIALLY BEFORE AFTER
NAME AND ADDRESS OWNED(1) OFFERING OFFERING
---------------- ---------------- -------- --------
<S> <C> <C> <C>
Berkeley International Capital Limited(3).................. 1,333,333 7.1% 5.8%
c/o Minden House
6 Minden Place
St. Helier, Jersey, Channel Islands
Entities affiliated with Hummer Winblad Venture Partners,
and John R. Hummer(4).................................... 3,931,891 20.9 17.2
2 South Park, 2nd Floor
San Francisco, CA 94107
Entities affiliated with Kleiner Perkins Caufield & Byers,
and Ted E. Schlein(5).................................... 2,909,040 15.5 12.8
2750 Sand Hill Road
Menlo Park, CA 94025
Entities affiliated with Lehman Brothers Venture Capital
Partners(6).............................................. 1,075,757 5.7 4.7
555 California Street
San Francisco, CA 94104
Entities affiliated with Weiss Peck & Greer Venture
Associates(7)............................................ 2,339,771 12.4 10.3
555 California Street, Suite 3130
San Francisco, CA 94104
Robert A. Spinner(8)....................................... 974,225 5.2 4.3
Sharam I. Sasson(9)........................................ 1,577,000 8.4 6.9
Elizabeth A. Ireland(10)................................... 158,333 * *
Allen F. Nordgren(11)...................................... 166,500 * *
Mitchell E. Kertzman(12)................................... 37,500 * *
Maynard G. Webb............................................ -- * *
Eric C. Ruud(13)........................................... 213,583 1.1 *
All executive officers and directors as a group (10
persons)(14)............................................. 10,056,772 53.1 43.8
</TABLE>

- -------------------------
* Less than 1% of the outstanding shares of common stock.

(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that person,
shares of our common stock subject to options or warrants held by that
person that are currently exercisable or exercisable within 60 days of
December 31, 1999 are deemed outstanding. Such shares, however, are not
deemed outstanding for the purposes of computing the percentage ownership
of each other person. Percentage ownership is based on 18,800,455 shares of
common stock outstanding at December 31, 1999, assuming the conversion of
all outstanding shares of preferred stock into common stock.

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<PAGE> 73

(2) Assumes no exercise of the Underwriters' over-allotment option.

(3) Ronald William Green and Arthur Trueger are the sole natural persons who
exercise voting and/or dispositive powers for the shares held by Berkeley
International Capital Limited.

(4) Consists of 2,735,575 shares held by Hummer Winblad Venture Partners II,
L.P., 102,804 shares held by Hummer Winblad Technology Fund II, L.P., 8,930
shares held by Hummer Winblad Technology Fund IIA, L.P., 1,066,603 shares
held by Hummer Winblad Venture Partners III, L.P. and 17,979 shares held by
Hummer Winblad Technology Fund III, L.P. John Hummer, a member of our board
of directors, is a Managing Member of Hummer Winblad Venture Partners. Mr.
Hummer disclaims beneficial ownership of the shares held by funds
affiliated with Hummer Winblad Venture Partners, except to the extent of
his pecuniary interest therein. Mr. Hummer is the sole natural person who
exercises voting and/or dispositive powers for the shares held by the
entities affiliated with Hummer Winblad Venture Partners.

(5) Consists of 1,884,209 shares held by KPCB Java Fund, L.P., 900,010 shares
held by Kleiner Perkins Caufield & Byers VIII, L.P., 52,096 shares held by
KPCB VIII Founder's Fund, L.P. and 72,725 shares held by KPCB Information
Sciences Zaibatsu Fund II, L.P. Ted Schlein is a member of our board of
directors and a general partner of Kleiner Perkins Caufield & Byers. Mr.
Schlein disclaims beneficial ownership of the shares held by funds
affiliated with Kleiner Perkins Caufield & Byers, except to the extent of
his pecuniary interest therein. The following natural persons exercise
voting and/or dispositive powers for the shares held by the KPCB
Information Sciences Zaibatsu Fund II, L.P.: Brook Byers, John Doerr, Vinod
Khosla, Joseph Lacob, Kevin Compton, W.S. McKinsey and William Hearst. The
following natural persons exercise voting and/or dispositive powers for the
shares held by the KPCB Java Fund L.P., Kleiner Perkins Caufield & Byers
VIII, L.P. and Kleiner Perkins Caufield & Byers VIII Founder's Fund, L.P.:
Brook Byers, John Doerr, James Lally, Floyd Kvamme, Vinod Khosla, Joseph
Lacob, Bernard Lacroute, Kevin Compton, W.S. McKinsey and William Hearst.

(6) Consists of 863,207 shares held by LBI Group, Inc., 40,522 shares held by
Lehman Brothers MBG Venture Capital Partners 1998 (A) L.P., 748 shares held
by Lehman Brothers MBG Venture Capital Partners 1998 (B) L.P., 4,613 shares
held by Lehman Brothers MGB Venture Capital Partners 1998 (C) L.P., and
166,667 shares held by Lehman Brothers VC Partners L.P.

(7) Consists of 1,020,999 shares held by WPG Enterprise Fund III, L.L.C.,
1,126,641 shares held by Weiss Peck & Greer Venture Associates IV, L.L.C.,
146,113 shares held by WP&G Venture Associates IV Cayman, L.P. and 46,018
shares held by WPG Information Sciences Entrepreneur Fund, L.P. The
following natural persons exercise voting and/or dispositive powers for the
shares held by the entities affiliated with Weiss Peck & Greer: Gil Cogan,
Phillip Greer and Peter Nieh.

(8) Includes 727,576 shares held by the Spinner Family Trust U/D/T dated August
3, 1999. Also includes 10,000 shares held by the Jacqueline Nicole Spinner
Trust UTA dated August 3, 1999, 10,000 shares held by the Amanda Spinner
Trust UTA dated August 3, 1999 and 10,000 shares held by the Samantha
Sidney Spinner Trust UTA dated August 3, 1999, as to which shares Mr.
Spinner disclaims beneficial ownership. Includes 604,302 shares subject to
a right of repurchase in favor of Extensity which lapses over a period of
time, and options to purchase 66,076 shares of our common stock that will
vest within 60 days of December 31, 1999.

(9) Includes 1,057,000 shares held by the Sasson Family Trust U/D/T dated
December 28, 1994, 250,000 shares held by the Fariba J. Sasson Annuity
Trust I U/I dated October 19, 1999 and 250,000 shares held by the Sharam I.
Sasson Annuity Trust I U/I dated October 19, 1999. Also includes 10,000
shares held by the DAS Trust UTA dated September 24, 1998 and 10,000 shares
held by the EIS Trust UTA dated September 24, 1998, as to which shares Mr.
Sasson disclaims beneficial ownership.

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<PAGE> 74

(10) Includes 71,875 shares subject to a right of repurchase in favor of
Extensity which lapses over a period of time.

(11) Includes 96,875 shares subject to a right of repurchase in favor of
Extensity which lapses over a period of time.

(12) Includes options to purchase 37,500 shares of our common stock that will
vest within 60 days of December 31, 1999.

(13) Includes 79,167 shares subject to a right of repurchase in favor of
Extensity which lapses over a period of time, and options to purchase
14,583 shares of our common stock that will vest within 60 days of December
31, 1999.

(14) Includes an aggregate of 907,635 shares subject to a right of repurchase in
favor of Extensity which lapses over a period of time, and options to
purchase an aggregate of 135,875 shares of our common stock that will vest
within 60 days of December 31, 1999.

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<PAGE> 75

DESCRIPTION OF CAPITAL STOCK

AUTHORIZED AND OUTSTANDING CAPITAL STOCK

Our authorized capital stock as of December 31, 1999 consisted of
30,000,000 shares of common stock, and 15,082,970 shares of preferred stock. As
of December 31, 1999, there were outstanding 4,205,906 shares of common stock
and 14,594,549 shares of preferred stock. Such shares were held of record by a
total of 228 stockholders.

Upon the closing of this offering:

- our certificate of incorporation will be amended and restated to provide
for total authorized capital consisting of 75,000,000 shares of common
stock and 5,000,000 shares of preferred stock; and

- all shares of preferred stock will convert into common stock, and a total
of 22,800,455 shares of common stock and no shares of preferred stock
will be outstanding, based on the number of shares outstanding as of
December 31, 1999 and assuming no exercise of the underwriters'
over-allotment option, after giving effect to the sale of common stock we
are offering.

Common Stock

The holders of our common stock are entitled to receive dividends as may be
declared by our board of directors and paid out of legally available funds.
Holders of shares of common stock are entitled to one vote per share upon all
matters upon which stockholders have the right to vote. Cumulative voting of
shares is not permitted. In the event of a voluntary or involuntary liquidation,
dissolution or winding up of Extensity, the holders of our common stock are
entitled to receive and share ratably in all assets remaining available for
distribution to stockholders after payment of any preferential amounts to which
the holders of preferred stock may be entitled. Our common stock has no
preemptive rights and is not redeemable, assessable or entitled to the benefits
of any sinking fund. Shares of our common stock held by all other persons are
not convertible. All outstanding shares of our common stock are, and the common
stock to be issued in this offering will be, validly issued, fully paid and
nonassessable.

Preferred Stock

As of the closing date of this offering, each outstanding share of
preferred stock will automatically convert into one share of common stock.
Pursuant to an amended and restated certificate of incorporation to be filed
upon the closing date, a total of 5,000,000 shares of preferred stock will be
authorized for issuance, none of which has been designated in any series. Our
board of directors is authorized, without further stockholder action, to
authorize and issue any of the 5,000,000 undesignated shares of preferred stock
in one or more series and to fix the voting rights, liquidation preferences,
dividend rights, repurchase rights, conversion rights, preemption rights,
redemption rights and terms, including sinking fund provisions and certain other
rights and preferences of such shares of our preferred stock. The issuance of
any class or series of preferred stock could adversely affect the rights of the
holders of common stock by restricting dividends on, diluting the power of,
impairing the liquidation rights of common stock, or delaying, deferring or
preventing a change in control of Extensity. We have no present plans to issue
any preferred stock.

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<PAGE> 76

WARRANTS

In connection with certain credit arrangements, we issued to Comdisco
warrants to purchase a total of 160,303 shares of Series D Preferred Stock at an
exercise price, subject to certain adjustments, of $3.30 per share. Following
the closing of the offering, the warrants automatically will become exercisable
for a similar number of shares of common stock at the same exercise price per
share. Comdisco may exercise such warrants by means of (1) a cash payment in an
amount equal to the exercise price or (2) in the event the common stock is
publicly traded, a net issue exercise whereby Comdisco would receive shares
equal to the value of the warrant, as calculated pursuant to the terms set forth
therein. The warrants expire upon the earlier to occur of (A) various dates
ranging from March 25, 2008 to December 25, 2008, (B) 5 years after the
effective date of our initial public offering, or (C) a change in control of
Extensity.

In connection with certain credit arrangements, we issued to Silicon Valley
Bank a warrant to purchase 23,585 shares of Series B Preferred Stock at an
exercise price, subject to certain adjustments, of $1.59 per share. Following
the closing of this offering, the warrant automatically will become exercisable
for a similar number of shares of Common Stock at the same exercise price per
share. Silicon Valley Bank may exercise the warrant by means of (1) a cash
payment in an amount equal to the exercise price or (2) in the event our common
stock is publicly traded, a net issue exercise whereby Silicon Valley Bank would
receive shares equal to the value of the warrant, as calculated pursuant to the
terms set forth therein. The warrant expires on January 28, 2002.

REGISTRATION RIGHTS

The holders of approximately 14,594,549 shares of outstanding common stock
held by investors who purchased shares of Series A, Series B, Series C, Series
D, Series E and Series F Preferred Stock, and the holders of warrants to
purchase preferred stock convertible into 183,888 shares of our common stock
will be entitled to certain rights with respect to the registration of such
shares of common stock under the Securities Act. Under the terms of the Amended
and Restated Investor Rights Agreement dated December 16, 1999, if we propose to
register any of our common stock under the Securities Act, the holders of the
registrable securities are entitled to notice of the registration and have the
right to include their registrable securities in the registration. However, the
underwriters have certain rights to limit the number of shares included in any
registration. Beginning 180 days after the closing of the offering, the holders
of at least 40% of the registrable securities (other than Comdisco or Silicon
Valley Bank), have the right to require us on no more than two occasions, to
file a registration statement under the Securities Act in order to register all
or any part of their registrable securities, subject to certain conditions and
limitations. Comdisco and Silicon Valley Bank may include their shares acquired
pursuant to warrant agreements where we have been required to file a
registration statement. We may in certain circumstances defer such
registrations, and the underwriters have the right (subject to certain
limitations) to limit, and in the case of our initial public offering, to
exclude entirely, the number of shares included in such registrations. Further,
the holders of registrable securities may require us to register all or any
portion of their registrable securities on Form S-3, when such form becomes
available to us, subject to certain conditions and limitations.

69
<PAGE> 77

ANTITAKEOVER EFFECTS OF PROVISIONS OF THE CERTIFICATE OF INCORPORATION, AND
BYLAWS AND OF DELAWARE LAW

Certain provisions of our certificate of incorporation, bylaws and Delaware
law, described below, may have the effect of delaying, deferring or discouraging
another person from acquiring control of our company.

Certificate of Incorporation and Bylaws

Certain provisions of our certificate of incorporation and Bylaws are
designed to enhance the likelihood of continuity and stability of our board of
directors and in the policies formulated thereby. Accordingly, such provisions
may have the effect of preventing, discouraging or delaying any potential
acquisition proposals or changes in the control of our company and of preventing
changes in our management.

Effect of Delaware Anti-Takeover Statute

We are subject to Section 203 of the Delaware General Corporation Law
which, subject to certain exceptions, prohibits a Delaware corporation from
engaging in any business combination with any interested stockholder for a
period of three years following the date that the stockholder became an
interested stockholder, unless:

- the transaction is approved by the board of directors prior to the date
the interested stockholder attained such status;

- upon the closing of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced; or

- on or subsequent to such date the business combination is approved by the
board of directors and authorized at an annual or special meeting of
stockholders by at least two-thirds of the outstanding voting stock that
is not owned by the interested stockholder.

Generally, a "business combination" includes a merger, asset or stock sale,
or other transaction resulting in a financial benefit to the interested
stockholder. Generally, an "interested stockholder" is a person who, together
with affiliates and associates, owns or within three years prior to the
determination of interested stockholder status, did own, 15% or more of a
corporation's voting stock.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for our common stock is Equiserve.

LISTING

We have applied to list our common stock on the Nasdaq National Market
under the trading symbol "EXTN."

70
<PAGE> 78

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of this offering, we will have 22,800,455 shares of common
stock outstanding, based on shares outstanding at December 31, 1999. Of these
shares, the 4,000,000 shares sold in this offering will be freely tradable
without restriction under the Securities Act, unless purchased by our
"affiliates," as that term is defined in Rule 144 under the Securities Act.
Substantially all shares of our stock outstanding prior to this offering are
subject to 180-day lock-up agreements, and may not be sold in the public market
prior to the expiration of the lock-up agreements. Deutsche Bank Securities Inc.
may release the shares subject to the lock-up agreements in whole or in part at
any time without prior public notice. However, Deutsche Bank Securities Inc. has
no current plans effect such a release. Upon the expiration of the lock-up
agreements, approximately 14,546,635 additional shares will be available for
sale in the public market, subject in some cases to compliance with the volume
and other limitations of Rule 144.

<TABLE>
<CAPTION>
DAYS AFTER DATE SHARES
OF THIS PROSPECTUS ELIGIBLE FOR SALE COMMENT
------------------ ----------------- -------
<S> <C> <C>
Upon effectiveness................... 4,000,000 Freely tradable shares sold in this offering
90 days.............................. 0 All holders of securities are bound by lock-up
agreements
180 days............................. 14,546,635 Lock-up released; shares saleable under Rule
144, 144(k) or 701
Various dates thereafter............. 4,253,820 Restricted securities held for one year or
less as of 180 days following effectiveness
</TABLE>

RULE 144

In general, under Rule 144 a person (or persons whose shares are
aggregated) 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

- 1% of the then outstanding shares of our common stock (approximately
228,004 shares immediately after this offering) or

- the average weekly trading volume during the four calendar weeks
preceding such sale, subject to the filing of a Form 144 with respect to
the sale.

A person (or persons whose shares are aggregated) who is not deemed to have
been our affiliate at any time during the 90 days immediately preceding the sale
who has beneficially owned his or her shares for at least two years is entitled
to sell these shares pursuant to Rule 144(k) without regard to the limitations
described above. Affiliates must always sell pursuant to Rule 144, even after
the applicable holding periods have been satisfied.

We cannot estimate the number of shares that will be sold under Rule 144,
as this will depend on the market price for our common stock, the personal
circumstances of the sellers and other factors. Prior to this offering, there
has been no public market for our common stock, and there can be no assurance
that a significant public market for our common stock will develop or be
sustained after this offering. Any future sale of substantial amounts of our
common stock in the open market may adversely affect the market price of our
common stock.

LOCK-UP AGREEMENTS

We and our directors, executive officers, substantially all of our
stockholders, and holders of options and warrants to purchase our capital stock
have agreed pursuant to the underwriting

71
<PAGE> 79

agreement and other agreements not to sell any of our common stock without the
prior consent of Deutsche Bank Securities Inc. until 180 days from the date of
this prospectus, except that we may, without such consent, grant options and
sell shares pursuant to our 1996 Stock Option Plan and our Employee Stock
Purchase Plan 2000.

STOCK OPTIONS

We intend to file a registration statement on Form S-8 under the Securities
Act to register shares of our common stock that are subject to outstanding
options or reserved for issuance under our 1996 Stock Option Plan and our
Employee Stock Purchase Plan 2000 within 180 days after the date of this
prospectus, thus permitting the resale of these shares by nonaffiliates in the
public market without restriction under the Securities Act.

RULE 701

Any of our employees or consultants who purchased his or her shares
pursuant to a written compensatory plan or contract is entitled to rely on the
resale provisions of Rule 701, which permits nonaffiliates to sell their Rule
701 shares without having to comply with the public information, holding period,
volume limitation or notice provisions of Rule 144 and permits affiliates to
sell their Rule 701 shares without having to comply with the Rule 144 holding
period restrictions, in each case commencing 90 days after the date of this
prospectus. As of December 31, 1999, the holders of approximately 2,408,203
shares of our common stock will be eligible to sell their shares in reliance
upon Rule 701 upon the expiration of the 180-day lockup period.

REGISTRATION RIGHTS

After this offering, the holders of 14,594,549 shares of our common stock
and warrants to purchase preferred stock convertible into 183,888 shares of our
common stock will be entitled to certain rights with respect to registration of
such shares under the Securities Act. Registration of these shares under the
Securities Act would result in these shares becoming freely tradable without
restriction under the Securities Act (except for shares purchased by our
affiliates). See "Description of Capital Stock -- Registration Rights."

72
<PAGE> 80

UNDERWRITING

Subject to the terms and conditions of the underwriting agreement, the
underwriters named below, through their representatives Deutsche Bank Securities
Inc., Bear, Stearns & Co. Inc. and Hambrecht & Quist LLC, have severally agreed
to purchase from Extensity the following respective number of shares of common
stock at a public offering price less the underwriting discounts and commissions
set forth on the cover page of this prospectus:

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
Deutsche Bank Securities Inc................................
Bear, Stearns & Co. Inc.....................................
Hambrecht & Quist LLC.......................................
---------
Total.....................................................
=========
</TABLE>

The underwriting agreement provides that the obligations of the several
underwriters to purchase the shares of common stock offered hereby are subject
to certain conditions precedent and that the underwriters will purchase all
shares of the common stock offered hereby, other than those covered by the
over-allotment option described below, if any of these shares are purchased.

The underwriters propose to offer the shares of common stock to the public
at the public offering price set forth on the cover of this prospectus and to
dealers at a price that represents a concession not in excess of $ per share
under the public offering price. The underwriters may allow, and these dealers
may re-allow, a concession of not more than $ per share to other dealers.
After the initial public offering, representatives of the underwriters may
change the offering price and other selling terms.

We have granted to the underwriters an option, exercisable not later than
30 days after the date of this prospectus, to purchase up to 600,000 additional
shares of common stock at the public offering price less the underwriting
discounts and commissions set forth on the cover page of this prospectus. The
underwriters may exercise this option only to cover over-allotments made in
connection with the sale of the common stock offered hereby. To the extent that
the underwriters exercise this option, each of the underwriters will become
obligated, subject to conditions, to purchase approximately the same percentage
of additional shares of common stock as the number of shares of common stock to
be purchased by it in the above table bears to the total number of shares of
common stock offered hereby. We will be obligated, pursuant to the option, to
sell these additional shares of common stock to the underwriters to the extent
the option is exercised. If any additional shares of common stock are purchased,
the underwriters will offer the additional shares on the same terms as those on
which the 4,000,000 shares are being offered.

The underwriting fee is equal to the public offering price per share of
common stock less the amount paid by the underwriters to us per share of common
stock. The underwriting fee is currently expected to be approximately 7% of the
initial public offering price. We have agreed to pay the underwriters the
following fees, assuming either no exercise or full exercise by the underwriters
of the underwriters' over-allotment option:

<TABLE>
<CAPTION>
TOTAL FEES
----------------------------------------------
WITHOUT EXERCISE OF WITH FULL EXERCISE OF
FEE PER SHARE OVER-ALLOTMENT OPTION OVER-ALLOTMENT OPTION
------------- --------------------- ---------------------
<S> <C> <C> <C>
Fees paid by Extensity............ $ $ $
</TABLE>

In addition, we estimate that our share of the total expenses of this
offering, excluding underwriting discounts and commissions, will be
approximately $1,700,000.

73
<PAGE> 81

We have agreed to indemnify the underwriters against some specified types
of liabilities, including liabilities under the Securities Act, and to
contribute to payments the underwriters may be required to make in respect of
any of these liabilities.

Each of our officers and directors, and substantially all of our
stockholders and holders of options and warrants to purchase our stock, have
agreed not to offer, sell, contract to sell or otherwise dispose of, or enter
into any transaction that is designed to, or could be expected to, result in the
disposition of any shares of our common stock or other securities convertible
into or exchangeable or exercisable for shares of our common stock or
derivatives of our common stock owned by these persons prior to this offering or
common stock issuable upon exercise of options or warrants held by these persons
for a period of 180 days after the effective date of the registration statement
of which this prospectus is a part without the prior written consent of Deutsche
Bank Securities Inc. This consent may be given at any time without public
notice. We have entered into a similar agreement with the representatives of the
underwriters, except that we may grant options and sell shares pursuant to our
1996 Stock Option Plan and our Employee Stock Purchase Plan 2000 without such
consent. There are no agreements between the representatives and any of our
stockholders or affiliates releasing them from these lock-up agreements prior to
the expiration of the 180-day period.

The representatives of the underwriters have advised us that the
underwriters do not intend to confirm sales to any account over which they
exercise discretionary authority.

In order to facilitate the offering of our common stock, the underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
market price of our common stock. Specifically, the underwriters may over-allot
shares of our common stock in connection with this offering, thus creating a
short position in our common stock for their own account. A short position
results when an underwriter sells more shares of common stock than that
underwriter is committed to purchase. Additionally, to cover these
over-allotments or to stabilize the market price of our common stock, the
underwriters may bid for, and purchase, shares of our common stock in the open
market. Finally, the representatives, on behalf of the underwriters, may also
reclaim selling concessions allowed to an underwriter or dealer if the
underwriting syndicate repurchases shares distributed by that underwriter or
dealer. Any of these activities may maintain the market price of our common
stock at a level above that which might otherwise prevail in the open market.
These transactions may be effected on the Nasdaq National Market or otherwise.
The underwriters are not required to engage in these activities and, if
commenced, may end any of these activities at any time.

At our request, the underwriters have reserved for sale, at the initial
public offering price, up to 360,000 shares for our vendors, employees, family
members of employees, customers and other third parties. The number of shares of
our common stock available for sale to the general public will be reduced to the
extent these reserved shares are purchased. Any reserved shares that are not
purchased by these persons will be offered by the underwriters to the general
public on the same basis as the other shares in this offering.

In July 1999, we sold shares of our Series E Preferred Stock in a private
placement at a price of $6.00 per share. Each of the shares of Series E
Preferred Stock is convertible at the option of the holder into one share of our
common stock. In this private placement, BT Investment Partners, Inc., an
affiliate of Deutsche Bank Securities Inc., purchased 166,666 shares of Series E
Preferred Stock for an aggregate purchase price of $999,996. BT Investment
Partners, Inc. purchased the Series E Preferred Stock on the same terms as the
other investors in the private placement. Upon conversion of these shares into
common stock, based upon an assumed public offering price of $17.00, the value
of these shares is $2,833,322. The difference between the amount that BT
Investment Partners, Inc. originally paid for the Series E preferred stock and
the value of the Series E Preferred Stock based upon the assumed initial

74
<PAGE> 82

public offering price equals $1,833,326. Pursuant to the rules and regulations
of the National Association of Securities Dealers, Inc. these shares of Series E
Preferred Stock, and the common stock issued upon conversion thereof, may not be
sold, transferred, assigned, pledged or hypothecated by any person for a period
of one year after the effective date of this offering, except to officers or
partners of the underwriters and members of the selling group and their officers
or partners.

PRICING OF THIS OFFERING

Prior to this offering, there has been no public market for our common
stock. Consequently, the initial public offering price for our common stock has
been determined by negotiation among us and the representatives of the
underwriters. Among the primary factors considered in determining the public
offering price were:

- prevailing market conditions;

- our results of operations in recent periods;

- the present stage of our development;

- the market capitalization and stage of development of other companies
that we and the representatives of the underwriters believe to be
comparable to our business; and

- estimates of our business potential.

The estimated initial public offering price range set forth on the cover of
this preliminary prospectus is subject to change as a result of market
conditions and other factors.

LEGAL MATTERS

The validity of the common stock offered hereby will be passed upon for us
by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo Alto,
California. Certain legal matters in connection with this offering will be
passed upon for the underwriters by Morrison & Foerster LLP, Irvine, California.
At the close of this offering, WS Investments, an investment partnership
composed of some current and former members of and persons associated with
Wilson Sonsini Goodrich & Rosati, a Professional Corporation, as well as an
individual attorney at this firm, will beneficially own a total of 47,603 shares
of our common stock.

EXPERTS

The consolidated financial statements of Extensity as of December 31, 1998
and 1999 and for each of the three years in the period ended December 31, 1999
included in this Prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.

75
<PAGE> 83

WHERE YOU CAN FIND ADDITIONAL INFORMATION

We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act with respect to the common stock.
This prospectus does not contain all of the information set forth in the
registration statement and the exhibits and schedule filed as part of the
registration statement. For further information with respect to us and our
common stock, we refer you to the registration statement and the exhibits and
schedule filed as a part of the registration statement. Statements contained in
this prospectus concerning the contents of any contract or any other document
are not necessarily complete. If a contract or document has been filed as an
exhibit to the registration statement, we refer you to the copy of the contract
or document that has been filed. Each statement in this prospectus relating to a
contract or document filed as an exhibit is qualified in all respects by the
filed exhibit. The registration statement, including exhibits and schedule, may
be inspected without charge at the principal office of the Securities and
Exchange Commission in Washington, D.C., and copies of all or any part of it may
be obtained from that office after payment of fees prescribed by the Securities
and Exchange Commission. The Securities and Exchange Commission maintains a
website that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the Securities
and Exchange Commission at http://www.sec.gov.

Upon completion of this offering, Extensity will become subject to the
information and periodic reporting requirements of the Securities Exchange Act
and, in accordance therewith, will file periodic reports, proxy statements and
other information with the SEC. These periodic reports, proxy statements and
other information will be available for inspection and copying at the SEC's
public reference rooms and the website of the SEC referred to above.

We intend to provide our stockholders with annual reports containing
financial statements audited by an independent public accounting firm and to
make available to our stockholders quarterly reports containing unaudited
financial data for the first three quarters of each year.

76
<PAGE> 84

EXTENSITY, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants........................... F-2
Consolidated Balance Sheets................................. F-3
Consolidated Statements of Operations....................... F-4
Consolidated Statements of Stockholders' Equity (Deficit)... F-5
Consolidated Statements of Cash Flows....................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>

F-1
<PAGE> 85

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of
Extensity, Inc.

In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of stockholders' deficit and of
cash flows present fairly, in all material respects, the financial position of
Extensity, Inc. as of December 31, 1998 and 1999, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1999, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits in accordance with generally accepted
auditing standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.

/s/ PricewaterhouseCoopers LLP

January 20, 2000

San Jose, California

F-2
<PAGE> 86

EXTENSITY, INC.

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)

ASSETS

<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
AS OF DECEMBER 31, EQUITY AS OF
------------------------- DECEMBER 31,
1998 1999 1999
-------- ------------- -------------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 5,239 $ 10,416
Short term investments.................................... 5,644 13,869
Restricted short term investment.......................... 82 76
Trade accounts receivable, net of allowance for doubtful
accounts of $0 and $200 in 1998 and 1999,
respectively............................................ 1,178 3,176
Prepaids and other assets................................. 119 1,278
-------- --------
Total current assets.................................. 12,262 28,815
Property and equipment, net................................. 1,476 2,309
Other assets................................................ 73 537
-------- --------
Total assets.......................................... $ 13,811 $ 31,661
======== ========
LIABILITIES, MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK
AND STOCKHOLDERS' EQUITY (DEFICIT):
Current liabilities:
Accounts payable.......................................... $ 349 $ 1,834
Accrued liabilities....................................... 678 1,917
Deferred revenue.......................................... 2,513 10,051
Capital lease obligations, current portion................ 287 561
Notes payable, current portion............................ 1,116 1,225
-------- --------
Total current liabilities............................. 4,943 15,588
-------- --------
Capital lease obligations, noncurrent portion............... 746 698
Notes payable, noncurrent portion........................... 1,725 587
Deferred rent............................................... 140 201
-------- --------
Total liabilities..................................... 7,554 17,074
Commitments (Note 5)
Mandatorily redeemable convertible preferred stock:
15,082,970 shares authorized; 10,361,729 and 14,594,549
shares outstanding actual (aggregate liquidation
preference $47,859,898) and none outstanding pro forma
(unaudited)............................................. 21,269 49,648
-------- --------
Stockholders' equity (deficit):
Common stock, $0.001 par value,
30,000,000 shares authorized actual; 2,350,815 and
4,205,906 shares issued and outstanding actual;
18,800,455 shares issued and outstanding pro forma
(unaudited)............................................. 2 4 $ 19
Additional paid-in capital................................ 77 10,903 60,536
Notes receivable from stockholders........................ -- (130) (130)
Deferred stock compensation............................... -- (5,853) (5,853)
Cumulative translation adjustment......................... -- (5) (5)
Accumulated deficit....................................... (15,091) (39,980) (39,980)
-------- -------- --------
Total stockholders' equity (deficit).................. (15,012) (35,061) $ 14,587
-------- -------- ========
Total liabilities, mandatorily redeemable convertible
preferred stock and stockholders' equity
(deficit).......................................... $ 13,811 $ 31,661
======== ========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 87

EXTENSITY, INC.

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

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1997 1998 1999
------- -------- --------
<S> <C> <C> <C>
REVENUES
Licenses.................................................... $ -- $ 718 $ 3,750
Services and maintenance.................................. 409 3,064
------- -------- --------
Total revenues.......................................... -- 1,127 6,814
------- -------- --------
COST OF REVENUES:
Licenses.................................................. 90 195
Services and maintenance (exclusive of non-cash stock
based compensation of $344 in 1999)..................... 1,554 4,758
------- -------- --------
Total cost of revenues.................................. -- 1,644 4,953
------- -------- --------
Gross profit (loss)......................................... -- (517) 1,861
OPERATING EXPENSES:
Sales and marketing (exclusive of non-cash stock based
compensation of $989 in 1999)........................... 1,082 4,703 11,202
Research and development (exclusive of non-cash stock
based compensation of $1,045 in 1999)................... 1,713 4,401 7,052
General and administrative (exclusive of non-cash stock
based compensation of $1,974 in 1999)................... 540 1,439 2,810
Amortization of non-cash stock based compensation......... -- -- 4,352
------- -------- --------
Total operating expenses................................ 3,335 10,543 25,416
------- -------- --------
Loss from operations.................................... (3,335) (11,060) (23,555)
Interest income............................................. 107 332 667
Interest expense............................................ -- (299) (501)
Other expense............................................... -- (5) --
------- -------- --------
Net loss.............................................. $(3,228) $(11,032) $(23,389)
======= ======== ========
Dividend relating to beneficial conversion feature of Series
F preferred stock......................................... -- -- (1,500)
------- -------- --------
Net loss attributable to common stockholders................ $ $ $(24,889)
======= ======== ========
Net loss per share attributable to common stockholders:
Basic and diluted......................................... $ (4.35) $ (8.25) $ (11.20)
======= ======== ========
Weighted average shares................................... 742 1,338 2,222
Pro forma net loss per share attributable to common
stockholders (unaudited):
Basic and diluted......................................... $ (1.13) $ (1.76)
======== ========
Weighted average shares................................... 9,778 14,160
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 88

EXTENSITY, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(in thousands, except share data)
<TABLE>
<CAPTION>
NOTES
COMMON STOCK ADDITIONAL RECEIVABLE DEFERRED
------------------ PAID-IN FROM STOCK
SHARES AMOUNT CAPITAL STOCKHOLDERS COMPENSATION
--------- ------ ---------- ------------ ------------
(IN THOUSANDS EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996...... 1,750,000 $1 $ -- $ -- $ --

Exercise of stock options......... 196,111 1 17 -- --

Net loss.......................... -- -- -- -- --
--------- -- ------- ----- --------
Balance at December 31, 1997...... 1,946,111 2 17 -- --

Common stock issued for services
rendered......................... 47,703 -- 7 -- --

Exercise of stock options......... 357,001 -- 53 -- --

Net loss.......................... -- -- -- -- --
--------- -- ------- ----- --------
Balance at December 31, 1998...... 2,350,815 2 77 -- --

Exercise of stock options......... 1,855,091 2 621 (230) --

Deferred stock compensation....... -- -- 10,205 -- (10,205)

Amortization of deferred stock
compensation..................... -- -- -- -- 4,352

Repayment of note receivable from
stockholder...................... -- -- -- 100 --

Cumulative translation
adjustment....................... -- -- -- -- --

Beneficial conversion feature --
Series F preferred stock......... -- -- -- -- --

Net loss.......................... -- -- -- -- --
--------- -- ------- ----- --------
Balance at December 31, 1999...... 4,205,906 $4 $10,903 $(130) $ (5,853)
========= == ======= ===== ========

<CAPTION>
TOTAL
CUMULATIVE STOCKHOLDERS'
TRANSLATION ACCUMULATED EQUITY
ADJUSTMENT DEFICIT (DEFICIT)
----------- ----------- -------------
(IN THOUSANDS EXCEPT SHARE DATA)
<S> <C> <C> <C>
Balance at December 31, 1996...... $-- $ (831) $ (830)
Exercise of stock options......... -- -- 18
Net loss.......................... -- (3,228) (3,228)
--- -------- --------
Balance at December 31, 1997...... -- (4,059) (4,040)
Common stock issued for services
rendered......................... -- -- 7
Exercise of stock options......... -- -- 53
Net loss.......................... -- (11,032) (11,032)
--- -------- --------
Balance at December 31, 1998...... -- (15,091) (15,012)
Exercise of stock options......... -- -- 393
Deferred stock compensation....... -- -- --
Amortization of deferred stock
compensation..................... -- -- 4,352
Repayment of note receivable from
stockholder...................... -- -- 100
Cumulative translation
adjustment....................... (5) -- (5)
Beneficial conversion feature --
Series F preferred stock......... -- (1,500) (1,500)
Net loss.......................... -- (23,389) (23,389)
--- -------- --------
Balance at December 31, 1999...... $(5) $(39,980) $(35,061)
=== ======== ========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 89

EXTENSITY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1997 1998 1999
------- -------- --------
<S> <C> <C> <C>
Cash from operating activities:
Net loss.................................................... $(3,228) $(11,032) $(23,389)
Adjustments to reconcile net loss to cash used in
operating activities:
Depreciation and amortization........................... 153 528 908
Amortization of non-cash stock based compensation....... -- -- 4,352
Common stock issued for services rendered............... 24 7 --
Amortization of debt discount and lease line issuance
cost................................................... -- 58 88
Cumulative translation adjustment....................... -- -- (5)
Changes in operating assets and liabilities:
Increase in accounts receivable....................... -- (1,178) (1,997)
Increase in prepaids and other assets................. (94) (55) (1,624)
Increase (decrease) in accounts payable............... 270 69 1,485
Increase in accrued liabilities....................... 38 628 1,239
Increase in deferred revenue.......................... 300 2,213 7,538
Increase (decrease) in deferred rent.................. (6) 130 61
------- -------- --------
Net cash used in operating activities............... (2,543) (8,632) (11,344)
------- -------- --------
Cash from investing activities:
Capital expenditures...................................... (894) (429) (1,322)
Purchase of short term investments........................ -- (5,644) (8,225)
(Increase) decrease in restricted short term
investments............................................. (23) (49) 6
------- -------- --------
Net cash used in investing activities............... (917) (6,122) (9,541)
------- -------- --------
Cash from financing activities:
Proceeds from loan........................................ 250 3,500 --
Payments on loan.......................................... (250) (446) (1,117)
Payments on capital lease obligations..................... -- (186) (446)
Proceeds from sale-lease back............................. -- 535 254
Net proceeds from issuance of preferred stock............. 5,933 13,978 26,878
Proceeds from issuance of preferred stock warrants........ 37 -- --
Proceeds from issuance of common stock.................... 19 52 493
------- -------- --------
Net cash provided by financing activities........... 5,989 17,433 26,062
------- -------- --------
Increase in cash............................................ 2,529 2,679 5,177
Cash and cash equivalents, beginning of period.............. 31 2,560 5,239
------- -------- --------
Cash and cash equivalents, end of period.................... $ 2,560 $ 5,239 $ 10,416
======= ======== ========
Supplemental cash flow information:
Interest paid............................................. $ 5 $ 241 $ 435
======= ======== ========
Income taxes paid......................................... $ 1 $ 1 $ 1
======= ======== ========
Noncash investing and financing activities:
Purchase of equipment under capital leases................ $ -- $ 1,218 $ --
======= ======== ========
Notes receivable from stockholders........................ $ -- $ -- $ 130
======= ======== ========
Convertible preferred stock warrants issued............... $ 24 $ 309 $ --
======= ======== ========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-6
<PAGE> 90

EXTENSITY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION AND BASIS OF PRESENTATION

Extensity, Inc. (the Company) provides Internet-based workforce
optimization software applications designed to improve the productivity of
employees across the enterprise and to enhance enterprise operating efficiency.
The Company was incorporated as Celerity, Inc. in Delaware in November 1995,
changed its name from Celerity, Inc. to At Large Software, Inc. effective April
12, 1996, and changed its name from At Large Software, Inc. to Extensity, Inc.,
effective August 19, 1997.

In October 1999, the Company's Board of Directors authorized the Company to
file a registration statement with the Securities and Exchange Commission for
the purpose of an initial public offering of the Company's common stock. Upon
the completion of this offering, the Company's preferred stock will be converted
into shares of common stock, and all outstanding shares of preferred stock will
be cancelled and retired. The pro forma effect of the conversion has been
presented as a separate column in the Company's balance sheet, assuming the
conversion had occurred as of December 31, 1999.

The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiary, Extensity Europe Limited, which commenced
operations in September 1999. All significant intercompany balances and
transactions have been eliminated in consolidation.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles 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.

CASH AND CASH EQUIVALENTS

The Company considers all investments with an original maturity of three
months or less to be cash equivalents. The Company periodically maintains cash
balances at banks in excess of the Federal Deposit Insurance Corporation
insurance limit of $100,000.

SHORT TERM INVESTMENTS

The Company accounts for its investments in quality corporate debt
securities under the provisions of Statement of Financial Accounting Standards
No. 115 (SFAS 115), Accounting for Certain Investments in Debt and Equity
Securities. The Company has classified all marketable debt securities as
held-to-maturity and has accounted for these investments at amortized cost. As
of December 31, 1999, the Company's carrying value of its short term investments
approximated their amortized cost basis.

RESTRICTED SHORT TERM INVESTMENT

The restricted short term investment consists of several one year
certificates of deposit required as collateral for the Company's letters of
credit (Note 5).

F-7
<PAGE> 91
EXTENSITY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

CONCENTRATION OF CREDIT RISK AND CERTAIN RISKS

Financial instruments that potentially subject the Company to a
concentration of credit risk consist of cash and cash equivalents, short term
investments and accounts receivable. The Company's accounts receivable are
derived from revenue earned from customers located primarily in the United
States. The Company performs credit evaluations of its customers' financial
condition and, generally, requires no collateral from its customers. The Company
maintains an allowance for doubtful accounts receivable based upon the expected
collectibility of accounts receivable.

At December 31, 1998, two customers accounted for 60% of total accounts
receivable. At December 31, 1999, one customer accounted for 10% of total
accounts receivable.

Four customers accounted for 66% of total revenue during fiscal 1998. One
customer accounted for 11% of total revenues during fiscal 1999.

All of the Company's revenues were derived from U.S. customers.

The market in which the Company competes is characterized by changing
customer needs, frequent new software product introductions and rapidly evolving
industry standards. Significant technological change could adversely affect the
Company's operating results.

The Company operates in one single reportable business segment and,
therefore, no disclosures under SFAS 131, Disclosures about Segments of an
Enterprise and Related Information, are necessary.

SOFTWARE DEVELOPMENT COSTS

The Company capitalizes internally generated software development costs
under the provision of Statement of Financial Accounting Standards No. 86 (SFAS
86), Accounting for Costs of Computer Software to be Sold, Leased or Otherwise
Marketed. Capitalization of computer software development costs begins upon the
establishment of technological feasibility, which the Company has defined as
completion of a working model. Internally generated capitalizable software
development costs have not been material for years ended December 31, 1999, 1998
and 1997. The Company has not capitalized any software development costs to
date, and has charged software development costs as incurred to research and
development expense in the accompanying consolidated statements of operations.

ADVERTISING COSTS

Amounts received under co-marketing agreements with strategic partners are
recorded as a reduction of advertising expenses incurred in connection with such
agreements. Immaterial amounts have been received during the three-year period
ended December 31, 1999.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost. Depreciation and amortization
are calculated using the straight-line method over estimated useful lives of
three years, or over the lease term if it is shorter for leasehold improvements.

F-8
<PAGE> 92
EXTENSITY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

When assets are sold or retired, the cost and related accumulated
depreciation and amortization are removed from the accounts and any resulting
gain or loss is included in operations. Maintenance and repairs are charged to
operations as incurred.

INCOME TAXES

Income taxes are accounted for in accordance with Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes(SFAS No. 109). Under
SFAS No. 109, deferred income tax liabilities and assets are determined based on
the difference between the financial reporting amounts and tax bases of assets
and liabilities that will result in taxable or deductible amounts in the future
based on enacted tax laws and rates in effect for the years in which the
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amounts expected
to be realized. Income tax expense is the tax payable for the period and the
change during the period in deferred tax assets and liabilities.

REVENUE RECOGNITION

In October 1997, the American Institute of Certified Public Accountants
issued Statement of Position 97-2, Software Revenue Recognition (SOP 97-2).The
Company adopted SOP 97-2 beginning in fiscal 1998. SOP 97-2 has been modified by
SOP 98-4 and SOP 98-9 as it relates to certain transactions. These standards
generally require revenues earned on software arrangements involving multiple
elements such as software products, upgrades, enhancements, postcontract
customer support, installation and training to be allocated to each element
based on the relative fair values of the elements. The fair value of an element
must be based on evidence that is specific to the vendor. Evidence of the fair
value of each element is based on the price charged when the element is sold
separately or, if the element is not being sold separately, the price for each
element established by management having relevant authority; substantive renewal
terms for maintenance services included in contracts also serves as evidence of
fair value for such services.

The Company's software products require installation services that
primarily consist of configuring the software to incorporate a customer's
business policies, workflow approvals and interfaces to information systems used
by its customers. Prior to the release in July 1999 of Version 4.0, it was
difficult to develop dependable estimates of the costs necessary to complete
product implementations. Therefore, the Company accounted for its software
licenses and implementation revenues using the completed contract method of
contract accounting as required under the provisions of SOP 97-2 and SOP 81-1,
Accounting for Performance of Construction-Type and Certain Production-Type
Contracts. Following the release of Version 4.0 in July 1999, the Company was
able to develop dependable estimates of the costs necessary to complete
implementation of the substantially enhanced Version 4.0 product. Consequently,
the Company is accounting for its Version 4.0 software licenses and
implementation revenues using the percentage-of-completion method of contract
accounting. The percentage-of-completion method is applied based upon man-days
incurred as a percentage of total estimated man-days. In cases where a sale of a
license does not include implementation services (i.e., a sale of additional
seats), such revenue is recorded upon delivery with an appropriate deferral for
maintenance services, if applicable.

Amounts billed for maintenance are deferred and recognized ratably over the
maintenance period.

F-9
<PAGE> 93
EXTENSITY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The Company has entered into two agreements under which certain
distributors would receive unspecified future products over the life of the
arrangements (two or three years) in consideration for agreed-upon
non-refundable fees. Consistent with SOP 97-2, the Company recognizes such fees
ratably, on a subscription basis, over the term of the related agreements.

Revenue for contracts containing specified upgrades for which no vendor
specific objective evidence (VSOE) of fair value exists is deferred until such
specified upgrades are delivered or VSOE is established.

STOCK-BASED COMPENSATION

The Company accounts for stock-based employee compensation arrangements in
accordance with the provisions of Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees (APB No. 25) and complies with the
disclosure provisions of Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation(SFAS No. 123). Under APB No. 25,
compensation expense is based on the difference, if any, between the fair value
of the Company's stock and the exercise price of the option on the measurement
date, which is typically the date of grant (see Note 9).

The Company accounts for options granted to non-employees under SFAS No.
123. Under SFAS No. 123, options are recorded at their fair value on the
measurement date, which is typically the date of grant.

HISTORICAL AND PRO FORMA NET LOSS PER SHARE

Historical basic and diluted net loss per share are computed using the
weighted average number of common shares outstanding. Options, warrants and
preferred stock were not included in the computation of diluted net loss per
share because the effect would be antidilutive.

Pro forma net loss per share has been computed assuming the conversion of
all outstanding shares of convertible preferred stock into shares of common
stock.

F-10
<PAGE> 94
EXTENSITY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The following table sets forth the computation of historical and pro forma
basic and diluted net loss per share for the periods indicated (in thousands,
except per share data):

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1997 1998 1999
------- -------- --------
<S> <C> <C> <C>
HISTORICAL:
Numerator:
Net loss attributable to common stockholders.............. $(3,228) $(11,032) $(24,889)
Denominator:
Weighted average shares................................... 1,835 2,169 3,483
Weighted average unvested common shares................... (1,093) (831) (1,261)
------- -------- --------
Total weighted average shares...................... 742 1,338 2,222
------- -------- --------
Net loss per share attributable to common stockholders:
Basic and diluted......................................... $ (4.35) $ (8.25) $ (11.20)

PRO FORMA:
Numerator:
Net loss attributable to common stockholders.............. $(11,032) $(24,889)
======== ========
Denominator:
Weighted average common shares, basic and diluted......... 1,338 2,222
Conversion of convertible preferred stock................. 8,440 11,938
-------- --------
Total weighted average shares...................... 9,778 14,160
======== ========
Pro forma net loss per share attributable to common
stockholders:
Basic and diluted......................................... $ (1.13) $ (1.76)
======== ========
</TABLE>

3. PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1998 1999
------ -------
(IN THOUSANDS)
<S> <C> <C>
Computer hardware and software.............................. $ 585 $ 1,315
Furniture and fixtures...................................... 133 592
Leasehold improvements...................................... -- 65
Office equipment............................................ 44 113
Assets under capital leases................................. 1,429 1,847
------ -------
2,191 3,932
Less accumulated depreciation and amortization.............. (715) (1,623)
------ -------
Total property and equipment, net......................... $1,476 $ 2,309
====== =======
</TABLE>

Accumulated amortization relating to assets under capital leases amounted
to $466,000 and $763,737 as of December 31, 1998 and 1999, respectively.

4. INCOME TAXES

The provision for income taxes for the years ended December 31, 1998 and
1999 relates to minimum state income tax. The difference between the amount of
income tax benefit recorded of zero and the amount of income tax benefit
calculated using the federal statutory

F-11
<PAGE> 95
EXTENSITY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

rate of 34% is primarily due to net operating losses being fully offset by a
valuation allowance. Significant components of the Company's deferred tax
balances are as follows (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1999
------- --------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards............................ $ 5,325 $ 12,400
Research and development credit carryforwards............. 365 1,170
Other..................................................... 75 200
------- --------
Total deferred tax assets............................ 5,765 13,770
Valuation allowance....................................... (5,765) (13,770)
------- --------
Net deferred tax assets.............................. $ -- $ --
======= ========
</TABLE>

Due to the uncertainty of realization, a valuation allowance has been
provided to offset net deferred tax assets at December 31, 1998 and 1999. The
increase in the valuation allowance was $4,040,000 and $8,005,000 during the
years ended December 31, 1998 and 1999, respectively.

As of December 31, 1999, the Company had net operating loss carryforwards
of approximately $33.0 million and 18.0 million for federal and state income tax
purposes, respectively. Such carryforwards expire through 2019 and 2004 for
federal and state income tax purposes, respectively. At December 31, 1999, the
Company also had research and experimentation tax credit carryforwards of
$720,000 and $450,000 for federal and state purposes, respectively, which expire
in varying amounts through 2014.

Under the Tax Reform Act of 1986, the benefits from net operating loss and
tax credit carryforwards may be impaired or limited in certain circumstances
including as a result of a cumulative ownership change of more than 50%, as
defined, over a three-year period. The issuance of the Company's convertible
preferred securities may have resulted in a limitation on utilization of such
net operating loss carryforwards.

5. COMMITMENTS

During 1998, the Company entered into various lease agreements for computer
and office equipment. The Company leases office space under a noncancelable
operating lease expiring in June 2003. Total rent expense for 1998 and 1997
aggregated $383,000 and $88,000,

F-12
<PAGE> 96
EXTENSITY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

respectively. Minimum future rental payments under capital and operating leases
at December 31, 1999 are as follows (in thousands):

<TABLE>
<CAPTION>
FISCAL YEAR ENDING DECEMBER 31, CAPITAL OPERATING
------------------------------- ------- ---------
<S> <C> <C>
2000........................................................ $ 561 $ 556
2001........................................................ 561 586
2002........................................................ 317 608
2003........................................................ 93 306
Thereafter.................................................. -- --
------ ------
Total minimum lease payments................................ 1,532 $2,056
======
Less amount representing interest and discount.............. 273
------
Present value of minimum lease payments..................... 1,259
Less current portion of capital lease obligations........... 561
------
Long term portion........................................... $ 698
======
</TABLE>

In connection with certain capital lease transactions, the Company granted
to the lessor warrants to purchase 22,425 shares of Series D preferred stock at
an exercise price of $3.30 per share. Such warrants were valued at approximately
$44,000 using the Black-Scholes valuation model with the following assumptions:
expected volatility of 40%, risk-free interest rate of 6% and expected life of
10 years. The value of these warrants was recorded as a long-term asset, which
is being amortized over the capital lease term of 4 years. Such amortization
amounted to $5,000 and $19,000 during the years ended December 31, 1998 and
1999, respectively.

The Company has established a $45,000 letter of credit with a bank for the
benefit of the Company's office space lessor. The letter of credit accrues
interest at the bank's prime rate and is collateralized by a $33,000 certificate
of deposit. As of December 31, 1999, no amounts were outstanding under the
letter of credit.

6. DEBT

In March 1998, the Company entered into a loan and security agreement with
a lender for $3,500,000. Borrowings under this loan accrue interest at an
average rate of 11.4% per annum and mature through March 25, 2001. The agreement
provides the lender with the right to exercise warrants to purchase 137,878
shares of Series D preferred stock at an exercise price of $3.30 per share. The
Company recorded the loan at a discount of approximately $265,000, which was
allocated to the warrants. The debt discount was calculated in accordance with
the provisions of APB No. 14, Accounting for Convertible Debt and Debt Issued
with Stock Purchase Warrant. The fair value of the warrants was estimated on the
date of grant using the Black-Scholes model with expected volatility of 40%,
risk-free interest of 6% and expected life of 10 years. Amortization of the debt
discount was recorded as interest expense and amounted to $58,000 and $88,000
during the year ended December 31, 1998 and December 31, 1999, respectively.

F-13
<PAGE> 97
EXTENSITY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Scheduled repayments of the loan subsequent to December 31, 1999 are as follows
(in thousands):

<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
------------------------
<S> <C>
2000..................................................... $ 1,225
2001..................................................... 712
-------
Total.................................................... 1,937
Less current portion..................................... (1,225)
-------
Long-term portion........................................ $ 712
=======
</TABLE>

The non-current portion of the Notes payable of $588,000 as of December 31,
1999 is net of the remaining debt discount of $124,000.

7. MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK

Mandatorily Redeemable Convertible Preferred consists of the following (in
thousands, except share data):

<TABLE>
<CAPTION>
OUTSTANDING
SHARES AMOUNT
----------- -----------
<S> <C> <C>
Issuance of Series A preferred stock........................ 2,000,000 $ 988
---------- -----------
Balance at December 31, 1996................................ 2,000,000 $ 988
Issuance of Series B preferred stock...................... 3,750,000 5,933
Issuance of Series B preferred stock warrants............. -- 62
---------- -----------
Balance at December 31, 1997................................ 5,750,000 $ 6,983
Issuance of Series C preferred stock...................... 937,500 1,872
Issuance of Series D preferred stock...................... 3,674,229 12,105
Issuance of Series D preferred stock warrants............. -- 309
---------- -----------
Balance at December 31, 1998................................ 10,361,729 $ 21,269
Issuance of Series E preferred stock...................... 3,732,820 22,379
Issuance of Series F preferred stock...................... 500,000 4,500
Series F beneficial conversion feature.................... -- 1,500
---------- -----------
Balance at December 31, 1999................................ 14,594,549 $ 49,648
========== ===========
</TABLE>

During 1999, the Company's Board of Directors approved an amendment to the
Company's Certificate of Incorporation to increase the number of its authorized
shares of common stock and preferred stock to 30,000,000 and 15,082,970,
respectively.

On December 16, 1999, the Company sold 500,000 shares of its Series F
Preferred Stock at a price of $9.00 per share for gross proceeds of $4.5 million
in cash to an investor. The Company also entered into a commercial relationship
with this investor. The difference between the deemed fair value of the series F
preferred stock of $12.00 and the price per share of $9.00 was deemed to be a
beneficial conversion feature analogous to a dividend to the preferred
stockholders as prescribed under the provisions of EITF 98-5, Accounting for
Convertible Securities with Beneficial Conversion Features or Contingently
Adjustable Conversion Ratios. The value of the beneficial conversion feature of
$1.5 million was recognized immediately at the date of issuance as the preferred
stockholders have the right to convert their preferred shares at their option.

F-14
<PAGE> 98
EXTENSITY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Each share of Series A, B, C, D, E and F preferred stock is convertible
into common stock at the option of the stockholder on a one-for-one basis,
subject to certain adjustments. Each share of Series A, B, C, D, E and F
preferred stock will automatically convert to common stock upon the earlier of
the closing date of an underwritten public offering of the Company's common
stock with an offering price of not less than $8.00 per share and aggregate
proceeds in excess of $15,000,000 or the date of mutual consent of the holders
of 60% of the then outstanding preferred stock voting as a class.

Holders of preferred stock are entitled to one vote for each share of
common stock into which such shares may be converted. Each share of Series A, B,
C, D, E and F preferred stock entitles the stockholder to receive annual
noncumulative dividends of $0.045, $0.144, $0.18, $0.30, $0.54 and $0.81
respectively, in preference to holders of shares of common stock, if and when
declared by the Board of Directors. No dividends have been declared to date.

In the event of any liquidation, dissolution or winding up of the Company,
holders of Series A, B, C, D, E and F preferred stock are entitled to receive
$0.50, $1.60, $2.00, $3.30, $6.00 and $9.00 per share, respectively, and all
declared but unpaid dividends prior and in preference to any distribution to
holders of common stock. After payment has been made to the holders of preferred
stock, any remaining assets will be distributed ratably among the holders of
preferred and common stock in proportion to the number of shares of common stock
held by each, assuming conversion of all Series A, B, C, D, E and F preferred
stock until certain limits are reached. If the Company's assets are insufficient
to provide for the full preference amount for the preferred stock outstanding,
then such assets will be distributed ratably among the holders of the preferred
stock in proportion to the amount of such stock owned by each stockholder.

At any time after May 31, 2004, the holders of at least 75% of the then
outstanding shares of Series A, B, C, D, E and F preferred stock may require the
Company to redeem all or any part of the then outstanding shares of Series A, B,
C, D, E and F preferred stock at a price equal to $0.50, $1.60, $2.00, $3.30,
$6.00 and $9.00 per share, respectively, plus all declared but unpaid dividends
on such shares.

PREFERRED STOCK WARRANTS ISSUED IN CONNECTION WITH FINANCINGS

On January 29, 1997, the Company entered into a loan and security agreement
with a bank. During fiscal 1997, $250,000 was drawn on the loan and was repaid
in the same year. This loan expired on June 15, 1997. In conjunction with this
loan agreement, the Company issued to the lender a warrant to purchase 23,585
shares of Series B preferred stock at an exercise price per share of $1.59. The
Company recorded the loan at a discount of $24,000 which discount was allocated
to the warrant and amortized as interest expense during 1997. The fair value of
the warrant was estimated on the date of grant using the Black-Scholes model
with expected volatility of 60%, risk-free interest of 5.50% and expected life
of 5 years. The warrant expires on January 28, 2002 and was not exercised as of
December 31, 1999.

During 1998, the Company entered into financing agreements with a financial
institution (see Note 6). In conjunction with these transactions, the Company
issued to the financial institution warrants to purchase shares of Series D
preferred stock at an exercise price of $3.30 per share. These warrants expire
through December 2008 and none were exercised as of December 31, 1999.

F-15
<PAGE> 99
EXTENSITY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

8. COMMON STOCK

During 1998, the Company issued a total of 47,703 shares of its common
stock at fair value to several service providers. The Company recorded the fair
values of the common stock which amounted to $7,300 as compensation expense.

During the year ended December 31, 1999, the Company loaned to three
officers an aggregate of $230,000 to exercise options to purchase 933,439 shares
of the Company's common stock. The officers paid $193,750 in cash in conjunction
with this exercise. The promissory note to one of the officers bears interest at
4.77%, is due on February 28, 2004 and is collateralized by the common stock
purchased for cash. The cash portion of the exercise of $150,000 exceeded the
face value of the note by $50,000. The officer repaid the note in full,
including $3,000 in interest, in November 1999. The notes of the other two
officers bear interest at 5.87%, are due on July 16, 2004 and are collateralized
by their personal assets.

9. STOCK OPTIONS

In 1996, the Company adopted the 1996 Stock Option Plan (the Plan) under
which eligible employees, directors, and consultants can receive options to
purchase shares of the Company's common stock at a price generally not less than
100% of the fair value of the common stock on the date of the grant for
incentive stock options and nonstatutory stock options. The Plan, as amended
through December 31, 1999, allows for the issuance of a maximum of 6,100,000
shares of the Company's common stock. This number of shares of common stock has
been reserved for issuance under the Plan. The options granted under the Plan
vest according to varying schedules determined by the Plan Administrator,
currently the Board of Directors. Options generally vest over four years and
expire ten years from the date of grant.

A summary of the activity under the Plan since inception is set forth
below:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
SHARES -------------------------------------------
AVAILABLE NUMBER OF PRICE AGGREGATE
FOR GRANT SHARES PER SHARE PRICE
---------- ---------- ------------- --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance at December 31, 1996....... 630,500 619,500 $0.10 $ 62
---------- ---------- ------------- ------
Additional shares reserved......... 250,000 -- -- --
Options granted.................... (908,992) 908,992 $0.10 - $0.16 140
Options exercised.................. -- (196,111) $0.10 - $0.16 (21)
Options forfeited.................. 319,458 (319,458) $0.10 - $0.16 (32)
---------- ---------- ------------- ------
Balance at December 31, 1997....... 290,966 1,012,923 $0.10 - $0.16 149
Additional shares reserved......... 2,100,000 -- -- --
Options granted.................... (1,066,500) 1,066,500 $0.16 - $0.33 280
Options exercised.................. -- (357,001) $0.10 - $0.16 (53)
Options forfeited.................. 115,874 (115,874) $0.10 - $0.16 (18)
---------- ---------- ------------- ------
Balance at December 31, 1998....... 1,440,340 1,606,548 $0.16 - $0.33 359
Additional shares reserved......... 3,400,000 -- --
Options granted.................... (3,495,872) 3,495,872 $0.33 - $9.00 6,336
Options exercised.................. -- (1,855,091) $0.05 - $1.50 (623)
Options forfeited.................. 304,747 (304,747) $0.16 - $4.00 (134)
---------- ---------- ------------- ------
Outstanding at December 31, 1999... 1,649,215 2,942,582 $0.10 - $9.00 $5,938
========== ========== ============= ======
</TABLE>

F-16
<PAGE> 100
EXTENSITY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------- -----------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
RANGE OF NUMBER REMAINING EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE PRICE EXERCISABLE PRICE
--------------- ----------- ---------------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$0.10 - $0.33 1,134,315 8.8 $0.30 120,662 $0.26
$0.55 - $0.70 552,000 9.4 $0.66 --
$1.00 - $1.50 497,617 9.6 $1.35 --
$3.25 - $4.50 174,600 9.8 $3.71 --
$6.00 - $9.00 584,050 9.9 $6.71
--------- --------
2,942,582 9.3 $2.02 120,662 $0.26
</TABLE>

The Plan allows certain option holders to exercise their options prior to
vesting. However, such exercises are subject to repurchase by the Company if not
vested. The Company's repurchase right lapses over a four year period. As of
December 31, 1999, 1,310,527 shares of common stock acquired by option holders
are subject to repurchase by the Company.

The Company accounts for employee and board of director stock options in
accordance with the provisions of APB No. 25 and complies with the disclosure
provisions of SFAS No. 123.

Under APB No. 25, compensation expense is recognized based on the amount by
which the fair value of the underlying common stock exceeds the exercise price
of the stock options at the measurement date, which in the case of employee
stock options is typically the date of grant. For financial reporting purposes,
the Company has determined that the deemed fair market value on the date of
grant of certain employee stock options was in excess of the exercise price of
the options. This amount is recorded as deferred compensation and is classified
as a reduction of stockholders' equity and is amortized as a charge to
operations over the vesting period of the applicable options. The vesting period
is generally four years. The fair value per share used to calculate deferred
compensation was derived by reference to the preferred stock values and the
Company's initial public offering price range. Consequently, the Company
recorded deferred stock compensation of $0 and $10,205,000 during the year ended
December 31, 1998 and 1999, respectively. Amortization recognized for the year
ended December 31, 1998 and 1999 totaled $0 and $4,352,000, respectively.

The weighted average fair values of the options granted in fiscal 1997,
1998, and 1999 were $0.06, $0.81, and $2.98, respectively.

Had compensation cost for option grants to employees been determined
consistent with SFAS No. 123, the Company's net loss would have been as follows
(in thousands, except per share data):

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1997 1998 1999
------- -------- --------
<S> <C> <C> <C>
Pro forma net loss.................................... $(3,248) $(11,070) $(24,762)
Pro forma net loss per share, basic and diluted....... $ (4.38) $ (8.27) $ (11.14)
Pro forma net loss attributable to common
stockholders........................................ $(3,248) $(11,070) $(26,262)
Pro forma net loss per share attributable to common
stockholders, basic and diluted..................... $ (4.38) $ (8.27) $ (11.82)
</TABLE>

F-17
<PAGE> 101
EXTENSITY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The above pro forma disclosures are not necessarily representative of the
effects on reported income or loss for future years as additional grants are
made each year and options vest over several years.

The fair value of each option grant was estimated on the date of grant
using the minimum value options pricing model with the following weighted
average assumptions by period:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Risk-free interest rate.................................. 5.7% 5.5% 5.6%
Expected life (in years)................................. 4 4 4
Dividends................................................ -- -- --
</TABLE>

Because the Company does not have actively traded equity securities,
volatility is not considered in determining the value of options granted to
employees.

In October 1999, the Board of Directors authorized, subject to
stockholders' approval, (i) establishment of the Employee Stock Purchase Plan
2000 (ESPP) with 500,000 shares reserved for issuance and (ii) the amendment of
the Company's 1996 Stock Option Plan to provide for, among other things, an
increase to 7,000,000 of the number of shares of common stock reserved for
issuance thereunder, and an annual replenishment of the shares of common stock
authorized for issuance thereunder equal to the lesser of (a) 1,300,000 shares,
(b) 4% of the outstanding shares on such date or (c) a lesser amount to be
determined by the Board. The ESPP and the amendment to the Company's 1996 Stock
Option Plan will become effective upon the closing of the initial public
offering.

Subsequent to December 31, 1999, the Company granted options to purchase
461,104 and 157,350 shares of the Company's common stock at exercise prices of
$9.00 and $12.00, respectively. Such grants will result in an additional $1.9
million deferred compensation charge to be recorded in the first quarter of
fiscal 2000.

10. 401(k) PLAN

In January 1998, the Company adopted a 401(k) plan for employees. All
employees who meet certain service requirements are eligible to participate.
Matching contributions are at the discretion of the Company. The Company made no
matching or discretionary contributions during 1998 and 1999.

F-18
<PAGE> 102

YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE HAVE
NOT AUTHORIZED ANYONE TO PROVIDE INFORMATION DIFFERENT FROM THAT CONTAINED IN
THIS PROSPECTUS. WE ARE OFFERING TO SELL, AND SEEKING OFFERS TO BUY, SHARES OF
COMMON STOCK ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE PERMITTED. THE
INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF THE DATE OF THIS
PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THIS PROSPECTUS OR OF ANY SALE
OF OUR COMMON STOCK.

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 1
Risk Factors.......................... 4
Special Note Regarding Forward-
Looking Statements and Industry
Data................................ 17
Use of Proceeds....................... 18
Dividend Policy....................... 19
Capitalization........................ 20
Dilution.............................. 21
Selected Consolidated Financial
Data................................ 22
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 24
Business.............................. 35
Management............................ 52
Certain Transactions.................. 63
Principal Stockholders................ 65
Description of Capital Stock.......... 68
Shares Eligible for Future Sale....... 71
Underwriting.......................... 73
Legal Matters......................... 75
Experts............................... 75
Where You Can Find Additional
Information......................... 76
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>

UNTIL , 2000 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
THAT BUY, SELL OR TRADE IN THESE SECURITIES, WHETHER OR NOT PARTICIPATING IN
THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. DEALERS ARE ALSO
OBLIGATED TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT
TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- ---------------------------------------------------------

LOGO

4,000,000 SHARES

COMMON STOCK

DEUTSCHE BANC ALEX. BROWN
BEAR, STEARNS & CO. INC.
CHASE H&Q
PROSPECTUS

, 2000
<PAGE> 103

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Registrant in connection
with the sale of Common Stock being registered. All amounts are estimates except
the registration fee and the NASD filing fee.

<TABLE>
<CAPTION>
AMOUNT
TO BE PAID
----------
<S> <C>
Registration Fee............................................ $ 15,985
NASD Fee.................................................... 6,250
Nasdaq National Market Listing Fee.......................... 94,000
Printing and Engraving...................................... 225,000
Legal Fees and Expenses..................................... 325,000
Accounting Fees and Expenses................................ 300,000
Blue Sky Fees and Expenses.................................. 6,000
Transfer Agent Fees......................................... 20,000
Director & Officer Liability Insurance (1933 Act
Premiums)................................................. 600,000
Miscellaneous............................................... 107,765
----------
Total..................................................... $1,700,000
==========
</TABLE>

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

As permitted by Section 145 of the Delaware General Corporation Law, the
Registrant's certificate of incorporation includes a provision that eliminates
the personal liability of its directors for monetary damages for breach or
alleged breach of their duty of care to the Company or its stockholders. In
addition, as permitted by Section 145 of the Delaware General Corporation Law,
the certificate of incorporation of the Registrant provides, inter alia, that
each person who is made a party or is threatened to be made a party to or
otherwise involved in any action, suit or proceeding, whether civil, criminal,
administrative or investigative (hereinafter a "proceeding"), by reason of the
fact that he or she is or was a director or officer of the Company or, while a
director or officer of the Company, is or was serving at the request of the
Company as a director, officer, employee or agent of another corporation or of a
partnership, joint venture, trust or other enterprise, including service with
respect to an employee benefit plan (hereinafter an "indemnitee"), whether the
basis of such proceeding is alleged action in an official capacity as a director
or officer or in any other capacity while serving as a director or officer, is
authorized to be indemnified and held harmless by the Company to the fullest
extent authorized by the Delaware General Corporation Law, as the same exists or
may hereafter be amended, against all expense, liability and loss (including
attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts
paid in settlement) reasonably incurred or suffered by such indemnitee in
connection therewith and such indemnification shall continue as to an
indemnitee's heirs, executors and administrators; provided, however, that,
except with respect to the proceedings brought by an indemnitee to enforce
rights to indemnification (subject to certain restrictions and as more fully
described in the Registrant's certificate of incorporation), the Company shall
indemnify any such indemnitee in connection with a proceeding (or part thereof)
initiated by such indemnitee only if such proceeding (or part thereof) was
authorized by the Board of Directors of the Company. The right to
indemnification conferred in the Registrant's certificate of incorporation
includes the right to be paid by the Company the expenses incurred in connection
with any such proceeding in advance of its final

II-1
<PAGE> 104

disposition; provided, however, that, if and to the extent that the Delaware
General Corporation Law requires, such an advancement of expenses incurred by an
indemnitee in his or her capacity in which service was or is rendered by such
indemnitee, including, without limitation, service with respect to an employee
benefit plan, shall be made only upon delivery to the Company of an undertaking
by or on behalf of such indemnitee, to repay all amounts so advanced if it shall
ultimately be determined by final judicial decision from which there is no
further right to appeal that such indemnitee is not entitled to be indemnified
for such expenses under the Company's certificate of incorporation or otherwise.

The Registrant's policy is to enter into indemnification agreements with
each of its directors and executive officers that provide the maximum indemnity
allowed to directors and executive officers by Section 145 of the Delaware
General Corporation Law and the Bylaws, as well as certain additional procedural
protections. The indemnity agreements provide that directors and executive
officers will be indemnified to the fullest possible extent not prohibited by
law against all expenses (including attorney's fees) and settlement amounts paid
or incurred by them in any action or proceeding, including any derivative action
by or in the right of the Registrant, on account of their services as directors
or executive officers of the Registrant or as directors or officers of any other
company or enterprise when they are serving in such capacities at the request of
the Registrant. Pursuant to the indemnity agreements, the Company will not be
obligated to indemnify or advance expenses to an indemnified party with respect
to proceedings or claims initiated by the indemnified party and not by way of
defense, except with respect to proceedings specifically authorized by the Board
of Directors or brought to enforce a right to indemnification under such
indemnity agreement, the Company's certificate of incorporation, Bylaws or any
statute or law, or as otherwise required under Section 145 of the Delaware
General Corporation Law. Also under the indemnity agreements, the Company is not
obligated to indemnify the indemnified party for (i) any expenses incurred by
the indemnified party with respect to any proceeding instituted by the
indemnified party to enforce or interpret the agreement, if a court of competent
jurisdiction determines that each of the material assertions made by the
indemnified party in such proceeding was not made in good faith or was
frivolous, (ii) acts, omissions or transactions on the part of the indemnified
party from which such party may not be relieved of liability under applicable
law or (iii) expenses and the payment of profits arising from the purchase and
sale by the indemnified party of securities in violation of Section 16(b) of the
Exchange Act, or any similar or successor statute.

The indemnification provisions in the certificate of incorporation and the
indemnification agreements entered into between the Registrant and its directors
and executive officers, may be sufficiently broad to permit indemnification of
the Registrant's officers and directors for liabilities arising under the 1933
Act.

Reference is made to the following documents filed as exhibits to this
Registration Statement regarding relevant indemnification provisions described
above and elsewhere herein:

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT
- ------- --------
<C> <S>
1.1 Form of Underwriting Agreement
3.1 Certificate of Incorporation of the Registrant
3.2 Form of Amended and Restated Certificate of Incorporation of
the Registrant
10.1 Form of Indemnification Agreement entered into by the
Registrant with each of its directors and executive officers
</TABLE>

II-2
<PAGE> 105

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

The following sets forth information regarding all securities sold by us
since January 1997:

1. In January 1997, we issued and sold a warrant to purchase 23,585 shares
of Series B Preferred Stock at an exercise price of $1.59 per share to
Silicon Valley Bank. The foregoing purchase and sale was exempt from
registration under the Securities Act pursuant to Section 4(2) thereof
on the basis that the transaction did not involve a public offering.

2. In May 1997, we issued and sold an aggregate of 3,750,000 shares of
Series B Preferred Stock to a total of nine investors for $1.59 per
share, or an aggregate of $5,962,500. In May 1997 we also issued and
sold warrants to purchase up to 937,500 shares of Series C Preferred
Stock at an exercise price of $2.00 per share to the same nine
investors, all of whom exercised their warrants in June 1998. We
believe that because the offering was made to sophisticated persons
without the means of a general solicitation, the offering was exempt
from registration under Section 4(2) of the Securities Act, and
Regulation D promulgated thereunder.

3. From August 1997 through December 1997 we issued and sold an aggregate
of 27,758 shares of common stock at a purchase price of $0.16 per share
to five consultants. The foregoing purchases and sales were exempt from
registration under the Securities Act pursuant to Section 4(2) thereof
on the basis that the transaction did not involve a public offering.

4. In March 1998, we issued and sold an aggregate of 2,500 shares of
common stock at a purchase price of $0.16 per share to a consultant.
The foregoing purchases and sales were exempt from registration under
the Securities Act pursuant to Section 4(2) thereof on the basis that
the transaction did not involve a public offering.

5. On June 2, 1998, we issued and sold an aggregate of 1,445 shares of
common stock at a purchase price of $0.16 per share to a consultant.
The foregoing purchase and sale was exempt from registration under the
Securities Act pursuant to Section 4(2) thereof on the basis that the
transaction did not involve a public offering.

6. On June 26, 1998, September 15, 1998 and September 30, 1998, we issued
and sold an aggregate of 3,674,229 shares of Series D Preferred Stock
to a total of 14 investors for $3.30 per share, or an aggregate of
$12,124,957.

7. In June 1998 and December 1998, we issued and sold warrants to purchase
160,303 shares of Series D Preferred Stock to Comdisco, Inc. at an
exercise price of $3.30 per share for an aggregate purchase price of
$529,003. The foregoing purchases and sales were exempt from
registration under the Securities Act pursuant to Section 4(2) thereof
on the basis that the transaction did not involve a public offering.

8. On July 6, 1998, we issued and sold an aggregate of 10,000 shares of
common stock at a purchase price of $0.33 per share to two consultants.
The foregoing purchases and sales were exempt from registration under
the Securities Act pursuant to Section 4(2) thereof on the basis that
the transaction did not involve a public offering.

9. In June 1999, we issued and sold an aggregate of 6,000 shares of common
stock at a purchase price of $0.70 per share to three investors for an
aggregate purchase price of $4,200. The foregoing purchases and sales
were exempt from registration under the Securities Act pursuant to
Section 4(2) thereof on the basis that the transaction did not involve
a public offering.

II-3
<PAGE> 106

10. On July 27, 1999 and August 20, 1999, we issued and sold an aggregate
of 3,732,820 shares of Series E Preferred Stock to a total of 47
investors for $6.00 per share, or an aggregate of $22,396,920. We
believe that the offering was exempt from registration under Section
4(2) of the Securities Act, and Regulation D promulgated thereunder.

11. On December 16, 1999, we issued and sold an aggregate of 500,000 shares
of Series F Preferred Stock to one investor for $9.00 per share, or an
aggregate of $4,500,000. We believe that because the offering was made
without the means of a general solicitation, the offering was exempt
from registration under Section 4(2) of the Securities Act, and
Regulation D promulgated thereunder.

12. Since January 1997, we have granted stock options under our 1996 Stock
Option Plan, covering an aggregate of 4,876,389 shares of common stock
(net of expirations and cancellations) at exercise prices ranging from
$0.10 to $6.00.

13. Since January 1997, options to purchase an aggregate of 2,050,265
shares of common stock under our 1996 Stock Option Plan were exercised
with a weighted average exercise price of approximately $0.62 per
share.

None of the foregoing transactions involved any underwriters, underwriting
discounts or commissions, or any public offering, and we believe that each
transaction was exempt from the registration requirements of the Securities Act
by virtue of Section 4(2) thereof, Regulation D promulgated thereunder or Rule
701 pursuant to compensatory benefit plans and contracts relating to
compensation as provided under such Rule 701. The recipients in such
transactions represented their intention to acquire the securities for
investment only and not with a view to or for sale in connection with any
distribution thereof, and appropriate legends were affixed to the share
certificates and instruments issued in such transactions. All recipients had
adequate access to information about the Company.

In particular, the securities described in the Preferred Stock financings
and warrant issuances pursuant to numbers 1, 2 (except for the warrant issued to
Silicon Valley Bank), 6, 7, 10 and 11 are owned in their entirety by individuals
or large institutional investors who (A) represented to us that they were
"accredited investors" within the definition of Rule 501 of Regulation D,
familiar with investing in private companies, (B) represented to us that they
understood that the securities they were purchasing were restricted and the risk
of possible loss associated with their investment, (C) represented to us that
they were familiar with our history and business, (D) received our recent
financial information and (E) were afforded the opportunity to ask questions of
our management. Each of the investors had expressed previous interest to our
officers and directors in making an investment in us when an opportunity was
available, and such investors were contacted only on a one-on-one basis without
any general solicitation or advertising of the investment opportunity.
Accordingly, we believe that the each of the foregoing

II-4
<PAGE> 107

transactions was exempt from the registration requirements of the Securities Act
by virtue of Section 4(2) thereof.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT EXHIBIT DESCRIPTION
------- -------------------
<S> <C>
1.1 Form of Underwriting Agreement
3.1+ Certificate of Incorporation of the Registrant
3.2+ Form of Amended and Restated Certificate of Incorporation of
the Registrant
3.3+ Bylaws of the Registrant
4.1+ Form of Registrant's Common Stock Certificate
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, P.C. regarding
legality of the securities being issued
10.1+ Form of Indemnification Agreement entered into by and
between the Registrant and each of its directors and
executive officers
10.2+ Warrant dated January 28, 1997 issued to Silicon Valley Bank
10.3+ Warrant dated June 29, 1998 issued to Comdisco, Inc.
10.4+ Warrant dated June 29, 1998 issued to Comdisco, Inc.
10.5+ Warrant dated June 29, 1998 issued to Comdisco, Inc.
10.6+ Warrant dated December 1, 1998 issued to Comdisco, Inc.
10.7+ Warrant dated December 11, 1998 issued to Comdisco, Inc.
10.8+ Lease agreement by and between the Registrant and Spieker
Properties, Inc.
10.9+ Offer Letter dated February 16, 1999 by and between the
Registrant and Robert Spinner
10.10+ 1996 Stock Option Plan
10.11+ Employee Stock Purchase Plan 2000 and related agreements
10.12+ Consent of American Express
10.13+ Consent No. 1 of International Data Corporation
10.14+ Consent No. 2 of International Data Corporation
23.1* Consent of Wilson Sonsini Goodrich & Rosati, P.C. (included
in Exhibit 5.1)
23.2 Consent of PricewaterhouseCoopers LLP, Independent
Accountants
24.1+ Power of Attorney
27+ Financial Data Schedule
</TABLE>

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

* To be filed by amendment.
+ Previously filed.

(b) FINANCIAL STATEMENT SCHEDULES

Schedule II -- Valuation and Qualifying Accounts and Reserves.

Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.

II-5
<PAGE> 108

ITEM 17. UNDERTAKINGS

The undersigned hereby undertakes to provide to the underwriters at the
closing specified in the underwriting agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions referenced in Item 14 of this Registration
Statement or otherwise, the Registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the 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 such director, officer or controlling person
in connection with the securities being registered hereunder, the Registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.

The undersigned Registrant hereby undertakes that:

(1) For purposes of determining any liability under the 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 the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the 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 Act, each
post-effective amendment that contains a form of Prospectus shall be deemed
to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.

II-6
<PAGE> 109

SIGNATURES

Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment No. 5 to Registration Statement on Form S-1 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Emeryville, State of California, on the 24th day of January, 2000.

EXTENSITY, INC.

By: /s/ ROBERT A. SPINNER
-------------------------------------
Robert A. Spinner,
President, Chief Executive Officer
and Director

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
THIS AMENDMENT NO. 5 TO REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING
PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED.

<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
/s/ ROBERT A. SPINNER President and Chief Executive January 24, 2000
- ------------------------------------ Officer and Director (Principal
Robert A. Spinner Executive Officer)

* /s/ KENNETH R. HAHN Chief Financial Officer (Principal January 24, 2000
- ------------------------------------ Financial and Accounting Officer)
Kenneth R. Hahn

* /s/ SHARAM I. SASSON Chairman of the Board of Directors January 24, 2000
- ------------------------------------ and Founder
Sharam I. Sasson

* /s/ JOHN R. HUMMER Director January 24, 2000
- ------------------------------------
John R. Hummer

* /s/ MITCHELL E. KERTZMAN Director January 24, 2000
- ------------------------------------
Mitchell E. Kertzman

* /s/ TED E. SCHLEIN Director January 24, 2000
- ------------------------------------
Ted E. Schlein

* By:/s/ ROBERT A. SPINNER
- ------------------------------------
Robert A. Spinner,
Attorney-in-Fact
</TABLE>

II-7
<PAGE> 110

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT EXHIBIT DESCRIPTION
- ------- -------------------
<S> <C>
1.1 Form of Underwriting Agreement
3.1+ Certificate of Incorporation of the Registrant
3.2+ Form of Amended and Restated Certificate of Incorporation of
the Registrant
3.3+ Bylaws of the Registrant
4.1+ Form of Registrant's Common Stock Certificate
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, P.C. regarding
legality of the securities being issued
10.1+ Form of Indemnification Agreement entered into by and
between the Registrant and each of its directors and
executive officers
10.2+ Warrant dated January 28, 1997 issued to Silicon Valley Bank
10.3+ Warrant dated June 29, 1998 issued to Comdisco, Inc.
10.4+ Warrant dated June 29, 1998 issued to Comdisco, Inc.
10.5+ Warrant dated June 29, 1998 issued to Comdisco, Inc.
10.6+ Warrant dated December 1, 1998 issued to Comdisco, Inc.
10.7+ Warrant dated December 11, 1998 issued to Comdisco, Inc.
10.8+ Lease agreement dated by and between the Registrant and
Spieker Properties, Inc.
10.9+ Offer Letter dated February 16, 1999 by and between the
Registrant and Robert Spinner
10.10+ 1996 Stock Option Plan
10.11+ Employee Stock Purchase Plan 2000 and related agreements
10.12+ Consent of American Express
10.13+ Consent No. 1 of International Data Corporation
10.14+ Consent No. 2 of International Data Corporation
23.1* Consent of Wilson Sonsini Goodrich & Rosati, P.C. (included
in Exhibit 5.1)
23.2 Consent of PricewaterhouseCoopers Independent Accountants
24.1+ Power of Attorney
27+ Financial Data Schedule
</TABLE>

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

* To be filed by amendment.
+ Previously filed.

<PAGE> 1
EXHIBIT 1.1

4,000,000 Shares

EXTENSITY, INC.

Common Stock

($.001 Par Value)

UNDERWRITING AGREEMENT

January ___, 2000

Deutsche Bank Securities Inc.
Bear, Stearns & Co. Inc.
Hambrecht & Quist LLC
As Representatives of the
Several Underwriters
c/o Deutsche Bank Securities Inc.
One South Street
Baltimore, Maryland 21202

Ladies and Gentlemen:

Extensity, Inc., a Delaware corporation (the "Company"), proposes to sell
to the several underwriters (the "Underwriters") named in Schedule I hereto for
whom you are acting as representatives (the "Representatives") an aggregate of
4,000,000 shares of the Company's Common Stock, $.001 par value (the "Firm
Shares"). The respective amounts of the Firm Shares to be so purchased by the
several Underwriters are set forth opposite their names in Schedule I hereto.
The Company also proposes to sell at the Underwriters' option an aggregate of up
to 600,000 additional shares of the Company's Common Stock (the "Option Shares")
as set forth below.

As the Representatives, you have advised the Company (a) that you are
authorized to enter into this Agreement on behalf of the several Underwriters,
and (b) that the several Underwriters are willing, acting severally and not
jointly, to purchase the numbers of Firm Shares set forth opposite their
respective names in Schedule I, plus their pro rata portion of the Option Shares
if you elect to exercise the over-allotment option in whole or in part for the
accounts of the several Underwriters. The Firm Shares and the Option Shares (to
the extent the aforementioned option is exercised) are herein collectively
called the "Shares."

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<PAGE> 2

Deutsche Bank Securities Inc. ("Deutsche Bank") has agreed to reserve a
portion of the Shares to be purchased by it under this Agreement for sale to the
Company's directors, officers, employees and business associates and other
parties related to the Company (collectively, "Participants"), as set forth in
the Prospectus under the heading "Underwriters" (the "Directed Share Program").
The Shares to be sold by Deutsche Bank pursuant to the Directed Share Program
are hereinafter referred to as the "Directed Shares." Any Directed Shares not
orally confirmed for purchase by any Participants 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.

In consideration of the mutual agreements contained herein and of the
interests of the parties in the transactions contemplated hereby, the parties
hereto agree as follows:

1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

The Company represents and warrants to each of the Underwriters as
follows:

(a) A registration statement on Form S-1 (File No. 333-90979) with
respect to the Shares has been prepared by the Company in conformity with the
requirements of the Securities Act of 1933, as amended (the "Act"), and the
Rules and Regulations (the "Rules and Regulations") of the Securities and
Exchange Commission (the "Commission") thereunder and has been filed with the
Commission. Copies of such registration statement, including any amendments
thereto, the preliminary prospectuses (meeting the requirements of the Rules and
Regulations) contained therein and the exhibits, financial statements and
schedules, as finally amended and revised, have heretofore been delivered by the
Company to you. Such registration statement, together with any registration
statement filed by the Company pursuant to Rule 462(b) of the Act, herein
referred to as the "Registration Statement," which shall be deemed to include
all information omitted therefrom in reliance upon Rule 430A and contained in
the Prospectus referred to below, has become effective under the Act and no
post-effective amendment to the Registration Statement has been filed as of the
date of this Agreement. "Prospectus" means the form of prospectus first filed
with the Commission pursuant to Rule 424(b). Each preliminary prospectus
included in the Registration Statement prior to the time it becomes effective is
herein referred to as a "Preliminary Prospectus." Any reference herein to any
Prospectus shall be deemed to include any supplements or amendments thereto,
filed with the Commission after the date of the filing of the Prospectus under
Rules 424(b) or 430A, and prior to the termination of the offering of the Shares
by the Underwriters.

(b) The Company has been duly organized and is validly existing as
a corporation in good standing under the laws of the State of Delaware, with
corporate power and authority to own or lease its properties and conduct its
business as described in the Registration Statement. Extensity Europe Limited
(the "Subsidiary") has been duly organized and is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation, with corporate power and authority to own or lease its properties
and conduct its business as described in the Registration Statement. The
Subsidiary is the only subsidiary, direct or indirect,

2
<PAGE> 3

of the Company. Each of the Company and the Subsidiary are duly qualified to
transact business in all jurisdictions in which the conduct of their business
requires such qualification and the failure to be so qualified would have a
material adverse effect on the Company. The outstanding shares of capital stock
of the Subsidiary have been duly authorized and validly issued, are fully paid
and non-assessable and are owned by the Company free and clear of all liens,
encumbrances and equities and claims; and no options, warrants or other rights
to purchase, agreements or other obligations to issue or other rights to convert
any obligations into shares of capital stock or ownership interests in the
Subsidiary are outstanding.

(c) The outstanding shares of the Company's Common Stock and
Preferred Stock have been duly authorized and validly issued and are fully paid
and non-assessable; the shares of Common Stock to be issued upon conversion of
the Preferred Stock immediately prior to the closing of the offering of the
Shares have been duly authorized and when issued will be validly issued, fully
paid and non-assessable; the Shares have been duly authorized and when issued
will be validly issued, fully paid and non-assessable; and no preemptive or
similar rights granted by the Company to any person pursuant to the charter
documents of the Company or any contract or agreement with the Company exist
with respect to any of the Shares or the issue and sale thereof. Neither the
filing of the Registration Statement nor the offering or sale of the Shares as
contemplated by this Agreement gives rise to any rights, other than those which
have been waived or satisfied, for or relating to the registration of any shares
of Common Stock.

(d) The information set forth under the caption "Capitalization"
in the Prospectus is true and correct. All of the Shares conform to the
description thereof contained in the Registration Statement. The form of
certificates for the Shares conforms to the corporate law of the jurisdiction of
the Company's incorporation.

(e) The Commission has not issued an order preventing or
suspending the use of any Prospectus relating to the proposed offering of the
Shares nor instituted proceedings for that purpose. The Registration Statement
contains, and the Prospectus and any amendments or supplements thereto will
contain, all statements which are required to be stated therein by, and will
conform to, the requirements of the Act and the Rules and Regulations. The
Registration Statement and any amendment thereto do not contain, and will not
contain, any untrue statement of a material fact and do not omit, and will not
omit, to state any material fact required to be stated therein or necessary to
make the statements therein not misleading. The Prospectus and any amendments
and supplements thereto do not contain, and will not contain, any untrue
statement of material fact; and do not omit, and will not omit, to state any
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; provided, however, that the Company makes no representations or
warranties as to information contained in or omitted from the 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 or
on behalf of any Underwriter through the Representatives, specifically for use
in the preparation thereof.

(f) The consolidated financial statements of the Company and the
Subsidiary, together with related notes and schedules as set forth in the
Registration Statement, present fairly

3
<PAGE> 4

the financial position and the results of operations and cash flows of the
Company and the consolidated Subsidiary, at the indicated dates and for the
indicated periods. Such financial statements and related schedules have been
prepared in accordance with generally accepted principles of accounting,
consistently applied throughout the periods involved, except as disclosed
therein, and all adjustments necessary for a fair presentation of results for
such periods have been made. The summary financial and statistical data included
in the Registration Statement presents fairly the information shown therein and
such data has been compiled on a basis consistent with the financial statements
presented therein and the books and records of the Company.

(g) PricewaterhouseCoopers LLP, who have certified certain of the
financial statements filed with the Commission as part of the Registration
Statement, are independent public accountants as required by the Act and the
Rules and Regulations.

(h) There is no action, suit, claim or proceeding pending or, to
the knowledge of the Company, threatened against the Company or the Subsidiary
before any court or administrative agency or otherwise which if determined
adversely to the Company or the Subsidiary might result in any material adverse
change in the earnings, business, management, properties, assets, rights,
operations, condition (financial or otherwise) of the Company and of the
Subsidiary taken as a whole or to prevent the consummation of the transactions
contemplated hereby, except as set forth in the Registration Statement.

(i) The Company and the Subsidiary have good and marketable title
to all of the properties and assets reflected in the financial statements (or as
described in the Registration Statement) hereinabove described, subject to no
lien, mortgage, pledge, charge or encumbrance of any kind except those reflected
in such financial statements (or as described in the Registration Statement) or
which are not material in amount relative to the assets of the Company and the
Subsidiary taken as a whole. The Company and the Subsidiary occupy their leased
properties under valid and binding leases conforming in all material respects to
the description thereof set forth in the Registration Statement. The Company's
assets are adequate for the conduct of the Company's business as described in
the Registration Statement.

(j) Each of the Company and the Subsidiary has filed all Federal,
State, local and foreign tax returns which have been required to be filed and
have paid all taxes indicated by said returns and all assessments received by
them or either of them to the extent that such taxes have become due and are not
being contested in good faith and for which an adequate reserve for accrual has
been established in accordance with generally accepted accounting principles.
All tax liabilities have been adequately provided for in the financial
statements of the Company, and the Company does not know of any actual or
proposed additional material tax assessments.

(k) Since the respective dates as of which information is given in
the Registration Statement, as it may be amended or supplemented, there has not
been any material adverse change or any development involving a prospective
material adverse change in or affecting the earnings, business, management,
properties, assets, rights, operations, condition (financial or otherwise), of
the Company and the Subsidiary taken as a whole, whether or not

4
<PAGE> 5

occurring in the ordinary course of business, and there has not been any
material transaction entered into by the Company or the Subsidiary, other than
transactions in the ordinary course of business and changes and transactions
described in the Registration Statement, as it may be amended or supplemented.
Neither the Company nor the Subsidiary has any material contingent obligations
which are not disclosed in the Registration Statement.

(l) Neither the Company nor the Subsidiary is or with the giving
of notice or lapse of time or both, will be, in violation of or in default under
its Charter or Bylaws or under any agreement, lease, contract, indenture or
other instrument or obligation to which it is a party or by which it, or any of
its respective properties, is bound and which default is of material
significance in respect of the business or financial condition of the Company
and the Subsidiary taken as a whole. The execution, delivery and performance of
this Agreement and the consummation of the transactions herein contemplated and
the fulfillment of the terms hereof do not and will not conflict with or result
in a breach of any of the terms or provisions of, or constitute a default under,
any indenture, mortgage, deed of trust or other agreement or instrument to which
the Company or the Subsidiary is a party, or of the Charter or Bylaws of the
Company or any order, rule or regulation applicable to the Company or the
Subsidiary of any court or of any regulatory body or administrative agency or
other governmental body having jurisdiction over the Company or the Subsidiary,
except where such conflict, breach, violation or default would not have a
material adverse effect on the business or financial condition of the Company
and the Subsidiary taken as a whole.

(m) Each approval, consent, order, authorization, designation,
declaration or filing by or with any regulatory, administrative or other
governmental body necessary in connection with the execution and delivery by the
Company of this Agreement and the consummation of the transactions herein
contemplated (except such additional steps as may be required by the Commission,
the National Association of Securities Dealers, Inc. (the "NASD") or such
additional steps as may be necessary to qualify the Shares for public offering
by the Underwriters under state securities or Blue Sky laws) has been obtained
or made and is in full force and effect.

(n) The Company and the Subsidiary hold all licenses, certificates
and permits from governmental authorities which are necessary to the conduct of
their businesses, except where the failure to have such licenses, certificates
or permits, either singly or in the aggregate, would not have a material adverse
effect on the business or financial condition of the Company; to the knowledge
of the Company, the Company and the Subsidiary each own or possess the right to
use all patents, patent rights, trademarks, trade names, service marks, service
names, copyrights, license rights, know-how (including trade secrets and other
unpatented and unpatentable proprietary or confidential information, systems or
procedures) and other intellectual property rights ("Intellectual Property")
necessary to carry on the business of the Company and the Subsidiary in all
material respects; except as specifically disclosed in the Prospectus neither
the Company nor the Subsidiary has infringed, or received notice of conflict
with, any Intellectual Property of any other person or entity. The Company has
taken all reasonable steps necessary to secure interests in such Intellectual
Property from its contractors. There are no outstanding options, licenses or
agreements of any kind relating to the Intellectual

5
<PAGE> 6

Property of the Company that are required to be described in the Prospectus and
are not described in all material respects. The Company is not a party to or
bound by any options, licenses or agreements with respect to the Intellectual
Property of any other person or entity that are required to be set forth in the
Prospectus and are not described in all material respects. None of the
technology employed by the Company has been obtained or is being used by the
Company in violation of any contractual obligation binding on the Company or, to
the Company's knowledge, any of its officers, directors or employees or
otherwise in violation of the rights of any persons; the Company has not
received any written or oral communications alleging that the Company has
violated, infringed or conflicted with, or, by conducting its business as set
forth in the Prospectus, would violate, infringe or conflict with, any of the
Intellectual Property of any other person or entity. Except as specifically
disclosed in the Prospectus, the Company knows of no infringement by others of
Intellectual Property owned by or licensed to the Company.

(o) Neither the Company, nor to the Company's knowledge, any of
its affiliates, has taken or may take, directly or indirectly, any action
designed to cause or result in, or which has constituted or which might
reasonably be expected to constitute, the stabilization or manipulation of the
price of the shares of Common Stock to facilitate the sale or resale of the
Shares. The Company acknowledges that the Underwriters may engage in passive
market making transactions in the Shares on the Nasdaq Stock Market in
accordance with Regulation M under the Exchange Act.

(p) Neither the Company nor the Subsidiary is an "investment
company" within the meaning of such term under the Investment Company Act of
1940, as amended (the "1940 Act") and the rules and regulations of the
Commission thereunder.

(q) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurances that (i) transactions are executed
in accordance with management's general or specific authorization; (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.

(r) Each of the Company and the Subsidiary carries, or is covered
by, insurance in such amounts and covering such risks as is adequate for the
conduct of its respective business and the value of its respective properties
and as is customary for companies engaged in similar industries.

(s) The Company is in compliance in all material respects with all
presently applicable provisions of the Employee Retirement Income Security Act
of 1974, as amended, including the regulations and published interpretations
thereunder ("ERISA"); no "reportable event" (as defined in ERISA) has occurred
with respect to any "pension plan" (as defined in ERISA) for which the Company
would have any liability; the Company has not incurred and does not expect to
incur liability under (i) Title IV of ERISA with respect to termination of, or

6
<PAGE> 7

withdrawal from, any "pension plan" or (ii) Sections 412 or 4971 of the Internal
Revenue Code of 1986, as amended, including the regulations and published
interpretations thereunder (the "Code"); and each "pension plan" for which the
Company would have any liability that is intended to be qualified under Section
401(a) of the Code is so qualified in all material respects and nothing has
occurred, whether by action or by failure to act, which would cause the loss of
such qualification.

(t) To the Company's knowledge, there are no affiliations or
associations between any member of the NASD and any of the Company's officers,
directors or 5% or greater securityholders, except as set forth in the
Registration Statement.

(u) No material labor dispute with employees of the Company exists
or to the knowledge of the Company is threatened and the Company is not aware of
any existing, threatened or imminent labor disturbance by the employees of any
of its principal suppliers, manufacturers or contractors that could result in
any material adverse change in the condition, financial or otherwise of the
Company or the business, management, properties, assets, rights, operations of
the Company.

(v) This Agreement has been duly authorized, executed and
delivered by the Company.

(w) No relationship, direct or indirect, exists between or among
the Company or the Subsidiary, on the one hand, and the directors, officers,
stockholders, customers or suppliers of the Company or the Subsidiary, on the
other hand, which is required to be described in the Registration Statement or
the Prospectus that is not so described.

(x) There are no outstanding loans, advances (except normal
advances for business expenses in the ordinary course of business) or guarantees
of indebtedness by the Company to or for the benefit of any of the officers or
directors of the Company or any of the members of any of them, except as
disclosed in the Registration Statement and the Prospectus.

(y) Neither the Company nor the Subsidiary, nor, to the Company's
knowledge, any director, officer, agent, employee or other person associated
with or acting on behalf of the Company or the Subsidiary, has (i) used any
corporate funds for any unlawful contribution, gift, entertainment or other
unlawful expense relating to political activity; (ii) made any direct or
indirect unlawful payment to any foreign or domestic government official or
employee from corporate funds; (iii) violated or is in violation of any
provisions of the Foreign Corrupt Practices Act of 1972; or (iv) made any bribe,
rebate, payoff, influence payment, kickback or other unlawful payment.

(z) The Company has not been advised, and has no reason to
believe, that it and each of its Subsidiaries are or the Subsidiary is not
conducting business in compliance with all applicable laws, rules and
regulations of the jurisdictions in which it is conducting business, except
where failure to be so in compliance would not materially adversely affect the
earnings, business, management, properties, assets, rights, operations or
prospects of the Company and the

7
<PAGE> 8

Subsidiaries Subsidiary, taken as a whole.

(aa) To the Company's knowledge, the business, operations and
facilities of the Company and the Subsidiary have been and are being conducted
in compliance in all material respects with all applicable laws, ordinances,
rules, regulations, licenses, permits, approvals, plans, authorizations or
requirements relating to occupational safety and health, pollution, protection
of health or the environment (including, without limitation, those relating to
emissions, discharges, releases or threatened releases of pollutants,
contaminants or hazardous or toxic substances, materials or wastes into ambient
air, surface water, groundwater or land, or relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of chemical substances, pollutants, contaminants or hazardous or toxic
substances, materials or wastes, whether solid, gaseous or liquid in nature) or
otherwise relating to remediating real property in which the Company or the
Subsidiary has or had any interest, whether owned or leased, of any governmental
department, commission, board, bureau, agency or instrumentality of the United
States, any state or political subdivision thereof and all applicable judicial
or administrative agency or regulatory decrees, awards, judgments and orders
relating thereto, except for such failures to so comply as would not,
individually or in the aggregate, have a material adverse affect on the
Company's and the Subsidiary's earnings, business, management, properties,
assets, rights, operations, taken as a whole; and neither the Company nor the
Subsidiary has received any notice from a governmental instrumentality or any
third party alleging any violation thereof or liability thereunder (including,
without limitation, liability for costs of investigating or remediating sites
containing hazardous substances or damage to natural resources), except for such
violations or liabilities which would not, individually or in the aggregate,
have a material adverse affect on the Company's and the Subsidiary's earnings,
business, management, properties, assets, rights, operations, taken as a whole.

(bb) The Company has reviewed its operations and that of the
Subsidiary to evaluate the extent to which the business or operations of the
Company or the Subsidiary will be affected by the Year 2000 Problem. As a result
of such review, the Company has no reason to believe, and does not believe, that
the Year 2000 problem will have a material adverse effect on the financial
position, stockholders' equity or results of operations of the Company and the
Subsidiary or result in any material loss or interference with the Company's
business or operations. The "Year 2000 Problem" as used herein means any
significant risk that computer hardware or software used in the receipt,
transmission, processing, manipulation, storage, retrieval, retransmission or
other utilization of data or in the operation of mechanical or electrical
systems of any kind will not, in the case of dates or time periods occurring
after December 31, 1999, function at least as effectively as in the case of
dates or time periods occurring prior to January 1, 2000.

(cc) The Common Stock has been approved for quotation on the Nasdaq
National Market, subject to official notice of issuance.

(dd) The Company has not distributed and will not distribute prior
to the later of (i) the Closing Date, or any date on which Option Shares are to
be purchased, as the case may

8
<PAGE> 9

be, and (ii) completion of the distribution of the Shares, any offering material
in connection with the offering and sale of the Shares other than any
preliminary prospectuses, the Prospectus, the Registration Statement and other
materials, if any, permitted by the Act.

(ee) There are no contracts, agreements or understandings between
the Company and any person granting such person (i) the right to require the
Company to file a registration statement under the Act with respect to any
securities of the Company, except as disclosed in the Prospectus or (ii) to
require the Company to include such securities with the Shares registered
pursuant to the Registration Statement.

(ff) All agreements granting an option or right to purchase or
otherwise acquire Common Stock of the Company, including warrants and any other
security convertible into or exchangeable for Common Stock, and all agreements
pursuant to which any current stockholder has agreed to purchase Common Stock of
the Company, contain provisions prohibiting the sale, pledge, grant, transfer or
other disposition of such security for a period of 180 days after the effective
date of the Registration Statement.

2. PURCHASE, SALE AND DELIVERY OF THE FIRM SHARES.

(a) On the basis of the representations, warranties and covenants
herein contained, and subject to the conditions herein set forth, the Company
agrees to sell to the Underwriters and each Underwriter agrees, severally and
not jointly, to purchase, at a price of $_____ per share, the number of Firm
Shares set forth opposite the name of each Underwriter in Schedule I hereof,
subject to adjustments in accordance with Section 9 hereof.

(b) Payment for the Firm Shares to be sold hereunder is to be made
in New York Clearing House funds by Federal (same day) against delivery of
certificates therefor to the Representatives for the several accounts of the
Underwriters. Such payment and delivery are to be made through the facilities of
the Depository Trust Company, New York, New York at 10:00 a.m., New York time,
on the third business day after the date of this Agreement or at such other time
and date not later than five business days thereafter as you and the Company
shall agree upon, such time and date being herein referred to as the "Closing
Date." (As used herein, "business day" means a day on which the New York Stock
Exchange is open for trading and on which banks in New York are open for
business and are not permitted by law or executive order to be closed.)

(c) In addition, on the basis of the representations and
warranties herein contained and subject to the terms and conditions herein set
forth, the Company hereby grants an option to the several Underwriters to
purchase the Option Shares at the price per share as set forth in the first
paragraph of this Section 2. The option granted hereby may be exercised in whole
or in part by giving written notice (i) at any time before the Closing Date and
(ii) only once thereafter within 30 days after the date of this Agreement, by
you, as Representatives of the several Underwriters, to the Company setting
forth the number of Option Shares as to which the several Underwriters are
exercising the option, the names and denominations in which the Option Shares

9
<PAGE> 10

are to be registered and the time and date at which such certificates are to be
delivered. The time and date at which certificates for Option Shares are to be
delivered shall be determined by the Representatives but shall not be earlier
than three nor later than 10 full business days after the exercise of such
option, nor in any event prior to the Closing Date (such time and date being
herein referred to as the "Option Closing Date"). If the date of exercise of the
option is three or more days before the Closing Date, the notice of exercise
shall set the Closing Date as the Option Closing Date. The number of Option
Shares to be purchased by each Underwriter shall be in the same proportion to
the total number of Option Shares being purchased as the number of Firm Shares
being purchased by such Underwriter bears to 4,00,000, adjusted by you in such
manner as to avoid fractional shares. The option with respect to the Option
Shares granted hereunder may be exercised only to cover over-allotments in the
sale of the Firm Shares by the Underwriters. You, as Representatives of the
several Underwriters, may cancel such option at any time prior to its expiration
by giving written notice of such cancellation to the Company. To the extent, if
any, that the option is exercised, payment for the Option Shares shall be made
on the Option Closing Date in Federal (same day funds) through the facilities of
the Depository Trust Company in New York, New York drawn to the order of the
Company.

3. OFFERING BY THE UNDERWRITERS.

It is understood that the several Underwriters are to make a public
offering of the Firm Shares as soon as the Representatives deem it advisable to
do so. The Firm Shares are to be initially offered to the public at the initial
public offering price set forth in the Prospectus. The Representatives may from
time to time thereafter change the public offering price and other selling
terms. To the extent, if at all, that any Option Shares are purchased pursuant
to Section 2 hereof, the Underwriters will offer them to the public on the
foregoing terms.

It is further understood that you will act as the Representatives
for the Underwriters in the offering and sale of the Shares in accordance with a
Master Agreement Among Underwriters entered into by you and the several other
Underwriters.

4. COVENANTS OF THE COMPANY.

The Company covenants and agrees with the several Underwriters that:

(a) The Company will (i) use its best efforts to cause the
Registration Statement to become effective or, if the procedure in Rule 430A of
the Rules and Regulations is followed, to prepare and timely file with the
Commission under Rule 424(b) of the Rules and Regulations a Prospectus in a form
approved by the Representatives containing information previously omitted at the
time of effectiveness of the Registration Statement in reliance on Rule 430A of
the Rules and Regulations and (ii) not file any amendment to the Registration
Statement or supplement to the Prospectus of which the Representatives shall not
previously have been advised and furnished with a copy or to which the
Representatives shall have reasonably objected in writing or which is not in
compliance with the Rules and Regulations.

(b) The Company will advise the Representatives promptly (i) when
the

10
<PAGE> 11

Registration Statement or any post-effective amendment thereto shall have become
effective, (ii) of receipt of any comments from the Commission, (iii) of any
request of the Commission for amendment of the Registration Statement or for
supplement to the Prospectus or for any additional information, and (iv) of the
issuance by the Commission of any stop order suspending the effectiveness of the
Registration Statement or the use of the Prospectus or of the institution of any
proceedings for that purpose. The Company will use its best efforts to prevent
the issuance of any such stop order preventing or suspending the use of the
Prospectus and to obtain as soon as possible the lifting thereof, if issued.

(c) The Company will cooperate with the Representatives in
endeavoring to qualify the Shares for sale under the securities laws of such
jurisdictions as the Representatives may reasonably have designated in writing
and will make such applications, file such documents, and furnish such
information as may be reasonably required for that purpose, provided the Company
shall not be required to qualify as a foreign corporation or to file a general
consent to service of process in any jurisdiction where it is not now so
qualified or required to file such a consent. The Company will, from time to
time, prepare and file such statements, reports, and other documents, as are or
may be required to continue such qualifications in effect for so long a period
as the Representatives may reasonably request for distribution of the Shares.

(d) The Company will deliver to, or upon the order of, the
Representatives, from time to time, as many copies of any Preliminary Prospectus
as the Representatives may reasonably request. The Company will deliver to, or
upon the order of, the Representatives during the period when delivery of a
Prospectus is required under the Act, as many copies of the Prospectus in final
form, or as thereafter amended or supplemented, as the Representatives may
reasonably request. The Company will deliver to the Representatives at or before
the Closing Date, four signed copies of the Registration Statement and all
amendments thereto including all exhibits filed therewith, and will deliver to
the Representatives such number of copies of the Registration Statement
(including such number of copies of the exhibits filed therewith that may
reasonably be requested), and of all amendments thereto, as the Representatives
may reasonably request.

(e) The Company will comply with the Act and the Rules and
Regulations, and the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the rules and regulations of the Commission thereunder, so as to
permit the completion of the distribution of the Shares as contemplated in this
Agreement and the Prospectus. If during the period in which a prospectus is
required by law to be delivered by an Underwriter or dealer, any event shall
occur as a result of which, in the judgment of the Company or in the reasonable
opinion of the Underwriters, it becomes necessary to amend or supplement the
Prospectus in order to make the statements therein, in the light of the
circumstances existing at the time the Prospectus is delivered to a purchaser,
not misleading, or, if it is necessary at any time to amend or supplement the
Prospectus to comply with any law, the Company promptly will prepare and file
with the Commission an appropriate amendment to the Registration Statement or
supplement to the Prospectus so that the Prospectus as so amended or
supplemented will not, in the light of the circumstances when it is so
delivered, be misleading, or so that the Prospectus will comply with the law.

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<PAGE> 12

(f) The Company will make generally available to its security
holders, as soon as it is practicable to do so, but in any event not later than
15 months after the effective date of the Registration Statement, an earning
statement (which need not be audited) in reasonable detail, covering a period of
at least 12 consecutive months beginning after the effective date of the
Registration Statement, which earning statement shall satisfy the requirements
of Section 11(a) of the Act and Rule 158 of the Rules and Regulations and will
advise you in writing when such statement has been so made available.

(g) Prior to the Closing Date, the Company will furnish to the
Underwriters, as soon as they have been prepared by or are available to the
Company, a copy of any unaudited interim financial statements of the Company for
any period subsequent to the period covered by the most recent financial
statements appearing in the Registration Statement and the Prospectus.

(h) No offering, sale, short sale or other disposition of any
shares of Common Stock of the Company or other securities convertible into or
exchangeable or exercisable for shares of Common Stock or derivative of Common
Stock (or agreement for such) will be made for a period of 180 days after the
date of this Agreement, directly or indirectly, by the Company otherwise than
hereunder or with the prior written consent of Deutsche Bank Securities Inc.,
except (i) the Company's issuance of Common Stock upon the exercise of warrants
and stock options that are presently outstanding and described as such in the
Prospectus, or any other issuance of options of Common Stock hereafter under the
option or equity incentive plans described in the Prospectus, provided that no
such issuance of Common Stock results from any acceleration of vesting of any
such security, and (ii) the Company's issuance of Common Stock under the
employee stock purchase plan described in the Prospectus.

(i) The Company will use its best efforts to list, subject to
notice of issuance, the Shares on the Nasdaq National Market.

(j) The Company has caused each officer and director of the
Company and each beneficial owner of the issued and outstanding shares of
capital stock of the Company (including shares of Common Stock which may be
deemed to be owned on the date hereof in accordance with the rules and
regulations of the Commission, shares of Common Stock of the Company which may
be issued upon exercise of a stock option or warrant, and any other security
convertible into or exchangeable for Common Stock) to furnish to you, on or
prior to the date of this agreement, a letter or letters, in form and substance
satisfactory to the Underwriters, pursuant to which each such person shall agree
not to offer, sell, sell short or otherwise dispose of any shares of Common
Stock of the Company or other capital stock of the Company, or any other
securities convertible, exchangeable or exercisable for Common Shares or
derivative of Common Shares owned by such person or request the registration for
the offer or sale of any of the foregoing (or as to which such person has the
right to direct the disposition of) for a period of 180 days after the date of
this Agreement, directly or indirectly, except with the prior written consent of
Deutsche Bank Securities Inc. ("Lockup Agreements").

(k) The Company shall enforce the provisions referenced in Section
1(ff)

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<PAGE> 13

hereof prohibiting the sale, pledge, grant, transfer or other disposition of the
Company's securities for a period of 180 days after the effective date of the
Registration Statement, unless Deutsche Bank Securities Inc. has given prior
written consent authorizing such sale, pledge, grant, transfer or other
disposition of the Company's securities.

(l) The Company shall apply the net proceeds of its sale of the
Shares substantially as set forth in the Prospectus and shall file such reports
with the Commission with respect to the sale of the Shares and the application
of the proceeds therefrom as may be required in accordance with Rule 463 under
the Act.

(l) The Company shall not invest, or otherwise use the proceeds
received by the Company from its sale of the Shares in such a manner as would
require the Company or any of its subsidiaries to register as an investment
company under the 1940 Act.

(m) The Company will maintain a transfer agent and, if necessary
under the jurisdiction of incorporation of the Company, a registrar for the
Common Stock.

(n) The Company will not take, directly or indirectly, any action
designed to cause or result in, or that has constituted or might reasonably be
expected to constitute, the stabilization or manipulation of the price of any
securities of the Company.

5. COSTS AND EXPENSES.

The Company will pay all costs, expenses and fees incident to the
performance of the obligations of the Company under this Agreement, including,
without limiting the generality of the foregoing, the following: accounting fees
of the Company; the fees and disbursements of counsel for the Company; the cost
(exclusive of fees and expenses of counsel to the Underwriters except as
provided below) of printing and delivering to, or as requested by, the
Underwriters copies of the Registration Statement, Preliminary Prospectuses, the
Prospectus, this Agreement, the Underwriters' Selling Memorandum, the
Underwriters' Invitation Letter, the Listing Application, the Blue Sky Survey
and any supplements or amendments thereto; the filing fees of the Commission;
the filing fees and expenses (including legal fees and disbursements) incident
to securing any required review by the National Association of Securities
Dealers, Inc. (the "NASD") of the terms of the sale of the Shares; the Listing
Fee of the Nasdaq Stock Market; and the expenses, including the fees and
disbursements of counsel for the Underwriters incurred in connection with the
qualification of the Shares under State securities or Blue Sky laws. The Company
agrees to pay all costs and expenses of the Underwriters, including the fees and
disbursements of counsel for the Underwriters, incident to the offer and sale of
the Directed Shares other than the fees and expenses of counsel to the
Underwriters and Underwriters' discounts, concessions and commissions associated
therewith. The Company shall not, however, be required to pay for any of the
Underwriters expenses (other than those related to qualification under NASD
regulation and State securities or Blue Sky laws) except that, if this Agreement
shall not be consummated because the conditions in Section 6 hereof are not
satisfied, or because this Agreement is terminated by the Representatives
pursuant to Section 11 hereof, or by reason of any failure, refusal or inability
on the part of the Company to perform any undertaking or

13
<PAGE> 14

satisfy any condition of this Agreement or to comply with any of the terms
hereof on its part to be performed, unless such failure to satisfy said
condition or to comply with said terms be due to the default or omission of any
Underwriter, then the Company shall reimburse the several Underwriters for
reasonable out-of-pocket expenses, including fees and disbursements of counsel,
reasonably incurred in connection with investigating, marketing and proposing to
market the Shares or in contemplation of performing their obligations hereunder;
but the Company shall not in any event be liable to any of the several
Underwriters for damages on account of loss of anticipated profits from the sale
by them of the Shares.

6. CONDITIONS OF OBLIGATIONS OF THE UNDERWRITERS.

The several obligations of the Underwriters to purchase the Firm
Shares on the Closing Date and the Option Shares, if any, on the Option Closing
Date are subject to the accuracy, as of the Closing Date or the Option Closing
Date, as the case may be, of the representations and warranties of the Company
contained herein, and to the performance by the Company of its covenants and
obligations hereunder and to the following additional conditions:

(a) The Registration Statement and all post-effective amendments
thereto shall have become effective and any and all filings required by Rule 424
and Rule 430A of the Rules and Regulations shall have been made, and any request
of the Commission for additional information (to be included in the Registration
Statement or otherwise) shall have been disclosed to the Representatives and
complied with to their reasonable satisfaction. No stop order suspending the
effectiveness of the Registration Statement, as amended from time to time, shall
have been issued and no proceedings for that purpose shall have been taken or,
to the knowledge of the Company, shall be contemplated by the Commission and no
injunction, restraining order, or order of any nature by a Federal or state
court of competent jurisdiction shall have been issued as of the Closing Date
which would prevent the issuance of the Shares.

(b) The Representatives shall have received on the Closing Date or
the Option Closing Date, as the case may be, the opinion of Wilson Sonsini
Goodrich & Rosati, counsel for the Company, dated the Closing Date or the Option
Closing Date, as the case may be, addressed to the Underwriters (and stating
that it may be relied upon by counsel to the Underwriters) to the effect that:

(i) The Company has been duly organized and is validly
existing as a corporation in good standing under the laws of the State of
Delaware, with corporate power and authority to own or lease its properties and
conduct its business as described in the Registration Statement; the Subsidiary
has been duly organized and is validly existing as a corporation in good
standing under the laws of the jurisdiction of its incorporation, with corporate
power and authority to own or lease its properties and conduct its business as
described in the Registration Statement; each of the Company and the Subsidiary
is duly qualified to transact business in all jurisdictions in which the conduct
of its business requires such qualification, or in which the failure to qualify
would have a materially adverse effect upon the business of the Company and the
Subsidiary taken as a whole; the outstanding shares of capital stock of the
Subsidiary have been duly authorized and validly issued and are fully paid and
non-assessable and are owned by

14
<PAGE> 15

the Company and no options, warrants or other rights to purchase, agreements or
other obligations to issue or other rights to convert any obligations into any
shares of capital stock or of ownership interests in the Subsidiary are
outstanding.

(ii) The Company has authorized and outstanding capital
stock as set forth under the caption "Capitalization" in the Prospectus; the
authorized shares of the Company's Common Stock have been duly authorized; the
outstanding shares of the Company's Common Stock have been duly authorized and
validly issued and are fully paid and non-assessable; the shares of Common Stock
to be issued upon conversion of the Preferred Stock immediately prior to the
closing of the offering of the Shares have been duly authorized and when issued
will be validly issued, fully paid and non-assessable; the authorized capital
stock of the Company and all of the Shares conform to the description thereof
contained in the Prospectus; the certificates for the Shares, assuming they are
in the form filed with the Commission, are in due and proper form; the shares of
Common Stock, including the Option Shares, if any, to be sold by the Company
pursuant to this Agreement have been duly authorized and will be validly issued,
fully paid and non-assessable upon the closing of the offering of the Shares and
payment for such Shares as contemplated by this Agreement; none of such Shares
will be issued in violation of any preemptive right contained in the Company's
Charter of Bylaws or, to such counsel's knowledge any contractual right of first
refusal; and, to such counsel's knowledge, the Shares will not be subject to any
such preemptive rights or rights of first refusal.

(iii) Except as described in or contemplated by the
Prospectus, to the knowledge of such counsel, there are no outstanding
securities of the Company convertible or exchangeable into or evidencing the
right to purchase or subscribe for any shares of capital stock of the Company
and there are no outstanding or authorized options, warrants or rights of any
character obligating the Company to issue any shares of its capital stock or any
securities convertible or exchangeable into or evidencing the right to purchase
or subscribe for any shares of such stock; and except as described in the
Prospectus, to the knowledge of such counsel, no holder of any securities of the
Company or any other person has the right, contractual or otherwise, which has
not been satisfied or effectively waived, to cause the Company to sell or
otherwise issue to them, or to permit them to underwrite the sale of, any of the
Shares or the right to have any shares of Common Stock or other securities of
the Company included in the Registration Statement or the right, as a result of
the filing of the Registration Statement, to require registration under the Act
of any shares of Common Stock or other securities of the Company.

(iv) Based solely upon the oral advice of the staff of the
Commission, the Registration Statement has become effective under the Act and,
to the best of the knowledge of such counsel, no stop order proceedings with
respect thereto have been instituted or are pending or threatened under the Act.

(v) The Registration Statement, the Prospectus and each
amendment or supplement thereto comply as to form in all material respects with
the requirements of the Act, and the applicable rules and regulations thereunder
(except that such counsel need express no

15
<PAGE> 16

opinion as to the financial statements and related notes and schedules and other
financial and statistical data included therein).

(vi) The statements under the captions "Management,"
"Certain Transactions," "Description of Capital Stock," and "Shares Eligible for
Future Sale" in the Prospectus and Items 14 and 15 of the Registration
Statement, insofar as such statements constitute a summary of legal documents
referred to therein or of matters of law, fairly summarize in all material
respects the information called for with respect to such documents and matters.

(vii) Such counsel does not know of any contracts or
documents required to be filed as exhibits to the Registration Statement or
described in the Registration Statement or the Prospectus which are no so filed
or described as required, and such contracts and documents as are summarized in
the Registration Statement or the Prospectus are fairly summarized in all
material respects.

(viii) Such counsel knows of no material legal or governmental
proceedings pending or threatened against the Company or any the Subsidiary
except as set forth in the Prospectus.

(ix) The execution, delivery and performance of this
Agreement and the consummation of the transactions herein contemplated do not
and will not conflict with or result in a breach of any of the terms or
provisions of, or constitute a default under, the Charter or Bylaws of the
Company, or any agreement or instrument known to such counsel to which the
Company or the Subsidiary is a party or by which the Company or the Subsidiary
may be bound.

(x) This Agreement has been duly authorized, executed and
delivered by the Company.

(xi) No approval, consent, order, authorization,
designation, declaration or filing by or with any regulatory, administrative or
other governmental body is necessary in connection with the execution and
delivery of this Agreement and the consummation of the transactions herein
contemplated (other than as may be required by the NASD or as required by State
securities and Blue Sky laws as to which such counsel need express no opinion)
except such as have been obtained or made, specifying the same.

(xii) The Company is not, and will not become, as a result of
the consummation of the transactions contemplated by this Agreement, and
application of the net proceeds therefrom as described in the Prospectus,
required to register as an investment company under the 1940 Act.

The opinions expressed by Wilson Sonsini Goodrich & Rosati may be limited
in all respects to existing laws of the State of California, the General
Corporation Law of the State of Delaware (based solely on such counsel's review
of standard compilations of such law and without reference to its conflict of
law rules) and applicable federal laws. With respect to the

16
<PAGE> 17

matters above relating to the Subsidiary, such counsel shall be entitled to rely
on the opinions expressed by foreign counsel to the Subsidiary.

In addition, to the matters set forth above, such counsel shall also
include statements to the effect that such counsel has participated in the
preparation of the Registration Statement and the Prospectus, involving, among
other things, review and discussion of the contents thereof, discussion and
inquiries concerning various legal matters and the review of certain records,
documents and proceedings, and participation in conferences with certain
officers and other representatives of the Company, including its independent
accountants, and with the Underwriters and Underwriters' counsel at which the
contents of the Registration Statement and the Prospectus were discussed, but
without independent check or verification of the accuracy or completeness of
such information, except as specified in such opinion, and that on the basis of
such consideration, review and discussion, but without independent check or
verification, nothing has come to such counsel's attention which leads such
counsel to believe (i) that, as of its effective date, the Registration
Statement or any further amendment thereto made by the Company prior to the date
hereof (other than the financial statements and related schedules and financial
and statistical data therein, as to which such counsel need not express any
belief) contained an untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading (ii) that as of its date, the Prospectus or any further
amendment or supplement thereto made by the Company prior to the date hereof
(other than the financial statements and related schedules and financial and
statistical data therein, as to which such counsel need not express any belief)
contained an untrue statement of a material fact or omitted to state a material
fact necessary to make the statements therein, in light of the circumstances in
which they were made, not misleading or (iii) that, as of the date of such
opinion, either the Registration Statement or the Prospectus or any further
amendment or supplement thereto made by the Company prior to the date of such
opinion (other than the financial statements, and related schedules and
financial and statistical data therein, as to which such counsel need not
express any belief) contains an untrue statement of a material fact or omits to
state a material fact necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading.

(c) The Representatives shall have received from Morrison &
Foerster LLP, counsel for the Underwriters, an opinion dated the Closing Date or
the Option Closing Date, as the case may be, substantially to the effect
specified in subparagraphs (iv) and (v) of Paragraph (b) of this Section 6, the
due organization and valid existence of the Company under the laws of the State
of Delaware and the validity of the Shares, and the Company shall have furnished
to such counsel such documents as such counsel may reasonably request for the
purpose of passing upon such matters. In rendering such opinion Morrison &
Foerster LLP may rely as to all matters governed other than by the laws of the
State of Delaware, California or Federal laws on the opinion of counsel referred
to in Paragraph (b) of this Section 6. In addition to the matters set forth
above, such opinion shall also include a statement to the effect that nothing
has come to the attention of such counsel which leads them to believe that (i)
the Registration Statement, or any amendment thereto, as of the time it became
effective under the Act (but after giving effect to any modifications
incorporated therein pursuant to Rule 430A under the Act) and as of the Closing
Date or the Option Closing Date, as the case may be, contained an untrue
statement of a

17
<PAGE> 18

material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein not misleading, and (ii) the
Prospectus, or any supplement thereto, on the date it was filed pursuant to the
Rules and Regulations and as of the Closing Date or the Option Closing Date, as
the case may be, contained an untrue statement of a material fact or omitted to
state a material fact, necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading (except that such
counsel need express no view as to financial statements, related notes and
schedules and other financial and statistical information therein). With respect
to such statement, Morrison & Foerster LLP may state that their belief is based
upon the procedures set forth therein, but is without independent check and
verification.

(d) The Representatives shall have received at or prior to the
Closing Date from Morrison & Foerster LLP a memorandum or summary, in form and
substance satisfactory to the Representatives, with respect to the qualification
for offering and sale by the Underwriters of the Shares under the State
securities or Blue Sky laws of such jurisdictions as the Representatives may
reasonably have designated to the Company.

(e) You shall have received, on each of the dates hereof, the
Closing Date and the Option Closing Date, as the case may be, a letter dated the
date hereof, the Closing Date or the Option Closing Date, as the case may be, in
form and substance satisfactory to you, of PricewaterhouseCoopers LLP confirming
that they are independent public accountants within the meaning of the Act and
the applicable published Rules and Regulations thereunder and stating that in
their opinion the financial statements and schedules examined by them and
included in the Registration Statement comply in form in all material respects
with the applicable accounting requirements of the Act and the related published
Rules and Regulations; and containing such other statements and information as
is ordinarily included in accountants' "comfort letters" to Underwriters with
respect to the financial statements and certain financial and statistical
information contained in the Registration Statement and Prospectus.

(f) The Representatives shall have received on the Closing Date or
the Option Closing Date, as the case may be, a certificate or certificates of
the Chief Executive Officer and the Chief Financial Officer of the Company to
the effect that, as of the Closing Date or the Option Closing Date, as the case
may be, each of them severally represents as follows:

(i) The Registration Statement has become effective under
the Act and no stop order suspending the effectiveness of the Registration
Statement has been issued, and no proceedings for such purpose have been taken
or are, to his knowledge, contemplated by the Commission;

(ii) The representations and warranties of the Company
contained in Section 1 hereof are true and correct as of the Closing Date or the
Option Closing Date, as the case may be;

(iii) All filings required to have been made pursuant to
Rules 424 or 430A under the Act have been made;

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<PAGE> 19

(iv) He has carefully examined the Registration Statement
and the Prospectus and, in his opinion, as of the effective date of the
Registration Statement, the statements contained in the Registration Statement
were true and correct, and such Registration Statement and Prospectus did not
omit to state a material fact required to be stated therein or necessary in
order to make the statements therein not misleading, and since the effective
date of the Registration Statement, no event has occurred which should have been
set forth in a supplement to or an amendment of the Prospectus which has not
been so set forth in such supplement or amendment; and

(v) Since the respective dates as of which information is
given in the Registration Statement and Prospectus, there has not been any
material adverse change or any development involving a prospective material
adverse change in or affecting the condition, financial or otherwise, of the
Company and the Subsidiary taken as a whole or the earnings, business,
management, properties, assets, rights, operations, condition (financial or
otherwise) of the Company and the Subsidiary taken as a whole, whether or not
arising in the ordinary course of business.

(g) The Company shall have furnished to the Representatives such
further certificates and documents confirming the representations and
warranties, covenants and conditions contained herein and related matters as the
Representatives may reasonably have requested.

(h) The Firm Shares and Option Shares, if any, have been approved
for designation upon notice of issuance on the Nasdaq National Market.

(i) The Lockup Agreements described in Section 4(j) are in full
force and effect.

The opinions and certificates mentioned in this Agreement shall be
deemed to be in compliance with the provisions hereof only if they are in all
material respects satisfactory to the Representatives and to Morrison & Foerster
LLP, counsel for the Underwriters.

If any of the conditions hereinabove provided for in this Section 6
shall not have been fulfilled when and as required by this Agreement to be
fulfilled, the obligations of the Underwriters hereunder may be terminated by
the Representatives by notifying the Company of such termination in writing or
by telegram at or prior to the Closing Date or the Option Closing Date, as the
case may be.

In such event, the Company and the Underwriters shall not be under
any obligation to each other (except to the extent provided in Sections 5 and 8
hereof).

7. CONDITIONS OF THE OBLIGATIONS OF THE COMPANY.

The obligations of the Company to sell and deliver the portion of
the Shares required to be delivered as and when specified in this Agreement are
subject to the conditions that at the

19
<PAGE> 20

Closing Date or the Option Closing Date, as the case may be, no stop order
suspending the effectiveness of the Registration Statement shall have been
issued and in effect or proceedings therefor initiated or threatened.

8. INDEMNIFICATION.

(a) The Company agrees:

(1) To indemnify and hold harmless each Underwriter and each
person, if any, who controls any Underwriter within the meaning of Section 15 of
the Act or Section 20 of the Exchange Act, against any losses, claims, damages
or liabilities to which such Underwriter or any such controlling person may
become subject under the Act, the Exchange Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions or proceedings in respect
thereof) arise out of or are based upon (i) any untrue statement or alleged
untrue statement of any material fact contained in the Registration Statement,
any Preliminary Prospectus, the Prospectus or any amendment or supplement
thereto, (ii) 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, or (iii) any alleged act or failure to act by any Underwriter in
connection with, or relating in any manner to, the Shares or the offering
contemplated hereby, and which is included as part of or referred to in any
loss, claim, damage, liability or action arising out of or based upon matters
covered by clause (i) or (ii) above (provided, that the Company shall not be
liable under this clause (iii) to the extent that it is determined in a final
judgment by a court of competent jurisdiction that such loss, claim, damage,
liability or action resulted directly from any such acts or failures to act
undertaken or omitted to be taken by such Underwriter through its gross
negligence or willful misconduct); 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, or omission or alleged omission made in the Registration Statement,
any Preliminary Prospectus, the Prospectus or such amendment or supplement, in
reliance upon and in conformity with written information furnished to the
Company by or through the Representatives specifically for use in the
preparation thereof or resulting from the failure by the Underwriters to provide
an amended Registration Statement, Preliminary Prospectus or Prospectus to
prospective investors in the Company's Common Stock.

(2) To reimburse each Underwriter and each such controlling
person upon demand for any legal or other out-of-pocket expenses reasonably
incurred by such Underwriter or such controlling person in connection with
investigating or defending any such loss, claim, damage or liability, action or
proceeding or in responding to a subpoena or governmental inquiry related to the
offering of the Shares, whether or not such Underwriter or controlling person is
a party to any action or proceeding. In the event that it is finally judicially
determined that the Underwriters were not entitled to receive payments for legal
and other expenses pursuant to this subparagraph, the Underwriters will promptly
return all sums that had been advanced pursuant hereto.

(3) To indemnify and hold harmless Deutsche Bank and each
person,

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<PAGE> 21

if any, who controls, or is controlled by, Deutsche Bank within the meaning of
Section 15 of the Act and Section 20 of the Exchange Act (the "Deutsche Bank
Entities"), against any losses, claims, damages or liabilities to which such
Underwriter or any such controlling person may become subject under the Act or
the Exchange Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) arise out of or are
based upon (i) any untrue statement or alleged untrue statement of any 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,
(ii) 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
(iii) caused by the failure of any Participant to pay for and accept delivery of
Directed Shares that the Participant agreed to purchase or (iv) any alleged act
or failure to act by any Deutsche Bank Entity in connection with, or relating in
any manner to, the Directed Share Program, other than any loss, claim, damage,
liability or action that are finally judicially determined to have resulted from
the bad faith, gross negligence or material misstatement or omission of any
material fact on the part any Deutsche Bank Entity; 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, or omission or alleged omission made in the
Registration Statement, any Preliminary Prospectus, the Prospectus, or such
amendment or supplement, in reliance upon and in conformity with written
information furnished to the Company by or through the Representatives
specifically for use in the preparation thereof.

(4) To reimburse each Deutsche Bank Entity upon demand for
any legal or other out-of-pocket expenses reasonably incurred by such Deutsche
Bank in connection with investigating or defending any such loss, claim, damage
or liability, action or proceeding or in responding to a subpoena or
governmental inquiry related to the offering of the Directed Shares, whether or
not such Deutsche Bank Entity is a party to any action or proceeding. In the
event that it is finally judicially determined that the Deutsche Bank Entities
were not entitled to receive payments for legal and other expenses pursuant to
this subparagraph, the Deutsche Bank Entities will promptly return all sums that
had been advanced pursuant hereto.

(b) Each Underwriter severally and not jointly will indemnify and
hold harmless the Company, each of its directors, each of its officers who have
signed the Registration Statement, and each person, if any, who controls the
Company within the meaning of the Act, against any losses, claims, damages or
liabilities to which the Company or any such director, officer or controlling
person may become subject under the Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions or proceedings in respect thereof)
arise out of or are based upon (i) any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement, any
Preliminary Prospectus, the Prospectus or any amendment or supplement thereto,
or (ii) 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 the light of the circumstances under which they were made; and
will reimburse any legal or other expenses reasonably incurred by the Company or
any such director, officer, or controlling person in connection with
investigating or defending any such loss, claim, damage, liability, action or
proceeding; provided, however, that each Underwriter will be liable in each case
to the extent, but only to the extent, that such untrue statement or alleged
untrue statement or omission or

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<PAGE> 22

alleged omission has been made in the Registration Statement, any Preliminary
Prospectus, the Prospectus or such amendment or supplement, in reliance upon and
in conformity with written information furnished to the Company by or through
the Representatives specifically for use in the preparation thereof. This
indemnity agreement will be in addition to any liability which such Underwriter
may otherwise have.

(c) In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of which
indemnity may be sought pursuant to this Section 8, such person (the
"indemnified party") shall promptly notify the person against whom such
indemnity may be sought (the "indemnifying party") in writing. No
indemnification provided for in Section 8(a) or (b) shall be available to any
party who shall fail to give notice as provided in this Section 8(c) if the
party to whom notice was not given was unaware of the proceeding to which such
notice would have related and was materially prejudiced by the failure to give
such notice, but the failure to give such notice shall not relieve the
indemnifying party or parties from any liability which it or they may have to
the indemnified party for contribution or otherwise than on account of the
provisions of Section 8(a) or (b). In case any such proceeding shall be brought
against any indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate
therein and, to the extent that it shall wish, jointly with any other
indemnifying party similarly notified, to assume the defense thereof, with
counsel satisfactory to such indemnified party and shall pay as incurred the
fees and disbursements of such counsel related to such proceeding. In any such
proceeding, any indemnified party shall have the right to retain its own counsel
at its own expense. Notwithstanding the foregoing, the indemnifying party shall
pay as incurred (or within 30 days of presentation) the reasonable fees and
expenses of the counsel retained by the indemnified party in the event (i) the
indemnifying party and the indemnified party shall have mutually agreed to the
retention of such counsel, (ii) the named parties to any such proceeding
(including any impleaded parties) include both the indemnifying party and the
indemnified party and representation of both parties by the same counsel would
be inappropriate due to actual or potential differing interests between them or
(iii) the indemnifying party shall have failed to assume the defense and employ
counsel acceptable to the indemnified party within a reasonable period of time
after notice of commencement of the action. It is understood that the
indemnifying party shall not, in connection with any proceeding or related
proceedings in the same jurisdiction, be liable for the reasonable fees and
expenses of more than one separate firm for all such indemnified parties. Such
firm shall be designated in writing by you in the case of parties indemnified
pursuant to Section 8(a) and by the Company in the case of parties indemnified
pursuant to Section 8(b). The indemnifying party shall not be liable for any
settlement of any proceeding effected without its written consent but if settled
with such consent or if there be a final judgment for the plaintiff, the
indemnifying party agrees to indemnify the indemnified party from and against
any loss or liability by reason of such settlement or judgment. In addition, the
indemnifying party will not, without the prior written consent of the
indemnified party, settle or compromise or consent to the entry of any judgment
in any pending or threatened claim, action or proceeding of which
indemnification may be sought hereunder (whether or not any indemnified party is
an actual or potential party to such claim, action or proceeding) unless such
settlement, compromise or consent includes an unconditional release of each
indemnified party from all liability arising out of such claim, action or
proceeding.

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<PAGE> 23

(d) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party under
Section 8(a)(1), (a)(2) or (b) above in respect of any losses, claims, damages
or liabilities (or actions or proceedings in respect thereof) referred to
therein, then each indemnifying party shall contribute to the amount paid or
payable by such indemnified party as a result of such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) in such proportion as
is appropriate to reflect the relative benefits received by the Company on the
one hand and the Underwriters on the other from the offering of the Shares. If,
however, the allocation provided by the immediately preceding sentence is not
permitted by applicable law then each indemnifying party shall contribute to
such amount paid or payable by such indemnified party in such proportion as is
appropriate to reflect not only such relative benefits but also the relative
fault of the Company 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, (or actions or proceedings in respect thereof),
as well as any other relevant equitable considerations. The relative benefits
received by the Company on the one hand and the Underwriters on the other shall
be deemed to be in the same proportion as the total net proceeds from the
offering (before deducting expenses) received by the Company bear to the total
underwriting discounts and commissions received by the Underwriters, in each
case as set forth in the table on the cover page of the Prospectus. The relative
fault shall be determined by reference to, 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
on the one hand or the Underwriters on the other and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission.

The Company and the Underwriters agree that it would not be just and
equitable if contributions pursuant to this Section 8(d) were determined by pro
rata allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to above in this Section 8(d). The amount paid
or payable by an indemnified party as a result of the losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) referred to above in
this Section 8(d) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
subsection (d), (i) no Underwriter shall be required to contribute any amount in
excess of the underwriting discounts and commissions applicable to the Shares
purchased by such Underwriter, and (ii) 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 Section 8(d) to
contribute are several in proportion to their respective underwriting
obligations and not joint.

(e) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless a Deutsche Bank Entity under
Section 8(a)(3) or(a)(4) above in respect of any losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) referred to therein,
then the Company shall contribute to the amount paid or payable by such Deutsche
Bank Entity as a result of such losses, claims, damages or liabilities (or
actions or

23
<PAGE> 24

proceedings in respect thereof) in such proportion as is appropriate to reflect
the relative benefits received by the Company on the one hand and the Deutsche
Bank Entity on the other from the offering of the Directed Shares. If, however,
the allocation provided by the immediately preceding sentence is not permitted
by applicable law then the Company shall contribute to such amount in such
proportion as is appropriate to reflect not only such relative benefits but also
the relative fault of the Company on the one hand and the Deutsche Bank Entity
on the other in connection with the statements or omissions which resulted in
such losses, claims, damages or liabilities, (or actions or proceedings in
respect thereof),as well as any other relevant equitable considerations. The
relative benefits received by the Company on the one hand and the Deutsche Bank
Entities on the other shall be deemed to be in the same proportion as the total
net proceeds from the offering of the Directed Shares (before deducting
expenses) received by the Company bear to the total underwriting discounts and
commissions received by the Deutsche Bank Entity in connection therewith. 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 on the one hand or the Deutsche Bank Entity on the other and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission.

The Company and the Deutsche Bank Entities agree that it would not
be just and equitable if contributions pursuant to this Section 8(e) were
determined by pro rata allocation (even if the Deutsche Bank Entities were
treated as one entity for such purpose) or by any other method of allocation
which does not take account of the equitable considerations referred to above in
this Section 8(e). The amount paid or payable by a Deutsche Bank Entity as a
result of the losses, claims, damages or liabilities (or actions or proceedings
in respect thereof) referred to above in this Section 8(e) shall be deemed to
include any legal or other expenses reasonably incurred by such Deutsche Bank
Entity in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this subsection (e), (i) no Deutsche Bank
Entity shall be required to contribute any amount in excess of the underwriting
discounts and commissions applicable to the Directed Shares purchased by such
Deutsche Bank Entity, and (ii) no Deutsche Bank Entity 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.

(f) In any proceeding relating to the Registration Statement, any
Preliminary Prospectus, the Prospectus or any supplement or amendment thereto,
each party against whom contribution may be sought under this Section 8 hereby
consents to the jurisdiction of any court having jurisdiction over any other
contributing party, agrees that process issuing from such court may be served
upon him or it by any other contributing party and consents to the service of
such process and agrees that any other contributing party may join him or it as
an additional defendant in any such proceeding in which such other contributing
party is a party.

(g) Any losses, claims, damages, liabilities or expenses for which
an indemnified party is entitled to indemnification or contribution under this
Section 8 shall be paid by the indemnifying party to the indemnified party as
such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 8

24
<PAGE> 25

and the representations and warranties of the Company set forth in this
Agreement shall remain operative and in full force and effect, regardless of (i)
any investigation made by or on behalf of any Underwriter or any person
controlling any Underwriter, the Company, its directors or officers or any
persons controlling the Company, (ii) acceptance of any Shares and payment
therefor hereunder, and (iii) any termination of this Agreement. A successor to
any Underwriter, or to the Company, its directors or officers, or any person
controlling the Company, shall be entitled to the benefits of the indemnity,
contribution and reimbursement agreements contained in this Section 8.

9. DEFAULT BY UNDERWRITERS.

If on the Closing Date or the Option Closing Date, as the case may
be, any Underwriter shall fail to purchase and pay for the portion of the Shares
which such Underwriter has agreed to purchase and pay for on such date
(otherwise than by reason of any default on the part of the Company), you, as
Representatives of the Underwriters, shall use your reasonable efforts to
procure within 36 hours thereafter one or more of the other Underwriters, or any
others, to purchase from the Company such amounts as may be agreed upon and upon
the terms set forth herein, the Firm Shares or Option Shares, as the case may
be, which the defaulting Underwriter or Underwriters failed to purchase. If
during such 36 hours you, as such Representatives, shall not have procured such
other Underwriters, or any others, to purchase the Firm Shares or Option Shares,
as the case may be, agreed to be purchased by the defaulting Underwriter or
Underwriters, then (a) if the aggregate number of shares with respect to which
such default shall occur does not exceed 10% of the Firm Shares or Option
Shares, as the case may be, covered hereby, the other Underwriters shall be
obligated, severally, in proportion to the respective numbers of Firm Shares or
Option Shares, as the case may be, which they are obligated to purchase
hereunder, to purchase the Firm Shares or Option Shares, as the case may be,
which such defaulting Underwriter or Underwriters failed to purchase, or (b) if
the aggregate number of shares of Firm Shares or Option Shares, as the case may
be, with respect to which such default shall occur exceeds 10% of the Firm
Shares or Option Shares, as the case may be, covered hereby, the Company or you
as the Representatives of the Underwriters will have the right, by written
notice given within the next 36-hour period to the parties to this Agreement, to
terminate this Agreement without liability on the part of the non-defaulting
Underwriters or of the Company except to the extent provided in Section 8
hereof. In the event of a default by any Underwriter or Underwriters, as set
forth in this Section 9, the Closing Date or Option Closing Date, as the case
may be, may be postponed for such period, not exceeding seven days, as you, as
Representatives, may determine in order that the required changes in the
Registration Statement or in the Prospectus or in any other documents or
arrangements may be effected. The term "Underwriter" includes any person
substituted for a defaulting Underwriter. Any action taken under this Section 9
shall not relieve any defaulting Underwriter from liability in respect of any
default of such Underwriter under this Agreement.

10. NOTICES.

All communications hereunder shall be in writing and, except as
otherwise provided herein, will be mailed, delivered, telecopied or telegraphed
and confirmed as follows:

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<PAGE> 26

if to the Underwriters, to Deutsche Bank Securities Inc., 101 California Street,
48th Floor, San Francisco, California 94111, Attention: Tony Meneghetti; with
copies to Deutsche Bank Securities Inc., One South Street, Baltimore, Maryland
21202, Attention: General Counsel, and Deutsche Bank Securities Inc., One
Bankers Trust Plaza, 130 Liberty Street, New York, New York 10006, Attention:
Equity Syndicate; if to the Company, to Extensity, Inc., 2200 Powell Street,
Suite 400, Emeryville, California 94608, Attention: Chief Financial Officer;
with a copy to Wilson Sonsini Goodrich & Rosati, 650 Page Mill Road, Palo Alto,
California 94304, Attention: Howard S. Zeprun.

11. TERMINATION.

(a) This Agreement may be terminated by you by notice to the
Company at any time prior to the Closing Date if any of the following has
occurred: (i) since the respective dates as of which information is given in the
Registration Statement and the Prospectus, any material adverse change or any
development which is reasonably expected to have material adverse change in or
affecting the condition, financial or otherwise, of the Company and the
Subsidiary taken as a whole or the earnings, business, management, properties,
assets, rights, operations, condition (financial or otherwise) of the Company
and the Subsidiary taken as a whole, whether or not arising in the ordinary
course of business, (ii) any outbreak or escalation of hostilities or
declaration of war or national emergency or other national or international
calamity or crisis or change in economic or political conditions if the effect
of such outbreak, escalation, declaration, emergency, calamity, crisis or change
on the financial markets of the United States would, in your reasonable
judgment, make it impracticable or inadvisable to market the Shares or to
enforce contracts for the sale of the Shares, or (iii) suspension of trading in
securities generally on the New York Stock Exchange or the American Stock
Exchange or limitation on prices (other than limitations on hours or numbers of
days of trading) for securities on either such Exchange, (iv) the enactment,
publication, decree or other promulgation of any statute, regulation, rule or
order of any court or other governmental authority which in your opinion
materially and adversely affects or may materially and adversely affect the
business or operations of the Company, (v) declaration of a banking moratorium
by United States or New York State authorities, (vi) the suspension of trading
of the Company's common stock by the Nasdaq Stock Market, the Commission, or any
other governmental authority or (vii) the taking of any action by any
governmental body or agency in respect of its monetary or fiscal affairs which
in your reasonable opinion has a material adverse effect on the securities
markets in the United States; or

(b) as provided in Sections 6 and 9 of this Agreement.

12. SUCCESSORS.

This Agreement has been and is made solely for the benefit of the
Underwriters and the Company and their respective successors, executors,
administrators, heirs and assigns, and the officers, directors and controlling
persons referred to herein, and no other person will have any right or
obligation hereunder. No purchaser of any of the Shares from any Underwriter
shall be deemed a successor or assign merely because of such purchase.

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<PAGE> 27

13. INFORMATION PROVIDED BY UNDERWRITERS.

The Company and the Underwriters acknowledge and agree that the only
information furnished or to be furnished by any Underwriter to the Company for
inclusion in any Prospectus or the Registration Statement consists of the
legends required by Item 502 of Regulation S-K under the Act and certain
information under the caption "Underwriting" in the Prospectus.

14. MISCELLANEOUS.

The reimbursement, indemnification and contribution agreements
contained in this Agreement and the representations, warranties and covenants in
this Agreement shall remain in full force and effect regardless of (a) any
termination of this Agreement, (b) any investigation made by or on behalf of any
Underwriter or controlling person thereof, or by or on behalf of the Company or
its directors or officers and (c) delivery of and payment for the Shares under
this Agreement.

This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.

This Agreement shall be governed by, and construed in accordance
with, the laws of the State of Maryland.

If the foregoing letter is in accordance with your understanding of our
agreement, please sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding agreement among the Company and the several
Underwriters in accordance with its terms.

Very truly yours,

EXTENSITY, INC.

By
-------------------------------------
Robert A. Spinner
President and Chief Executive Officer

The foregoing Underwriting Agreement
is hereby confirmed and accepted as
of the date first above written.

Deutsche Bank Securities Inc.
BEAR, STEARNS & CO. INC.
HAMBRECHT & QUIST LLC

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<PAGE> 28

As Representatives of the several
Underwriters listed on Schedule I

By: Deutsche Bank Securities Inc.

By:
-------------------------------
Authorized Officer

28
<PAGE> 29

SCHEDULE I

SCHEDULE OF UNDERWRITERS

<TABLE>
<CAPTION>
Number of Firm Shares
Underwriter to be Purchased
----------- ---------------------
<S> <C>
Deutsche Bank Securities Inc.
Bear, Stearns & Co. Inc.
Hambrecht & Quist LLC

----------
Total 4,000,000
</TABLE>

<PAGE> 1

EXHIBIT 23.2

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated January 20, 2000,
relating to the consolidated financial statements of Extensity, Inc., which
appears in such prospectus. We also consent to the reference to us under the
heading "Experts" in such Prospectus.

/s/ PricewaterhouseCoopers LLP
San Jose, California
January 24, 2000