EXTENSITY INC
S-1/A, 2000-01-14
PREPACKAGED SOFTWARE
Previous: GOLDENACCESS COM INC, SB-2/A, 2000-01-14
Next: EXTENSITY INC, 8-A12G, 2000-01-14



<PAGE>   1


    AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 14, 2000


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

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


                                AMENDMENT NO. 3

                                       TO

                                    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.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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 14, 2000


LOGO

- --------------------------------------------------------------------------------
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 $8.00 and $10.00 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>
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..............................   36
</TABLE>



<TABLE>
<CAPTION>
                                        PAGE
                                        ----
<S>                                     <C>
Management............................   53
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.


                            RECENT OPERATING RESULTS


     We recently completed our 1999 fiscal year. Based on information that we
have to date, we estimate that our revenues for the quarter ended December 31,
1999 will be between $3.0 million and $3.2 million. These expected results are
preliminary, are subject to the completion of an audit of our December 31, 1999
financial statements, and are not necessarily indicative of the results to be
expected for future periods.


                                        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
      2,940,082 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>
                                                                                   NINE MONTHS ENDED
                                                  YEAR ENDED DECEMBER 31,            SEPTEMBER 30,
                                           -------------------------------------   ------------------
                                           1995(1)    1996     1997       1998      1998       1999
                                           -------   ------   -------   --------   -------   --------
<S>                                        <C>       <C>      <C>       <C>        <C>       <C>
CONSOLIDATED STATEMENT OF
  OPERATIONS DATA:
Revenues:
  Licenses...............................  $   --    $   --   $    --   $    718   $   542   $  1,939
  Services and maintenance...............      --        --        --        409       183      1,674
                                           ------    ------   -------   --------   -------   --------
         Total revenues..................      --        --        --      1,127       725      3,613
Gross profit (loss)......................      --        --        --       (517)     (301)       394
Loss from operations.....................      (4)     (854)   (3,335)   (11,060)   (7,377)   (15,433)
Net loss.................................      (1)     (830)   (3,228)   (11,032)   (7,375)   (15,414)
Net loss per share:
  Basic and diluted......................  $(0.01)   $(3.79)  $ (4.35)  $  (8.25)  $ (5.83)  $  (7.58)
  Weighted average shares................     167       219       742      1,338     1,265      2,033
Pro forma net loss per share (unaudited):
  Basic and diluted......................                               $  (1.13)            $  (1.17)
  Weighted average shares................                                  9,778               13,224
</TABLE>



<TABLE>
<CAPTION>
                                                                        SEPTEMBER 30, 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...........  $22,282     $22,282          54,662
Working capital.............................................   15,839      15,839          48,219
Total assets................................................   27,953      27,953          60,333
Notes payable and capital lease obligations, noncurrent
  portion...................................................    1,692       1,692           1,692
Mandatorily redeemable convertible preferred stock..........   43,648          --              --
Total stockholders' equity (deficit)........................  (27,582)     16,066          48,446
</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 September 30, 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 $9.00 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 September 30, 1999,
we had an accumulated deficit of $30.5 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.

                                        5
<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

                                        6
<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.

                                        7
<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.

                                        8
<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

                                        9
<PAGE>   17

     - trade barriers.

     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

                                       10
<PAGE>   18

customers. Because the sales cycle is long and the time of individual orders is
uncertain, our period-to-period revenues are difficult to predict.

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

                                       11
<PAGE>   19

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.


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.

                                       12
<PAGE>   20


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 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.

                                       13
<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

                                       14
<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 $3.3 million of outstanding debt and the allocation of up to
approximately $29 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 $9.00 per share
will be only $2.18. 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 $9.00 per share, after
deducting estimated underwriting discounts and commissions and estimated
offering expenses, are estimated to be approximately $32.4 million, or
approximately $37.4 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 $2.0 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 in fiscal year 2000 we
will spend approximately $13.7 million of the net proceeds of this offering on
sales and marketing, $6.4 million on research and development, $6.4 million on
service and maintenance, and $2.6 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


                                       18
<PAGE>   26

other factors described in "Risk Factors." Therefore, we will have broad
discretion in the way we use the net proceeds.

                                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 September 30, 1999;

     - our pro forma capitalization as of that date after giving effect to the
       conversion of all outstanding shares of convertible preferred stock into
       14,094,549 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 $9.00 per share in this
       offering, less underwriting discounts and commissions and estimated
       offering expenses payable by us.


<TABLE>
<CAPTION>
                                                                SEPTEMBER 30, 1999
                                                       ------------------------------------
                                                                                 PRO FORMA
                                                        ACTUAL     PRO FORMA    AS ADJUSTED
                                                       --------    ---------    -----------
                                                                  (IN THOUSANDS)
<S>                                                    <C>         <C>          <C>
Notes payable and capital lease obligations,
noncurrent...........................................  $  1,692    $  1,692      $  1,692
Mandatorily redeemable convertible preferred stock;
  14,094,549 shares issued and outstanding actual;
  none issued and outstanding pro forma and pro forma
  as adjusted........................................    43,648          --            --
Stockholders' equity (deficit):
  Common stock; $0.001 par value, 30,000,000 shares
     authorized, 4,090,109 shares issued and
     outstanding actual; 18,184,658 shares issued and
     outstanding pro forma and 22,184,658 shares
     issued and outstanding pro forma as adjusted....         4          18            23
Additional paid-in capital...........................     6,757      50,391        82,766
Notes receivable from stockholders...................      (230)       (230)         (230)
Deferred stock compensation..........................    (3,607)     (3,607)       (3,607)
Accumulated deficit..................................   (30,506)    (30,506)      (30,506)
                                                       --------    --------      --------
     Total stockholders' equity (deficit)............   (27,582)     16,066        48,446
                                                       --------    --------      --------
       Total capitalization..........................  $ 17,758    $ 17,758      $ 50,138
                                                       ========    ========      ========
</TABLE>


     This table does not include:

     - 2,406,237 shares subject to outstanding options as of September 30, 1999
       at a weighted average exercise price of $0.67;

     - 1,401,357 additional shares available for grant as of September 30, 1999
       under our 1996 Stock Option Plan which will increase to 2,301,357 shares
       available as of that date pursuant to an amendment of the Plan to be
       effective upon completion of this offering;

     - 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;

     - 500,000 shares of Series F Preferred Stock (convertible into 500,000
       shares of our common stock) sold to J.D. Edwards & Company on December
       16, 1999 at a price of $9.00 per share; 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 September 30, 1999, after
giving effect to the automatic conversion of our preferred stock upon the
closing of this offering, was $16.1 million, or $0.88 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 $9.00 per share and after deducting estimated
underwriting discounts and commissions and estimated offering expenses, our net
tangible book value at September 30, 1999 would have been $48.4 million, or
$2.18 per share. This represents an immediate increase in net tangible book
value to existing stockholders of $1.30 per share and an immediate dilution to
new investors of $6.82 per share. The following table illustrates the per share
dilution:



<TABLE>
<S>                                                           <C>     <C>
Assumed initial public offering price per share.............          $9.00
Pro forma net tangible book value per share as of September
30, 1999....................................................  $0.88
  Increase per share attributable to new investors..........   1.30
                                                              -----
Pro forma net tangible book value per share after this
  offering..................................................           2.18
                                                                      -----
Net tangible book value dilution per share to new
  investors.................................................          $6.82
                                                                      =====
</TABLE>


     The following table summarizes, on a pro forma basis as of September 30,
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 $9.00 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.....  18,184,658     82.0%     $44,675,000     55.4%         $2.46
New public investors......   4,000,000     18.0%      36,000,000     44.6%          9.00
                            ----------     ----      -----------     ----          -----
  Total...................  22,184,658      100%     $80,675,000      100%         $3.64
                            ==========     ====      ===========     ====          =====
</TABLE>

     The above discussion and tables assume no exercise of stock options or
warrants outstanding as of September 30, 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 September 30, 1999, there were
options outstanding to purchase a total of 2,406,237 shares of common stock at a
weighted average exercise price of $0.67 per share under our 1996 Stock Plan,
1,401,357 additional shares were reserved for grant of future options under such
plan which will increase to 2,301,357 shares available as of that date pursuant
to an amendment of the Plan to be effective upon completion of this offering,
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 Notes 9 and 11 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,
1996, 1997 and 1998 and the nine months ended September 30, 1998 and 1999 and
the balance sheet data at December 31, 1997, 1998 and September 30, 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 and 1996 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 is derived from our statement
of operations not included herein.


<TABLE>
<CAPTION>
                                                                                        NINE MONTHS ENDED
                                                      YEARS ENDED DECEMBER 31,            SEPTEMBER 30,
                                                -------------------------------------   ------------------
                                                1995(1)    1996     1997       1998      1998       1999
                                                -------   ------   -------   --------   -------   --------
                                                          (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                             <C>       <C>      <C>       <C>        <C>       <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
REVENUES:
  Licenses....................................      --    $   --   $    --   $    718   $   542   $  1,939
  Services and maintenance....................      --        --        --        409       183      1,674
                                                ------    ------   -------   --------   -------   --------
    Total revenues............................      --        --        --      1,127       725      3,613
                                                ------    ------   -------   --------   -------   --------
COST OF REVENUES:
  Licenses....................................      --        --        --         90        37        145
  Services and maintenance (Exclusive of non-
    cash stock based compensation of $151 in
    1999).....................................      --        --        --      1,554       989      3,074
                                                ------    ------   -------   --------   -------   --------
    Total cost of revenues....................      --        --        --      1,644     1,026      3,219
                                                ------    ------   -------   --------   -------   --------
Gross profit (loss)...........................      --        --        --       (517)     (301)       394
OPERATING EXPENSES:
  Sales and marketing (Exclusive of non-cash
    stock based compensation of $349 in
    1999).....................................      --       102     1,082      4,703     3,266      6,406
  Research and development (Exclusive of
    non-cash stock based compensation of $546
    in 1999)..................................      --       519     1,713      4,401     2,865      4,986
  General and administrative (Exclusive of
    non-cash stock based compensation of
    $1,433 in 1999)...........................       4       233       540      1,439       945      1,956
  Amortization of non-cash stock based
    compensation..............................      --        --        --         --        --      2,479
                                                ------    ------   -------   --------   -------   --------
    Total operating expenses..................       4       854     3,335     10,543     7,076     15,827
                                                ------    ------   -------   --------   -------   --------
    Loss from operations......................      (4)     (854)   (3,335)   (11,060)   (7,377)   (15,443)
Interest income, net..........................       3        24       107         28         2         19
                                                ------    ------   -------   --------   -------   --------
      Net loss................................  $   (1)   $ (830)  $(3,228)  $(11,032)  $(7,375)  $(15,414)
                                                ======    ======   =======   ========   =======   ========
Net loss per share:
  Basic and diluted...........................  $(0.01)   $(3.79)  $ (4.35)  $  (8.25)  $ (5.83)  $  (7.58)
                                                ======    ======   =======   ========   =======   ========
  Weighted average shares.....................     167       219       742      1,338     1,265      2,033
Pro forma net loss per share (unaudited):
  Basic and diluted                                                          $  (1.13)            $  (1.17)
                                                                             ========             ========
  Weighted average shares                                                       9,778               13,224
</TABLE>


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

                                       22
<PAGE>   30


<TABLE>
<CAPTION>
                                                                   DECEMBER 31,
                                                      --------------------------------------    SEPTEMBER 30,
                                                      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      $ 22,282
  Working capital...................................     988         26     2,061      7,319        15,839
  Total assets......................................   1,005        197     3,584     13,811        27,953
  Notes payable and capital lease obligations,
    noncurrent......................................      --         --        --      2,471         1,692
  Mandatorily redeemable convertible preferred
    stock...........................................   1,000      1,000     6,983     21,269        43,648
  Total stockholders' deficit.......................      (1)      (841)   (4,040)   (15,012)      (27,582)
</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 54% of our total revenues in the
year ended December 31, 1998 and in the nine months ended September 30, 1999,
while services and other revenues comprised 36% and 46% of our total revenues
for the same periods.



     The Company's software products typically require significant
customization, installation and other services. Prior to the release in July
1999 of Version 4.0, it was difficult to generate 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
generate dependable estimates of the costs necessary to complete Version 4.0
product implementations. Consequently, the Company is accounting for its 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), 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.



     The Company has entered into two distribution arrangements under which the
distributors would receive unspecified upgrades and enhancements to the
Company's products over the life of the arrangements (two or three years) in
consideration for agreed-upon non-refundable fees. The Company recognizes such
fees ratably, on a subscription basis, over the life of the 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 $6.0
million at December 31, 1998 and September 30, 1999. At September 30, 1999, this
deferred revenues balance included $1.7 million of amounts to be recognized
under the completed contract method, which we expect to recognize through the
period ending June 30, 2000. For the nine months ended September 30, 1999, the
Company recognized $2.6 million related to contracts entered into that are
accounted for using the completed contract method and $380,000 related to
contracts entered into that are accounted for using the percentage-of-completion
method. 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 September
30, 1999, we had an accumulated deficit of $30.5 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>
                                                                             NINE MONTHS
                                                                                ENDED
                                                                            SEPTEMBER 30,
                                                       YEAR ENDED          ----------------
                                                    DECEMBER 31, 1998       1998       1999
                                                    -----------------      ------      ----
<S>                                                 <C>                    <C>         <C>
Revenues:
Licenses..........................................          64%                75%       54%
  Services and maintenance........................          36                 25        46
                                                          ----             ------      ----
     Total revenues...............................         100                100       100
                                                          ----             ------      ----
Cost of revenues:
  Licenses........................................           8                  5         4
  Services and maintenance (exclusive of non-cash
     stock based compensation)....................         138                137        85
                                                          ----             ------      ----
     Total cost of revenues.......................         146                142        89
                                                          ----             ------      ----
Gross profit (loss)...............................         (46)               (42)       11
                                                          ----             ------      ----
Operating expenses:
  Sales and marketing (exclusive of non-cash stock
     based compensation)..........................         417                450       177
  Research and development (exclusive of non-cash
     stock based compensation)....................         391                395       138
  General and administrative (exclusive of non-
     cash stock based compensation)...............         128                130        54
  Amortization of non-cash stock based
     amortization.................................          --                 --        69
                                                          ----             ------      ----
     Total operating expenses.....................         935                976       438
                                                          ----             ------      ----
Loss from operations..............................        (981)            (1,017)     (427)
Interest income, net..............................           2                 --        --
                                                          ----             ------      ----
Net loss..........................................        979%             (1,017)%    (427)%
                                                          ====             ======      ====
</TABLE>


NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998

     Revenues


     Total revenues increased to $3.6 million for the nine months ended
September 30, 1999 from $725,000 for the nine months ended September 30, 1998.



     LICENSE REVENUES. Our license revenues increased to $1.9 million for the
nine months ended September 30, 1999 from $542,000 for the nine months ended
September 30, 1998. This was attributable primarily to increased sales generated
by higher expenditures on marketing programs and the growth of our direct sales
force. To a lesser extent, this increase was also attributable to increased
market awareness of the benefits of workforce optimization software and
increasing market acceptance of our solutions.



     SERVICE AND MAINTENANCE REVENUES. Our service and maintenance revenues
increased to $1.7 million for the nine months ended September 30, 1999 from
$183,000 for the nine months ended September 30, 1998. As service and
maintenance revenues have historically constituted a consistent percentage of
our total revenues on a per contract basis, this increase was primarily
attributable to consulting fees associated with new customer installations, and
to a lesser extent, increased maintenance and support fees associated with our
increased customer base.


                                       26
<PAGE>   34


     For the nine months ended September 30, 1998, sales to Scopus Technology,
Franklin Templeton and RELTEC Corporation accounted for 30%, 19% and 12% of our
total revenues. For the nine months ended September 30, 1999, sales to Sara Lee
and Cisco Systems accounted for 21% and 13% of our total revenues.


     Cost of Revenues


     Total cost of revenues increased to $3.2 million for the nine months ended
September 30, 1999 from $1.0 million for the nine months ended September 30,
1998.



     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 $145,000 for the
nine months ended September 30, 1999 from $37,000 for the nine months ended
September 30, 1998. As a percentage of license revenues, cost of license
revenues increased from 6.8% to 7.5% for the nine months ended September 30,
1998 and 1999. This increase was due to the incorporation of third-party
software into our products and the percentage may continue to increase if we
incorporate additional third-party software into our products.



     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
$151,000 in 1999, increased to $3.1 million for the nine months ended September
30, 1999 from $989,000 for the nine months ended September 30, 1998. As a
percentage of service revenues, cost of service revenues decreased from 540% to
184% for the nine months ended September 30, 1998 and 1999. Cost of service
revenues has significantly exceeded our service revenues as we have built our
consulting and customer support groups in advance of growing contract volume.
Although cost of service revenues has declined as a percentage of service
revenues over time, this cost continues 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 $349,000 in 1999, increased to $6.4 million
for the nine months ended September 30, 1999 from $3.3 million for the nine
months ended September 30, 1998, an increase of 96%. The increase was primarily
attributable to increased compensation, commissions and other related costs
associated with hiring additional sales representatives, management and
marketing personnel, as well as increased spending on marketing programs.
Approximately 70% of the increase was due to an increase in sales and marketing
personnel. Sales and marketing expenses as a percentage of total revenues were
450% and 177% for the nine months ended September 30, 1998 and 1999. We expect
that the absolute dollar amount of sales and marketing expenses will 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


                                       27
<PAGE>   35


development expenses, net of non-cash stock based compensation of $546,000 in
1999, increased to $5.0 million for the nine months ended September 30, 1999
from $2.9 million for the nine months ended September 30, 1998, an increase of
74%. The increase was primarily attributable to the addition of personnel to our
research and development organization as we continued to add enhancements to our
existing software applications and to develop software applications that
incorporate new functionality into an integrated suite. Approximately 55% of the
increase was due to an increase in research and development personnel and
approximately 35% was due to an increase in consulting services. Research and
development expenses as a percentage of total revenues were 395% and 138% for
the nine months ended September 30, 1998 and 1999. 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 $1.4 million in 1999,
increased to $2.0 million for the nine months ended September 30, 1999 from
$945,000 for the nine months ended September 30, 1998, an increase of 107%. The
increase was primarily attributable to hiring additional executive and financial
personnel as well as incurring additional general expenses, such as consulting
and professional service fees. Approximately 60% of the increase was due to an
increase in administrative personnel. General and administrative expenses as a
percentage of total revenues were 130% and 54% for the nine months ended
September 30, 1998 and 1999. 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 $6.1
million at September 30, 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 $2.5 million of this
expense during the nine months ended September 30, 1999.


     Interest and Other Income, Net

     Net interest and other income was $19,000 for the nine months ended
September 30, 1999, and $2,000 for the nine months ended September 30, 1998. The
nominal income for the nine months ended September 30, 1998 resulted primarily
from the interest generated from funds raised in our May 1998 private placement,
partially offset by interest expense from our subordinated debt facility and
capital equipment loans and leases. Interest income for the nine months ended
September 30, 1999 primarily resulted from interest earned on the proceeds from
both our May 1998 and July 1999 private placements, partially offset by interest
expense from these same debt facilities.

FISCAL YEARS ENDED DECEMBER 31, 1998 AND 1997

     Revenue and Cost of Revenues


     We recognized $1.1 million of revenues for the year ended December 31,
1998, consisting of $718,000 in license revenues and $409,000 in service and
maintenance revenues. The 1998 revenue resulted from licenses and related
services for our first product, Extensity Expense


                                       28
<PAGE>   36


Reports, which was released in March 1998. We did not recognize any revenues in
1997, as we had not yet released any product 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. Total cost of revenues was $1.6 million for
the year ended December 31, 1998. Cost of license revenues was $90,000, or 13%
of license revenues, for the year ended December 31, 1998. Cost of service
revenues was $1.6 million, or 380% of service revenues, for the year ended
December 31, 1998. Total cost of service revenues significantly exceeded related
revenues as we built our service and support group in advance of revenues.


     Operating Expenses

     SALES AND MARKETING. Sales and marketing expenses increased to $4.7 million
for the year ended December 31, 1998 from $1.1 million for the year ended
December 31, 1997. The increase was primarily attributable to building our sales
and marketing capabilities for our newly launched products, including increased
compensation, commissions and other related costs for sales representatives,
marketing personnel and management and, to a lesser degree, increased spending
on marketing programs. Approximately 60% of the increase was due to an increase
in sales and marketing personnel and 29% was due to an increase in spending on
marketing programs. Sales and marketing expenses as a percentage of total
revenues were 417% for the year ended December 31, 1998.

     RESEARCH AND DEVELOPMENT. Research and development expenses increased to
$4.4 million for the year ended December 31, 1998 from $1.7 million for the year
ended December 31, 1997. The increase was primarily attributable to the addition
of personnel to our research and development organization in connection with
development of new products and enhancement of existing products. Approximately
70% of the increase was due to an increase in research and development
personnel. Research and development expenses as a percentage of total revenues
were 391% for the year ended December 31, 1998.

     GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
to $1.4 million for the year ended December 31, 1998 from $540,000 for the year
ended December 31, 1997, an increase of 166%. The increase was attributable to
hiring additional executive and financial personnel as well as incurring
additional general expenses, such as consulting and professional service fees.
Approximately 45% of the increase was due to an increase in administrative
personnel and 30% of the increase was due to an increase in consulting and
professional service fees. General and administrative expenses as a percentage
of total revenues were 128% for the year ended December 31, 1998.


     Amortization of Non-Cash Stock Based Compensation


     Our results of operations will include amortization of deferred non-cash
stock-based compensation expense at least through 2003. There was no
amortization of deferred non-cash stock-based compensation in 1997 or 1998.

     Interest and Other Income, Net

     Net interest and other income was $107,000 for the year ended December 31,
1997 and $28,000 for the year ended December 31, 1998. These nominal income
amounts resulted primarily from the interest generated from funds raised in our
prior equity offerings, partially offset by interest expense.

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, 1998, we had net

                                       29
<PAGE>   37

operating loss carryforwards of approximately $14.1 million and $8.7 million for
federal and state income tax purposes, respectively. The federal and state net
operating loss carryforwards, if not utilized, expire through 2018 and 2003,
respectively. We also have research and development credit carryforwards of
approximately $220,000 and $145,000 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
$5.8 million at December 31, 1998, 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.

RECENT OPERATING RESULTS


     We recently completed our 1999 fiscal year. Based on information that we
have to date, we estimate that our revenues for the quarter ended December 31,
1999 will be between $3.0 million and $3.2 million. These expected results are
preliminary, are subject to the completion of an audit of our December 31, 1999
financial statements, and are not necessarily indicative of the results to be
expected for future periods.


                                       30
<PAGE>   38


QUARTERLY RESULTS OF OPERATIONS



     The following table sets forth unaudited consolidated statement of
operations data for the six quarters following the general availability of our
products in March 1998 through September 30, 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,
                                                                1998       1998        1998       1999        1999       1999
                                                              --------   ---------   --------   ---------   --------   ---------
                                                                                  (IN THOUSANDS, UNAUDITED)
<S>                                                           <C>        <C>         <C>        <C>         <C>        <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues:
  Licenses..................................................  $    75     $   160    $   176     $   220    $   437     $ 1,282
  Service and maintenance...................................       49         118        226         206        673         795
                                                              -------     -------    -------     -------    -------     -------
        Total revenues......................................      124         278        402         426      1,110       2,077
Cost of revenues:
  Licenses..................................................        9          22         55          28         40          77
  Services and maintenance, exclusive of non-cash stock
    based compensation......................................      344         475        564         758      1,087       1,229
                                                              -------     -------    -------     -------    -------     -------
        Total cost of revenues..............................      353         497        619         786      1,127       1,306
Gross profit (loss).........................................     (229)       (219)      (217)       (360)       (17)        771
Operating expenses:
  Sales and marketing, exclusive of non-cash stock based
    compensation............................................    1,001       1,263      1,436       1,319      2,009       3,079
  Research and development, exclusive of non-cash stock
    based compensation......................................      860       1,268      1,537       1,408      1,727       1,851
  General and administrative, exclusive of non-cash stock
    based compensation......................................      342         376        495         427        658         870
  Amortization of non-cash stock based compensation.........       --          --         --         315        578       1,586
                                                              -------     -------    -------     -------    -------     -------
        Total operating expenses............................    2,203       2,907      3,468       3,469      4,972       7,386
                                                              -------     -------    -------     -------    -------     -------
Loss from operations........................................   (2,432)     (3,126)    (3,685)     (3,829)    (4,989)     (6,615)
Interest income (expense), net..............................      (62)         57         27         (27)       (49)         94
                                                              -------     -------    -------     -------    -------     -------
Net loss....................................................  $(2,494)    $(3,069)   $(3,658)    $(3,856)   $(5,038)    $(6,521)
                                                              =======     =======    =======     =======    =======     =======
</TABLE>



<TABLE>
<CAPTION>
                                                                                   THREE MONTHS ENDED
                                                           ------------------------------------------------------------------
                                                           JUNE 30,   SEPT. 30,   DEC. 31,   MARCH 31,   JUNE 30,   SEPT. 30,
                                                             1998       1998        1998       1999        1999       1999
                                                           --------   ---------   --------   ---------   --------   ---------
                                                                                      (UNAUDITED)
<S>                                                        <C>        <C>         <C>        <C>         <C>        <C>
PERCENTAGE OF REVENUES:
Revenues:
  Licenses..............................................        60%        58%        44%        52%         39%        62%
  Service and maintenance...............................        40         42         56         48          61         38
                                                            ------     ------       ----       ----        ----       ----
        Total revenues..................................       100        100        100        100         100        100
Cost of revenues:
  Licenses..............................................         7          8         14          7           4          4
  Services and maintenance, exclusive of non-cash stock
    based compensation..................................       277        171        140        178          98         59
                                                            ------     ------       ----       ----        ----       ----
        Total cost of revenues..........................       285        179        154        185         102         63
Gross profit (loss).....................................      (185)       (79)       (54)       (85)         (2)        37
                                                            ------     ------       ----       ----        ----       ----
Operating expenses:
  Sales and marketing, exclusive of non-cash stock based
    compensation........................................       807        454        357        310         181        148
  Research and development, exclusive of non-cash stock
    based compensation..................................       694        456        382        331         156         89
  General and administrative, exclusive of non-cash
    stock based compensation............................       276        135        123        100          59         42
  Amortization of non-cash stock based compensation.....        --         --         --         74          52         76
                                                            ------     ------       ----       ----        ----       ----
        Total operating expenses........................     1,777      1,046        863        814         448        356
                                                            ------     ------       ----       ----        ----       ----
Loss from operations....................................    (1,961)    (1,124)      (917)      (899)       (449)      (318)
Interest income (expense), net..........................       (50)        20          7         (6)         (4)         5
                                                            ------     ------       ----       ----        ----       ----
Net loss................................................    (2,011)%   (1,104)%     (910)%     (905)%      (454)%     (314)%
                                                            ======     ======       ====       ====        ====       ====
</TABLE>


                                       31
<PAGE>   39


SIX QUARTERS ENDED SEPTEMBER 30, 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 quarter of 1999 in particular 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 six quarters ended
September 30, 1999. With a more substantial level of license revenues during the
third quarter 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, and $74,000 for the first, second, and third quarters of 1999, has
increased each quarter in the six quarters ended September 30, 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, and $170,000 for the
first, second, and third 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. The increase in sales and marketing expenses as a percentage of
revenues in the quarter ended September 30, 1999 was attributable to increased
advertising expenditures relating to our first national marketing program, and
coincided with the roll-out of Version 4.0 of our Extensity Application Suite.
We expect our sales and marketing expenses to increase in absolute dollars for
the foreseeable future.


                                       32
<PAGE>   40


     RESEARCH AND DEVELOPMENT. Research and development expenses, net of
non-cash stock based compensation of $0 in 1998 and $99,000, $181,000, and
$266,000 in the first, second, and third quarters of 1999, continued to grow
during the six quarters ended September 30, 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, and $1.1
million in the first, second, and third quarters of 1999 have generally grown
consistently during the six quarters ended September 30, 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 September 30, 1999, we had $22.3
million in cash, cash equivalents and short term investments and $16.2 million
in working capital.

     Net cash used in operating activities was $779,000 in 1996, $2.5 million in
1997, $8.6 million in 1998 and $9.6 million for the nine months ended September
30, 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 $195,000 in 1996, $917,000 in
1997, $6.1 million in 1998 and $2.2 million for the nine months ended September
30, 1999. Investing activities consisted primarily of purchases of short term
investments and capital expenditures.


     We received no financing in 1996. Net cash provided by financing activities
was $6.0 million in 1997, $17.4 million in 1998 and $21.8 million for the nine
months ended September 30, 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


                                       33
<PAGE>   41

principal payable monthly. As of September 30, 1999, we had drawn approximately
$1,736,000 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.

     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.


                                       34
<PAGE>   42

     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;


     - 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 September 30, 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.

                                       35
<PAGE>   43

                                    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

                                       36
<PAGE>   44

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.

                                       37
<PAGE>   45

     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.

                                       38
<PAGE>   46

     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.

                                       39
<PAGE>   47

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.

                                       40
<PAGE>   48

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>

                                       41
<PAGE>   49

          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>

                                       42
<PAGE>   50

          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>

                                       43
<PAGE>   51

          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

                                       44
<PAGE>   52

     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

                                       45
<PAGE>   53

     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.

                                       46
<PAGE>   54

     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 ARCHITECTURE GRAPHIC]

          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

                                       47
<PAGE>   55

     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.

                                       48
<PAGE>   56

     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.

                                       49
<PAGE>   57

     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 $5.0
million for the nine months ended September 30, 1999, $4.4 million in 1998, $1.7
million in 1997 and $519,000 in 1996. 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.

                                       50
<PAGE>   58

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

     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

                                       51
<PAGE>   59

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.

     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.

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.

                                       52
<PAGE>   60

                                   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
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
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.S. in engineering 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 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

                                       53
<PAGE>   61

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.

     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

                                       54
<PAGE>   62

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

     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 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 six 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

                                       55
<PAGE>   63

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. 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.



     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


                                       56
<PAGE>   64


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.


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.

                                       57
<PAGE>   65

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 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        $7.02       10/28/09        61,200      326,090      732,484
Allen F. Nordgren....     85,000         2.4           6.00        $7.02       10/28/09        86,700      461,961    1,037,686
Eric C. Ruud.........     50,000         1.4           6.00        $7.02       10/28/09        51,000      271,742      610,404
</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.

                                       58
<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 $9.00 (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     $2,266,753          --        365,637       $     --      $3,170,073
Sharam I. Sasson......        --             --          --             --             --              --
Elizabeth A.
  Ireland.............    75,000        168,000          --        110,000             --         595,000
Allen F. Nordgren.....    75,000        159,250          --         85,000             --         255,000
Eric C. Ruud..........    75,000        168,000      12,500         87,500        108,375         475,125
</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.

                                       59
<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.

                                       60
<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 certificate of incorporation
covers negligence and gross negligence on the part of indemnified parties.

                                       61
<PAGE>   69

     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.

                                       62
<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.

                                       63
<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."




                                       64
<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.


                                       65
<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.


                                       66
<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.


                                       67
<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.

                                       68
<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 $1,100,000.

                                       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 $9.00, the value of
these shares is $1,499,994. 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 public

                                       74
<PAGE>   82

offering price equals $499,998. The National Association of Securities Dealers,
Inc. may deem this amount to be additional underwriting compensation received in
connection with this offering. If this is deemed to be underwriting
compensation, these shares of Series E Preferred Stock, and the common stock
issued upon conversion thereof, could 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, 1997,
1998 and September 30, 1999 and for each of the three years in the period ended
December 31, 1998, and the nine month periods ended September 30, 1998 and 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, 1997, 1998 and September 30, 1999, and the
results of its operations and its cash flows for the three years in the period
ended December 31, 1998 and for the nine month periods ended September 30, 1998
and 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.


     As described in Note 12, the Company revised its September 30, 1999
consolidated financial statements since the date such financial statements were
last distributed.


/s/ PricewaterhouseCoopers LLP


November 5, 1999, except Note 12,


which is as of January 12, 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,         AS OF        EQUITY AS OF
                                                        -------------------    SEPTEMBER 30,    SEPTEMBER 30,
                                                         1997        1998          1999             1999
                                                        -------    --------    -------------    -------------
                                                                                                 (UNAUDITED)
<S>                                                     <C>        <C>         <C>              <C>
Current assets:
  Cash and cash equivalents...........................  $ 2,560    $  5,239      $ 15,308
  Short term investments..............................       --       5,644         6,974
  Restricted short term investment....................       33          82            76
  Trade accounts receivable, net of allowance for
    doubtful accounts of $0, $0 and $200 in 1997,
    1998, and 1999, respectively......................       --       1,178         2,931
  Prepaids and other assets...........................       99         119           566
                                                        -------    --------      --------
      Total current assets............................    2,692      12,262        25,855
Property and equipment, net...........................      892       1,476         2,021
Other assets..........................................       --          73            77
                                                        -------    --------      --------
      Total assets....................................  $ 3,584    $ 13,811      $ 27,953
                                                        =======    ========      ========
                       LIABILITIES, MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK
                                     AND STOCKHOLDERS' EQUITY (DEFICIT):
Current liabilities:
  Accounts payable....................................  $   280    $    349      $  1,128
  Accrued liabilities.................................       51         678         1,250
  Deferred revenue....................................      300       2,513         6,002
  Capital lease obligations, current portion..........       --         287           445
  Notes payable, current portion......................       --       1,116         1,191
                                                        -------    --------      --------
      Total current liabilities.......................      631       4,943        10,016
                                                        -------    --------      --------
Capital lease obligations, noncurrent portion.........       --         746           807
Notes payable, noncurrent portion.....................       --       1,725           885
Deferred rent.........................................       10         140           179
                                                        -------    --------      --------
      Total liabilities...............................      641       7,554        11,887
Commitments (Note 5)
Mandatorily redeemable convertible preferred stock:
    14,582,970 shares authorized; 5,750,000,
    10,361,729 and 14,094,549 shares outstanding
    actual (aggregate liquidation preference
    $43,359,898) and none outstanding pro forma
    (unaudited).......................................    6,983      21,269        43,648
                                                        -------    --------      --------
Stockholders' equity (deficit):
  Common stock, $0.001 par value,
    30,000,000 shares authorized actual; 1,946,111,
    2,350,815 and 4,090,109 shares issued and
    outstanding actual; 18,184,658 shares issued and
    outstanding pro forma (unaudited).................        2           2             4         $     18
  Additional paid-in capital..........................       17          77         6,757           50,391
  Notes receivable from stockholders..................       --          --          (230)            (230)
  Deferred stock compensation.........................       --          --        (3,607)          (3,607)
  Accumulated deficit.................................   (4,059)    (15,091)      (30,506)         (30,506)
                                                        -------    --------      --------         --------
      Total stockholders' equity (deficit)............   (4,040)    (15,012)      (27,582)        $ 16,066
                                                        -------    --------      --------         ========
      Total liabilities, mandatorily redeemable
         convertible preferred stock and stockholders'
         equity (deficit).............................  $ 3,584    $ 13,811      $ 27,953
                                                        =======    ========      ========
</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>
                                                                              NINE MONTHS ENDED
                                              YEARS ENDED DECEMBER 31,          SEPTEMBER 30,
                                            -----------------------------    -------------------
                                             1996      1997        1998       1998        1999
                                            ------    -------    --------    -------    --------
<S>                                         <C>       <C>        <C>         <C>        <C>
REVENUES
Licenses..................................  $   --    $    --    $    718    $   542    $  1,939
  Services and maintenance................                            409        183       1,674
                                            ------    -------    --------    -------    --------
    Total revenues........................      --         --       1,127        725       3,613
                                            ------    -------    --------    -------    --------
COST OF REVENUES:
  Licenses................................                             90         37         145
  Services and maintenance (exclusive of
    non-cash stock based compensation of
    $151 in 1999).........................                          1,554        989       3,074
                                            ------    -------    --------    -------    --------
    Total cost of revenues................      --         --       1,644      1,026       3,219
                                            ------    -------    --------    -------    --------
Gross profit (loss).......................      --         --        (517)      (301)        394
OPERATING EXPENSES:
  Sales and marketing (exclusive of non-
    cash stock based compensation of $349
    in 1999)..............................     102      1,082       4,703      3,266       6,406
  Research and development (exclusive of
    non-cash stock based compensation of
    $546 in 1999).........................     519      1,713       4,401      2,865       4,986
  General and administrative (exclusive of
    non-cash stock based compensation of
    $1,433 in 1999).......................     233        540       1,439        945       1,956
  Amortization of non-cash stock based
    compensation..........................      --         --          --         --       2,479
                                            ------    -------    --------    -------    --------
    Total operating expenses..............     854      3,335      10,543      7,076      15,827
                                            ------    -------    --------    -------    --------
    Loss from operations..................    (854)    (3,335)    (11,060)    (7,377)    (15,433)
Interest income...........................      24        107         332        188         407
Interest expense..........................      --         --        (299)      (181)       (388)
Other expense.............................      --         --          (5)        (5)         --
                                            ------    -------    --------    -------    --------
      Net loss............................  $ (830)   $(3,228)   $(11,032)   $(7,375)   $(15,414)
                                            ======    =======    ========    =======    ========
Net loss per share:
  Basic and diluted.......................  $(3.79)   $ (4.35)   $  (8.25)   $ (5.83)   $  (7.58)
                                            ======    =======    ========    =======    ========
  Weighted average shares.................     219        742       1,338      1,265       2,033
Pro forma net loss per share (unaudited):
  Basic and diluted                                              $  (1.13)              $  (1.17)
                                                                 ========               ========
  Weighted average shares                                           9,778                 13,224
</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                                         TOTAL
                                    COMMON STOCK      ADDITIONAL    RECEIVABLE      DEFERRED                    STOCKHOLDERS'
                                 ------------------    PAID-IN         FROM          STOCK       ACCUMULATED       EQUITY
                                  SHARES     AMOUNT    CAPITAL     STOCKHOLDERS   COMPENSATION     DEFICIT        (DEFICIT)
                                 ---------   ------   ----------   ------------   ------------   ------------   -------------
                                                               (IN THOUSANDS EXCEPT SHARE DATA)
<S>                              <C>         <C>      <C>          <C>            <C>            <C>            <C>
Balance at December 31, 1995...  1,750,000   $   1    $       --    $      --     $        --    $         (1)  $         --
Net loss.......................         --      --            --           --              --            (830)          (830)
                                 ---------   ------   ----------    ---------     -----------    ------------   ------------
Balance at December 31, 1996...  1,750,000       1            --           --              --            (831)          (830)

Exercise of stock options......    196,111       1            17           --              --              --             18

Net loss.......................         --      --            --           --              --          (3,228)        (3,228)
                                 ---------   ------   ----------    ---------     -----------    ------------   ------------
Balance at December 31, 1997...  1,946,111       2            17           --              --          (4,059)        (4,040)

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

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

Net loss.......................         --      --            --           --              --         (11,032)       (11,032)
                                 ---------   ------   ----------    ---------     -----------    ------------   ------------
Balance at December 31, 1998...  2,350,815       2            77           --              --         (15,091)       (15,012)

Exercise of stock options......  1,739,294       2           594         (230)             --              --            366

Deferred stock compensation....         --      --         6,086           --          (6,086)             --             --

Amortization of deferred stock
 compensation..................         --      --            --           --           2,479              --          2,479

Net loss.......................         --      --            --           --              --         (15,414)       (15,414)
                                 ---------   ------   ----------    ---------     -----------    ------------   ------------
Balance at September 30, 1999..  4,090,109   $   4    $    6,757    $    (230)    $    (3,607)   $    (30,506)  $    (27,582)
                                 =========   ======   ==========    =========     ===========    ============   ============
</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>
                                                                                            NINE MONTHS ENDED
                                                               YEARS ENDED DECEMBER 31,       SEPTEMBER 30,
                                                              ---------------------------   ------------------
                                                               1996     1997       1998      1998       1999
                                                              ------   -------   --------   -------   --------
<S>                                                           <C>      <C>       <C>        <C>       <C>
Cash from operating activities:
Net loss....................................................  $ (830)  $(3,228)  $(11,032)  $(7,375)  $(15,414)
  Adjustments to reconcile net loss to cash used in
    operating activities:
    Depreciation and amortization...........................      36       153        528       359        634
    Amortization of non-cash stock based compensation.......      --        --         --        --      2,479
    Common stock issued for services rendered...............      --        24          7         7         --
    Amortization of debt discount and lease line issuance
      cost..................................................      --        --         58        39         66
    Changes in operating assets and liabilities:
      Increase in accounts receivable.......................      --        --     (1,178)   (1,213)    (1,753)
      Increase in prepaids and other assets.................      (6)      (94)       (55)      (10)      (451)
      Increase (decrease) in accounts payable...............      (7)      270         69        34        779
      Increase in accrued liabilities.......................      12        38        628       210        572
      Increase in deferred revenue..........................      --       300      2,213     1,403      3,489
      Increase (decrease) in deferred rent..................      16        (6)       130        95         39
                                                              ------   -------   --------   -------   --------
        Net cash used in operating activities...............    (779)   (2,543)    (8,632)   (6,451)    (9,560)
                                                              ------   -------   --------   -------   --------
Cash from investing activities:
  Capital expenditures......................................    (185)     (894)      (429)     (245)      (874)
  Purchase of short term investments........................      --        --     (5,644)   (1,505)    (1,330)
  (Increase) decrease in restricted short term
    investments.............................................     (10)      (23)       (49)      (43)         6
                                                              ------   -------   --------   -------   --------
        Net cash used in investing activities...............    (195)     (917)    (6,122)   (1,793)    (2,198)
                                                              ------   -------   --------   -------   --------
Cash from financing activities:
  Proceeds from loan........................................      --       250      3,500     2,500         --
  Payments on loan..........................................      --      (250)      (446)      (78)      (832)
  Payments on capital lease obligations.....................      --        --       (186)     (185)      (326)
  Proceeds from sale-lease back.............................      --        --        535       535        240
  Net proceeds from issuance of preferred stock.............      --     5,933     13,978    13,868     22,379
  Proceeds from issuance of preferred stock warrants........      --        37         --        --         --
  Proceeds from issuance of common stock....................      --        19         52        52        366
                                                              ------   -------   --------   -------   --------
        Net cash provided by financing activities...........      --     5,989     17,433    16,692     21,827
                                                              ------   -------   --------   -------   --------
Increase in cash............................................    (974)    2,529      2,679     8,448     10,069
Cash and cash equivalents, beginning of period..............   1,005        31      2,560     2,560      5,239
Cash and cash equivalents, end of period....................  $   31   $ 2,560   $  5,239   $11,008   $ 15,308
                                                              ======   =======   ========   =======   ========
Supplemental cash flow information:
  Interest paid.............................................  $    5   $     5   $    241   $   142   $    322
                                                              ======   =======   ========   =======   ========
  Income taxes paid.........................................  $    1   $     1   $      1   $     1   $      1
                                                              ======   =======   ========   =======   ========
Noncash investing and financing activities:
  Purchase of equipment under capital leases................  $   --   $    --   $  1,218   $    --   $     --
                                                              ======   =======   ========   =======   ========
  Notes receivable from stockholders........................  $   --   $    --   $     --   $    --   $    230
                                                              ======   =======   ========   =======   ========
  Convertible preferred stock warrants issued...............  $   --   $    24   $    309   $   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.

     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, 1998, 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).

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

                                       F-7
<PAGE>   91
                                EXTENSITY, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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 September 30, 1999, no customer accounted for more than 10% of
total accounts receivable.


     Four customers accounted for 66% of total revenue during fiscal 1998. Three
customers accounted for 61% of total revenues during the nine month period ended
September 30, 1998. Two customers accounted for 34% of total revenues during the
nine month period ended September 30, 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, 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.

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.

     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

                                       F-8
<PAGE>   92
                                EXTENSITY, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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.



     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.


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

                                       F-9
<PAGE>   93
                                EXTENSITY, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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 8).

     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.

     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>
                                                                                 NINE MONTHS ENDED
                                                    YEARS ENDED DECEMBER 31,       SEPTEMBER 30,
                                                  ----------------------------   ------------------
                                                   1996      1997       1998      1998       1999
                                                  -------   -------   --------   -------   --------
<S>                                               <C>       <C>       <C>        <C>       <C>
HISTORICAL:
Numerator:
  Net loss......................................  $  (830)  $(3,228)  $(11,032)  $(7,375)  $(15,414)
Denominator:
  Weighted average shares.......................    1,750     1,835      2,169     2,113      3,277
  Weighted average unvested common shares.......   (1,531)   (1,093)      (831)     (848)    (1,244)
                                                  -------   -------   --------   -------   --------
         Total weighted average shares..........      219       742      1,338     1,265      2,033
                                                  -------   -------   --------   -------   --------
Net loss per share:
  Basic and diluted.............................  $ (3.79)  $ (4.35)  $  (8.25)  $ (5.83)  $  (7.58)

PRO FORMA:
Numerator:
  Net loss......................................                      $(11,032)            $(15,414)
                                                                      ========             ========
Denominator:
  Weighted average common shares, basic and
    diluted.....................................                         1,338                2,033
  Conversion of convertible preferred stock.....                         8,440               11,191
                                                                      --------             --------
         Total weighted average shares..........                         9,778               13,224
                                                                      ========             ========
Pro forma net loss per share:
  Basic and diluted.............................                      $  (1.13)            $  (1.17)
                                                                      ========             ========
</TABLE>


                                      F-10
<PAGE>   94
                                EXTENSITY, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

3. PROPERTY AND EQUIPMENT

     Property and equipment consists of the following:

<TABLE>
<CAPTION>
                                                            DECEMBER 31,
                                                          ----------------    SEPTEMBER 30,
                                                           1997      1998         1999
                                                          ------    ------    -------------
                                                                   (IN THOUSANDS)
<S>                                                       <C>       <C>       <C>
Computer hardware and software..........................  $  876    $  585       $   985
Furniture and fixtures..................................     178       133           504
Leasehold improvements..................................      25        --            56
Office equipment........................................      --        44            90
Assets under capital leases.............................      --     1,429         1,734
                                                          ------    ------       -------
                                                           1,079     2,191         3,369
Less accumulated depreciation and amortization..........    (187)     (715)       (1,348)
                                                          ------    ------       -------
  Total property and equipment, net.....................  $  892    $1,476       $ 2,021
                                                          ======    ======       =======
</TABLE>

     Accumulated amortization relating to assets under capital leases amounted
to $0, $466,000 and $693,000 as of December 31, 1997 and 1998 and September 30,
1999, respectively.

4. INCOME TAXES

     The provision for income taxes for the years ended December 31, 1997 and
1998 and the nine month periods ended September 30, 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 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,
                                                       ------------------    SEPTEMBER 30,
                                                        1997       1998          1999
                                                       -------    -------    -------------
<S>                                                    <C>        <C>        <C>
Deferred tax assets:
Net operating loss carryforwards.....................  $ 1,594    $ 5,325      $ 10,240
  Research and development credit carryforwards......      105        365           625
  Other..............................................       26         75           100
                                                       -------    -------      --------
       Total deferred tax assets.....................    1,725      5,765        10,965
  Valuation allowance................................   (1,725)    (5,765)      (10,965)
                                                       -------    -------      --------
       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, 1997 and 1998 and
September 30, 1999. The increase in the valuation allowance was $1,366,000,
$4,040,000 and $5,200,000 during the years ended December 31, 1997 and 1998, and
the nine month period ended September 30, 1999, respectively.

     As of September 30, 1999, the Company had net operating loss carryforwards
of approximately $26.3 million and $20.9 million for federal and state income
tax purposes, respectively. Such carryforwards expire through 2018 and 2003 for
federal and state income tax purposes, respectively. At September 30, 1999, the
Company also had research and

                                      F-11
<PAGE>   95
                                EXTENSITY, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

experimentation tax credit carryforwards of $380,000 and $245,000 for federal
and state purposes, respectively, which expire in varying amounts through 2013.

     Under the Tax Reform Act of 1986, the amounts of and benefits from net
operating loss 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, respectively. Minimum future rental payments
under capital and operating leases at September 30, 1999 are as follows (in
thousands):

<TABLE>
<CAPTION>
              FISCAL YEAR ENDING DECEMBER 31,                 CAPITAL    OPERATING
              -------------------------------                 -------    ---------
<S>                                                           <C>        <C>
1999........................................................  $  128      $  136
2000........................................................     529         556
2001........................................................     529         586
2002........................................................     285         608
2003........................................................      85         306
Thereafter..................................................      --          --
                                                              ------      ------
Total minimum lease payments................................   1,556      $2,192
                                                                          ======
Less amount representing interest and discount..............     304
                                                              ------
Present value of minimum lease payments.....................   1,252
Less current portion of capital lease obligations...........     445
                                                              ------
Long term portion...........................................  $  807
                                                              ======
</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 $14,000 during the year ended December 31, 1998 and the
nine-month period ended September 30, 1999.

     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 September 30, 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

                                      F-12
<PAGE>   96
                                EXTENSITY, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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 $66,000 during the year ended
December 31, 1998 and the nine-month period ended September 30, 1999,
respectively.

Scheduled repayments of the loan subsequent to September 30, 1999 are as follows
(in thousands):

<TABLE>
<CAPTION>
                YEAR ENDING DECEMBER 31,
                ------------------------
<S>                                                        <C>
1999.....................................................  $   285
2000.....................................................    1,225
2001.....................................................      712
                                                           -------
Total....................................................    2,222
Less current portion.....................................   (1,191)
                                                           -------
Long-term portion........................................  $ 1,031
                                                           =======
</TABLE>

     The non-current portion of the Notes payable of $885,000 as of September
30, 1999 is net of the remaining debt discount of $146,000.

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
                                                              ----------     -----------
Balance at September 30, 1999...............................  14,094,549     $    43,648
                                                              ==========     ===========
</TABLE>

     In July 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 14,582,970,
respectively.

     Each share of Series A, B, C, D and E 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 and E preferred stock will
automatically convert to common stock upon the

                                      F-13
<PAGE>   97
                                EXTENSITY, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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 and E preferred stock entitles the stockholder to receive annual
noncumulative dividends of $0.045, $0.144, $0.18, $0.30 and $0.54 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 and E preferred stock are entitled to receive
$0.50, $1.60, $2.00, $3.30 and $6.00 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 and E 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 and E preferred stock may require the
Company to redeem all or any part of the then outstanding shares of Series A, B,
C, D and E preferred stock at a price equal to $0.50, $1.60, $2.00, $3.30 and
$6.00 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
September 30, 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 September 30, 1999.

                                      F-14
<PAGE>   98
                                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 nine month period ended September 30, 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 September 30, 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.

                                      F-15
<PAGE>   99
                                EXTENSITY, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     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........   2,500,000           --                           --
Options granted...................  (2,773,395)   2,773,395   $0.33 - $3.25        1,894
Options exercised.................          --   (1,739,294)  $0.05 - $0.15         (596)
Options forfeited.................     234,412     (234,412)  $0.16 - $0.55          (47)
                                    ----------   ----------   -------------       ------
Outstanding at September 30,
  1999............................   1,401,357    2,406,237   $0.10 - $3.25       $1,610
                                    ==========   ==========   =============       ======
</TABLE>

     The following table summarizes information with respect to stock options
outstanding at September 30, 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      1,094,787           8.4            $0.26        258,941       $0.19
   $0.55 - $0.70        696,500           9.6            $0.63             --
   $1.00 - $1.50        560,950           9.7            $1.37             --
       $3.25             54,000           9.8            $3.25             --
                      ---------                          -----       --------
                      2,406,237           8.9            $0.62        258,941
</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
September 30, 1999, 1,196,569 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

                                      F-16
<PAGE>   100
                                EXTENSITY, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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
$6,086,195 during the year ended December 31, 1998 and the nine months ended
September 30, 1999, respectively. Amortization recognized for the year ended
December 31, 1998 and the nine months ended September 30, 1999 totaled $0 and
$2,478,809, respectively.


     The weighted average fair values of the options granted in fiscal 1996,
1997, 1998 and the nine month periods ended September 30, 1998 and 1999 were
$0.03, $0.06, $0.81, $0.50 and $2.87, 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>
                                                                      NINE MONTHS
                                    YEAR ENDED DECEMBER 31,       ENDED SEPTEMBER 30,
                                 -----------------------------    -------------------
                                  1996      1997        1998       1998        1999
                                 ------    -------    --------    -------    --------
<S>                              <C>       <C>        <C>         <C>        <C>
Pro forma net loss.............  $ (839)   $(3,248)   $(11,070)   $(7,403)   $(16,192)
Pro forma net loss per share,
basic and diluted..............  $(3.84)   $ (4.38)   $  (8.27)   $ (5.85)   $  (7.96)
</TABLE>


     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>
                                                                       NINE MONTHS
                                     YEAR ENDED DECEMBER 31,       ENDED SEPTEMBER 30,
                                  -----------------------------    --------------------
                                   1996       1997       1998        1998        1999
                                  -------    -------    -------    --------    --------
<S>                               <C>        <C>        <C>        <C>         <C>
Risk-free interest rate.........      5.9%       5.7%       5.5%       5.5%        5.6%
Expected life (in years)........        4          4          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.

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 the nine month period
ended September 30, 1999.

                                      F-17
<PAGE>   101
                                EXTENSITY, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

11. SUBSEQUENT EVENTS

     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 September 30, 1999.

     The Board of Directors also 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.


     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 Company recorded additional deferred stock compensation of
approximately $660,000 during the three months ended December 31, 1999.
Amortization recognized for the three months ended December 31, 1999 totaled
approximately $920,000.



12. REVISED CONSOLIDATED FINANCIAL STATEMENTS



     The Company revised the revenue recorded for the nine months ended
September 30, 1999 which resulted in the following amounts (in thousands):



<TABLE>
<CAPTION>
                                                  ORIGINAL   REVISED
                                                  --------   --------
<S>                                               <C>        <C>
Total revenues..................................  $  3,951   $  3,613
Loss from operations............................   (15,095)   (15,433)
Net loss........................................   (15,076)   (15,414)
</TABLE>


                                      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..............................    36
Management............................    53
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
Miscellaneous...............................................     107,765
                                                              ----------
  Total.....................................................  $1,100,000
                                                              ==========
</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 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
                                      II-1
<PAGE>   104

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. 3 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 14th 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. 3 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 14, 2000
- ------------------------------------    Officer and Director (Principal
         Robert A. Spinner                     Executive Officer)

       * /s/ KENNETH R. HAHN           Chief Financial Officer (Principal   January 14, 2000
- ------------------------------------   Financial and Accounting Officer)
          Kenneth R. Hahn

       * /s/ SHARAM I. SASSON          Chairman of the Board of Directors   January 14, 2000
- ------------------------------------              and Founder
          Sharam I. Sasson

        * /s/ JOHN R. HUMMER                        Director                January 14, 2000
- ------------------------------------
           John R. Hummer

     * /s/ MITCHELL E. KERTZMAN                     Director                January 14, 2000
- ------------------------------------
        Mitchell E. Kertzman

        * /s/ TED E. SCHLEIN                        Director                January 14, 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 3.2



                              AMENDED AND RESTATED
                          CERTIFICATE OF INCORPORATION
                               OF EXTENSITY, INC.,
                             a Delaware Corporation
        (Originally incorporated on November 13, 1995 as Celerity, Inc.)


                                    ARTICLE I

         The name of this Corporation is Extensity, Inc.


                                   ARTICLE II

         The address of the registered office of the Corporation in the State of
Delaware is 1209 Orange Street, in the City of Wilmington, County of New Castle.
The name of its registered agent at such address is the Corporation Trust
Company.


                                   ARTICLE III

         The nature of the business or purposes to be conducted or promoted is
to engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of Delaware.


                                   ARTICLE IV

         A. Classes of Stock. This Corporation is authorized to issue two
classes of stock to be designated, respectively, "COMMON STOCK" and "PREFERRED
STOCK." The total number of shares which the corporation is authorized to issue
is Forty Five Million Five Hundred Eighty-Two Thousand Nine Hundred Seventy
(45,582,970) shares. Thirty Million Five Hundred Thousand (30,500,000) shares
shall be Common Stock, par value $0.001 per share, and Fifteen Million
Eighty-Two Thousand Nine Hundred Seventy (15,082,970) shares shall be Preferred
Stock, par value $0.01 per share. Of the authorized shares of Preferred Stock a
total of Two Million (2,000,000) shares shall be designated Series A Preferred
Stock ("SERIES A PREFERRED"), a total of Three Million, Seven Hundred
Seventy-Three Thousand, Four Hundred Thirty-Seven (3,773,437) shares shall be
designated Series B Preferred Stock ("SERIES B PREFERRED"), a total of Nine
Hundred Seventy-Five Thousand (975,000) shares shall be designated Series C
Preferred Stock ("SERIES C PREFERRED"), a total of Three Million Eight Hundred
Thirty-Four Thousand, Five Hundred Thirty-Three (3,834,533) shares shall be
designated Series D Preferred Stock ("SERIES D PREFERRED"), a total of Four
Million (4,000,000) shares shall be designated Series E Preferred Stock ("SERIES
E PREFERRED"), and a total of Five Hundred Thousand (500,000) shares shall be
designated Series F Preferred Stock ("SERIES F PREFERRED").



<PAGE>   2
         B. Rights, Preferences and Restrictions of Preferred Stock. The rights,
preferences, privileges and restrictions granted to and imposed on the Series A
Preferred, Series B Preferred, Series C Preferred, Series D Preferred, Series E
Preferred and Series F Preferred are as set forth below in this Article IV(B).

                  1. Dividend Provisions. The holders of shares of Preferred
Stock shall be entitled to receive dividends, when and if declared by the Board
of Directors, out of any assets legally available therefor, prior and in
preference to any declaration or payment of any dividend (payable other than in
Common Stock) on the Common Stock of this Corporation, at the rate of (i) four
and one-half cents ($0.045) per share per annum for each share of Series A
Preferred held by them (as adjusted for any stock dividends, combinations or
splits with respect to such shares), (ii) fourteen and four-tenths cents
($0.144) per share per annum for each share of Series B Preferred held by them
(as adjusted for any stock dividends, combinations or splits with respect to
such shares), (iii) eighteen cents ($0.18) per share per annum for each share of
Series C Preferred held by them (as adjusted for any stock dividends,
combinations or splits with respect to such shares), (iv) thirty cents ($0.30)
per share per annum for each share of Series D Preferred held by them (as
adjusted for any stock dividends, combinations or splits with respect to such
shares), (v) fifty-four cents ($0.54) per share per annum for each share of
Series E Preferred held by them (as adjusted for any stock dividends,
combinations or splits with respect to such shares), and (vi) eighty-one cents
($0.81) per share per annum for each share of Series F Preferred held by them
(as adjusted for any stock dividends, combinations or splits with respect to
such shares). If any dividends are paid on shares of any Series of Preferred
Stock, dividends shall be paid on shares of all Series of Preferred Stock on a
pro rata basis based on the foregoing dividend rates. After such dividends are
declared and paid upon the shares of Preferred Stock, dividends may be declared
and paid on the Common Stock if at the same time equivalent dividends are
declared and paid to holders of Preferred Stock (as determined on an as
converted basis for the Preferred Stock). Such dividends shall not be
cumulative.

                  2. Liquidation Preference.

                     a. Primary Distribution. In the event of any liquidation,
dissolution or winding up of this Corporation, either voluntary or involuntary,
the holders of Preferred Stock shall be entitled to receive, prior and in
preference to any distribution of any of the assets and funds of this
Corporation to the holders of Common Stock by reason of their ownership thereof,
(i) the amount of fifty cents ($0.50) (the "ORIGINAL SERIES A ISSUE PRICE") for
each outstanding share of Series A Preferred then held of record by such holder,
(ii) the amount of one dollar and sixty cents ($1.60) (the "ORIGINAL SERIES B
ISSUE PRICE") for each outstanding share of Series B Preferred then held of
record by such holder, (iii) the amount of two dollars ($2.00) (the "ORIGINAL
SERIES C ISSUE PRICE") for each outstanding share of Series C Preferred then
held of record by such holder, (iv) the amount of three dollars and thirty cents
($3.30) (the "ORIGINAL SERIES D ISSUE PRICE") for each outstanding share of
Series D Preferred then held of record by such holder, (v) the amount of six
dollars ($6.00) (the "ORIGINAL SERIES E ISSUE PRICE") for each outstanding share
of Series E Preferred then held of record by such holder, and (vi) the amount of
nine dollars ($9.00) (the "ORIGINAL SERIES F ISSUE PRICE") for each outstanding
share of Series F Preferred then held of record by such holder, plus in each
case an amount equal to declared but unpaid dividends on such respective shares.
If upon the occurrence of such event, the assets and funds of the Corporation
legally available for distribution to



                                      -2-
<PAGE>   3
the holders of Preferred Stock shall be insufficient to permit the payment to
such holders of the full aforesaid preferential amounts, then the entire assets
and funds of the Corporation legally available for distribution shall be
distributed among the holders of Preferred Stock in a manner such that the
amount distributed to each holder of Preferred Stock shall equal the amount
obtained by multiplying the entire assets and funds of the Corporation legally
available for distribution hereunder by a fraction, the numerator of which shall
be the sum obtained by adding (a) the product obtained by multiplying the number
of shares of Series A Preferred then held by the holder by the liquidation
preference amount per share of the Series A Preferred plus (b) the product
obtained by multiplying the number of shares of Series B Preferred then held by
the holder by the liquidation preference amount per share of the Series B
Preferred plus (c) the product obtained by multiplying the number of shares of
Series C Preferred then held by the holder by the liquidation preference amount
per share of the Series C Preferred plus (d) the product obtained by multiplying
the number of shares of Series D Preferred then held by the holder by the
liquidation preference amount per share of the Series D Preferred plus (e) the
product obtained by multiplying the number of shares of Series E Preferred then
held by the holder by the liquidation preference amount per share of the Series
E Preferred, plus (f) the product obtained by multiplying the number of shares
of Series F Preferred then held by the holder by the liquidation preference
amount per share of the Series F Preferred, and the denominator of which shall
be the sum obtained by adding (u) the product obtained by multiplying the total
then outstanding number of shares of Series A Preferred by the liquidation
preference amount per share of the Series A Preferred plus (v) the product
obtained by multiplying the total then outstanding number of shares of Series B
Preferred by the liquidation preference amount per share of the Series B
Preferred plus (w) the product obtained by multiplying the total then
outstanding number of shares of Series C Preferred by the liquidation preference
amount per share of the Series C Preferred plus (x) the product obtained by
multiplying the total then outstanding number of shares of Series D Preferred by
the liquidation preference amount per share of the Series D Preferred plus (y)
the product obtained by multiplying the total then outstanding number of shares
of Series E Preferred by the liquidation preference amount per share of the
Series E Preferred plus (z) the product obtained by multiplying the total then
outstanding number of shares of Series F Preferred by the liquidation preference
amount per share of the Series F Preferred.

                     b. Secondary Distribution. Upon the completion of the
distribution required by subparagraph (a) of this Section 2, any remaining
assets of the Corporation legally available for distribution to stockholders
shall be distributed among the holders of Preferred Stock and Common Stock pro
rata in proportion to the number of shares of Common Stock held by each
(assuming conversion of all such Preferred Stock) until (i) with respect to the
holders of Series A Preferred, such holders shall have received an aggregate of
two dollars ($2.00) per share of Series A Preferred held by them (including
amounts paid pursuant to subparagraph (a) of this Section 2) (as adjusted for
any stock dividends, combinations or splits with respect to such shares), (ii)
with respect to the holders of Series B Preferred, such holders shall have
received an aggregate of six dollars and forty cents ($6.40) per share of Series
B Preferred held by them (including amounts paid pursuant to subparagraph (a) of
this Section 2) (as adjusted for any stock dividends, combinations or splits
with respect to such shares), (iii) with respect to the holders of Series C
Preferred, such holders shall have received an aggregate of eight dollars
($8.00) per share of Series C Preferred held by them (including amounts paid
pursuant to subparagraph (a) of this Section 2) (as adjusted for any stock
dividends, combinations or splits with respect to such shares), (iv) with
respect to the holders of Series D Preferred, such holders shall have received
an aggregate of nine dollars ($9.00) per share of


                                      -3-
<PAGE>   4
Series D Preferred held by them (including amounts paid pursuant to subparagraph
(a) of this Section 2) (as adjusted for any stock dividends, combinations or
splits with respect to such shares), (v) with respect to the holders of Series E
Preferred, such holders shall have received an aggregate of nine dollars ($9.00)
per share of Series E Preferred held by them (including amounts paid pursuant to
subparagraph (a) of this Section 2) (as adjusted for any stock dividends,
combinations or splits with respect to such shares) and (vi) with respect to the
holders of Series F Preferred, such holders shall have received an aggregate of
nine dollars ($9.00) per share of Series F Preferred held by them (including
amounts paid pursuant to subparagraph (a) of this Section 2). Thereafter, any
remaining assets and funds legally available for distribution to stockholders
shall be distributed solely to the holder of Common Stock pro rata in proportion
to the number of shares of Common Stock held by each.

                     c. Definition of Liquidity Event; Notice.

                        (i) For purposes of this Section 2, a liquidation,
dissolution or winding up of this Corporation shall be deemed to be occasioned
by, and to include, (A) the acquisition of the Corporation by another entity by
means of any transaction or Series of related transactions (including, without
limitation, any reorganization, merger or consolidation); or (B) a sale of all
or substantially all of the assets of the Corporation (including, for purposes
of this section, intellectual property rights which, in the aggregate,
constitute substantially all of the Corporation's material assets) (each such
acquisition or sale, a "LIQUIDITY EVENT"); unless in each case, the
Corporation's stockholders of record as constituted immediately prior to such
acquisition or sale will, immediately after such acquisition or sale (by virtue
of securities issued as consideration for the Corporation's acquisition or sale
or otherwise) hold at least fifty percent (50%) of the voting power of the
surviving or acquiring entity.

                        (ii) In any Liquidity Event, if the consideration
received by the Corporation is other than cash, its value shall be the fair
market value thereof, as determined by the Board of Directors of this
Corporation. Notwithstanding the foregoing, the fair market value of any
securities received as consideration shall be determined as follows:

                             (1) Securities not subject to investment letter or
other similar restrictions on free marketability shall be valued as follows: (1)
if traded on a securities exchange or through the Nasdaq National Market, the
value shall be deemed to be the average of the closing prices of the securities
on such exchange over the thirty (30) day period ending three (3) days prior to
the closing; (2) if actively traded over-the-counter, the value shall be deemed
to be the average of the closing bid or sale prices (whichever is applicable)
over the thirty (30) day period ending three (3) days prior to the closing; and
(3) if there is no active public market, the value shall be the fair market
value thereof, as determined in good faith by the Board of Directors of the
Corporation.

                             (2) Securities subject to investment letter or
other restrictions on free marketability (other than restrictions arising solely
by virtue of a stockholder's status as an affiliate or former affiliate) shall
be valued in such a manner as to make an appropriate discount from the market
value determined as above in (A) (1), (2) or (3) to reflect the approximate fair
market value thereof, as determined in good faith by the Board of Directors of
the Corporation.



                                      -4-
<PAGE>   5
                        (iii) The Corporation shall give each holder of record
of Preferred Stock written notice of any such impending Liquidity Event not
later than fifteen (15) days prior to the stockholder meeting called to approve
such Liquidity Event, or thirty (30) days prior to the closing of such
transaction, whichever notice date is earlier, and shall also notify such
holders in writing of the final approval of such transaction. The first of such
notices shall describe the material terms and conditions of the impending
transaction, the provisions of this Section 2, and the nature and the amounts of
the consideration anticipated to be distributed to holders of each outstanding
Series and class of capital stock of the Corporation pursuant to this Section 2,
and the Corporation shall thereafter give such holders prompt notice of any
material changes. The transaction shall in no event take place earlier than
thirty (30) days after the Corporation has given the first notice provided for
herein or sooner than ten (10) days after the Corporation has given notice of
any material changes provided for herein; provided, however, that such periods
may be shortened (but shortened to no less than two (2) days after the
Corporation has given notice provided for herein) upon the written consent of
the holders of Preferred Stock that are entitled to such notice rights or
similar notice rights and that represent at least sixty percent (60%) of the
voting power of all then outstanding shares of such Preferred Stock (on an
as-converted into Common Stock basis).

                        (iv)In the event the requirements of this subsection
2(c) are not complied with, this Corporation shall forthwith either:

                             (1) cause such closing to be postponed until such
time as the requirements of this Section 2 have been complied with; or

                             (2) cancel such transaction, in which event the
rights, preferences and privileges of the holders of Preferred Stock shall
revert to and be the same as such rights, preferences and privileges existing
immediately prior to the date of the first notice referred to in subsection
2(c)(iv) hereof.

                  3. Redemption of Preferred Stock.

                     a. Right to Redemption. Upon the written request of the
holders of at least seventy-five percent (75%) of the then outstanding shares of
Preferred Stock (on an as-converted into Common Stock basis) at any time after
May 31, 2004 (the "MANDATORY REDEMPTION NOTICE"), the Corporation shall, subject
to Section 3(c) below, redeem all of the Preferred Stock outstanding as of the
date of the redemption notice (the "REDEMPTION NOTICE DATE"). The Preferred
Stock shall be redeemed by the Corporation in full on a date (the "MANDATORY
REDEMPTION DATE") within sixty (60) days following the Redemption Notice Date at
the Mandatory Redemption Price (as defined in Section 3(b) below).

                     b. Redemption Price. The Series A Mandatory Redemption
Price for each share of Series A Preferred (the "SERIES A MANDATORY REDEMPTION
PRICE") shall be an amount in cash equal to the sum of fifty cents ($0.50) plus
all declared and unpaid dividends thereon to and including the date fixed for
redemption. The redemption price for each share of Series B Preferred (the
"SERIES B MANDATORY REDEMPTION PRICE") shall be an amount in cash equal to the
sum of one dollar and sixty cents ($1.60) plus all declared and unpaid dividends
thereon to and including the date fixed for redemption. The redemption price for
each share of Series C Preferred (the "SERIES C



                                      -5-
<PAGE>   6
MANDATORY REDEMPTION PRICE") shall be an amount in cash equal to the sum of two
dollars ($2.00) plus all declared and unpaid dividends thereon to and including
the date fixed for redemption. The redemption price for each share of Series D
Preferred (the "SERIES D MANDATORY REDEMPTION PRICE") shall be an amount in cash
equal to the sum of three dollars and thirty cents ($3.30) plus all declared and
unpaid dividends thereon to and including the date fixed for redemption. The
redemption price for each share of Series E Preferred (the "SERIES E MANDATORY
REDEMPTION PRICE") shall be an amount in cash equal to the sum of six dollars
($6.00) plus all declared and unpaid dividends thereon to and including the date
fixed for redemption. The Series F Mandatory Redemption Price for each share of
Series F Preferred (the "SERIES F MANDATORY REDEMPTION Price") shall be an
amount in cash equal to the sum of nine dollars ($9.00) plus all declared and
unpaid dividends thereon to and including the date fixed for redemption. (The
Series A Mandatory Redemption Price, the Series B Mandatory Redemption Price,
the Series C Mandatory Redemption Price, the Series D Mandatory Redemption
Price, the Series E Mandatory Redemption Price and the Series F Mandatory
Redemption Price are individually or collectively referred to herein as the
"MANDATORY REDEMPTION PRICE").

                     c. Pro Rata Redemption. In the event the Corporation is
lawfully permitted to redeem only a part of the outstanding shares of Preferred
Stock to be redeemed on the Mandatory Redemption Date, the Corporation shall
redeem the maximum possible number of such shares ratably, so that (i) the
Corporation shall redeem an equal proportion of the total number of shares of
Series A Preferred then outstanding, Series B Preferred then outstanding, Series
C Preferred then outstanding, and Series D Preferred then outstanding Series E
Preferred and Series F Preferred then outstanding, and (ii) as among the holders
of any individual Series of Preferred Stock, the Corporation shall redeem from
each holder of shares of such Series that number of shares equal to the product
obtained by multiplying the total number of shares of such Series of Preferred
Stock to be redeemed by the Corporation by a fraction, the numerator of which is
the number of shares of such Series of Preferred Stock then held by such holder
and the denominator of which is the total number of shares of such Series of
Preferred Stock then outstanding. The shares of Preferred Stock not redeemed
shall remain outstanding and entitled to all the rights and preferences provided
herein. At any time thereafter when additional funds of the Corporation are
legally available for the redemption of such shares of Preferred Stock, such
funds will immediately be used to redeem the balance of the shares which the
Corporation has become obliged to redeem on any Mandatory Redemption Date but
which it has not redeemed.

                     d. Redemption Notice. The Mandatory Redemption Notice shall
state:

                        (i) Whether all or less than all of the outstanding
shares of Preferred Stock are proposed to be redeemed and the total number of
shares of each Series of Preferred Stock proposed to be redeemed;

                        (ii) The number of shares of each Series of Preferred
Stock held by each holder that the Corporation shall redeem;

                        (iii) The proposed Mandatory Redemption Date and the
applicable Mandatory Redemption Price; and



                                      -6-
<PAGE>   7
                        (iv) The date upon which the holder's conversion rights
as to such shares terminate.

         No later than fifteen (15) days before the Mandatory Redemption Date,
the Company shall provide to the holders of outstanding shares of Preferred
Stock written notice of the intended redemption (the "REPLY NOTICE").

                     e. Mechanics of Redemption.

                        (i) On or before the Mandatory Redemption Date, each
holder of Preferred Stock to be redeemed, unless such holder has exercised his
right to convert the shares as provided in Section 4 hereof, shall surrender the
certificate or certificates representing such shares to the Corporation, in the
manner and at the place designated in the Reply Notice, and thereupon the
applicable Mandatory Redemption Price for such shares shall be payable on the
Mandatory Redemption Date to the order of the person whose name appears on such
certificate or certificates as the owner thereof, and each surrendered
certificate shall be canceled and retired. In the event that less than all of
the shares represented by such certificate are redeemed, a new certificate shall
be issued representing the unredeemed shares.

                        (ii) If the Mandatory Redemption Notice and the Reply
Notice shall have been duly given, and if on the Mandatory Redemption Date the
applicable Mandatory Redemption Price is either paid or made available for
payment through the deposit arrangements specified in Section 3(e)(iii) below,
then notwithstanding that the certificates evidencing any of the shares of
Preferred Stock so called for redemption shall not have been surrendered, any
dividends with respect to such shares, and only those shares, to be redeemed on
such Mandatory Redemption Date shall cease to accrue after the Mandatory
Redemption Date, such shares shall cease to be outstanding and all rights with
respect to such shares shall forthwith after the Mandatory Redemption Date
terminate, except only the right of the holders to receive the Mandatory
Redemption Price without interest upon surrender of their certificate or
certificates therefor.

                        (iii) On or prior to each Mandatory Redemption Date, the
Corporation may deposit with any bank or trust company having a capital and
surplus of at least twenty million dollars ($20,000,000), as a trust fund, a sum
equal to the aggregate Mandatory Redemption Price of all shares of Preferred
Stock called for redemption on such Mandatory Redemption Date and not yet
redeemed, with irrevocable instructions and authority to the bank or trust
company to pay, on or after such Mandatory Redemption Date, the applicable
Mandatory Redemption Price to the respective holders upon the surrender of their
share certificates. From and after the applicable Mandatory Redemption Date,
such shares of Preferred Stock so called for payment shall be deemed to be no
longer outstanding, and the holders thereof shall cease to be stockholders with
respect to such shares and shall have no rights as stockholders with respect
thereto, except for the right to receive from the bank or trust company payment
of the applicable Mandatory Redemption Price of the shares, without interest,
upon surrender of their certificates therefor. Such instructions shall also
provide that any funds so deposited and unclaimed at the end of one year from
the applicable Mandatory Redemption Date shall be released or repaid to the
Corporation, after which the holders of shares called for redemption shall be
entitled to receive payment of the applicable Mandatory Redemption Price only
from the Corporation. Shares of



                                      -7-
<PAGE>   8
Preferred Stock which are unredeemed following each Mandatory Redemption Date,
if any, shall remain outstanding and shall be entitled to all rights applicable
thereto.

                  4. Conversion. The holders of Preferred Stock shall have
conversion rights as follows (the "CONVERSION RIGHTS"):

                     a. Right to Convert. Each share of Preferred Stock shall be
convertible, at the option of the holder thereof, at any time after the date of
issuance of such share at the office of this Corporation or any transfer agent
for such stock, into such number of fully paid and nonassessable shares of
Common Stock as is determined (i) in the case of the Series A Preferred, by
dividing the Original Series A Issue Price by the Series A Conversion Price,
determined as hereinafter provided, in effect on the date the certificate is
surrendered for conversion, (ii) in the case of the Series B Preferred, by
dividing the Original Series B Issue Price by the Series B Conversion Price,
determined as hereinafter provided, in effect on the date the certificate is
surrendered for conversion, (iii) in the case of the Series C Preferred, by
dividing the Original Series C Issue Price by the Series C Conversion Price,
determined as hereinafter provided, in effect on the date the certificate is
surrendered for conversion, (iv) in the case of the Series D Preferred, by
dividing the Original Series D Issue Price by the Series D Conversion Price,
determined as hereinafter provided, in effect on the date the certificate is
surrendered for conversion, (v) in the case of the Series E Preferred, by
dividing the Original Series E Issue Price by the Series E Conversion Price,
determined as hereinafter provided, in effect on the date the certificate is
surrendered for conversion, and (vi) in the case of the Series F Preferred, by
dividing the Original Series F Issue Price by the Series F Conversion Price,
determined as hereinafter provided, in effect on the date the certificate is
surrendered for conversion. The initial Series A Conversion Price per share for
shares of Series A Preferred shall be the Original Series A Issue Price, the
initial Series B Conversion Price per share for shares of Series B Preferred
shall be the Original Series B Issue Price, the initial Series C Conversion
Price per share for shares of Series C Preferred shall be the Original Series C
Issue Price, the initial Series D Conversion Price per share for shares of
Series D Preferred shall be the Original Series D Issue Price, the initial
Series E Conversion Price per share for shares of Series E Preferred shall be
the Original Series E Issue Price and the initial Series F Conversion Price per
share for shares of Series F Preferred shall be the Original Series F Issue
Price; provided, however, that each such Conversion Price shall be subject to
adjustment as set forth in this Section 4. (The Series A Conversion Price, the
Series B Conversion Price, the Series C Conversion Price, the Series D
Conversion Price, the Series E Conversion Price and the Series F Conversion
Price are individually or collectively referred to herein as the "CONVERSION
PRICE").

                     b. Automatic Conversion. Each share of Preferred Stock
shall automatically be converted into shares of Common Stock at the Conversion
Price at the time in effect for such share of Preferred Stock immediately upon
the earlier of (i) the Corporation's sale of its Common Stock in an underwritten
public offering on Form S-1 or SB-2 (or successor forms) under the Securities
Act of 1933, as amended (the "ACT"), the public offering price of which was not
less than eight dollars ($8.00) per share (adjusted to reflect subsequent stock
dividends, stock splits, combinations or recapitalizations) and having gross
proceeds to the Corporation in excess of fifteen million dollars ($15,000,000)
or (ii) the date specified by written consent or agreement of the holders of at
least sixty percent (60%) of the then outstanding shares of Preferred Stock (on
an as-converted into Common Stock basis).



                                      -8-
<PAGE>   9
                     c. Mechanics of Conversion. Before any holder of Preferred
Stock shall be entitled to convert the same into shares of Common Stock, the
holder shall surrender the certificate or certificates therefor, duly endorsed,
at the office of this Corporation or of any transfer agent for the Preferred
Stock, and shall give written notice to this Corporation at its principal
corporate office, of the election to convert the same and shall state therein
the name or names in which the certificate or certificates for shares of Common
Stock are to be issued. This Corporation shall, as soon as practicable
thereafter, issue and deliver at such office to such holder of Preferred Stock,
or to the nominee or nominees of such holder, a certificate or certificates for
the number of shares of Common Stock to which such holder shall be entitled as
aforesaid. Such conversion shall be deemed to have been made immediately prior
to the close of business on the date of such surrender of the shares of
Preferred Stock to be converted, and the person or persons entitled to receive
the shares of Common Stock issuable upon such conversion shall be treated for
all purposes as the record holder or holders of such shares of Common Stock as
of such date. If the conversion is in connection with an underwritten offering
of securities registered pursuant to the Act, the conversion, unless otherwise
designated by the holder, will be conditioned upon the closing with the
underwriters of the sale of securities pursuant to such offering, in which event
the person(s) entitled to receive Common Stock upon conversion of Preferred
Stock shall not be deemed to have converted such Preferred Stock until
immediately prior to the closing of such sale of securities.

                     d. Conversion Price Adjustments of Preferred Stock for
Certain Splits and Combinations. The Conversion Price of each Series of
Preferred Stock shall be subject to adjustment from time to time as follows:

                        (i) In the event the Corporation should at any time or
from time to time after the effective date of this Amended and Restated
Certificate of Incorporation (the "AMENDMENT DATE") fix a record date for the
effectuation of a split or subdivision of the outstanding shares of Common Stock
or for the determination of the outstanding shares of Common Stock entitled to
receive a dividend or other distribution payable in additional shares of Common
Stock without payment of any consideration by such holder for the additional
shares of Common Stock, then, as of such record date (or the date of such
dividend, distribution, split or subdivision if no record date is fixed), the
Conversion Price of each Series of the Preferred Stock shall be appropriately
decreased so that the number of shares of Common Stock issuable on conversion of
each share of such Series shall be increased in proportion to such increase of
the aggregate of shares of Common Stock outstanding unless a proportionate
split, subdivision, dividend or other distribution is concurrently made with
respect to all outstanding shares of Preferred Stock.

                        (ii) If the number of shares of Common Stock outstanding
at any time after the Amendment Date is decreased by a combination of the
outstanding shares of Common Stock or reverse stock split, then, following the
record date of such combination or reverse stock split, the Conversion Price for
each Series of Preferred Stock shall be appropriately increased so that the
number of shares of Common Stock issuable on conversion of each share of such
Series shall be decreased in proportion to such decrease in outstanding shares
unless a proportionate combination or reverse stock split is concurrently made
with respect to all outstanding shares of Preferred Stock.

                     e. Other Distributions. In the event this Corporation shall
after the Amendment Date declare a distribution payable in securities of other
persons, evidences of



                                      -9-
<PAGE>   10
indebtedness issued by this corporation or other persons, assets (excluding cash
dividends) or options or rights not referred to in Section 4(d)(i), then, in
each such case for the purpose of this Section 4(e), the holders of Preferred
Stock shall be entitled to a proportionate share of any such distribution as
though they were the holders of the number of shares of Common Stock of the
Corporation into which their shares of Preferred Stock are convertible as of the
record date fixed for the determination of the holders of Common Stock of the
Corporation entitled to receive such distribution.

                     f. Recapitalizations. If at any time or from time to time
after the Amendment Date there shall be a recapitalization of the Common Stock
(other than a subdivision, combination or merger or sale of assets transaction
provided for elsewhere in this Section 4 or Section 2), provision shall be made
so that each holder of Preferred Stock shall thereafter be entitled to receive
upon conversion of the shares of Preferred Stock held by such holder the number
of shares of stock or other securities or property of the Corporation or
otherwise, to which a holder of the number of shares of Common Stock into which
the shares of Preferred Stock held by such holder are convertible immediately
prior to such recapitalization would have been entitled upon such
recapitalization. In any such case, appropriate adjustment shall be made in the
application of the provisions of this Section 4 with respect to the rights of
the holders of Preferred Stock after the recapitalization to the end that the
provisions of this Section 4 (including adjustment of the Conversion Price then
in effect and the number of shares issuable upon conversion of Preferred Stock)
shall be applicable after that event as nearly equivalently as may be
practicable.

                     g. Adjustments to Conversion Price for Dilutive Issues.

                        (i) Special Definitions. For purposes of this Section
4(g), the following definitions shall apply:

                            (1) 'Options' shall mean rights, options or warrants
to subscribe for, purchase or otherwise acquire either Common Stock or
Convertible Securities (defined below).

                            (2) 'Series F Original Issue Date' shall mean the
date on which the first share of Series F Preferred Stock was issued.

                            (3) 'Convertible Securities' shall mean any
evidences of indebtedness, Preferred Stock (other than Series A Preferred,
Series B Preferred, Series C Preferred, Series D Preferred and Series E
Preferred) or other securities convertible into or exchangeable for Common
Stock.

                            (4) 'Additional Shares of Common' shall mean all
shares of Common Stock issued (or, pursuant to Section 4(g)(iii), deemed to be
issued) by the Corporation after the Series E Original Issue Date, other than
shares of Common Stock issued, issuable or, pursuant to Section 4(g)(iii)
herein, deemed to be issued:

                                (A) upon conversion of shares of Preferred
Stock;



                                      -10-
<PAGE>   11
                                (B) to officers, directors or employees of, or
consultants to, the Corporation pursuant to a stock grant, option plan or
purchase plan or other stock incentive program or arrangement approved by the
Board of Directors for employees, officers, directors or consultants of the
Corporation;

                                (C) as a dividend or distribution on Preferred
Stock;

                                (D) in connection with any transaction for which
adjustment is made pursuant to Section 4(d), Section 4(e) or Section 4(f)
hereof;

                                (E) upon grant or exercise of warrants to
purchase Common Stock, or upon conversion of shares of Preferred Stock issued
upon exercise of warrants to purchase Preferred Stock, that may be hereinafter
issued in connection with bona fide, arm's-length debt financings or equipment
lease financing transactions approved by the Board of Directors (including a
majority of the directors elected by the holders of Preferred Stock pursuant to
Section 5(b) below);

                                (F) any shares of Common Stock issued or
issuable, if the holders of sixty percent (60%) of each Series of Preferred
Stock which otherwise would have been adjusted and then outstanding agree in
writing that such shares shall not constitute Additional Shares of Common Stock;
or

                                (G) in connection with an acquisition by the
Corporation approved by the Board of Directors (including a majority of the
directors elected by the holders of Preferred Stock pursuant to Section 5(b)
below).

                        (ii) No Adjustment of Conversion Price. No adjustment in
the applicable Conversion Price shall be made in respect of the issuance of
Additional Shares of Common unless the consideration per share (determined
pursuant to Section 4(g)(v) hereof) for an Additional Share of Common issued or
deemed to be issued by the Corporation is less than the applicable Conversion
Price in effect on the date of, and immediately prior to, such issue.

                        (iii) Options and Convertible Securities. In the event
that the Corporation at any time or from time to time after the Series F
Original Issue Date shall issue any Options or Convertible Securities or shall
fix a record date for the determination of holders of any class of securities
entitled to receive any such Options or Convertible Securities, then the maximum
number of shares of Common Stock issuable upon the exercise of such Options or,
in the case of Convertible Securities and Options therefor, the conversion or
exchange of such Convertible Securities, shall be deemed to be Additional Shares
of Common issued as of the time of such issuance of the Options or Convertible
Securities, as applicable, or, in case such a record date shall have been fixed,
as of the close of business on such record date; provided, however, that
Additional Shares of Common shall not be deemed to have been issued unless the
consideration per share (determined pursuant to Section 4(g)(v) hereof) of such
Additional Shares of Common would be less than the applicable Conversion Price
in effect on the date of and immediately prior to such issue, or such record
date, as the case may be, and provided further that in any such case in which
Additional Shares of Common are deemed to be issued:



                                      -11-
<PAGE>   12
                            (1) no further adjustment in the applicable
Conversion Price shall be made upon the subsequent issue of Convertible
Securities or shares of Common Stock upon the exercise of such Options or
conversion or exchange of such Convertible Securities, in each case, pursuant to
their respective terms;

                            (2) if such Options or Convertible Securities by
their terms provide, with the passage of time or otherwise, for any increase in
the consideration payable to the Corporation, or decrease in the number of
shares of Common Stock issuable, upon the exercise, conversion or exchange
thereof, the applicable Conversion Price computed upon the original issue
thereof (or upon the occurrence of a record date with respect thereto), and any
subsequent adjustments based thereon, shall, upon any such increase or decrease
becoming effective, be recomputed to reflect such increase or decrease insofar
as it affects such Options or the rights of conversion or exchange under such
Convertible Securities;

                            (3) upon the expiration of any such Options or any
rights of conversion or exchange under such Convertible Securities which shall
not have been exercised, the applicable Conversion Price computed upon the
original issue thereof (or upon the occurrence of a record date with respect
thereto), and any subsequent adjustments based thereon, shall, upon such
expiration, be recomputed as if:

                                (A) in the case of Convertible Securities or
Options for Common Stock, the only Additional Shares of Common issued were
shares of Common Stock, if any, actually issued upon the exercise of such
Options or the conversion or exchange of such Convertible Securities and the
consideration received therefor was the consideration actually received by the
Corporation for the issue of all such Options, whether or not exercised, plus
the consideration actually received by the Corporation upon such exercise, or
for the issue of all such Convertible Securities which were actually converted
or exchanged, plus the additional consideration, if any, actually received by
the Corporation upon such conversion or exchange, and

                                (B) in the case of Options for Convertible
Securities, only the Convertible Securities, if any, actually issued upon the
exercise thereof were issued at the time of issue of such Options, and the
consideration received by the Corporation for the Additional Shares of Common
deemed to have been then issued was the consideration actually received by the
Corporation for the issue of all such Options, whether or not exercised, plus
the consideration deemed to have been received by the Corporation upon the issue
of the Convertible Securities with respect to which such Options were actually
exercised;

                            (4) no readjustment pursuant to clauses (2) or (3)
above shall have the effect of increasing the applicable Conversion Price to an
amount which exceeds the lower of (i) the applicable Conversion Price on the
original adjustment date, or (ii) the applicable Conversion Price that would
have resulted from other issuances of Additional Shares of Common between the
Series F Original Issue Date and such readjustment date.

                        (iv) Adjustment of Conversion Price Upon Issuance of
Additional Shares of Common. In the event that this Corporation shall issue
Additional Shares of Common (including Additional Shares of Common deemed to be
issued pursuant to Section 4(g)(iii)) without



                                      -12-
<PAGE>   13
consideration or for a consideration per share less than the applicable
Conversion Price in effect on the date of and immediately prior to such issue,
then and in such event such Conversion Price shall be reduced, concurrently with
such issue, to a price (calculated to the nearest cent) determined by
multiplying such Conversion Price theretofore in effect by a fraction, the
numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to such issue plus the number of shares of Common Stock which
the aggregate consideration received by the Corporation for the total number of
Additional Shares of Common so issued would purchase at such Conversion Price in
effect immediately prior to such issue, and the denominator of which shall be
the number of shares of Common Stock outstanding immediately prior to such issue
plus the number of such Additional Shares of Common so issued; provided however,
that, for the purposes of this Section 4(g)(iv), all shares of Common Stock
issuable upon exercise, conversion or exchange of outstanding Options or
Convertible Securities, as the case may be, shall be deemed to be outstanding,
and immediately after any Additional Shares of Common are deemed issued pursuant
to Section 4(g)(iii), such Additional Shares of Common shall be deemed to be
outstanding.

                        (v) Determination of Consideration. For purposes of this
Section 4(g), the consideration received by the Corporation for the issue of any
Additional Shares of Common shall be computed as follows:

                            (1) Cash and Property. Such consideration shall:

                                (A) insofar as it consists of cash, be computed
at the aggregate amount of cash received by the Corporation excluding amounts
paid or payable for accrued interest or accrued dividends;

                                (B) insofar as it consists of property other
than cash, be computed at the fair market value thereof at the time of such
issue, as determined in good faith by the Board of Directors; and

                                (C) in the event Additional Shares of Common are
issued together with other shares or securities or other assets of the
Corporation for consideration which covers both, be the proportion of such
consideration so received, computed as provided in clauses (A) and (B) above, as
determined in good faith by the Board of Directors.

                            (2) Options and Convertible Securities. The
consideration per share received by the Corporation for Additional Shares of
Common deemed to have been issued pursuant to Section 4(g)(iii)(1), relating to
Options and Convertible Securities, shall be determined by dividing

                                (x) the total amount, if any, received or
receivable by the Corporation as consideration for the issue of such Options or
Convertible Securities, plus the minimum aggregate amount of additional
consideration payable to the Corporation upon the exercise of such Options or
the conversion or exchange of such Convertible Securities, or in the case of
Options for Convertible Securities, the exercise of such Options for Convertible
Securities and the conversion or exchange of such Convertible Securities by



                                      -13-
<PAGE>   14
                                (y) the maximum number of shares of Common Stock
issuable upon the exercise of such Options or the conversion or exchange of such
Convertible Securities, as determined in Section 4(g)(iii) hereof.

                        h. No Impairment. This Corporation will not, by
amendment of its Certificate of Incorporation or through any reorganization,
recapitalization, transfer of assets, consolidation, merger, dissolution, issue
or sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by this corporation, but will at all times in good faith assist in the
carrying out of all the provisions of this section 4 and in the taking of all
such action as may be necessary or appropriate in order to protect the
Conversion Rights of the holders of Preferred Stock against impairment.

                        i. No Fractional Shares and Certificate as to
Adjustment.

                            (i) No fractional shares shall be issued upon the
conversion of any share or shares of Preferred Stock, and the number of shares
of Common Stock to be issued shall be rounded to the nearest whole share.
Whether or not fractional shares are issuable upon such conversion shall be
determined on the basis of the total number of shares of Preferred Stock the
holder is at the time converting into Common Stock and the number of shares of
Common Stock issuable upon such aggregate conversion.

                            (ii) Upon the occurrence of each adjustment or
readjustment of the Conversion Price of any Series of Preferred Stock pursuant
to this Section 4, this Corporation, at its expense, shall promptly compute such
adjustment or readjustment in accordance with the terms hereof and prepare and
furnish to each holder of such Series of Preferred Stock a certificate setting
forth such adjustment or readjustment and showing in detail the facts upon which
such adjustment or readjustment is based. This Corporation shall, upon the
reasonable written request at any time of any holder of Preferred Stock, furnish
or cause to be furnished to such holder a like certificate setting forth (A)
such adjustment and readjustment, (B) the Conversion Price for each Series of
Preferred Stock at the time in effect, and (C) the number of shares of Common
Stock and the amount, if any, of other property which at the time would be
received upon the conversion of a share of such Series of Preferred Stock.

                        j. Notices of Record Date. In the event of any taking by
this Corporation of a record date for determining the holders of any class of
securities who are entitled to receive (A) any dividend (other than a cash
dividend) or other distribution, (B) any right to subscribe for, purchase or
otherwise acquire any shares of stock of any class or any other securities or
property, or (C) any other right, this Corporation shall mail to each holder of
Preferred Stock, at least ten (10) days prior to the record date specified
therein, a notice specifying the record date to be taken for the purpose of such
dividend, distribution or right, and the amount and character of such dividend,
distribution or right.

                        k. Reservation of Stock Issuable Upon Conversion. This
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the then outstanding shares of Preferred Stock, such number of its
shares of Common Stock as shall from time to time be sufficient to effect



                                      -14-
<PAGE>   15
the conversion of all outstanding shares of Preferred Stock; and if at any time
the number of authorized but unissued shares of Common Stock shall not be
sufficient to effect the conversion of all then outstanding shares of Preferred
Stock, in addition to such other remedies as shall be available to the holder of
such Preferred Stock, this Corporation will take such corporate action as may,
in the opinion of its counsel, be necessary to increase its authorized but
unissued shares of common stock to such number of shares as shall be sufficient
for such purposes, including, without limitation, engaging in best efforts to
obtain the requisite Board of Directors and stockholder approval of any
necessary amendment to its certificate of incorporation.

                        l. Notices. Any notice required by the provisions of
this Section 4 to be given to the holders of shares of Preferred Stock shall be
deemed given five (5) days after deposited in the United States mail, postage
prepaid, and addressed to each holder of record at his address appearing on the
books of this Corporation.

                  5. Voting Rights.

                     a. General Voting Rights. Each holder of shares of
Preferred Stock shall be entitled to notice of any stockholder meeting in
accordance with the bylaws of the Corporation, shall be entitled to a number of
votes equal to a number of shares of Common Stock into which the shares of
Preferred Stock held by such holder could be converted, shall have voting rights
and powers equal to the voting rights and powers of the holders of Common Stock
and shall vote together as a single class with holders of Common Stock and all
Series of Preferred Stock on all matters except as expressly required by law.
Fractional votes shall not be permitted and any fractional voting rights
resulting from the right of any holder of Preferred Stock to vote on an
as-converted basis (after aggregating the shares into which all shares of
Preferred Stock held by such holder could be converted) shall be rounded to the
nearest whole number (with one-half being rounded upward). The holders of
Preferred Stock shall have no separate class or Series vote on any matter except
as required by Section 6 hereof or except as expressly required by law.

                     b. Election of Directors. Notwithstanding the provisions of
subsection 5(a) above, for so long as at least an aggregate of 500,000 shares of
Series A Preferred remain outstanding (subject to appropriate adjustments for
stock splits, dividends, combinations, recapitalizations and the like), the
holders of Series A Preferred, voting as a separate class, shall be entitled to
elect one (1) director of the Corporation (the "SERIES A DIRECTOR"); for so long
as at least an aggregate of 500,000 shares of Series B Preferred and Series C
Preferred remain outstanding (subject to appropriate adjustments for stock
splits, dividends, combinations, recapitalizations and the like), the holders of
Series B Preferred and Series C Preferred, voting together as a separate class,
shall be entitled to elect one (1) director of the Corporation the ("SERIES B/C
DIRECTOR"); for so long as at least an aggregate of 500,000 shares of Series D
Preferred remain outstanding (subject to appropriate adjustments for stock
splits, dividends, combinations, recapitalizations and the like), the holders of
Series D Preferred, voting as a separate class, shall be entitled to elect one
(1) director of the Corporation (the "SERIES D DIRECTOR"); the holders of Common
Stock, voting as a separate class, shall be entitled to elect one (1) director
of the Corporation (the "COMMON DIRECTOR"); and the remaining directors of the
Corporation shall be elected by the holders of Common Stock and Preferred Stock
voting together on an as converted basis. At any meeting held for the purpose of
electing or nominating directors, the presence in person or by proxy of the
holders of a majority of



                                      -15-
<PAGE>   16
the Series A Preferred then outstanding shall constitute a quorum of the Series
A Preferred for the election or nomination of the Series A Director, the
presence in person or by proxy of the holder of a majority of the Series B
Preferred and a majority of the Series C Preferred then outstanding shall
constitute a quorum of the Series B Preferred and Series C Preferred, as a
class, for the election or nomination of the Series B/C Director, the presence
in person or by proxy of the holders of a majority of the Series D Preferred
then outstanding shall constitute a quorum of the Series D Preferred for the
election or nomination of the Series D Director, and the presence in person or
by proxy of the holders of a majority of the Common Stock then outstanding shall
constitute a quorum of the Common Stock for the election or nomination of the
Common Director. A vacancy in the directorship elected solely by the holders of
Series A Preferred shall be filled only by vote of the holders of Series A
Preferred; a vacancy in any directorship elected solely by the holders of Series
B Preferred and Series C Preferred, as a class, shall be filled only by vote of
the holders of Series B Preferred and Series C Preferred, voting together as a
class; a vacancy in the directorship elected solely by the holders of Series D
Preferred shall be filled only by vote of the holders of Series D Preferred; and
a vacancy in any directorship elected solely by the holders of Common Stock
shall be filled only by the vote of the holders of Common Stock.

                  6. Protective Provisions.

                     a. Series A Preferred. So long as any shares of Series A
Preferred are outstanding, this Corporation shall not, without first obtaining
the affirmative vote or written consent of the holders of not less than sixty
percent (60%) of the then outstanding shares of Series A Preferred voting
together as a class, (i) amend or repeal any provision of, or add any provision
to, this Corporation's Amended and Restated Certificate of Incorporation or
Bylaws if such action would adversely alter or change the preferences, rights,
privileges or powers of, or the restrictions provided for the benefit of, the
Series A Preferred and (ii) authorize or issue shares of any Series or class of
capital stock or any other security convertible into or exchangeable for shares
of any Series or class of capital stock which is senior to the Series A
Preferred with respect to dividend rights, rights upon any liquidation, wind up
or dissolution, or redemption rights, it being understood that the authorization
or issuance of any security, as provided above, shall not be deemed to be senior
to the Series A Preferred if (A) the differences in dividend rights, rights upon
any liquidation, wind up or dissolution or redemption rights with respect to
such Series only reflect a different original issue price with respect to such
series, or (B) if the holders of Preferred Stock approve the authorization or
issuance of shares of any Series or class of capital stock or any other security
convertible into or exchangeable for shares of any Series or class of capital
stock (in accordance with the provisions of Article IV(B)(6)(d)(iv) below) which
is senior to each Series of Preferred Stock on a pari passu basis.

                     b. Series B Preferred and Series C Preferred. So long as
any shares of Series B Preferred or Series C Preferred are outstanding, this
Corporation shall not, without first obtaining the affirmative vote or written
consent of the holders of not less than sixty percent (60%) of the then
outstanding shares of Series B Preferred and Series C Preferred, voting together
as a class, (i) amend or repeal any provision of, or add any provision to, this
Corporation's Amended and Restated Certificate of Incorporation or Bylaws if
such action would adversely alter or change the preferences, rights, privileges
or powers of, or the restrictions provided for the benefit of, the Series B
Preferred or the Series C Preferred and (ii) authorize or issue shares of any
Series or class



                                      -16-
<PAGE>   17
of capital stock or any other security convertible into or exchangeable for
shares of any Series or class of capital stock which is senior to the Series B
Preferred or Series C Preferred with respect to dividend rights, rights upon any
liquidation, wind up or dissolution, or redemption rights, it being understood
that the authorization or issuance of any security, as provided above, shall not
be deemed to be senior to the Series B Preferred or Series C Preferred if (A)
the differences in dividend rights, liquidation rights, rights upon wind up or
dissolution or redemption rights with respect to such Series only reflect a
different original issue price with respect to such series, or (B) if the
holders of Preferred Stock approve the authorization or issuance of shares of
any Series or class of capital stock or any other security convertible into or
exchangeable for shares of any Series or class of capital stock (in accordance
with the provisions of Article IV(B)(6)(d)(iv) below) which is senior to each
Series of Preferred Stock on a pari passu basis.

                     c. Series D Preferred. So long as any shares of Series D
Preferred are outstanding, this Corporation shall not, without first obtaining
the affirmative vote or written consent of the holders of not less than sixty
percent (60%) of the then outstanding shares of Series D Preferred, voting
together as a class, (i) amend or repeal any provision of, or add any provision
to, this Corporation's Amended and Restated Certificate of Incorporation or
Bylaws if such action would adversely alter or change the preferences, rights,
privileges or powers of, or the restrictions provided for the benefit of, the
Series D Preferred and (ii) authorize or issue shares of any Series or class of
capital stock or any other security convertible into or exchangeable for shares
of any Series or class of capital stock which is senior to the Series D
Preferred with respect to dividend rights, rights upon any liquidation, wind up
or dissolution, or redemption rights, it being understood that the authorization
or issuance of any security, as provided above, shall not be deemed to be senior
to the Series D Preferred if (A) the differences in dividend rights, liquidation
rights, rights upon wind up or dissolution or redemption rights with respect to
such Series only reflect a different original issue price with respect to such
series, or (B) if the holders of Preferred Stock approve the authorization or
issuance of shares of any Series or class of capital stock or any other security
convertible into or exchangeable for shares of any Series or class of capital
stock (in accordance with the provisions of Article IV(B)(6)(d)(iv) below) which
is senior to each Series of Preferred Stock on a pari passu basis.

                     d. Series E Preferred. So long as any shares of Series E
Preferred are outstanding, this Corporation shall not, without first obtaining
the affirmative vote or written consent of the holders of more than fifty
percent (50%) of the then outstanding shares of Series E Preferred, voting
together as a class, (i) amend or repeal any provision of, or add any provision
to, this Corporation's Amended and Restated Certificate of Incorporation or
Bylaws if such action would adversely alter or change the preferences, rights,
privileges or powers of, or the restrictions provided for the benefit of, the
Series E Preferred and (ii) authorize or issue shares of any Series or class of
capital stock or any other security convertible into or exchangeable for shares
of any Series or class of capital stock which is senior to the Series E
Preferred with respect to dividend rights, rights upon any liquidation, wind up
or dissolution, or redemption rights, it being understood that the authorization
or issuance of any security, as provided above, shall not be deemed to be senior
to the Series E Preferred if (A) the differences in dividend rights, liquidation
rights, rights upon wind up or dissolution or redemption rights with respect to
such Series only reflect a different original issue price with respect to such
series, or (B) if the holders of Preferred Stock approve the authorization or
issuance of shares of any Series or class of capital stock or any other security
convertible into or



                                      -17-
<PAGE>   18
exchangeable for shares of any Series or class of capital stock (in accordance
with the provisions of Article IV(B)(6)(d)(iv) below) which is senior to each
Series of Preferred Stock on a pari passu basis.

                     e. Series F Preferred. So long as any shares of Series F
Preferred are outstanding, this Corporation shall not, without first obtaining
the affirmative vote or written consent of the holders of more than fifty
percent (50%) of the then outstanding shares of Series F Preferred, voting
together as a class, (i) amend or repeal any provision of, or add any provision
to, this Corporation's Amended and Restated Certificate of Incorporation or
Bylaws if such action would adversely alter or change the preferences, rights,
privileges or powers of, or the restrictions provided for the benefit of, the
Series F Preferred and (ii) authorize or issue shares of any Series or class of
capital stock or any other security convertible into or exchangeable for shares
of any Series or class of capital stock which is senior to the Series F
Preferred with respect to dividend rights, rights upon any liquidation, wind up
or dissolution, or redemption rights, it being understood that the authorization
or issuance of any security, as provided above, shall not be deemed to be senior
to the Series F Preferred if (A) the differences in dividend rights, liquidation
rights, rights upon wind up or dissolution or redemption rights with respect to
such Series only reflect a different original issue price with respect to such
series, or (B) if the holders of Preferred Stock approve the authorization or
issuance of shares of any Series or class of capital stock or any other security
convertible into or exchangeable for shares of any Series or class of capital
stock (in accordance with the provisions of Article IV(B)(6)(d)(iv) below) which
is senior to each Series of Preferred Stock on a pari passu basis.

                     f. Preferred Stock. So long as any shares of Preferred
Stock are outstanding, this Corporation shall not, without first obtaining the
affirmative vote or written consent of the holders of not less than sixty
percent (60%) of the then outstanding shares of Preferred Stock, voting together
as a single class on an as-converted into Common Stock basis:

                        (i) authorize a liquidation, dissolution, winding up,
recapitalization or reorganization of the Corporation, or a sale, transfer or
encumbrance of all or substantially all of the assets of the Corporation or a
merger or consolidation of the Corporation if, as a result of such merger or
consolidation, the stockholders of the Corporation shall own (by virtue of
shares held in the Corporation) less than fifty percent (50%) of the voting
securities of the surviving corporation; or

                        (ii) authorize any cash dividend, repurchases or
redemptions, except for (i) repurchases at cost of shares of Common Stock
originally issued to employees, officers, directors and consultants pursuant to
the terms of the stock restriction agreements under which the shares were
originally issued and (ii) redemption of Preferred Stock as authorized by this
Certificate of Incorporation;

                        (iii) authorize or issue shares of any Series or class
of capital stock or any other security convertible into or exchangeable for
shares of any Series or class of capital stock which is senior to or on parity
with the Series A Preferred, Series B Preferred, Series C Preferred, Series D
Preferred, Series E Preferred or Series F Preferred with respect to dividend



                                      -18-
<PAGE>   19
rights, rights upon any liquidation, wind up or dissolution, redemption rights,
or any rights contained in this Section 6(e);

                        (iv) amend this Corporation's Amended and Restated
Certificate of Incorporation.

                  7. Status of Converted Preferred. In the event any shares of
Preferred Stock shall be converted pursuant to Section 4, the shares so
converted shall be canceled and shall not thereafter be issuable by the
Corporation. The Amended and Restated Certificate of Incorporation of this
Corporation shall be appropriately amended to effect the corresponding reduction
in the Corporation's authorized capital stock.

         C. Common Stock.

                  1. Dividend Rights. Subject to the prior rights of holders of
all classes of stock at the time outstanding having prior rights as to
dividends, the holders of the Common Stock shall be entitled to receive, when
and as declared by the Board of Directors, out of any assets of the Corporation
legally available therefor, such dividends as may be declared from time to time
by the Board of Directors.

                  2. Liquidation Rights. Upon the liquidation, dissolution or
winding up of the Corporation, the assets of the Corporation shall be
distributed as provided in Section 2 of Article IV(B) hereof.

                  3. Redemption.  The Common Stock is not redeemable.

                  4. Voting Rights. The holder of each share of Common Stock
shall have the right to one (1) vote, shall be entitled to notice of any
stockholder meeting in accordance with the Bylaws of this Corporation, and shall
be entitled to vote upon such matters and in such manner as is otherwise
provided herein or as may be provided by law.


                                    ARTICLE V

         Except as otherwise provided in this Amended and Restated Certificate
of Incorporation, in furtherance and not in limitation of the powers conferred
by statute, the Board of Directors is expressly authorized to make, repeal,
alter, amend and rescind any or all of the Bylaws of the Corporation.


                                   ARTICLE VI

         The number of directors of the Corporation shall be fixed from time to
time by, or in the manner provided in, the Bylaws or amendment thereof duly
adopted by the Board of Directors or by the stockholders.



                                      -19-
<PAGE>   20
                                   ARTICLE VII

         Elections of directors need not be by written ballot unless the Bylaws
of the Corporation shall so provide.


                                  ARTICLE VIII

         Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of the Corporation may be kept
(subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the Bylaws of the Corporation.


                                   ARTICLE IX

         To the fullest extent permitted by the General Corporation Law of
Delaware, as the same may be amended from time to time, a director of the
Corporation shall not be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director. If
the General Corporation Law of Delaware is hereafter amended to authorize, with
or without the approval of a corporation's stockholders, further reductions in
the liability of the corporation's directors for breach of fiduciary duty, then
a director of the Corporation shall not be liable for any such breach to the
fullest extent permitted by the General Corporation Law of Delaware, as so
amended.

         To the extent that the laws of the State of California would purport to
govern the ability of the Corporation under Delaware law to limit the personal
liability of its directors for breach of fiduciary duty, and to the extent that
a court should uphold the application of California law in lieu of Delaware law
to the issue of director liability, then for purposes of California law the
personal liability of a director to the Corporation or its stockholders for
monetary damages shall be limited to the fullest extent permitted by California
law.

         Any repeal or modification of the foregoing provisions of this Article
IX, by amendment of this Article IX or by operation of law, shall not adversely
affect any right or protection of a director of the Corporation with respect to
any acts or omissions of such director occurring prior to such repeal or
modification.


                                    ARTICLE X

         To the fullest extent permitted by applicable law, the Corporation is
authorized to provide indemnification of (and advancement of expenses to)
directors, officers, employees and other agents of the Corporation (and any
other persons to which Delaware law permits the Corporation to provide
indemnification), through Bylaw provisions, agreements with any such director,
officer, employee or other agent or other person, vote of stockholders or
disinterested directors or otherwise, in excess of the indemnification and
advancement otherwise permitted by Section 145 of the Delaware General



                                      -20-
<PAGE>   21
Corporation Law, subject only to limits created by applicable Delaware law
(statutory or nonstatutory), with respect to actions for breach of duty to a
corporation, its stockholders, and others.

         To the extent that the laws of the State of California would purport to
govern the ability of the Corporation under Delaware law to provide
indemnification of (and advancement of expenses to) certain persons and to the
extent that a court should uphold the application of California law in lieu of
Delaware law to the issue of indemnification of (and advancement of expenses to)
directors, officers, employees and other agents of the Corporation (and any
other persons to which California law permits the Corporation to provide
indemnification) then for the purposes of California law, the Corporation is
authorized to provide indemnification of (and advancement of expenses to) any
such director, officer, employee or other agent or other person, through Bylaw
provisions, agreements with any such director, officer, employee or other agent
or other person, vote of stockholders or disinterested directors, or otherwise,
to the fullest extent permitted by California law.

         Any repeal or modification of any of the foregoing provisions of this
Article X, by amendment of this Article X or by operation of law, shall not
adversely affect any right or protection of a director, officer, employee or
other agent or other person existing at the time of, or increase the liability
of any director of the Corporation with respect to any acts or omissions of such
director, officer or agent occurring prior to such repeal or modification.


                                   ARTICLE XI

         The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this Amended and Restated Certificate of
Incorporation, in the manner now or hereafter prescribed by statute, and all
rights conferred upon stockholders herein are granted subject to this
reservation.


                                   ARTICLE XII

                 The Corporation shall have perpetual existence.

                                     * * *



                                      -21-
<PAGE>   22
         The foregoing Amended and Restated Certificate of Incorporation has
been duly adopted by the Corporation's Board of Directors and Stockholders in
accordance with the applicable provisions of Section 228, Section 242 and
Section 245 of the General Corporation Law of the State of Delaware.


         IN WITNESS WHEREOF, the undersigned has executed this certificate on
December __, 1999.


                                       EXTENSITY, INC.


                                       By:
                                          --------------------------------------
                                          Robert Spinner, President and Chief
                                          Executive Officer



                                      -22-

<PAGE>   1

                                                                   Exhibit 10.12


                                Extensity, Inc.
                         2200 Powell Street, Suite 400
                              Emeryville, CA 94608



                                January 7, 2000



Melissa Abernathy
American Express

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

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

Dear Melissa:

     Extensity, Inc. (the "Company") is in the process of undertaking an
initial public offering of its common stock and has filed with the Securities
Exchange Commission a Registration Statement on Form S-1 ("Registration
Statement") relating to such offering. In the Registration Statement, the
Company cites the following market research data compiled by American Express:

          "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." [pg.
     35]

     By executing below, you hereby consent to the presentation of the data set
forth above in the Company's Registration Statement in the manner set forth
above.

                                       Yours very truly,

                                       EXTENSITY, INC.


                                       /s/ ELIZABETH IRELAND
                                       ------------------------------
                                       Elizabeth Ireland
                                       Vice President of Marketing



AGREED AND ACCEPTED

AMERICAN EXPRESS


By:  MELISSA G. ABERNATHY
    -------------------------------

Title: Manager, Public Affairs,
       (American Express Corporate Services)
       -------------------------------------

<PAGE>   1
                                                                   EXHIBIT 10.13



                                Extensity, Inc.
                         2200 Powell Street, Suite 400
                              Emeryville, CA 94608



                                January 7, 2000



Albert Pang
International Data Corporation
2131 Landings Drive
Mountain View, CA 94043

Dear Albert:

     Extensity, Inc. (the "Company") is in the process of undertaking an
initial public offering of its common stock and has filed with the Securities
Exchange Commission a Registration Statement on Form S-1 ("Registration
Statement") relating to such offering. In the Registration Statement, the
Company cites the following market research data with respect to the Internet
Commerce Procurement Applications Market compiled by International Data
Corporation:

     "... the Internet commerce procurement applications market will grow from
     $147 million in 1998 to $5.3 billion in 2003." [Box Summary, p.1, and p.
     34]

     By executing below, you hereby consent to the presentation of the data as
set forth above in the Company's Registration Statement in the manner set forth
above.

                                       Your very truly,

                                       EXTENSITY, INC.

                                       /s/ ELIZABETH IRELAND
                                       ---------------------------
                                       ELIZABETH IRELAND
                                       Vice President of Marketing

AGREED AND ACCEPTED:

INTERNATIONAL DATA CORPORATION

By:    /s/ ALBERT PANG
       ------------------------------------
       Albert Pang

Title: Research Manager, eCommerce Software

<PAGE>   1
                                                                   EXHIBIT 10.14



                                Extensity, Inc.
                         2200 Powell Street, Suite 400
                              Emeryville, CA 94608



                                January 7, 2000



Judy Hodges
International Data Corporation
5 Speen Street
Framingham, MA 01701

Dear Judy:

     Extensity, Inc. (the "Company") is in the process of undertaking an
initial public offering of its common stock and has filed with the Securities
Exchange Commission a Registration Statement on Form S-1 ("Registration
Statement") relating to such offering. In the Registration Statement, the
Company cites the following market research data with respect to the Workforce
Management Market compiled by International Data Corporation:

     "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..." [Box Summary, p. 1 and p.34]

     By executing below, you hereby consent to the presentation of the data as
set forth above in the Company's Registration Statement in the manner set forth
above.

                                       Yours very truly,

                                       EXTENSITY, INC.

                                       /s/ ELIZABETH IRELAND
                                       ------------------------------
                                       Elizabeth Ireland
                                       Vice President of Marketing

AGREED AND ACCEPTED:

INTERNATIONAL DATA CORPORATION

By: /s/ JUDITH D. HODGES
    --------------------------
    Judith D. Hodges

Its: 1-11-2000
     -------------------------

<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 November 5, 1999, except
for Note 12 which is as of January 12, 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 13, 2000


<TABLE> <S> <C>

<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS

<S>                             <C>                     <C>
<PERIOD-TYPE>                   9-MOS                   YEAR
<FISCAL-YEAR-END>                          DEC-31-1999             DEC-31-1998
<PERIOD-START>                             JAN-01-1999             JAN-01-1998
<PERIOD-END>                               SEP-30-1999             DEC-31-1998
<EXCHANGE-RATE>                                      1                       1
<CASH>                                          22,282                  10,882
<SECURITIES>                                         0                       0
<RECEIVABLES>                                    3,131                   1,178
<ALLOWANCES>                                       200                       0
<INVENTORY>                                          0                       0
<CURRENT-ASSETS>                                25,855                  12,262
<PP&E>                                           2,021                   2,191
<DEPRECIATION>                                   1,348                     715
<TOTAL-ASSETS>                                  27,953                  13,811
<CURRENT-LIABILITIES>                           10,016                   4,943
<BONDS>                                          1,692                   2,471
                           43,648                  21,269
                                          0                       0
<COMMON>                                             4                       2
<OTHER-SE>                                    (27,586)                (15,014)
<TOTAL-LIABILITY-AND-EQUITY>                    27,953                  13,811
<SALES>                                          1,939                     718
<TOTAL-REVENUES>                                 3,613                   1,127
<CGS>                                              145                      90
<TOTAL-COSTS>                                    3,219                   1,644
<OTHER-EXPENSES>                                15,827                  10,543
<LOSS-PROVISION>                                     0                       0
<INTEREST-EXPENSE>                                (19)                    (28)
<INCOME-PRETAX>                               (15,414)                (11,032)
<INCOME-TAX>                                         0                       0
<INCOME-CONTINUING>                           (15,414)                (11,032)
<DISCONTINUED>                                       0                       0
<EXTRAORDINARY>                                      0                       0
<CHANGES>                                            0                       0
<NET-INCOME>                                  (15,414)                (11,032)
<EPS-BASIC>                                     (7.58)                  (8.25)
<EPS-DILUTED>                                   (7.58)                  (8.25)


</TABLE>


© 2022 IncJournal is not affiliated with or endorsed by the U.S. Securities and Exchange Commission