EROOM TECHNOLOGY INC, S-1, 2000-10-02

EROOM TECHNOLOGY INC
S-1, 2000-10-02

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 2, 2000.

REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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eROOM TECHNOLOGY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S> <C> <C>
DELAWARE 7372 04-3319257
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>

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725 CONCORD AVENUE
CAMBRIDGE, MA 02138
(617) 497-6300
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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JEFFREY R. BEIR
PRESIDENT AND CHIEF EXECUTIVE OFFICER
EROOM TECHNOLOGY, INC.
725 CONCORD AVENUE
CAMBRIDGE, MA 02138
(617) 497-6300
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------

COPIES TO:

<TABLE>
<S> <C>
WILLIAM J. SCHNOOR, JR., ESQ. PETER B. TARR, ESQ.
BRIAN D. GOLDSTEIN, ESQ. RICHARD G. COSTELLO, ESQ.
JEFFREY M. HELD, ESQ. HALE AND DORR LLP
TESTA, HURWITZ & THIBEAULT, LLP 60 STATE STREET
125 HIGH STREET BOSTON, MA 02109
BOSTON, MA 02110 (617) 526-6000
(617) 248-7000
</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 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 this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]

CALCULATION OF REGISTRATION FEE

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<CAPTION>
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PROPOSED MAXIMUM
TITLE OF SECURITIES AGGREGATE AMOUNT OF
TO BE REGISTERED OFFERING PRICE(1)(2)(3) REGISTRATION FEE
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<S> <C> <C>
Common Stock, $.01 par value per share $70,000,000 $18,480
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</TABLE>

(1) In accordance with Rule 457(o) under the Securities Act of 1933, the number
of shares of common stock being registered and the proposed maximum offering
price per share are not included in this table.

(2) Includes shares of common stock that the Underwriters have the option to
purchase solely to cover over-allotments, if any.

(3) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(o) under the Securities Act of 1933.

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 THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2

The information in this prospectus is not complete and may be changed. We
may not sell these securities until the registration statement filed with
the Securities and Exchange Commission is effective. This prospectus is not
an offer to sell securities, and we are not soliciting offers to buy these
securities, in any state where the offer or sale is not permitted.

SUBJECT TO COMPLETION, DATED OCTOBER 2, 2000
PROSPECTUS LOGO

[EROOM LOGO]

Shares
Common Stock

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This is an initial public offering of shares of common stock of eRoom
Technology, Inc. We are offering shares in this offering. No
public market currently exists for our common stock. We anticipate that the
initial public offering price will be between $ and $ per share.

We have applied to have our common stock approved for quotation on the Nasdaq
National Market under the symbol "ERMT."
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INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" ON PAGE 5.
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<TABLE>
<CAPTION>
PER SHARE TOTAL
<S> <C> <C>
Public offering price $ $
Underwriting discounts and commissions $ $
Proceeds, before expenses, to us $ $
</TABLE>

The underwriters have an option to purchase additional shares of
common stock from us at the initial public offering price, less underwriting
discounts and commissions, to cover any over-allotments of shares at any time
until 30 days after the date of this prospectus.

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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THOMAS WEISEL PARTNERS LLC SG COWEN
WIT SOUNDVIEW

The date of this prospectus is , 2000.
<PAGE> 3
[INSIDE FRONT COVER]

[A graphic depiction of the eRoom digital workplace being used for
collaboration by an organization's employees, customers, contract manufacturers,
clients, suppliers and other business partners. The center of the picture is a
suspended platform with buildings, people and a billboard sign on it. On the
billboard sign is the eRoom Technology logo. On the lower perimeter of the
platform are the phrases "Digital Workplace", "Notification", "Collaboration",
"Workflow", "Document Management", "Calendar", "Self-Service Usage", "Security
and Access Control", "Real-Time", "Application Templates" and "Database."

Surrounding the suspended platform are six suspended platforms, with
elipses drawn to the central platform, separately depicting the following,
beginning at the top of the page and continuing clockwise: (1) people with the
word "Employees" underneath it, (2) buildings with the words "Business Partners"
underneath it, (3) people with the word "Customers" underneath it, (4) buildings
with the word "Suppliers" underneath it, (5) people with the word "Clients"
underneath it and (6) buildings with the words "Contract Manufacturers"
underneath it.

The eRoom Technology logo also appears at the bottom right corner of the
page.]

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TABLE OF CONTENTS

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PAGE
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<S> <C>
Prospectus Summary................... 1
Risk Factors......................... 5
Cautionary Note Regarding
Forward-Looking Statements......... 17
Use of Proceeds...................... 18
Dividend Policy...................... 18
Capitalization....................... 19
Dilution............................. 20
Selected Consolidated Financial
Data............................... 21
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 23
Business............................. 33
</TABLE>

<TABLE>
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PAGE
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<S> <C>
Management........................... 47
Related Party Transactions........... 56
Principal Stockholders............... 59
Description of Capital Stock......... 61
Shares Eligible for Future Sale...... 65
Underwriting......................... 68
Legal Matters........................ 71
Experts.............................. 71
Where You Can Find More
Information........................ 71
Index to Consolidated Financial
Statements......................... F-1
</TABLE>

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

You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with 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.

We own or have rights in tradenames, common law marks and registered
trademarks that we use in connection with the sale of our products and services.
Our registered trademarks and service marks include EROOM (in the U.S. and the
European Community). We have applied for registration of trademarks and service
marks including our eMan logo (in the U.S. and the European Community). All
other trademarks, service marks, logos and tradenames appearing in this
prospectus are the property of their respective owners.

i
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PROSPECTUS SUMMARY

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

OUR COMPANY

As competition has become more global and enterprises have increasingly
become more geographically distributed, companies are recognizing the benefits
of the Internet to minimize the barriers of time and distance. Further, as
companies increasingly use outside parties to perform services for them and
create alliances with business partners, they are seeking an efficient way to
manage the collaboration necessary among the members of their extended
enterprise. Additionally, business processes have become more varied, complex
and difficult to manage due in part to rapidly changing customer requirements,
heightened demand for highly customized products and significantly shortened
product life cycles. These processes require a broad range of collaborative
activities among the members of the extended enterprise, including project
tracking, document sharing, discussion and conferencing.

Many companies have attempted to meet these challenges with
internally-developed solutions and existing off-the-shelf applications. These
offerings fail because they can be difficult to deploy and integrate across
enterprises, do not offer the flexibility to manage varied projects and
processes and do not take full advantage of the Internet to enable extended
enterprise collaboration. Companies require an Internet-based, cost-effective,
highly scalable, easily integrated solution to address their collaborative
process needs.

The eRoom digital workplace is a comprehensive, integrated, Internet-based
software application that includes a variety of collaborative capabilities, such
as project tracking, document management, workflow management, security and
access control and change notification. A digital workplace is a secure,
collaborative website that allows project teams to create, store and manage
project content and communications for a wide range of business projects. Once
the digital workplace has been set up, project team members can quickly and
easily create and define the layout of their workplace, add team members and
specify security rules for who can view and edit content. We believe that the
eRoom digital workplace provides the following benefits to our customers:

- provides a comprehensive, flexible solution for business collaboration;

- is easily used and rapidly deployed;

- creates efficiencies throughout the extended enterprise;

- improves utilization of personnel and leverages expertise; and
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- strengthens relationships among employees, customers, suppliers and other
partners.

Our goal is to be the leading provider of Internet-based applications and
services for business collaboration among the members of an organization's
extended enterprise. Key elements of our strategy to achieve this goal include:

- increasing our user base within existing customer accounts;

- leveraging the network effect to expand our customer base;

- pursuing targeted vertical markets;

- launching eRoom.net, our hosted service offering;

- expanding our technology leadership and extending the eRoom digital
workplace functionality; and

- developing and strengthening our business alliances.

We market and sell our products and services through our direct sales force
and indirect channels, including systems integrators and other business
partners. We target organizations that require collaboration among the members
of their extended enterprises. We have over 350 customers, including A.T.
Kearney, Deloitte & Touche, EDS, Ford, Hewlett-Packard, Intel, Johnson &
Johnson, Ketchum, KPMG, Palm, Pfizer and Solectron.

RECENT DEVELOPMENT

In July 2000, we sold 1,052,633 shares of our series D redeemable
convertible preferred stock to some of our existing stockholders and two new
investors, Brinson Partners and Haebler Capital, at a price of $10.45 per share,
for gross proceeds of $11.0 million. We had previously sold 956,938 shares of
our series D stock to Ford Motor Company for gross proceeds of $10.0 million.

CORPORATE INFORMATION

Our principal executive office is located at 725 Concord Avenue, Cambridge,
Massachusetts 02138 and our telephone number is (617) 497-6300. Our website
address is www.eroom.com. Information on our website is not part of this
prospectus.
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THE OFFERING

Common stock offered by eRoom
Technology........................ shares

Common stock to be outstanding after
the offering........................ shares

Use of proceeds..................... For working capital and other general
corporate purposes, including sales and
marketing expenses, research and
development expenses and capital
expenditures. See "Use of Proceeds."

Proposed Nasdaq National Market
Symbol............................ ERMT

The number of shares of our common stock to be outstanding immediately
after the offering is based on the number of shares outstanding at August 31,
2000. This number excludes 2,878,279 shares of our common stock issuable upon
exercise of outstanding options at August 31, 2000 at an average exercise price
of $1.68 per share, and an additional 3,461,566 shares of our common stock
reserved for issuance pursuant to future stock option grants, awards and
purchases under our equity compensation plans at August 31, 2000.
-------------------------

Except where we state otherwise, the information we present in this
prospectus reflects:

- the assumed conversion of our outstanding preferred stock into common
stock upon completion of this offering;

- amendments to our certificate of incorporation and by-laws effective upon
completion of this offering; and

- no exercise of the underwriters' option to purchase additional shares in
the offering.
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<PAGE> 8

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

The following summary consolidated financial data is derived from our
consolidated financial statements included at the back of this prospectus. You
should also read "Use of Proceeds" and "Capitalization." The pro forma
information gives effect to the assumed conversion of all outstanding shares of
series A, series B, series B-1 and series C redeemable convertible preferred
stock and 956,938 shares of our series D redeemable convertible preferred stock
sold in April 2000 into an aggregate of 11,859,921 shares of common stock. The
pro forma as adjusted consolidated balance sheet data also reflects our sale of
shares of common stock at an assumed initial public offering
price of $ per share, after deducting the underwriting discounts and
commissions and estimated offering expenses. None of the data reflects the sale
of 1,052,633 shares of our series D redeemable convertible preferred stock for
$10.45 per share in July 2000.

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------- ------------------
1997 1998 1999 1999 2000
------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Total revenue.......................... $ 10 $ 826 $ 3,588 $ 1,274 $ 4,990
Loss from operations................... (4,177) (6,499) (10,129) (4,478) (14,503)
Net loss............................... (4,037) (6,298) (9,842) (4,429) (14,116)
Basic and diluted net loss per share... $ (3.63) $ (3.60) $ (3.89) $ (1.92) $ (3.52)
Basic and diluted weighted average
common shares outstanding............ 1,112 1,749 2,531 2,302 4,012
Pro forma basic and diluted net loss
per share............................ $ (0.84) $ (0.74)
Pro forma basic and diluted weighted
average common shares outstanding.... 11,753 18,980
</TABLE>

<TABLE>
<CAPTION>
JUNE 30, 2000
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PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments.... $ 15,417 $ 15,417
Working capital...................................... 8,355 8,355
Total assets......................................... 24,871 24,871
Redeemable convertible preferred stock............... 39,302 --
Total stockholders' equity (deficit)................. (32,103) 7,199
</TABLE>

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RISK FACTORS

Any investment in shares of 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 to buy our common stock. If any of the following risks actually occur,
our business, revenue, results of operations and financial condition would
likely suffer. In these circumstances, 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 LIMITED OPERATING HISTORY MAKES IT DIFFICULT FOR YOU TO EVALUATE OUR
BUSINESS AND OUR PROSPECTS.

We have a limited operating history upon which you can evaluate our
business. We were formed in July 1996, shipped our first product in October 1997
and recognized our first revenue in November 1997. As a result, we will
encounter the challenges, risks, difficulties and uncertainties frequently
encountered by early stage companies using new and unproven business models in
new and rapidly evolving markets. Some of these challenges relate to our ability
to:

- expand our customer base;

- increase licenses of our software products to existing customers;

- commercially launch eRoom.net, our hosted, subscription-based service for
our customers who want to outsource their collaboration needs;

- adapt to meet changes in our markets, customer demands and competitive
and regulatory developments; and

- continue to update our technology to enhance the features and
functionality of our software products and services to address the
collaboration capabilities our customers require in their business
processes.

We cannot be certain that our business strategy will be successful or that
we will successfully address these and other challenges, risks and
uncertainties.

WE HAVE A HISTORY OF LOSSES, AND WE EXPECT TO CONTINUE TO INCUR SUBSTANTIAL NET
LOSSES IN THE FUTURE.

Since inception, we have incurred significant losses. We incurred net
losses of $9.8 million for 1999 and $14.1 million for the six months ended June
30, 2000. As of June 30, 2000, we had an accumulated deficit of $35.3 million.
Since inception, our operating and investing activities have used more cash than
they have generated. We expect operating losses and negative cash flow to
continue for the foreseeable future. Our losses may increase from current levels
because we expect to continue to incur significant costs and expenses related
to:

- product development;

- new product and services offerings, including the anticipated commercial
launch of our eRoom.net hosted service offering;

- hiring of additional sales, marketing and service personnel to accelerate
the adoption of our products and services within existing customer
organizations and with new customers;

- testing our products within specific customer information technology
infrastructures;
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- eRoom brand development and promotion; and

- expanding our facilities.

In the future we may not achieve sufficient revenue to become profitable.
If we do achieve profitability, we cannot assure you that we will be able to
sustain or increase profitability on a quarterly or annual basis in the future.

WE EXPECT TO DEPEND ON SALES OF OUR eROOM PRODUCT FOR SUBSTANTIALLY ALL OF OUR
REVENUE FOR THE FORESEEABLE FUTURE.

Our eRoom software product and related maintenance and support services
have accounted for all of our revenue to date. We anticipate that revenue from
eRoom and related maintenance and support services will continue to constitute
all of our revenue for the foreseeable future. Consequently, any decline in the
demand for our product, or its failure to achieve broad market acceptance, would
seriously harm our business.

THE UNPREDICTABILITY OF OUR QUARTERLY REVENUE AND OPERATING RESULTS MAY
ADVERSELY AFFECT THE TRADING PRICE OF OUR COMMON STOCK.

Our quarterly revenue and operating results have varied significantly in
the past and are likely to fluctuate in the future, making it difficult to
predict our future performance. These quarterly variations result from a number
of factors, many of which are outside of our control. We do not believe that
period-to-period comparisons of our revenue and results of operations are
necessarily meaningful and you should not rely upon these comparisons as
indicators of our future performance.

Factors that may cause our revenue or results of operations to fluctuate
include:

- demand for our products and services;

- the timing of sales of our products and services, particularly
enterprise-wide sales;

- unexpected delays in introducing new products, product enhancements and
services, including version 5.0 of our eRoom product and our eRoom.net
service offering;

- increased expenses, whether related to selling and marketing, product
development or administration;

- changes in the evolving market for business collaboration solutions;

- the mix of revenue derived from licenses of eRoom and revenue derived
from eRoom.net;

- the mix of our software product license revenue and renewal maintenance
and support revenue;

- the mix of domestic and international sales; and

- costs related to possible acquisitions of technologies or businesses.

The difficulty in predicting our future performance will likely cause our
revenue and results of operations to fall below the expectations of securities
analysts or investors in some future quarter or quarters. Our failure to meet
these expectations would likely cause the market price of our common stock to
decline.

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THE MARKET FOR BUSINESS COLLABORATION SOFTWARE SOLUTIONS IS NEW, RAPIDLY
EVOLVING AND DEPENDS ON ADOPTION OF INTERNET SOLUTIONS BY COMPANIES. THEREFORE,
THE DEVELOPMENT OF A MARKET FOR OUR PRODUCTS AND SERVICES IS UNCERTAIN AND OUR
BUSINESS WILL SUFFER IF COMPANIES DO NOT ACCEPT BUSINESS COLLABORATION
SOLUTIONS.

The market for business collaboration software solutions like our products
and services is new and rapidly evolving. If the market for business
collaboration solutions does not grow at the rate we expect, our future revenue
growth will be limited. As is typical for new and rapidly evolving industries,
customer demand for recently introduced business collaboration products and
services is highly uncertain. In addition, business collaboration over the
Internet in general is a new and emerging business practice that remains largely
untested in the marketplace. Growth in the demand for our products and services
depends on the adoption of Internet solutions by companies in general, which
requires the acceptance of a new way of conducting business. Our business would
suffer substantially if companies do not adopt business collaboration solutions
or perceive them to be ineffective.

WE DEPEND TO A LARGE DEGREE ON ADDITIONAL SALES TO OUR EXISTING CUSTOMERS.

Customers typically place limited initial orders that allow them to
evaluate our eRoom digital workplace on an individual project basis. Our success
will depend to a large degree on our ability to make significant follow-on sales
to our existing customers. We also seek to encourage our customers to adopt our
product on an enterprise-wide basis. Enterprise-wide purchases typically require
a commitment to eRoom as an organization's collaboration solution, additional
approvals and significant capital expenditures. We cannot be sure that initial
sales of our eRoom solution will lead to follow-on sales or that our customers
will adopt our solution on an enterprise-wide basis.

OUR LONG SALES CYCLE FOR ENTERPRISE-WIDE SALES MAY MAKE IT DIFFICULT TO PREDICT
OUR QUARTERLY OPERATING RESULTS.

Recently, some of our customers have decided to adopt our solution as a
standard in their organizations or for large-scale deployment. Our long sales
cycle for these large-scale deployments makes it difficult to predict when these
sales may occur, and we may not be able to sustain these sales on a predictable
basis. The sales cycle for sales to companies that standardize on our eRoom
solution is generally much longer than our other sales and typically lasts
between six and twelve months.

We have a long sales cycle for these enterprise sales because:

- our sales force generally needs to explain and demonstrate the benefits
of a large-scale deployment of our solution to potential and existing
customers prior to sale;

- our service personnel typically spend a significant amount of time
assisting potential customers in their testing and evaluation of our
solution;

- our customers are typically medium and larger-size companies that
carefully research their information technology needs and the many
potential solutions prior to making capital expenditures for software
infrastructure; and

- before making a purchase, our potential customers usually must get
approvals from various levels of decision makers within their
organizations, and this process can be lengthy.

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Our long sales cycle for these large-scale deployment sales may make it
difficult to predict the quarter in which sales may occur. Delays in sales could
cause significant variability in our revenue and operating results for any
particular period.

IF OUR PRODUCTS CANNOT SCALE TO HANDLE AND SUPPORT EROOM DIGITAL WORKPLACES
DEPLOYED ON AN ENTERPRISE-WIDE BASIS BY OUR CUSTOMERS AND INTEGRATE WITH THEIR
EXISTING INFORMATION TECHNOLOGY INFRASTRUCTURE, OUR BUSINESS WILL LIKELY BE
SIGNIFICANTLY NEGATIVELY EFFECTED.

We have designed the eRoom solution to handle many concurrent users when
deployed throughout an enterprise. eRoom, however, is unproven as a solution for
large-scale deployments. We have only recently begun to deploy large-scale
implementations of our software applications, none of which has been in
operation at any customer site for any significant period of time. If eRoom does
not perform adequately in large-scale implementations, we may lose customer
sales, which would result in decreased revenue.

In addition, we depend on our customers to ensure that their technology
infrastructures, including internal and third-party server computers, can
support the implementation of our product throughout their organizations. If
customers experience technical difficulties, capacity constraints,
interoperability problems or unanticipated disruptions, our customers and
potential customers will likely not seek to adopt our eRoom solution on a
large-scale basis and our business will suffer materially.

Further, our solution must integrate with many existing computer systems
and software programs used by our customers. This integration can be complex,
time-consuming and expensive, and can cause delays in the deployment of our
products. Many of our customers will be facing these integration issues for the
first time in the context of collaborating with supply chain partners. Customers
could become dissatisfied with our products if implementations prove to be
difficult, costly or time-consuming.

THE GROWTH OF OUR REVENUE WILL SUFFER IF WE DO NOT INCREASE THE NUMBER OF OUR
SALES PERSONNEL.

Our ability to generate revenue through licenses of our product would be
adversely affected if we do not develop and maintain a productive sales force.
As of June 30, 2000, our direct sales force consisted of only 30 members, many
of whom have recently joined us. We need to increase the size of our sales force
to accelerate our revenue growth. We cannot assure you that we will be
successful in attracting and retaining additional sales personnel due to the
intense competition for software salespersons. Typically, new sales personnel
require six to twelve months to become productive.

THE COMMERCIAL LAUNCH OF OUR eROOM.NET SERVICE OFFERING MAY NOT OCCUR OR MAY NOT
BE SUCCESSFUL; AND, IF SUCCESSFUL, MAY DIVERT REVENUE FROM OUR EXISTING PRODUCT
LICENSE BUSINESS.

Within the next two quarters, we intend to commercially launch eRoom.net, a
solution for our customers who want to outsource the hosting of their eRoom
digital workplaces. This offering is currently being tested by customers and is
under continued development. Any delay in launching eRoom.net commercially may
have a negative effect on our revenue and results of operations. In addition,
even if we launch it commercially, our customers may not choose to use eRoom.net
as their business collaboration solution for a variety of reasons, including:

- the actual or perceived reduction in security protections of a solution
hosted on a third-party server;

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- the actual or perceived reduction in control over the operation of their
digital workplaces and their contents, and the possible reluctance to be
dependent on a third party to host confidential information and important
infrastructure and to perform basic support and other functions; and

- the possible inability of eRoom.net to be able to support many users in
an enterprise-wide environment.

Although we expect to derive a significant portion of our future revenue
from our eRoom.net subscription offering, we have not yet commercially
introduced it and we do not have a proven pricing, expense and revenue model for
it. eRoom.net may not be commercially viable if our pricing, expense and revenue
model is not acceptable to our customers. This would seriously harm our
business, particularly if the failure of eRoom.net to achieve market acceptance
negatively affects sales of our other products and services. In addition, if our
customers adopt the eRoom.net offering, we may experience a decline in the
growth of our existing product license business.

IF eROOM.NET IS NOT ABLE TO BE DEPLOYED ON A LARGE-SCALE BASIS, IT WILL LIKELY
HAVE A SIGNIFICANT NEGATIVE EFFECT ON OUR BUSINESS.

eRoom.net will require us to support our customers' digital workplaces on
server computers maintained by third parties. The performance of these server
computers will be critical to our business and reputation and to our ability to
host digital workplaces for our eRoom.net customers. While we believe that the
technology infrastructure of our third-party vendors is capable of handling
anticipated demand for eRoom.net, we cannot be sure that they will, in fact,
have the system capacity to support enterprise-wide uses of eRoom.net. If
third-party server computers cannot cope with increased demand or fail to
perform, we could experience:

- unanticipated disruptions in the eRoom.net offering;

- slower response time; or

- decreased customer satisfaction.

If the number of users of our eRoom.net offering increases substantially,
we will need to significantly expand the number of server computers that host
eRoom.net and develop relationships with additional third-party providers. We do
not know whether we will be able to accurately project the rate or timing of
these increases, or expand our vendor relationships to accommodate these
increases in a timely manner.

THE GROWTH OF OUR REVENUE WILL SUFFER IF WE DO NOT INCREASE OUR INDIRECT
DISTRIBUTION CHANNELS FOR OUR PRODUCT.

To be successful, we must expand our relationships with systems integrators
and resellers. We currently have relationships with domestic and international
systems integrators and resellers that market and resell our eRoom software as a
stand-alone product or integrated into a larger solution. We plan to increase
our indirect selling efforts by building relationships with providers of
complementary products and services, including independent software vendors and
business-to-business industry-specific portals. We cannot assure you that will
we be able to enter into additional relationships to support the sale of our
product. In addition, our existing or future business partners may choose to
devote greater resources to marketing and supporting competitive products. Our
inability to increase our number of indirect partners may slow our revenue
growth.

9
<PAGE> 14

OUR EFFORTS TO EXPAND SALES OF OUR eROOM PRODUCT TO OTHER MARKETS MAY NOT
SUCCEED.

We have historically focused our marketing efforts primarily on companies
in the consulting and high technology markets. We intend to increase our
marketing efforts to customers in additional markets. We have little experience
marketing to companies in these additional markets. Our inability to achieve
acceptance of our product in these industries could slow our revenue growth and
adversely affect our results of operations.

WE MAY NOT BE ABLE TO LEVERAGE CUSTOMER REFERENCES TO EXPAND OUR CUSTOMER BASE.

Our failure to expand our customer base through customer references will
negatively affect our results of operations. If our customers adopt eRoom
throughout their organizations, we believe they will introduce eRoom to their
customers, suppliers and other partners. We cannot be sure that our existing
customers will encourage members of their extended enterprises to use and adopt
eRoom due to security concerns or other reasons. While we direct our sales and
marketing efforts to these new users, we cannot be sure that they will adopt
eRoom as their own solution.

WE FACE SIGNIFICANT COMPETITION AND MAY NOT BE ABLE TO COMPETE EFFECTIVELY.

The business collaboration software market is new and rapidly evolving, and
is expected to become increasingly competitive as current competitors expand
their product offerings and new competitors enter the market. We compete against
a variety of software and services vendors with respect to different aspects of
our collaboration solution.

We currently face competition from:

- in-house development efforts by potential customers or partners; and

- developers of general purpose groupware, knowledge management and
document management software, including Documentum, the Lotus division of
IBM, Microsoft and OpenText, that offer collaborative capabilities as
part of their offerings.

In the future, we may face competition from companies that provide specific
collaborative functionality, including document sharing, conferencing, project
management and resource management. We also may face competition from developers
of industry-specific collaborative solutions, such as for the professional
services or manufacturing industries. We also may face competition from vendors
of supply chain, customer relationship management and product data management
applications that could expand their offerings to address the market for
flexible collaboration solutions.

Current and potential competitors have established or may establish
cooperative relationships among themselves or with third parties to increase the
functionality of their products. Accordingly, it is possible that new
competitors or alliances among competitors may emerge and rapidly acquire
significant market share. We may not be able to maintain our competitive
position against current and potential competitors, especially those that have
significantly greater financial, marketing, service, technical and other
resources than we do, and therefore may be able to respond more quickly to
changing customer requirements, evolving technologies or business opportunities.
In addition, if companies, such as Microsoft, decide to bundle collaborative
functionality comparable to our eRoom solution into their product offerings,
demand for our offerings might be substantially reduced and our business would
likely be significantly harmed.

In addition, the entry of new competitors or alliances into our market
could reduce our sales, require us to lower our prices, or both. Many of these
factors are outside our control, and there can

10
<PAGE> 15

be no assurance that we can maintain or enhance our competitive position against
current and future competitors.

IF WE ARE NOT SUCCESSFUL IN HIRING AND RETAINING SKILLED PERSONNEL, OUR BUSINESS
WILL SUFFER.

Qualified personnel are in great demand throughout the software and
Internet industries. Our success depends in large part upon our ability to
attract, train, motivate and retain highly skilled employees, particularly
software engineers, sales and marketing personnel and other senior personnel. As
of June 30, 2000, we had 173 employees. We intend to increase our employee
headcount significantly over the next twelve months, particularly software
engineers and sales, marketing and service personnel. If we fail to attract and
retain the highly trained personnel that are integral to our direct sales and
product development teams, the rate at which we can generate sales and develop
new products or product enhancements may be limited.

WE ARE DEPENDENT ON THE SERVICES AND SKILLS OF OUR CHIEF EXECUTIVE OFFICER,
CHIEF TECHNOLOGY OFFICER, CHIEF FINANCIAL OFFICER AND SENIOR VICE PRESIDENT OF
FIELD OPERATIONS, AND IF WE LOSE THE SERVICES OF ANY OF THOSE EMPLOYEES OUR
BUSINESS IS LIKELY TO SUFFER.

Our future success depends to a significant degree on the skill, experience
and efforts of Jeffrey R. Beir, our chief executive officer, R. Pito Salas, our
chief technology officer, Robert L. Lentz, our chief financial officer and Ralph
Breslauer, our senior vice president of field operations. The loss of any of
these members of our management team may have a negative effect on our business.

OUR RAPID GROWTH IS PLACING A SIGNIFICANT STRAIN ON OUR RESOURCES, AND OUR
BUSINESS WILL SUFFER IF WE FAIL TO MANAGE OUR GROWTH PROPERLY.

We have rapidly expanded our revenue and operations recently, which has
placed a significant strain on our resources. From July 1, 1999 to June 30,
2000, the number of our employees increased from 66 to 173. The rapid rate of
our recent growth has made management of our operations more difficult. We
expect our anticipated growth will further strain our management, operational
and financial resources. To manage future growth effectively, we must:

- improve existing and implement new management, information, operational
and financial systems, procedures and controls;

- integrate senior management personnel;

- hire, train, motivate and retain qualified technical and sales personnel;
and

- manage relationships with our customers, suppliers and other business
partners.

We may not be able to install and implement additional management,
information, operational and financial systems, procedures and controls in an
efficient and timely manner to support our future operations. The difficulties
associated with installing and implementing these new systems, procedures and
controls may place a significant burden on our management and our internal
resources. Any delay in the implementation of, or any disruption in the
transition to, new or enhanced systems, procedures or controls could adversely
affect our ability to accurately forecast sales demand, manage our partner
relationships and record and report financial and management information on a
timely and accurate basis.

11
<PAGE> 16

Integrating new senior hires is also important to our future success. Our
senior vice president of field operations, Ralph Breslauer, joined us in July
2000 and has not previously worked with other members of our senior management
team.

IF WE DO NOT ENHANCE OUR EROOM SOLUTION AND INTRODUCE NEW PRODUCTS, WE MAY NOT
BE SUCCESSFUL.

If we are unable to enhance our products and services and introduce new
ones on a timely basis, we may lose market share and customers or experience
difficulty obtaining new customers. We will need to develop or acquire
significant enhancements to our existing technology. Enhancing and introducing
new technology into our products and services will involve significant expenses
as well as numerous technical challenges and substantial personnel resources,
and may take many months to complete. We cannot assure you that we will be
successful at enhancing our products and services or introducing new ones on a
timely basis. In addition, we cannot assure you that, once completed, any
additional features will function as expected or that they will achieve market
acceptance.

IF CUSTOMERS EXPERIENCE SECURITY BREACHES WHILE USING OUR PRODUCT, OUR SOLUTION
MAY BE PERCEIVED BY POTENTIAL CUSTOMERS AS NOT SECURE AND OUR BUSINESS MAY
SUFFER.

Our customers use our eRoom digital workplace for their important business
projects. Users collaborate and exchange confidential and proprietary
information in the eRoom workplace. Although we have included security features
and options in our product, customers may not choose to use them and these
features may not be adequate or effective in preventing unauthorized third
parties from accessing our customers' digital workplaces over the Internet. In
addition, the Internet, as a shared and open access system linking computers
around the world, is inherently less secure than internal information systems
with protections from outsiders. If the security of our customers' eRoom
workplaces is breached by unauthorized third parties, our customers' information
will not be protected and may be damaged, lost or altered. In this case, our
customers may choose to stop using our product and our solution may be perceived
by potential customers not to be secure. As a result, our business may suffer.

OUR BUSINESS COULD BE ADVERSELY AFFECTED IF OUR PRODUCTS FAIL TO PERFORM
PROPERLY.

Software products as complex as ours may contain undetected errors, or
bugs, which result in product failures, or otherwise fail to perform in
accordance with customer expectations. Our products may be particularly
susceptible to bugs or performance degradation because of the emerging nature of
Internet technologies and the stress that may be placed on our products by the
full deployment of our products over the Internet to thousands of users. Product
performance problems could result in loss of or delay in revenue, loss of market
share, failure to achieve market acceptance, diversion of development resources
or injury to our reputation. From time to time we have identified errors in
versions of our eRoom product after commercial introduction. We have not
experienced any material product liability claims to date. However, a product
liability claim brought against us, even if not successful, would likely be
time-consuming and costly.

WE FACE RISKS ASSOCIATED WITH OUR INTERNATIONAL OPERATIONS AND PLANS FOR
EXPANSION.

We intend to expand our international operations and sales and marketing
efforts. We have, however, limited experience in international markets. We
cannot be sure that our international

12
<PAGE> 17

expansion will be successful. In addition, our international operations are
subject to inherent risks, including:

- the need to comply with the laws and regulations of different countries;

- difficulties in enforcing contractual obligations and intellectual
property rights in some countries;

- difficulties and costs of staffing and managing foreign operations;

- fluctuations in currency exchange rates and the imposition of exchange or
price controls or other restrictions on the conversion of foreign
currencies;

- difficulties in collecting international accounts receivable and the
existence of potentially longer payment cycles;

- language and cultural differences;

- potentially adverse taxation issues; and

- local economic conditions in foreign markets.

WE ARE DEPENDENT ON A SINGLE THIRD-PARTY PROVIDER TO HOST OUR INTERNAL SYSTEMS,
TRIAL PRODUCTS AND, WHEN LAUNCHED, eRoom.net.

Currently, we use a third-party provider to host our internal
infrastructure and systems, trial versions of our eRoom product and, when
launched, eRoom.net, our hosted offering, at an offsite data center. Our
third-party provider maintains a back-up site and generally backs-up all data on
an hourly basis. We depend on this single-site infrastructure and any disruption
to this infrastructure resulting from a natural disaster or other event could
result in an interruption in use of our product and our services.

Our systems and operations are vulnerable to damage or interruption from
human error, natural disasters, power loss, telecommunications failures,
break-ins, sabotage, computer viruses, intentional acts of vandalism and similar
events. We do not have a formal disaster recovery plan or alternative provider
of hosting services. In addition, we do not carry sufficient business
interruption insurance to compensate us for losses that could occur. In the past
we have experienced temporary outages. These outages were due to temporary
malfunctions. To date, these outages have resulted in our servers being
temporarily unavailable to users for periods of several minutes to several
hours. Any systems failure that causes an interruption in service or a decrease
in responsiveness of our Internet-based services, if sustained or repeated,
could harm our reputation.

LOSS OF ACCESS TO THIRD-PARTY TECHNOLOGY USED IN OUR PRODUCTS COULD DELAY
DEVELOPMENT OF NEW PRODUCTS OR PRODUCT ENHANCEMENTS.

We incorporate into our products technology licensed from third parties.
For example, we have designed our eRoom product to include Sybase's Adaptive
Server Anywhere database. The loss of access to this technology could result in
delays in the development and introduction of new products or enhancements to
existing products, until equivalent or replacement technology could be accessed,
if available, or developed internally, if feasible. These delays could harm our
business, revenue, operating results and financial condition. It is possible
that technology from others will not be available to us on commercially
reasonable terms, if at all.

13
<PAGE> 18

WE DEPEND ON THE INTERNET AND THE CONTINUED DEVELOPMENT AND MAINTENANCE OF ITS
INFRASTRUCTURE.

The Internet has experienced, and is expected to continue to experience,
significant growth in the number of users and amount of traffic. Our success
will depend upon the development and maintenance of the Internet's
infrastructure to cope with this increased number of users and traffic. This
will require a reliable network backbone with the necessary speed, data capacity
and security and the timely development of complementary products, including
high-speed modems, for providing reliable Internet access and services.

The Internet has experienced a variety of outages and other delays as a
result of damage to portions of its infrastructure and could face outages and
delays in the future. Outages and delays are likely to affect the level of
Internet usage generally. In addition, the Internet could lose its viability due
to delays in the development or adoption of new standards to handle increased
levels of activity or due to increased government regulation or taxation. The
adoption of new standards or government regulation may, however, require us to
incur substantial compliance costs.

WE HAVE NO EXPERIENCE ACQUIRING COMPANIES, AND ANY ACQUISITIONS WE UNDERTAKE
COULD LIMIT OUR ABILITY TO MAINTAIN OUR BUSINESS, RESULT IN ADVERSE ACCOUNTING
TREATMENT AND BE DIFFICULT TO INTEGRATE INTO OUR BUSINESS.

To remain competitive, we may acquire or invest in additional businesses,
products or technologies. We have no experience in acquiring businesses or
complementary technologies. Acquisitions, in general, involve numerous risks,
including:

- diversion of our management's attention;

- amortization of substantial goodwill, adversely affecting our reported
results of operations;

- inability to retain the management, key personnel and other employees of
the acquired business;

- inability to assimilate the operations, products, technologies and
information systems of the acquired business with our business; and

- inability to retain the acquired company's customers, suppliers and other
partners.

IF WE ARE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY, WE COULD BE AT A
COMPETITIVE DISADVANTAGE.

We regard copyrights, service marks, trademarks, trade secrets, patents and
similar intellectual property as important to our business. We believe that our
success depends, in large part, on protecting our intellectual property in the
United States and in foreign countries by:

- preserving our trade secrets and trademarks;

- operating without infringing the patents and intellectual property rights
of others; and

- requiring that each employee, consultant or advisor sign a
confidentiality agreement to prevent the unauthorized use or disclosure
of confidential information.

The protective steps we have taken may be inadequate to deter misappropriation
of our intellectual property and proprietary information. A third party could
obtain our proprietary information or develop products or technology competitive
with ours. We may be unable to detect the unauthorized use of, or take
appropriate steps to enforce, our intellectual property rights. Failure to
adequately protect our intellectual property could harm or even destroy our
brands and impair our ability to

14
<PAGE> 19

compete effectively. Further, enforcing our intellectual property rights could
result in the expenditure of significant financial and managerial resources and
may not prove successful.

We have applied for three U.S. patents. With respect to one of these
applications, we have received a notice of allowability. We cannot assure you
that the other two applications will be approved, that any patents that may
issue from any of the three applications will protect our intellectual property
or that any issued patents will not be challenged by third parties. Furthermore,
other parties may independently develop similar or competing technologies or
design around any patents that may be issued. It is possible that any patent
issued to us may not provide any competitive advantages, that we may not develop
future proprietary products or technologies that are patentable, and that the
patents of others may seriously limit our ability to do business. In this
regard, we have not performed any comprehensive analysis of patents of others
that may limit our ability to do business.

IF THIRD PARTIES CLAIM THAT WE INFRINGE THEIR INTELLECTUAL PROPERTY RIGHTS, WE
MAY BE REQUIRED TO PAY DAMAGES OR REDESIGN OUR PRODUCT. IN THESE CASES, OUR
BUSINESS MAY BE HARMED.

If others claim, or if we were to discover, that we violated third-party
intellectual property rights, there can be no assurance that we would be able to
re-engineer our product or to obtain a license on commercially reasonable terms,
if at all, to continue offering our product. We do not conduct comprehensive
patent searches to determine whether the technology used in our eRoom solution
infringes patents held by third parties. We cannot be sure that our business
activities will not infringe upon the proprietary rights of others, or that
other parties will not assert infringement claims against us. Any claims and any
resulting litigation, should they occur, could subject us to significant
liability for damages and could result in invalidation of our intellectual
property rights. Even if we eventually won litigation concerning our
intellectual property, it could be time-consuming and expensive to defend, and
could result in the diversion of our management's time and attention.

IF WE DO NOT GENERATE CASH SUFFICIENT TO FUND OUR OPERATIONS, WE MAY NEED
ADDITIONAL FINANCING TO CONTINUE OUR OPERATIONS OR OUR GROWTH MAY BE LIMITED.

We require substantial working capital to fund the anticipated growth of
our business. Since inception, we have experienced negative cash flow from
operations and expect to experience significant negative cash flow from
operations for the foreseeable future. We believe that existing cash and cash
equivalents, together with the net proceeds of this offering, will be sufficient
to meet our anticipated cash needs for working capital and capital expenditures
for planned expansion for at least the next 12 months. However, we may need to
raise additional funds in the next 12 months or in the future to support more
rapid expansion of our sales and service personnel, develop new or enhanced
products or services, respond to competitive pressures, acquire complementary
businesses or technologies or respond to unanticipated requirements. If we raise
additional funds through the issuance of equity or debt securities, these
securities may have rights senior to those of our stockholders, and our
stockholders may experience additional dilution. We cannot be certain that
additional financing will be available to us on favorable terms when required or
at all.

RISKS RELATED TO THIS OFFERING AND OWNERSHIP OF OUR COMMON STOCK

THE PRICE OF OUR COMMON STOCK AFTER THIS OFFERING MAY BE LOWER THAN THE PRICE
YOU PAY.

The price of our common stock that will prevail in the market after this
offering may be higher or lower than the price you pay. After this offering, an
active trading market in our stock might not

15
<PAGE> 20

develop or continue. If you purchase shares of our common stock in this
offering, the price you will pay was not established in a competitive market.
Rather, you will pay a price that we negotiated with the representatives of the
underwriters.

OUR COMMON STOCK IS PARTICULARLY SUBJECT TO VOLATILITY BECAUSE OF THE INDUSTRY
THAT WE ARE IN.

The stock market in general has recently experienced extreme price and
volume fluctuations. In addition, the market prices of securities of technology
companies, particularly Internet-related companies, have been extremely
volatile, and have experienced fluctuations that have often been unrelated or
disproportionate to operating performance. These broad market fluctuations could
adversely affect the market price of our common stock.

OUR STOCK PRICE COULD FALL AS A RESULT OF FUTURE SALES OF OUR STOCK, WHICH COULD
LIMIT OUR ABILITY TO RAISE CAPITAL AND UNDERTAKE ACQUISITIONS.

Sales of a substantial number of shares of common stock after the offering
could adversely affect the market price of our common stock. Sales could
potentially introduce a large number of sellers of our common stock into a
market in which the common stock price is already volatile, thus driving our
common stock price down. In addition, the sale of these shares could impair our
ability to raise capital through the sale of additional equity securities and
undertake acquisitions through the issuance of additional equity securities.

OUR EXECUTIVE OFFICERS AND DIRECTORS WILL EXERCISE SIGNIFICANT CONTROL OVER US,
WHICH COULD DELAY OR PREVENT SOMEONE FROM ACQUIRING OR MERGING WITH US.

After this offering, our executive officers, directors and entities
affiliated with them will control approximately % of our common stock. As a
result, these stockholders, acting together, would be able to significantly
influence all matters requiring approval by our stockholders, including the
election of directors and the approval of mergers or other business combination
transactions. This concentration of ownership may also delay, prevent or deter a
change in our control, may make some transactions more difficult or impossible
to complete without the support of these stockholders, and might reduce the
market price of our common stock.

ANTI-TAKEOVER PROVISIONS IN OUR CHARTER DOCUMENTS AND DELAWARE LAW COULD PREVENT
OR DELAY A CHANGE IN CONTROL OF OUR COMPANY.

Our Amended and Restated Certificate of Incorporation and Amended and
Restated By-laws may discourage, delay or prevent a merger or acquisition that a
stockholder may consider favorable by:

- authorizing the issuance of "blank check" preferred stock;

- prohibiting cumulative voting in the election of directors;

- limiting the persons who may call special meetings of stockholders;

- prohibiting stockholder action by written consent; and

- establishing advance notice requirements for nominations for election to
the board of directors or for proposing matters that can be acted on at
stockholder meetings.

Some provisions of Delaware law may also discourage, delay or prevent
someone from acquiring or merging with us. For a detailed description of the
anti-takeover provisions in our charter

16
<PAGE> 21

documents, please turn to the sections titled "Description of Capital
Stock -- Delaware Anti-Takeover Provisions" and "-- Charter and By-laws
Anti-Takeover Provisions."

WE HAVE BROAD DISCRETION OVER THE USE OF PROCEEDS FROM THIS OFFERING AND WE HAVE
NOT IDENTIFIED THE SPECIFIC USES OF THESE FUNDS.

We currently intend to use the proceeds from this offering for general
corporate purposes, including working capital. We may also use a portion of the
proceeds to expand our business through strategic alliances and acquisitions. We
have not yet determined the amount of net proceeds to be used for any specific
purpose. As a result, you will not have an opportunity to evaluate the economic,
financial or other information on which we base our decisions on how to use the
proceeds from this offering. We cannot assure you that the proceeds will be
invested to yield a favorable return.

INVESTORS WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION IN THE BOOK VALUE
OF THEIR INVESTMENT.

If you purchase shares of our common stock in this offering, you will
experience immediate and substantial dilution, in that the price you pay will be
substantially greater than the net tangible book value per share of the shares
you acquire. This dilution is due in large part to the fact that our earlier
investors paid substantially less than the initial public offering price when
they purchased their shares of common stock. You will experience additional
dilution upon the exercise of outstanding stock options to purchase common
stock.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Some of the statements under "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business" and elsewhere in this prospectus constitute
forward-looking statements. These statements relate to future events or our
future financial performance, and are identified by terminology including "may,"
"will," "should," "expects," "scheduled," "plans," "intends," "anticipates,"
"believes," "estimates," "potential," or "continue" or the negative of these
terms or other comparable terminology. These statements are only predictions.
Actual events or results may differ materially. In evaluating these statements,
you should specifically consider various factors, including the risks outlined
under "Risk Factors." These factors may cause our actual results to differ
materially from any forward-looking statement.

Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, neither we nor any other person
assumes responsibility for the accuracy and completeness of these statements. We
are under no duty to update any of the forward-looking statements after the date
of this prospectus to conform them to actual results.

17
<PAGE> 22

USE OF PROCEEDS

We estimate that the net proceeds to us from the sale of the common stock
in this offering will be $ million after deducting underwriting discounts and
commissions and estimated offering expenses and assuming an initial public
offering price of $ per share. If the underwriters' over-allotment option is
exercised in full, we estimate that the net proceeds will be $ million.

We intend to use the net proceeds from the offering for working capital and
other general corporate purposes, including sales and marketing expenses,
research and development expenses and capital expenditures. We may use a portion
of the net proceeds for acquisitions of businesses, products or technologies
complementary to our business. From time to time we evaluate possible
acquisitions, although we currently have no commitments or agreements to make
any acquisitions. We cannot assure you that we will make any acquisitions in the
future or that any acquisitions we do make will be successful. Pending the
foregoing uses, we intend to invest the net proceeds in U.S. government
securities and other short-term, investment-grade, interest-bearing instruments,
repurchase agreements or high-grade corporate notes.

DIVIDEND POLICY

Since January 1, 1998, we have not declared or paid cash dividends on our
capital stock. We currently intend to retain any future earnings to fund the
development and growth of our business and do not currently anticipate paying
any cash dividends. Future dividends, if any, will be determined by our board of
directors. In addition, the terms of our lines of credit with Fleet Bank
discussed elsewhere in this prospectus restrict our ability to pay cash
dividends on our capital stock.

18
<PAGE> 23

CAPITALIZATION

The following table sets forth our capitalization as of June 30, 2000 on an
actual, pro forma and pro forma as adjusted basis. The pro forma information
gives effect to the assumed conversion of all outstanding shares of series A,
series B, series B-1 and series C redeemable convertible preferred stock and
956,938 shares of our series D redeemable convertible preferred stock sold in
April 2000 into 11,859,921 shares of common stock upon completion of this
offering. The pro forma as adjusted information also reflects our sale of
shares of common stock at an assumed initial public offering
price of $ per share, after deducting the underwriting discounts and
commissions and estimated offering expenses.

The table below excludes:

- 3,459,691 shares of common stock reserved for issuance under our 1996
stock plan as of June 30, 2000, of which 2,487,940 shares were subject to
outstanding options; and

- the sale of 1,052,633 shares of our series D redeemable convertible
preferred stock for $10.45 per share in July 2000.

This table should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and our consolidated
financial statements and accompanying notes and other financial data included
elsewhere in this prospectus.

<TABLE>
<CAPTION>
JUNE 30, 2000
----------------------------------------
PRO
FORMA
PRO AS
ACTUAL FORMA ADJUSTED
-------- --------- -----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Cash, cash equivalents and short-term
investments...................................... $ 15,417 $ 15,417
======== ========
Redeemable convertible preferred stock; $0.01 par
value; 11,859,921 shares authorized, issued and
outstanding, actual; no shares authorized, issued
and outstanding, pro forma and pro forma as
adjusted......................................... $ 39,302 $ --
-------- --------
Stockholders' equity (deficit):
Preferred stock; $0.01 par value; no shares
authorized, issued and outstanding, actual and
pro forma; 15,000,000 shares authorized, no
shares issued and outstanding, pro forma as
adjusted...................................... -- --
Common stock; $0.01 par value; 60,000,000 shares
authorized, actual and pro forma and
95,000,000 shares authorized, pro forma as
adjusted; 4,754,845 shares issued and
outstanding, actual; 16,614,766 shares issued
and outstanding, pro forma; shares issued
and outstanding, pro forma as adjusted........ 48 166
Additional paid-in capital....................... 14,526 53,710
Deferred stock-based compensation................ (11,405) (11,405)
Accumulated deficit.............................. (35,272) (35,272)
-------- --------
Total stockholders' equity (deficit)........ (32,103) 7,199
-------- --------
Total capitalization........................ $ 7,199 $ 7,199
======== ========
</TABLE>

19
<PAGE> 24

DILUTION

Our pro forma net tangible book value as of June 30, 2000 was $7.2 million,
or $0.43 per share of common stock. Pro forma net tangible book value per share
represents the amount of total tangible assets less total liabilities divided by
16,614,766 shares of common stock after giving effect to the conversion of all
shares of redeemable convertible preferred stock outstanding at June 30, 2000
into common stock. After giving effect to the issuance and sale of the
shares of common stock currently being offered at an assumed initial
public offering price of $ per share, and after deducting underwriting
discounts and commissions and estimated offering expenses, the pro forma net
tangible book value as of June 30, 2000 would have been $ , or
$ per share. This represents an immediate increase in pro forma net
tangible book value of $ per share to existing stockholders, and an
immediate dilution of $ per share to new investors. The following table
illustrates this per share dilution:

<TABLE>
<S> <C> <C>
Assumed initial public offering price per share...... $
Pro forma net tangible book value per share at June
30, 2000........................................ $ 0.43
Increase in pro forma net tangible book value per
share attributable to new investors.............
------
Pro forma net tangible book value per share after
this offering......................................
--------
Dilution per share to new investors.................. $
========
</TABLE>

The following table summarizes, on a pro forma basis as of June 30, 2000,
after giving effect to the conversion of all shares of redeemable convertible
preferred stock outstanding as of June 30, 2000 into common stock, the
differences between the number of shares of common stock issued by us, the total
consideration paid and the average price per share paid by existing stockholders
and by the new investors purchasing shares in this offering at an assumed
initial public offering price of $ per share before deducting 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......... 16,614,766 % $ 39,984,450 % $ 2.41
New investors..........
---------- ----- ------------ -----
Total........... 100.0% $ 100.0%
========== ===== ============ =====
</TABLE>

If the underwriters exercise their option to purchase additional shares in
this offering, the pro forma net tangible book value per share after the
offering would be $ per share, the increase in pro forma net tangible
book value per share to existing stockholders would be $ per share and the
dilution to new investors would be $ per share.

The tables above assume no exercise of any stock options outstanding as of
June 30, 2000. At June 30, 2000, there were 2,487,940 shares issuable upon
exercise of options outstanding at a weighted average exercise price of $1.13
per share. To the extent these options had been exercised as of June 30, 2000,
pro forma net tangible book value per share after this offering would be
$ and dilution per share to new investors would be $ . In
addition, in September 2000, our board of directors approved the 2000 Stock
Option and Incentive Plan and the 2000 Employee Stock Purchase Plan. A total of
2,950,000 shares of common stock have been initially authorized for issuance
under these stock plans. In addition, options granted under our 1996 stock plan
prior to this offering that are subsequently returned to us because they did not
vest or were not timely exercised may be regranted. To the extent the new
options are exercised, new investors may experience further dilution. The tables
above do not reflect the sale of 1,052,633 shares of our series D redeemable
convertible preferred stock for $10.45 per share in July 2000.

20
<PAGE> 25

SELECTED CONSOLIDATED FINANCIAL DATA

You should read the selected consolidated financial data set forth on the
next page along with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and with our consolidated financial
statements and the related notes appearing elsewhere in this prospectus. The pro
forma per share amounts reflect the assumed conversion of all outstanding
redeemable convertible preferred stock into common stock. The consolidated
statement of operations data for the years ended December 31, 1997, 1998 and
1999 and the consolidated balance sheet data as of December 31, 1998 and 1999
are derived from the consolidated financial statements that have been audited by
PricewaterhouseCoopers LLP, independent accountants, and are included elsewhere
in this prospectus. The consolidated statement of operations data for the period
from inception through December 31, 1996 and the consolidated balance sheet data
as of December 31, 1996 and 1997 have been derived from the consolidated
financial statements that have been audited by PricewaterhouseCoopers LLP,
independent accountants, and are not included in this prospectus. The
consolidated statement of operations data for the six months ended June 30, 1999
and 2000 and the consolidated balance sheet data as of June 30, 2000 are derived
from unaudited interim consolidated financial statements included elsewhere in
this prospectus and, in the opinion of management, have been prepared on the
same basis as the audited consolidated financial statements and include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the results of operations and financial condition for such
periods. The historical results are not necessarily indicative of the operating
results to be expected in the future. Operating results for the six months ended
June 30, 2000 are not necessarily indicative of the results that may be expected
for any other period or the entire year ending December 31, 2000.

21
<PAGE> 26

<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(JUNE 17, 1996) SIX MONTHS ENDED
THROUGH YEAR ENDED DECEMBER 31, JUNE 30,
DECEMBER 31, ------------------------------ ----------------------
1996 1997 1998 1999 1999 2000
--------------- ------- ------- -------- ------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenue:
Product license................. $ -- $ 10 $ 814 $ 3,340 $ 1,215 $ 4,530
Services........................ -- -- 12 248 59 460
------- ------- ------- -------- ------- --------
Total revenue............... -- 10 826 3,588 1,274 4,990
------- ------- ------- -------- ------- --------
Operating expenses:
Cost of product license revenue,
exclusive of $0, $0, $0, $50,
$7 and $71, respectively,
reported below as stock-based
compensation.................. -- 28 257 620 222 827
Cost of services revenue,
exclusive of $0, $0, $0, $21,
$2 and $58, respectively,
reported below as stock-based
compensation.................. -- -- 26 189 45 386
Research and development,
exclusive of $0, $0, $7, $94,
$27 and $294, respectively,
reported below as stock-based
compensation.................. 566 2,015 2,351 3,010 1,439 4,072
Sales and marketing, exclusive
of $0, $0, $5, $228, $84 and
$524, respectively, reported
below as stock-based
compensation.................. 147 1,770 3,797 7,193 2,902 10,587
General and administrative,
exclusive of $0, $0, $10,
$182, $83 and $565,
respectively, reported below
as stock-based compensation... 106 374 872 2,130 941 2,109
Stock-based compensation
expense....................... -- -- 22 575 203 1,512
------- ------- ------- -------- ------- --------
Total operating expenses.... 819 4,187 7,325 13,717 5,752 19,493
------- ------- ------- -------- ------- --------
Loss from operations.............. (819) (4,177) (6,499) (10,129) (4,478) (14,503)
Interest income................... 54 162 210 288 49 387
Interest expense.................. (2) (22) (9) (1) -- --
------- ------- ------- -------- ------- --------
Net loss.......................... $ (767) $(4,037) $(6,298) $ (9,842) $(4,429) $(14,116)
======= ======= ======= ======== ======= ========
Basic and diluted net loss per
share........................... $ (2.15) $ (3.63) $ (3.60) $ (3.89) $ (1.92) $ (3.52)
======= ======= ======= ======== ======= ========
Shares used in computing basic and
diluted net loss per share...... 357 1,112 1,749 2,531 2,302 4,012
======= ======= ======= ======== ======= ========
Pro forma basic and diluted net
loss per share.................. $ (0.84) $ (0.74)
======== ========
Shares used in computing pro forma
basic and diluted net loss per
share........................... 11,753 18,980
======== ========
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------- JUNE 30,
1996 1997 1998 1999 2000
-------- ------- -------- -------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and short-term
investments.................................. $ 2,734 $ 5,531 $ 3,517 $ 13,094 $ 15,417
Working capital................................ 2,653 5,176 2,443 8,210 8,355
Total assets................................... 2,944 6,282 5,336 16,586 24,871
Deferred revenue............................... -- 151 1,787 5,253 13,931
Long-term debt, less current portion........... 114 37 -- -- --
Redeemable convertible preferred stock......... 3,500 10,265 13,765 29,302 39,302
Stockholders' deficit.......................... (774) (4,709) (10,982) (20,238) (32,103)
</TABLE>

22
<PAGE> 27

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

You should read the following discussion and analysis of our financial
condition and results of operations in conjunction with "Selected Consolidated
Financial Data" and our consolidated financial statements and notes thereto
appearing elsewhere in this prospectus. The following discussion and analysis
contains forward-looking statements that involve risks and uncertainties. Our
actual results may differ materially from those anticipated in these
forward-looking statements as a result of various factors, including, but not
limited to, those set forth below and elsewhere in this prospectus, particularly
under "Risk Factors."

OVERVIEW

We are a leading provider of Internet-based software applications and
services that enable organizations to collaborate with their extended enterprise
of employees, customers, suppliers and other business partners. We were
incorporated in June 1996 as Instinctive Technology, Inc. and in March 2000 we
changed our name to eRoom Technology, Inc. We commercially released our first
Internet business collaboration software product in October 1997 and released
the current version of our eRoom product in November 1999. In October 1997, we
began selling licenses for our eRoom software and related services, and we
currently offer them in the United States and, to a lesser extent, in Europe and
Asia. As of June 30, 2000, we had an installed base of over 350 customers in a
wide variety of industries.

We derive revenue from the following sources:

- licenses of our eRoom digital workplace software and related maintenance
contracts;

- additional maintenance contracts; and

- professional consulting services.

We recognize revenue in accordance with Statement of Position, or SOP, No.
97-2, Software Revenue Recognition, as amended by SOP No. 98-4, and Staff
Accounting Bulletin (SAB) No. 101, Revenue Recognition in Financial Statements.
We sell our software under perpetual license arrangements that are sold together
with a maintenance contract having a specified term, typically one year. Revenue
under these arrangements is recognized ratably as product license revenue over
the specified maintenance contract term beginning at the time the software is
delivered to the customer, provided that the fee is fixed or determinable,
evidence of the arrangement exists and collection is probable. Customers may
purchase additional maintenance contracts after the initial term at then
negotiated prices. Revenue from these contracts is recognized ratably as
services revenue over the length of the contract.

From time to time, customers also purchase professional consulting
services, which include best practices, training and implementation assistance.
When professional consulting services are sold with software licenses, the value
of services-related revenue, based upon vendor specific objective evidence, is
deferred until such time that services are delivered. Vendor specific evidence
is determined based on the price for which such services are sold separately.
Revenue from professional consulting service arrangements are recognized as
services revenue as the services are performed, provided that amounts due from
customers are fixed or determinable and collection is deemed probable by us.

Amounts collected or billed prior to satisfying the above revenue
recognition criteria are reflected as deferred revenue.

23
<PAGE> 28

Many of our customers initially purchase a license for users assigned to a
specific project or within a single department. Historically, we have been
successful at expanding eRoom usage within our existing customer organizations.
More recently, some of our existing and potential customers have decided to
adopt eRoom as a standard in their organizations or for large-scale deployment.
Our long sales cycle for these large-scale deployments makes it difficult to
predict when these sales may occur, and we may not be able to sustain such sales
on a predictable basis.

In addition to our product offerings, we provide, directly or through third
parties, a variety of services to our customers to enable them to rapidly
implement and deploy our solution throughout their organizations and to
integrate it with their existing infrastructures and business practices. In
order to support new customers and provide additional services that will assist
our customers in integrating our digital workplace into their business processes
and systems, we intend to increase our capability to provide these services. As
a result, we expect our cost of revenue will increase in the future as we expand
our service capabilities.

Since 1996, we have incurred significant development costs to develop our
eRoom product. To enhance our product offering and market position, we believe
it is essential for us to continue to make significant investments in research
and development. We plan to introduce new features, functionality and services,
including eRoom.net, a hosted offering scheduled for commercial launch within
the next two quarters.

We intend to continue to expand our sales force to focus on our direct and
indirect sales channels. In addition, we plan to increase our marketing expenses
to promote our eRoom product. As a result, we expect sales and marketing
expenses will continue to increase in the future.

In connection with stock option grants made during 1998, 1999 and the six
months ended June 30, 2000, we recorded deferred stock-based compensation
totaling $13.5 million. Deferred stock-based compensation represents the
difference between the option exercise price and the deemed fair value of our
common stock on the date of the option grant. Deferred stock-based compensation
is reported as a component of stockholders' equity (deficit) and is amortized as
a charge to operations over the vesting period of the options, which is
generally four years. Stock-based compensation expense was $22,000 for 1998,
$575,000 for 1999 and $1.5 million for the six months ended June 30, 2000. We
currently expect to record stock-based compensation expense for options granted
through June 30, 2000 of at least $3.2 million in 2000, $3.3 million in 2001,
$3.3 million in 2002, $2.9 million in 2003 and $304,000 in 2004.

We have incurred net losses since our inception, and as of June 30, 2000 we
had an accumulated deficit of $35.3 million. We anticipate that our operating
expenses will substantially increase in future periods and will exceed projected
increases in revenue. Accordingly, we expect to incur significant net losses for
the foreseeable future.

24
<PAGE> 29

RESULTS OF OPERATIONS

The following table presents selected consolidated financial data as a
percentage of revenue:

<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
---------------- ----------------
1998 1999 1999 2000
------ ------ ------ ------
<S> <C> <C> <C> <C>
Revenue:
Product license.................................. 98.5% 93.1% 95.4% 90.8%
Services......................................... 1.5 6.9 4.6 9.2
------ ------ ------ ------
Total revenue............................... 100.0 100.0 100.0 100.0
------ ------ ------ ------
Operating expenses:
Cost of product license revenue.................. 31.1 17.3 17.4 16.6
Cost of services revenue......................... 3.1 5.3 3.5 7.7
Research and development......................... 284.6 83.9 113.0 81.6
Sales and marketing.............................. 459.7 200.4 227.8 212.2
General and administrative....................... 105.6 59.4 73.9 42.3
Stock-based compensation expense................. 2.6 16.0 15.9 30.3
------ ------ ------ ------
Total operating expenses.................... 886.7 382.3 451.5 390.7
------ ------ ------ ------
Loss from operations............................... (786.7) (282.3) (351.5) (290.7)
Interest income, net............................... 24.3 8.0 3.8 7.8
------ ------ ------ ------
Net loss........................................... (762.4)% (274.3)% (347.7)% (282.9)%
====== ====== ====== ======
</TABLE>

COMPARISON OF SIX MONTHS ENDED JUNE 30, 2000 AND SIX MONTHS ENDED JUNE 30, 1999

REVENUE

Total revenue increased $3.7 million, or 291.8%, to $5.0 million in the six
months ended June 30, 2000 from $1.3 million in the six months ended June 30,
1999.

Product license revenue. Product license revenue consists of software
license arrangements and related maintenance contracts. Product license revenue
increased $3.3 million, or 272.9%, to $4.5 million in the six months ended June
30, 2000 from $1.2 million in the six months ended June 30, 1999. Product
license revenue as a percentage of total revenue decreased to 90.8% in the six
months ended June 30, 2000 from 95.4% in the six months ended June 30, 1999. The
increase in product license revenue in absolute dollars is primarily
attributable to an increase in the number of new customers, the increased value
of initial purchases, and increases in total repeat business from existing
customers.

Services revenue. Services revenue consists of professional consulting
services and additional maintenance contracts. Services revenue increased
$401,000, or 683.5%, to $460,000 in the six months ended June 30, 2000 from
$59,000 in the six months ended June 30, 1999. Services revenue as a percentage
of total revenue increased to 9.2% in the six months ended June 30, 2000 from
4.6% in the six months ended June 30, 1999. The increase in services revenue is
primarily attributable to an increase in the number of professional consulting
service arrangements and additional maintenance contracts.

25
<PAGE> 30

OPERATING EXPENSES

Cost of product license revenue. Cost of product license revenue consists
primarily of royalties paid to third-party vendors and salaries and related
overhead for support personnel. Cost of product license revenue increased
$605,000, or 272.4%, to $827,000 in the six months ended June 30, 2000 from
$222,000 in the six months ended June 30, 1999. Cost of product license revenue
as a percentage of total revenue decreased to 16.6% in the six months ended June
30, 2000 from 17.4% in the six months ended June 30, 1999. The increase in cost
of product license revenue in absolute dollars was primarily due to increased
royalties paid to third-party vendors and additional staff to support a greater
number of customers.

Cost of services revenue. Cost of services revenue consist primarily of
salaries and related overhead for professional consulting services and support
personnel. Cost of services revenue increased $341,000, or 755.3%, to $386,000
in the six months ended June 30, 2000 from $45,000 in the six months ended June
30, 1999. Cost of services revenue as a percentage of total revenue increased to
7.7% in the six months ended June 30, 2000 from 3.5% in the six months ended
June 30, 1999. The increase in cost of services revenue was primarily due to
increased staff to support a greater number of professional consulting
arrangements and additional maintenance contracts.

Research and development expenses. Research and development expenses
consist primarily of salaries and personnel-related costs and the costs of
contractors associated with the development of new products, the enhancement of
existing products, and the performance of quality assurance and documentation
activities. Research and development expenses increased $2.6 million, or 183.0%,
to $4.1 million in the six months ended June 30, 2000 from $1.4 million in the
six months ended June 30, 1999. Research and development expenses as a
percentage of total revenue decreased to 81.6% in the six months ended June 30,
2000 from 113.0% in the six months ended June 30, 1999. These expenses increased
in absolute dollars as a result of increased engineering and product development
personnel and outside contractor expenses associated with our development of our
eRoom product. The decline in research and development expenses as a percentage
of total revenue was primarily due to the growth in total revenue.

Sales and marketing expenses. Sales and marketing expenses consist
primarily of salaries, commissions and bonuses for sales and marketing personnel
and marketing promotional expenses. Sales and marketing expenses increased $7.7
million, or 264.8%, to $10.6 million in the six months ended June 30, 2000 from
$2.9 million in the six months ended June 30, 1999. Sales and marketing expenses
as a percentage of total revenue decreased to 212.2% in the six months ended
June 30, 2000 from 227.8% in the six months ended June 30, 1999. Sales and
marketing expenses increased in absolute dollars due to increased headcount in
our sales operations, particularly our direct sales channel, additional
marketing personnel and an increase in marketing expenses. The decline in sales
and marketing expenses as a percentage of total revenue was primarily due to the
growth in total revenue.

General and administrative expenses. General and administrative expenses
consist primarily of salaries for executive, financial, human resource,
information services, and other administrative functions, as well as legal and
accounting costs. General and administrative expenses increased $1.2 million, or
124.3%, to $2.1 million in the six months ended June 30, 2000 from $941,000 in
the six months ended June 30, 1999. General and administrative expenses as a
percentage of total revenue decreased to 42.3% in the six months ended June 30,
2000 from 73.9% in the six months ended June 30, 1999. These expenses increased
in absolute dollars primarily as a result of increased costs of our personnel
and infrastructure necessary to support our growth. The decline in general and
administrative expenses as a percentage of total revenue was primarily due to
the growth in total revenue.

26
<PAGE> 31

Stock-based compensation expense. Stock-based compensation expense
increased $1.3 million, or 648.3%, to $1.5 million in the six months ended June
30, 2000 from $202,000 in the six months ended June 30, 1999. Stock-based
compensation expense as a percentage of total revenue increased to 30.3% in the
six months ended June 30, 2000 from 15.9% in the six months ended June 30, 1999.
This expense increased primarily due to a higher number of stock options granted
in the three months ended June 30, 2000 with exercise prices determined to be
below fair market value.

Interest income, net. Interest income, net consists of interest income and
interest expense. Interest income, net increased $339,000, or 693.7%, to
$387,000 in the six months ended June 30, 2000 from $49,000 in the six months
ended June 30, 1999. Interest income, net as a percentage of total revenue
increased to 7.8% in the six months ended June 30, 2000 from 3.8% in the six
months ended June 30, 1999. Interest income, net increased as a percentage of
revenue due to higher levels of invested cash, primarily from the sale of our
series C preferred stock in September and October 1999.

COMPARISON OF YEAR ENDED DECEMBER 31, 1999 AND YEAR ENDED DECEMBER 31, 1998

REVENUE

Total revenue increased $2.8 million, or 334.3%, to $3.6 million in 1999
from $826,000 in 1998.

Product license revenue. Product license revenue increased $2.5 million,
or 310.3%, to $3.3 million in 1999 from $814,000 in 1998. Product license
revenue as a percentage of total revenue decreased to 93.1% in 1999 from 98.5%
in 1998. The increase in product license revenue in absolute dollars is
primarily attributable to an increase in the number of new customers, the
increased value of initial purchases, and increases in total repeat business
from existing customers.

Services revenue. Services revenue increased $236,000, to $248,000 in 1999
from $12,000 in 1998. Services revenue as a percentage of total revenue
increased to 6.9% in 1999 from 1.5% in 1998. The increase in services revenue is
primarily attributable to an increase in the number of professional consulting
service arrangements and additional maintenance contracts.

OPERATING EXPENSES

Cost of product license revenue. Cost of product license revenue increased
$363,000, or 141.5%, to $620,000 in 1999 from $257,000 in 1998. Cost of product
license revenue as a percentage of total revenue decreased to 17.3% in 1999 from
31.1% in 1998. The increase in cost of product license revenue in absolute
dollars was primarily due to increased royalties paid to third-party vendors and
additional staff to support a greater number of customers.

Cost of services revenue. Cost of services revenue increased to $163,000,
or 628.5%, to $189,000 in 1999 from $26,000 in 1998. Cost of services revenue as
a percentage of total revenue increased to 5.3% in 1999 from 3.1% in 1998. The
increase in cost of services revenue as a percentage of total revenue was
primarily due to increased staff to support a greater number of professional
consulting service arrangements and additional maintenance contracts.

Research and development expenses. Research and development expenses
increased $659,000, or 28.0%, to $3.0 million in 1999 from $2.4 million in 1998.
Research and development expenses as a percentage of total revenue decreased to
83.9% in 1999 from 284.6% in 1998. These expenses increased in absolute dollars
as a result of increased engineering and product development activities
associated with development of our eRoom product. The decline in research and
development expenses as a percentage of total revenue was primarily due to the
growth in total revenue.

27
<PAGE> 32

Sales and marketing expenses. Sales and marketing expenses increased $3.4
million, or 89.4%, to $7.2 million in 1999 from $3.8 million in 1998. Sales and
marketing expenses as a percentage of revenue decreased to 200.4% in 1999 from
459.7% in 1998. Sales and marketing expenses increased in absolute dollars
primarily due to increased headcount in our sales operations, particularly our
direct sales channel and additional marketing personnel. The decline in sales
and marketing expenses as a percentage of total revenue was primarily due to the
growth in total revenue.

General and administrative expenses. General and administrative expenses
increased $1.3 million, or 144.2%, to $2.1 million in 1999 from $872,000 in
1998. General and administrative expenses as a percentage of total revenue
decreased to 59.4% in 1999 from 105.6% in 1998. These expenses increased in
absolute dollars primarily as a result of increased costs of personnel and
infrastructure necessary to support our growth. The decline in general and
administrative expenses as a percentage of total revenue was primarily due to
the growth in total revenue.

Stock-based compensation expense. Stock-based compensation expense
increased $553,000 to $575,000 in 1999 from $22,000 in 1998. Stock-based
compensation expense as a percentage of total revenue increased to 16.0% in 1999
from 2.6% in 1998. This expense increased as a percentage of total revenue
primarily due to a higher number of stock options granted in 1999 with exercise
prices determined to be below fair market value.

Interest income, net. Interest income, net increased $86,000, or 42.8%, to
$287,000 in 1999 from $201,000 in 1998. Interest income, net as a percentage of
total revenue decreased to 8.0% in 1999 from 24.3% in 1998.

COMPARISON OF YEAR ENDED DECEMBER 31, 1998 AND YEAR ENDED DECEMBER 31, 1997

REVENUE

Total revenue increased $816,000 to $826,000 in 1998 from $10,000 in 1997.
The increase in revenue is primarily attributable to the launching of our eRoom
product in October 1997, an increase in the number of new customers and
increases in total repeat business from existing customers. Nearly all of our
revenue in 1997 and 1998 was attributable to product license revenue.

OPERATING EXPENSES

Total cost of revenue. Total cost of revenue increased $255,000 to
$283,000 in 1998 from $28,000 in 1997. The increase was primarily due to
increased royalties paid to third-party vendors and additional staff to support
a greater number of customers.

Research and development expenses. Research and development expenses
increased $336,000, or 16.7%, to $2.4 million in 1998 from $2.0 million in 1997.
These expenses increased as a result of increased engineering and product
development activities associated with our development of our eRoom product.

Sales and marketing expenses. Sales and marketing expenses increased $2.0
million, or 114.5%, to $3.8 million in 1998 from $1.8 million in 1997. Sales and
marketing expenses increased primarily due to increased headcount in our sales
operations, particularly our direct sales channel and additional marketing
personnel.

General and administrative expenses. General and administrative expenses
increased $498,000, or 133.0%, to $872,000 in 1998 from $374,000 in 1997. These
expenses increased primarily as a result of increased costs of personnel and
infrastructure necessary to support our growth.

28
<PAGE> 33

Stock-based compensation expense. Stock-based compensation expense was
$22,000 in 1998. We had no employee stock-based compensation in 1997. This
expense increased primarily due to stock options granted in 1998 with exercise
prices determined to be below fair market value.

Interest income, net. Interest income, net increased $61,000, or 43.2%, to
$201,000 in 1998 from $140,000 in 1997. The increase reflects interest earned on
higher balances of cash and cash equivalents resulting from the proceeds from
the private sale of equity securities.

QUARTERLY RESULTS OF OPERATIONS

The following table presents our unaudited consolidated statement of
operations data for the nine quarters in the period ended June 30, 2000, as well
as the percentage of our revenue represented by each item. We have prepared this
unaudited consolidated information on a basis consistent with our audited
consolidated financial statements, and in the opinion of our management, this
information reflects all adjustments consisting only of normal recurring
adjustments necessary for a fair presentation of our operating results for the
quarters presented.

<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------------------------------------------------------
JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30,
1998 1998 1998 1999 1999 1999 1999 2000 2000
-------- --------- -------- -------- -------- --------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Product license........ $ 151 $ 242 $ 367 $ 554 $ 661 $ 902 $ 1,223 $ 1,676 $ 2,854
Services............... -- -- 12 33 26 71 118 146 314
------- ------- ------- ------- ------- ------- ------- ------- -------
Total revenue.......... 151 242 379 587 687 973 1,341 1,822 3,168
------- ------- ------- ------- ------- ------- ------- ------- -------
Operating expenses:
Cost of product license
revenue.............. 62 66 78 98 124 134 264 421 406
Cost of services
revenue.............. -- -- 26 25 20 55 89 116 270
Research and
development.......... 543 619 634 716 723 649 922 1,811 2,261
Sales and marketing.... 848 963 1,065 1,260 1,642 1,663 2,628 4,715 5,872
General and
administrative....... 202 212 260 471 470 434 755 1,200 909
Stock-based
compensation
expense.............. -- 3 19 79 124 154 218 720 792
------- ------- ------- ------- ------- ------- ------- ------- -------
Total operating
expenses........ 1,655 1,863 2,082 2,649 3,103 3,089 4,876 8,983 10,510
------- ------- ------- ------- ------- ------- ------- ------- -------
Loss from operations..... (1,504) (1,621) (1,703) (2,062) (2,416) (2,116) (3,535) (7,161) (7,342)
Interest income, net..... 40 50 50 32 17 39 199 158 229
------- ------- ------- ------- ------- ------- ------- ------- -------
Net loss................. $(1,464) $(1,571) $(1,653) $(2,030) $(2,399) $(2,077) $(3,336) $(7,003) $(7,113)
======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>

29
<PAGE> 34

<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------------------------------------------------------
JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30,
1998 1998 1998 1999 1999 1999 1999 2000 2000
-------- --------- -------- -------- -------- --------- -------- -------- --------
(AS A PERCENTAGE OF REVENUE)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Product license........ 100.0% 100.0% 96.8% 94.4% 96.2% 92.7% 91.2% 92.0% 90.1%
Services............... -- -- 3.2 5.6 3.8 7.3 8.8 8.0 9.9
------- ------ ------ ------ ------ ------ ------ ------ --------
Total revenue...... 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
------- ------ ------ ------ ------ ------ ------ ------ --------
Operating expenses:
Cost of product license
revenue.............. 41.1 27.3 20.6 16.7 18.0 13.8 19.7 23.1 12.8
Cost of services
revenue.............. 0.0 0.0 6.9 4.3 2.9 5.7 6.6 6.4 8.5
Research and
development.......... 359.6 255.8 167.2 122.0 105.2 66.6 68.8 99.4 71.4
Sales and marketing.... 561.6 397.9 281.0 214.6 239.2 171.0 195.9 258.8 185.4
General and
administrative....... 133.8 87.6 68.6 80.2 68.4 44.6 56.3 65.9 28.7
Stock-based
compensation
expense.............. 0.0 1.2 5.0 13.4 18.0 15.8 16.3 39.4 25.0
------- ------ ------ ------ ------ ------ ------ ------ --------
Total operating
expenses........ 1,096.1 769.8 549.3 451.2 451.7 317.5 363.6 493.0 331.8
------- ------ ------ ------ ------ ------ ------ ------ --------
Loss from operations..... (996.1) (669.8) (449.3) (351.2) (351.7) (217.5) (263.6) (393.0) (231.8)
Interest income, net..... 26.5 20.6 13.2 5.4 2.5 4.0 14.8 8.6 7.3
------- ------ ------ ------ ------ ------ ------ ------ --------
Net loss................. (969.6)% (649.2)% (436.1)% (345.8)% (349.2)% (213.5)% (248.8)% (384.4)% (224.5)%
======= ====== ====== ====== ====== ====== ====== ====== ========
</TABLE>

Our operating results have varied significantly from quarter to quarter in
the past and may continue to fluctuate in the future. The quarterly fluctuations
are caused by a number of factors, including those listed under the caption
"Risk Factors -- The unpredictability of our quarterly revenue and operating
results may adversely affect the trading price of our common stock" on page 6.
Many of these factors are beyond our control. Therefore, we believe that results
of operations for interim periods should not be relied upon as any indication of
the results to be expected in any future period.

NET OPERATING LOSSES AND TAX CREDIT CARRYFORWARDS

As of December 31, 1999, we had federal and state net operating loss
carryforwards of approximately $18.8 million and $18.5 million, respectively,
available to reduce future taxable income and federal and state research and
development credit carryforwards of approximately $350,000 and $180,000,
respectively, available to reduce future tax liabilities. If not utilized, these
credits and carryforwards will expire between 2001 and 2019. Under the
provisions of the Internal Revenue Code, substantial changes in our ownership
may limit the amount of net operating loss and tax credit carryforwards that
could be utilized annually in the future to offset taxable income. A valuation
allowance has been established in our financial statements to reflect the
uncertainty of future taxable income required to utilize available tax loss
carryforwards and other deferred tax assets.

LIQUIDITY AND CAPITAL RESOURCES

Since inception, we have financed our operations and met our capital
expenditure requirements primarily through the private sale of equity
securities.

As of June 30, 2000, we had $15.4 million of cash, cash equivalents, and
short-term investments, compared with $879,000 as of June 30, 1999. Our working
capital at June 30, 2000 was $8.4 million, compared to negative working capital
of $1.2 million at June 30, 1999.

Net cash used by operating activities was $6.7 million in the six months
ended June 30, 2000, $5.0 million in 1999, and $5.2 million in 1998. Cash used
in operating activities in the six months

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<PAGE> 35

ended June 30, 2000 and in 1999 was primarily attributable to our net loss and
increases in accounts receivable and prepaid expense, offset in part by an
increase in deferred revenue, accounts payable and accrued liabilities and
non-cash expenses including depreciation, provision for doubtful accounts and
stock-based compensation expense.

Net cash used in investing activities was $13.5 million in the six months
ended June 30, 2000, $889,000 in 1999 and $216,000 in 1998. Net cash used in
investing activities in 1999 was attributable to short-term investments and, to
a lesser extent, purchases of property and equipment to support our expanding
operations.

Net cash provided by financing activities was $10.1 million for the six
months ended June 30, 2000, $15.5 million for 1999 and $3.4 million for 1998.
Proceeds from financing activities in the six months ended June 30, 2000 were
primarily from the sale of 956,938 shares of our series D redeemable convertible
preferred stock to Ford Motor Company and, to a lesser extent, the exercise of
stock options. Proceeds from financing activities in 1999 were from the sale of
our series C redeemable convertible preferred stock and, to a lesser extent, the
exercise of stock options.

On July 14, 2000, we sold 1,052,633 shares of our series D redeemable
convertible preferred stock to some of our existing stockholders and two new
investors, Brinson Partners and Haebler Capital, at a price of $10.45 per share
for gross proceeds of $11.0 million.

In September 2000, we entered into two one-year lines of credit with Fleet
Bank. The first line is a $1.5 million working capital line for which the
borrowing capacity is based on 80% of our eligible domestic accounts receivable,
the interest rate is 0.25% above the prime rate and a commitment fee is
applicable. The second line is a $1.5 million equipment acquisition line for
which the interest rate is 0.75% above the prime rate. These loans are secured
by all of our assets except our intellectual property, which is only subject to
a negative pledge. In addition, in connection with these loans we have agreed to
keep our tangible net worth and quick ratio, as defined in the loan documents,
at specified levels. We have also agreed to limitations on our ability to incur
indebtedness, make investments and acquisitions and buy back, or pay cash
dividends on, our capital stock.

We anticipate to continue to incur substantial increases in expenditures in
connection with our anticipated growth in operations, infrastructure and
personnel. We believe that existing cash and cash equivalents, together with the
net proceeds of this offering, will be sufficient to meet our anticipated cash
needs for working capital and capital expenditures for planned expansion for at
least the next 12 months. However, we may need to raise additional funds in the
next 12 months or in the future to support more rapid expansion of our sales and
service personnel, develop new or enhanced products or services, respond to
competitive pressures, acquire complementary businesses or technologies or
respond to unanticipated requirements. If we seek to raise additional funds, we
may not be able to obtain funds on terms which are favorable or acceptable to
us. If we raise additional funds through the issuance of equity securities, the
percentage ownership of our stockholders would be reduced. Furthermore, these
securities may have rights, preferences or privileges senior to our common
stock.

We consider all highly liquid investment instruments purchased with an
original maturity of three months or less to be cash equivalents. We invest our
cash and cash equivalents in commercial paper. We place our cash and temporary
cash investments with financial institutions which management believes are of
high credit quality.

We have not invested in any financial instruments that expose us to
material market risk.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board, or FASB, issued
Statement of Financial Accounting Standard, or SFAS, No. 133, Accounting for
Derivative Instruments and Hedging Activities. This statement establishes
accounting and reporting standards for derivative
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<PAGE> 36

instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. In June 1999, the FASB issued SFAS No.
137, which defers the effective date of SFAS No. 133 to apply to fiscal years
beginning after June 15, 2000. We do not currently expect SFAS No. 133 to have a
material impact on our consolidated financial statements.

In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, Revenue Recognition in Financial Statements, or SAB
101. SAB 101 summarizes certain of the staff's views in applying generally
accepted accounting principles to revenue recognition in financial statements.
In June 2000, the SEC deferred the implementation of SAB 101 so that it will not
apply to financial statements until the fourth fiscal quarter of fiscal years
commencing after December 15, 1999. We believe that we are currently in
compliance with the bulletin.

In March 2000, the FASB issued FASB Interpretation No. 44, Accounting for
Certain Transactions Involving Stock Compensation--an Interpretation of APB
Opinion No. 25, or FIN 44. FIN 44 clarifies the application of APB Opinion No.
25 and is effective July 1, 2000, but certain conclusions in FIN 44 cover
specific events if they had occurred after either December 15, 1998 or January
12, 2000. We do not expect its application to have a material impact on our
consolidated financial statements.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

To date, our product has been sold primarily in the United States. However,
we plan to expand our presence outside of the United States. As a result, our
financial results could be affected by factors such as changes in foreign
currency exchange rates or weak economic conditions in foreign markets. Since
our sales are currently priced in U.S. dollars and are translated to local
currency amounts, a strengthening of the dollar could make our products less
competitive in foreign markets. Interest income is sensitive to changes in the
general level of U.S. interest rates, particularly since our investments are in
short-term instruments. Based on the nature and current levels of our
investments, however, we have concluded that there is no material market risk
exposure.

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BUSINESS

eRoom Technology is a leading provider of Internet-based software
applications and services that enable organizations to collaborate with their
extended enterprise of employees, customers, suppliers and other partners. Our
solution allows organizations to quickly assemble a project team from multiple
locations across enterprises and manage the collaborative activities that
support their complex and rapidly changing projects and processes. The eRoom
digital workplace is a comprehensive, integrated, Internet-based software
application that includes a variety of collaborative capabilities, such as
project tracking, document management, workflow management, security and access
control, and change notification, which may be used for managing a wide range of
business projects. A digital workplace is a secure, collaborative website that
allows project teams to create, store and manage project content and
communications. Our customers use our eRoom digital workplaces for numerous
worldwide distributed projects and processes including designing and developing
products, bringing new products to market, establishing and coordinating
activities across the supply chain, coordinating sales and support efforts and
managing consulting engagements from proposal through completion. We market and
sell our products and services through our direct sales force and indirect
channels, including systems integrators and other business partners. We have
over 350 customers, including A.T. Kearney, Deloitte & Touche, EDS, Ford,
Hewlett-Packard, Intel, Johnson & Johnson, Ketchum, KPMG, Palm, Pfizer and
Solectron.

INDUSTRY BACKGROUND

The rapid growth in the use of the Internet is fundamentally changing the
way companies obtain and share information and conduct business with their
employees, customers, suppliers and other partners. Competition has become
increasingly global and enterprises more geographically distributed. Further,
there have been significant increases in the usage and importance of outsourcing
and strategic alliances. To address these trends, companies are using the
Internet to substantially reduce the barriers of time and distance.
International Data Corporation estimates that the number of Internet users in
commercial businesses will increase from 59 million in 1998 to 250 million by
2003. In addition, the widespread adoption of the Internet as a communications
and collaboration platform has created a new medium through which companies can
conduct business. Forrester Research estimates that business-to-business
Internet commerce in the U.S. will grow from $406.2 billion in 2000 to $2.7
trillion in 2004. To take advantage of the power and accessibility of the
Internet, companies must make substantial investments in software infrastructure
to enable collaboration across their extended enterprise. IDC estimates that
corporate spending on Internet software will increase from $16.8 billion in 1999
to $70.0 billion in 2003.

To date, companies have focused their business-to-business Internet
infrastructure software spending primarily on technologies designed to establish
a web presence, deploy email capabilities and execute transactions. These
technologies allow companies to provide product information and to target
advertising directly to their customers and potential customers. They also
facilitate the purchase of standardized products by a customer and enhance the
efficiency of transaction processing. However, there are many other business
processes that are not addressed by these technologies.

To compete effectively, companies must devote substantial resources to
business processes taking place before transactions are conducted, including the
design of new products, requirements planning, vendor qualification and business
planning. Companies must also devote substantial resources to processes
occurring once a commercial relationship is established, including making
product design improvements, ensuring customer satisfaction, handling field
problems and change orders and forecasting future needs and next-release
planning. Service companies must address business processes specific to the
nature of their businesses, including developing proposals, coordinating

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<PAGE> 38

schedules, providing joint design and development services, executing product
customization services, collaborating on written deliverables with a client and
managing ongoing client relationships.

Fast-paced, rapidly changing global markets require companies to
collaborate on business processes within their organizations and with their
customers, suppliers and other business partners, wherever they are located.
These business processes have become increasingly varied, complex and difficult
to manage. This is due in part to the increased pace of global competition,
increased outsourcing, rapidly changing customer requirements, heightened demand
for highly customized products and significantly shortened product life cycles.
These business processes require a broad range of collaborative activities among
the members of the extended enterprise seeking to achieve their business
objectives, including project tracking, document sharing, discussion and
conferencing. As companies increasingly use outside parties to perform services
for them, they are seeking an efficient way to support the collaboration
necessary to manage business processes among the members of their extended
enterprises.

To collaborate effectively, companies need the ability to work with people
from different organizations, wherever they are located, utilizing a diverse
range of technology infrastructure and applications. Companies also need the
flexibility to address a broad range of collaborative processes and the ability
to accommodate changes to those processes throughout the project. Internally
developed applications and existing off-the-shelf application offerings fail to
adequately address the complex and varied requirements of cross-enterprise
business collaboration. Internally developed solutions are typically
time-consuming to develop and update and cannot adequately support the breadth
of requirements needed for collaboration with other organizations. Groupware,
document management or knowledge management systems are difficult to use across
multiple organizations and also require extensive, costly and time-consuming
development, deployment and management. Moreover, once deployed, these systems
provide little flexibility to support dynamic and changing business processes.
Supply chain management, product data management and customer relationship
management applications each address a narrow range of collaborative processes
within the business transaction. However, they neither address the processes and
content surrounding a transaction nor provide the flexibility to support
changing business processes. Furthermore, both internally developed applications
and existing off-the-shelf application offerings fail to address the broad range
of collaborative activities that businesses use to manage projects and processes
across their extended enterprises.

Companies increasingly seek a cost-effective, Internet-based solution to
manage their complex and rapidly changing business projects and processes. They
require software applications that are easily deployed, accessible through any
standard web browser and managed across the extended enterprise, regardless of
organization or location, in a secure manner. They also require a solution that
integrates well with, and leverages existing technology and applications,
including supply chain management, knowledge management, document management,
product data management and customer relationship management applications. To
meet these challenges, businesses need an Internet-based collaborative
application that is comprehensive, flexible, integrated and rapidly deployable
across the extended enterprise.

SOLUTION

We are a leading provider of Internet-based software applications and
services that enable organizations to collaborate with their extended enterprise
of employees, customers, suppliers and other partners. Our solution allows
organizations to quickly assemble a project team from multiple locations across
enterprises and manage the collaborative activities that support their complex
and rapidly changing projects and processes. Our customers use eRoom digital
workplaces to manage a variety of projects, including designing and developing
products, bringing new products to market,

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<PAGE> 39

establishing and coordinating activities across the supply chain, coordinating
sales and support efforts and managing consulting engagements from proposal
through completion.

We believe that the eRoom digital workplace provides the following benefits
to our customers:

Provides a comprehensive, flexible solution for business collaboration. Our
eRoom product provides a comprehensive digital workplace where extended project
teams can efficiently complete their critical business projects. Project team
members can create digital workplaces rapidly, define the layout of their
workplace, add team members wherever they are located and specify security rules
for who can view and edit content. The workplace can be modified to meet the
evolving needs of the project over time, to monitor changes and to keep team
members up-to-date. A broad range of content can be managed and tracked with
eRoom, including documents, milestones, schedules, issues, changes, discussions
and decisions. Content created outside the eRoom workplace can easily be brought
into the workplace. Content is captured throughout the project, allowing
companies to leverage learning from one project to the next. By bringing the
extended enterprise together in a comprehensive, flexible and secure workplace,
we believe eRoom allows our customers to develop new business, bring products to
market faster and deliver higher value to their customers and clients.

Is easily used and rapidly deployed. We have designed our solution for an
Internet-based environment with easy-to-use features and functions that do not
require formal training. A project team member can easily access an eRoom
digital workplace through any standard web browser from any location without
requiring software to be placed on the user's desktop computer. In addition, the
eRoom digital workplace generally requires little customization and easily
integrates with most existing desktop software and computer infrastructures. It
places minimal administration and development demands on a company's information
technology, or IT, organization, enabling self-sufficient project teams and
fast-paced projects. Therefore, our solution can be rapidly deployed throughout
the extended enterprise.

Creates efficiencies throughout the extended enterprise. Our
cross-enterprise business collaboration solution addresses the unstructured,
collaborative aspects of establishing, managing and improving the sourcing of
goods and services. For example, to establish a supply chain, a company can use
an eRoom digital workplace to select, establish and negotiate terms for the
supplier relationship. This provides capabilities for requirements planning,
specification development, design review and approval and contract negotiation.
Once the supply chain is established, our digital workplaces are used to manage
problem escalation, resolution and change orders, gather feedback from
customers, adjust forecasts, track sales and inventory data and plan future
releases. By using eRoom, organizations are able to more rapidly establish
extended supply chains, minimize costly production shutdowns, reduce inventory
levels, incorporate product changes for new releases and accelerate time to
market.

Improves utilization of personnel and leverages expertise. Our solution
allows organizations and project teams to manage their valuable
resources -- people, knowledge and time -- more efficiently. By enabling people
from multiple locations across enterprises to work together wherever they are
located, an organization can draw on a broader pool of talent, including
employees and consultants. By permitting experts inside and outside the
organization to contribute to a project at the ideal time, expertise can be
brought into the project on an as-needed basis. For example, professional
services firms, including consulting firms, advertising agencies, marketing
service firms, law firms and IT service firms, can use our digital workplaces to
tap the expertise of individuals across their organizations in a cost-effective
manner. This enables revenue-generating employees to work on more projects
simultaneously and increase their efficiency in delivering their services to
clients. Organizations can leverage their most critical resource, people, across
a broader set of business problems and projects, thus increasing utilization and
value delivered.

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<PAGE> 40

Strengthens relationships among employees, customers, suppliers and other
partners. The eRoom solution fosters closer working relationships and
collaboration across the extended enterprise. By creating a collaborative
digital workplace, our solution enables and encourages earlier participation by
customers, suppliers and other business partners in setting requirements and
aligning objectives. Our solution improves the understanding and minimizes the
conflict among organizations and team members by providing a central forum for
feedback, discussion, debate and decision-making. Throughout a project, team
members can raise and resolve issues more quickly, minimizing the need for
face-to-face meetings, travel or teleconferences. We believe this closer
collaboration and improved understanding between organizations fosters
alternative thinking, creative problem solving and better decisions and
solutions, strengthening the relationships among the members of the extended
enterprise.

STRATEGY

Our goal is to be the leading provider of Internet-based software
applications and services for business collaboration among the members of an
organization's extended enterprise. Key elements of our strategy to achieve this
goal include:

Increase eRoom user base within existing customer accounts. Historically,
we have been successful at expanding eRoom usage within our existing customer
organizations. Typically, a first-time customer will initially purchase a
license for a limited number of users and a specific project. After experiencing
the benefits of eRoom digital workplaces, many of our customers have expanded
their use to additional projects and to other departments within their
organization. We intend to work closely with individuals in our customers'
organizations to build a community of users and speed adoption of our solution
across departments. We believe our existing customers will be a significant
source of future revenue as they expand the usage of our solution throughout
their organization.

Leverage network effect to expand our customer base. We intend to work
with our customers to introduce eRoom digital workplaces to their customers,
suppliers and other partners. As more of our customers adopt eRoom as a
cross-enterprise business collaboration solution, we believe users will include
increasing numbers of customers, suppliers and other business partners to
participate in their digital workplaces. We believe these new users will realize
eRoom's value as a business collaboration tool and that this network effect will
expand our customer base.

Pursue targeted vertical markets. We have focused our marketing efforts on
specific targeted markets and believe these endeavors will speed adoption of our
products and services. We currently focus on industries that are characterized
by complex projects, teams that span geographies and companies, and industries
that are early adopters of technology. These industries include professional
services, high technology, manufacturing and financial and legal services. To
further our vertical market focus, we intend to work closely with customers to
create reference accounts that can be leveraged into additional sales in these
industries. We will continue to identify specialized needs in these industries
and develop industry-specific product features and application templates that
will further strengthen our offerings. In the future, we also plan to expand
into new vertical industries with similar characteristics and will target
leading companies in those industries.

Launch eRoom.net, our hosted service offering. Within the next two
quarters, we intend to commercially launch eRoom.net, our Internet-based
outsourced service where customers pay a subscription fee to use eRoom digital
workplaces running on our server computers or those managed by others. We
believe that eRoom.net will accelerate our sales efforts by enabling our
customers to more rapidly deploy our solution and to reduce up-front costs,
administrative burdens and expenses, support and maintenance obligations as well
as demands on limited IT resources and personnel.

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<PAGE> 41

Expand our technology leadership and extend eRoom digital workplace
functionality. We intend to leverage our expertise in creating Internet-based
collaboration software to enhance the functionality of our eRoom solution.
Version 5.0 of our eRoom digital workplace, which is currently scheduled for
commercial release within the next two quarters, will provide more collaboration
functionality, greater customizability and extensibility for administrators and
enhanced support for enterprise deployment. We intend to develop or acquire
other technologies to expand the breadth of capabilities and services required
for managing business projects and processes. We also intend to continue to
enhance the integration of our solution with products of other companies using
emerging and accepted Internet standards.

Develop and strengthen business alliances. We believe that building
relationships with systems integrators, complementary independent software
vendors and business-to-business vertical marketplaces will provide new
marketing and distribution channels for our products and services. Systems
integrators can add eRoom to their offerings and deliver custom integration and
deployment services, thus increasing the value of the solution to the customer.
By integrating our solution into complementary enterprise applications, we add
collaboration capabilities to these applications, thus providing the ability to
extend the usage of these applications inside and outside the organization. For
business-to-business vertical marketplaces, our solution provides the
infrastructure to manage the unstructured, collaborative activities that
surround their commerce initiatives. We intend to establish alliances with
companies that have expertise and established customer relationships within
industry-specific markets. This will allow us to leverage the existing
relationships of these business partners. In addition, we intend to seek
relationships with systems integrators, international independent software
vendors and business-to-business vertical marketplaces in order to increase our
penetration of international markets.

PRODUCTS

Our eRoom digital workplace is a comprehensive, integrated, Internet-based
application that enables business collaboration across the extended enterprise.
Our software applications include a variety of capabilities for managing a wide
range of business projects and processes, which allow organizations to work more
closely with their customers, suppliers and other partners.

The eRoom software can be installed on an organization's web server, or can
be deployed outside the organization on a service provider's server. Once the
server software is installed, project team members can create digital workplaces
rapidly, define the layout of their digital workplaces, add team members and
specify security rules for who can view and edit content. Our solution acts as
the virtual workplace where all project content is stored for access by the
team. In addition, the eRoom server can be integrated easily with a customer's
existing information technology infrastructure.

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eRoom. The following table describes the core capabilities of eRoom 4.2.

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
EROOM
CORE CAPABILITIES DESCRIPTION
---------------------------------------------------------------------------------------------------
<S> <C>
Project creation Allows teams to rapidly create a secure digital workplace,
invite team members and manage projects. Includes the core
set of capabilities for creating and customizing a range of
project objects, including folders, discussions, notes,
lists, polls, documents and links.
---------------------------------------------------------------------------------------------------
Collaboration Allows project team members to have asynchronous text
discussions to share ideas, debate issues and make
decisions. Maintains a transcript of discussions, allowing
new members to get up to speed quickly. Allows polling of
team members to gather input and gain consensus.
---------------------------------------------------------------------------------------------------
Project tracking Allows the defining and tracking of project items including
issues, milestones, deliverables, decisions and
responsibilities.
---------------------------------------------------------------------------------------------------
Document management Stores and manages documents, including word processing
documents, spreadsheets, CAD files or multi-media content,
throughout the editing and reviewing cycle. Controls the
editing process, maintains versions, captures who made what
changes, when and why they were made. Includes the ability
to search based on keywords or full-text of documents in the
digital workplace. Integrates with Microsoft Office 2000,
allowing files to be easily saved and read and synchronized
with Microsoft Outlook.
---------------------------------------------------------------------------------------------------
Real-time communications Alerts users immediately that they are needed in the digital
workplace and enables real-time text chat.
---------------------------------------------------------------------------------------------------
Self-service usage Enables project team leaders and members to administer and
manage the project. Allows customization of the eRoom
digital workplace for the specific needs of the project.
Allows IT administrators to define the desired level of
control -- permitting the project team to be completely
self-sufficient or retaining specified administrative
capabilities. These control features include the ability to
determine who can create digital workplaces and add members
and which product capabilities can be used by team members.
---------------------------------------------------------------------------------------------------
Security and access control Validates users for access control, limits access by the
project team members and invites new members. Access control
can be assigned to individual items or collections of items
by the project team, allowing the team to define the access
control rules.
---------------------------------------------------------------------------------------------------
Workflow management Establishes means for routing items depending on the action
taken. Moves a document through a review process and
escalates issues to the appropriate person.
---------------------------------------------------------------------------------------------------
Change notification Notifies users of new or changed items and provides a
summary of changes. Notification can be made via email or by
change indicators in the eRoom digital workplace.
---------------------------------------------------------------------------------------------------
Application templates Creates new digital workplaces based on application
templates, which we call ePractices. Enables content and
API-based applications for specific vertical market segments
or specific application areas. ePractices can be used as a
starting point for more complex applications or simply to
trigger ideas on other ways to use the product.
---------------------------------------------------------------------------------------------------
</TABLE>

API toolkit and enterprise connectors. We provide an open application
programming interface, or API, toolkit to allow the eRoom server to be
integrated with the customers' and partners' existing information technology
infrastructures. The toolkit permits the automatic population of content in the
digital workplace, the publishing of content outside the workplace, and
event-driven routines based on user actions.

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We also provide enterprise connectors which permit the integration of the
eRoom digital workplace with repositories including document management systems,
knowledge management systems and groupware. We currently have connectors to
Microsoft Exchange, Lotus Notes and Documentum. We also provide a connector
toolkit for systems integrators and others to develop additional connectors.

eRoom 5.0. We are currently testing our latest version of our eRoom
software application, eRoom 5.0, at customer sites. eRoom 5.0 is scheduled for
commercial release within the next two quarters. eRoom 5.0 has been designed to
provide our customers with more project collaboration functionality, a higher
level of customizability and extensibility for administrators and stronger
support for enterprise deployment.

eRoom.net. eRoom.net is a subscription offering which allows organizations
to outsource the hosting of their eRoom digital workplaces. No installation of
the eRoom server is necessary. eRoom.net includes self-service single project
offerings as well as enterprise-hosted offerings. In the self-service model, the
customer uses automated templates to set up one or multiple digital workplaces.
The enterprise-hosted offering is intended for organizations that choose to move
their entire enterprise or large departments to our solution and prefer the
hosted, outsourced business model. In this offering, customers can customize
their hosted environment to better meet their needs. eRoom.net is also made
available to a range of partners that need to add collaborative capabilities to
their offerings to meet new market needs. Our eRoom.net solution offers these
partners an alternative business model that allows them to get their products or
services to market faster while minimizing their up-front investment. The
eRoom.net service is currently being tested by our customers and is expected to
be commercially released within the next two quarters.

SERVICES AND SUPPORT

We offer a range of support, training, professional services and automated
web-based services to our customers, their suppliers and other partners. As of
June 30, 2000, we had 32 employees in our services and support organization.

Our customers may choose to implement our eRoom software with support from
our professional services personnel or systems integrators, or by themselves. We
offer standard implementation, the development of customized user interfaces and
integration of the eRoom server with existing IT infrastructures for our
customers and members of their extended enterprises. Our implementation services
are priced on a time-and-materials basis.

We offer education and training to our customers to optimize their use of
the eRoom digital workplace, including eRoom application development, best
practices, help desk training and seminars over the web or in person. We also
educate our partners and other resellers in implementing our solution as a part
of their offerings.

We also provide maintenance and support services to our customers over the
Internet or by telephone. These services include problem solving, technical tips
and product information. The price of the first year of maintenance is included
in our license fees. Renewal maintenance is generally priced as a percentage of
the initial license fee.

SALES AND MARKETING

We market and sell our products and services through our direct sales force
and indirect channels including systems integrators and other partners. As of
June 30, 2000, we had 69 sales and marketing employees in seven locations in
North America and one in Europe. We plan to expand significantly our direct
sales organization, to establish additional domestic and international sales
offices and to increase significantly the number of systems integrators,
value-added resellers and original equipment manufacturers, or OEMs, that sell
our eRoom product.
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Direct sales force. Our direct sales force, which includes both sales and
technical professionals, works closely with targeted customers to identify
business requirements and technical needs. Our sales process often commences
with a rapid proof of concept or customer test of our product. Many of our
customers initially purchase a license for users assigned to a specific project
or within a single department. Our inside sales representatives work closely
with these customers to assist with the initial project and to sell additional
licenses. The sales cycle for these sales ranges from a few weeks to a few
months. More recently, some of our existing and new customers have decided to
adopt our solution as a standard in their organization or for large-scale
deployment. In these situations, we complement our inside sales team with
outside sales personnel who facilitate decision-making at potential enterprise
customers. The sales cycle for sales to organizations that standardize with our
solution is generally much longer than our other sales and typically lasts
between six and twelve months.

Systems integrators, OEMs and resellers. In addition to our direct sales
force, we work with a number of domestic and international systems integrators,
OEMs and resellers that market, sell and service our eRoom product. As of June
30, 2000, we had agreements with 25 systems integrators, OEMs and resellers in
North America and Europe. We plan to increase our indirect selling efforts by
expanding our systems integrators, OEMs and reseller base, and by building
relationships with providers of complementary products and services, including
independent software vendors and business-to-business vertical marketplaces.

Marketing. We engage in a broad range of marketing programs to generate
new sales opportunities and increase the awareness of our eRoom product. We
participate in demand generation programs including tradeshows, direct marketing
and advertising. In addition to print, radio, trade shows and other means to
market our products and services, we hold online user seminars, joint marketing
seminars and on-site customer demonstrations.

We also seek to leverage our existing customers' enthusiasm for using our
eRoom digital workplace as their collaborative solution by encouraging them to
market eRoom's use both within their organization and with their customers,
suppliers and other business partners. We provide our customers with promotional
materials, tools, speaking opportunities at trade shows and on industry panels
and other incentives to educate others about eRoom's benefits.

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CUSTOMERS

We target businesses that require collaboration among the members of their
extended enterprise, allowing them to assemble a project team from multiple
locations to manage their important business projects and processes. Our
customers are in a number of industries and use our eRoom product for a variety
of worldwide distributed projects and processes, including designing and
developing products, bringing new products to market, establishing and
coordinating activities across the supply chain, coordinating selling efforts
and managing of consulting engagements from proposal through completion. As of
June 30, 2000, we had over 350 customers, primarily located in the United
States. Listed below is a representative list of customers, by industry:

PROFESSIONAL SERVICES AND CONSULTING
Arthur Andersen
A.T. Kearney
Camp Dresser & McKee
Concert CSC
Deloitte & Touche
EDS
Emerald Solutions
Ernst & Young
iXL
KPMG
marchFIRST Cornerstone
Perot Systems
Renaissance Worldwide
Towers Perrin

TECHNOLOGY
Cadence Design Systems
Compaq
EMC
Flextronics
Hewlett-Packard
Intel
Intuit
Palm Computing
Siemens
Solectron
Telcordia

NETWORKING/COMMUNICATIONS
3Com Corporation
Cisco Systems
COMSAT International
GTE
Intelsat
Nortel Networks
USInternetworking

MANUFACTURING
Eaton Corporation
Ford Motor Company
Haworth
Lockheed Martin
Owens-Illinois
W.R. Grace
W.W. Grainger

FINANCIAL/LEGAL/OTHER SERVICES
Advent International
Akin, Gump, Strauss, Hauer &
Feld
Brinson Partners
CB Richard Ellis
Fidelity Investments
FleetBoston
Goldman Sachs
Ketchum
Leo Burnett
Morgan, Lewis & Bockius
Morgan Stanley Dean Witter
NYCE
SEI Investments
Third Federal Savings
Wilmington Trust

CONSUMER
Bausch & Lomb
Black & Decker
Franklin Covey
Gillette
Iams Company
Johnson & Johnson
The Limited
Westinghouse

ENTERTAINMENT, MEDIA AND PUBLISHING
CCBN.com
Oxygen Media
Rand McNally
Reed Elsevier
Time Warner

NATURAL RESOURCES
Baker Hughes
BP Amoco

PHARMACEUTICAL/HEALTHCARE
Battelle Medical Products
IMS Health
Janssen Pharmaceutical
Metro Jewish Health System
Ortho McNeil Pharmaceutical
Pfizer

REAL ESTATE/CONSTRUCTION
Julien J. Studley
Sverdrup Civil

SELECTED CUSTOMER EXAMPLES

The selected customer examples below are intended to provide brief
descriptions of how our customers are using or plan to use the eRoom solution to
enhance efficiencies in their business initiatives.

Hewlett-Packard. At Hewlett-Packard the Supply Chain Information Solutions
(SCIS) e-Business group required a better way to communicate with external
partners. Traditional means of

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communication -- telephone, fax and e-mail -- were inefficient in managing their
projects. Although existing corporate systems were able to handle most
business-to-business supply management, many of them were inadequate for more
rapid communications, such as those needed for fine tuning inventories on a
daily basis. The company's ERP solutions provided an effective interface for
internal users, but they lacked the communications and access needed to exchange
information with external suppliers. HP's large intranet was useful for internal
information exchange, but it could not easily handle the exchange of information
through the company firewall.

After evaluating several alternatives, the SCIS e-Business group selected
eRoom as its solution. eRoom's application programming interfaces allowed HP to
extend the reach of its internal solutions, such as SAP, to external partners
over the web. One early eRoom application, called Supplier Managed Inventory
(SMI), enabled an HP business unit to collaboratively manage daily production
and shipment plans in order to avoid stockouts while maintaining low inventory
costs. HP personnel could easily access inventory and shipment information on
their desktops using drag-and-drop graphical views of data on Windows NT
servers. Both internal HP users and external partners could access the custom
eRoom application to check the demand and supply of parts. When the Laserjet
Imaging Systems (LIS) business unit decided to outsource the manufacturing of
its circuit boards, it needed to be able to share information in a fast and
secure manner with contract manufacturers, distribution centers, and resellers
located outside the HP firewall. The SMI application has enabled LIS to add
collaborative capabilities to its existing transaction-based systems. The
business unit reduced inventory investment by turning over stock more often.
Equally important, team members were able to continue to work in their familiar
ERP system. HP estimates that products that use the SMI program have increased
worldwide inventory turns and reduced end-to-end supply chain inventory by up to
42%. Two years ago, HP's initial deployment was limited to 40 early adopters
accessing eRoom through an internal service provider. Today, the company has a
site license for 100,000 users.

A.T. Kearney. A.T. Kearney, a subsidiary of Electronic Data Systems Corp.,
is a leading global management-consulting firm, with gross fees of over $1.2
billion and 4,700 employees in more than 60 offices worldwide. A change
initiative engagement with a large financial services firm precipitated its
deployment of eRoom. The most significant challenges of the engagement were
managing the geographical disbursement of project teams and document version
control. A.T. Kearney required a collaboration solution that would ensure that
project team members in a variety of locations had access to the most recent
versions of hundreds of documents. Additionally, the company was seeking an
easy-to-use, browser-based solution that could be deployed quickly and required
little support.

After evaluating several products, A.T. Kearney selected eRoom, citing its
ease of use and flexibility. The implementation of eRoom reduced the
communications bottlenecks between consultants working in different locations by
providing all team members with continual access to view and edit the work in
progress. A.T. Kearney credits eRoom with enabling it to increase efficiency
while reducing costs. A.T. Kearney believes that the use of eRoom has saved each
consultant between five and seven hours per week.

Haworth. Haworth, Inc., a subsidiary of Haworth International Limited, is
a designer, manufacturer and marketer of contract office furnishings worldwide,
with sales of $1.58 billion and 14,000 employees. During recent years of rapid
international growth, Haworth recognized an increasing need to efficiently share
information within its global sales team to create a consistent client
experience. The company required a sales support solution that could overcome
communications delays due to international time zones, distribute new account
information to sales people, and enable consistent project support to
multinational clients regardless of location. Haworth's existing program was
accessed by only 25% of the company's U.S. field members, making consistent
sales support difficult.

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In response to these difficulties, Haworth developed its new Global Account
Information Network using eRoom to link its worldwide sales force, dealers, and
customers. The new sales support system provides a comprehensive source of
up-to-the-minute customer information across marketing, sales, and customer
service functions. Because eRoom is easy to implement and use, nearly all of the
global field members are accessing the system. Haworth created virtual teams
with eRoom, enabling account executives and managers to share information
regarding a customer's product requirements, account history, current and past
issues, and current contact information. Because sales data from previous
transactions is readily available, Haworth's bid preparation time has been
reduced enabling them to enter the bidding process earlier when the focus is on
product value and design, rather than price. Haworth initially purchased 500
user licenses and the success of the Global Account Information Network has
necessitated the purchase of 250 additional licenses. Additionally, departments
outside of sales are investigating the use of eRoom for additional business
applications.

PRODUCT DEVELOPMENT

We devote a substantial portion of our resources to developing new
products, product features and services, extending and improving our technology
and researching new technological initiatives in the market for business
collaboration solutions. We commercially introduced our eRoom product in October
1997 and have subsequently released three versions that added new features and
improved reliability and scalability. eRoom.net, our Internet-based hosted
service, is currently being tested by our customers and we anticipate commercial
release within the next two quarters. We are also currently testing eRoom 5.0,
scheduled for commercial release within the next two quarters.

As of June 30, 2000, we had 45 employees engaged in product development.
Our research and development expenditures were $2.4 million in 1998, $3.0
million in 1999 and $4.1 million in the six months ended June 30, 2000. We
expect that we will continue to commit significant resources to product
development.

TECHNOLOGY AND PRODUCT ARCHITECTURE

The eRoom application server software is built on open Internet standards
and runs on Microsoft Windows NT and Windows 2000 running Microsoft's Internet
information server, called IIS. The user can access our digital workplace
through a standard web browser running on a number of operating systems,
including Microsoft Windows, Macintosh and Unix. An optional eRoom plug-in,
which enhances the user experience in the browser with capabilities including
drag and drop and in-place editing, requires Windows versions of Microsoft
Internet Explorer 4.x or 5 or Netscape 4.08, 4.51 or higher.

The eRoom server supports several deployment options, including choice of
SQL database and also choice of where the server or service is located. The
eRoom server includes the Sybase SQLAnywhere database or can optionally
integrate with a customer's own Microsoft SQL Server 7.0 database. In addition,
we have built the eRoom server so that our solution can be offered as an
outsourced, hosted offering where we act as an application service provider, and
the eRoom server is running at a third-party service provider. The eRoom server
includes comprehensive integration and customization architectures designed for
enterprise developers, IT departments, OEMs, partners and systems integrators.

Infrastructure Integration. Directory integration is achieved through a
flexible model which includes support of multiple NT Domain and Windows 2000
directories, allowing eRoom servers to be well integrated into very large
enterprise environments. In addition, our solution supports standard
administration and management tools and protocols including Microsoft MMC,
PerfMon and Event Manager.

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OEM Toolkit. For the OEM community, we supply an OEM toolkit providing
special APIs, tools and documentation and a user interface customization toolkit
allowing customers and OEMs to change the visual appearance of the product.

[A diagram showing the eRoom product as a three-dimensional box on top of a
three-dimensional box representing a server platform.
The eRoom box is divided into three vertical sections titled (from left to
right): "Client Interfaces", "Digital Workplace" and "Integration."
The "Client Interfaces" section contains four rectangular boxes labelled
"Web Browser", "email", "Desktop Applications" and "MS Outlook." Three two-way
arrows point from the "Client Interfaces" section to three identical diagrams of
computer screens above which appears the text "Users."
The "Digital Workplace" section contains five rectangular boxes labelled
"Collaboration", "Real-Time", "Document Management", "Workflow" and "Change
Notification."
The "Integration" section contains four rectangular boxes labelled "Server
Extension API", "Connector API", "Directory Integration" and "OEM Toolkit." Five
two-way arrows point from the "Integration" section to five identical
three-dimensional cylinders captioned as the category "Enterprise
Infrastructure" and labelled "eBusiness Applications", "eMarketplaces",
"Repositories", "Messaging & Groupware" and "Directories."
The server platform on which the eRoom product box rests is labelled
"Server Platform" and is divided into seven rectangular boxes labelled
"Security", "Administration", "Scalability", "Customizability", "Server OS",
"Web Server", "SQL Database" and "Directory."
Connected to the top of the eRoom product box is a three-dimensional
rectangular box labelled "Application Templates" and divided into four boxes
titled "New Product Development", "Supply Chain Management", "Client Engagement
Management" and "eCommerce Management." The "Application Templates" box is
connected to the eRoom product box by a pipeline.]

COMPETITION

We currently face competition from:

- in-house development efforts by potential customers or partners; and

- developers of general purpose groupware, knowledge management, and
document management software, including Documentum, the Lotus division of
IBM, Microsoft and OpenText, that offer collaborative capabilities as
part of their offerings.

We believe the principal competitive factors in the business collaboration
software market include:

- comprehensiveness of the solution;

- ease of use;

- effectiveness in an extended enterprise environment;

- ease of implementation;

- integration with and support of a variety of other enterprise software
solutions and platforms; and

- price.

Although we believe that our solution currently competes favorably with
respect to each of these factors, our market is relatively new and is developing
rapidly. Current and potential competitors have established or may establish
cooperative relationships among themselves or with third parties to increase the
functionality of their products. Accordingly, it is possible that new
competitors or alliances among competitors may emerge and rapidly acquire
significant market share. We may not be able to maintain our competitive
position against current and potential competitors, especially those that have
significantly greater financial, marketing, service, technical and other
resources than we do, and therefore may be able to respond more quickly to
changing customer requirements, evolving technologies or business opportunities.
In addition, if companies, such as Microsoft, decide to bundle collaborative
functionality comparable to our eRoom solution into their product offerings,
demand for our product might be substantially reduced and our business would
likely be significantly harmed.

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INTELLECTUAL PROPERTY

We regard substantial elements of our products and services as proprietary
and protect them by relying primarily on patent, trademark, service mark,
copyright and trade secret laws and restrictions, as well as confidentiality
procedures and contractual provisions.

We license rather than sell our software product and require our customers
to enter into license agreements, which impose restrictions on their ability to
utilize the software. Our optional plug-in software, which enhances the eRoom
digital workplace experience, may be licensed by downloading it from the
Internet. In that case, our customers' usage of the plug-in is governed by
Internet-based license agreements, rather than by a means of a formal, written
contract. Users "click" on a dialog box and are deemed to agree to the posted
terms and conditions. Because these agreements are not signed, there is a
possibility that a court, arbitrator or regulatory body could deem this type of
agreement to be invalid or determine that the terms and conditions governing the
agreement do not fully protect our intellectual property rights. Therefore, we
cannot assure you that this agreement will afford us significant protection. 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 confidentiality agreements with us and restricting access
to our source code. We seek to protect our software, documentation, templates
and other written materials and content under trade secret and copyright laws,
which afford only limited protection.

Our registered trademarks and service marks include EROOM (in the U.S. and
the European Community). We have applied for registration of trademarks and
service marks, including our eMan logo (in the U.S. and the European Community).
These applications are subject to review by the applicable governmental
authority, may be opposed by private parties, and may not be issued. We cannot
assure you that these registrations would, if issued, provide us with
significant protection for our trademarks.

In limited circumstances, we have agreed to a standard escrow of the source
code for our eRoom digital workplace, which code would typically be released to
the customer solely on a bankruptcy or liquidation event.

We cannot assure you that any of our proprietary rights with respect to our
products or services will be viable or be of value in the future since the
validity, enforceability and type of protection of proprietary rights in
Internet-related industries are uncertain and still evolving.

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 exists, software piracy can be expected to be a persistent problem.
In addition, the laws of some foreign countries do not protect 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.

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In recent years, there has been significant litigation in the United States
involving patents and other intellectual property rights, particularly in the
software and Internet industries. We could become subject to intellectual
property infringement claims as the number of our competitors grows and our
products and services overlap with competitive offerings. These claims, even if
not meritorious, could be expensive and divert management's attention from
operating our company. If we become liable to third parties for infringing their
intellectual property rights, we could be required to pay a substantial damage
award and to develop non-infringing technology, obtain a license or cease
selling the products that contain the infringing intellectual property. We may
be unable to develop non-infringing technology or obtain a license on
commercially reasonable terms, if at all.

In addition, we incorporate into our products technology licensed from
third parties. For example, we have designed our eRoom product to include
Sybase's Adaptive Server Anywhere database. The loss of access to this
technology could result in delays in the development and introduction of new
products or enhancements or replacement functionality to existing products,
until equivalent or replacement technology could be accessed, if available, or
developed internally, if feasible. These delays could harm our business,
operating results and financial condition. It is possible that technology from
others will not be available to us on commercially reasonable terms, if at all.

EMPLOYEES

As of June 30, 2000, we had a total of 173 employees, including 45 in
product and development, 69 in sales and marketing, 32 in services and support
and 27 in administration. Of these employees, 171 were located in the United
States and two were located outside the United States. None of our employees is
represented by a collective bargaining agreement, nor have we experienced any
work stoppage. We consider our relations with our employees to be good.

FACILITIES

Our principal executive offices occupy 39,320 square feet in Cambridge,
Massachusetts under a lease that expires in June 2005. We also have five outside
sales offices. We believe these existing facilities will be adequate to meet our
needs for the next 12 months. If our growth continues, we may need larger
facilities after that time. Suitable additional facilities may not be available
as needed on commercially reasonable terms, if at all.

LEGAL PROCEEDINGS

Currently, we are not a party to any material legal proceedings. We may
from time to time become a party to various legal proceedings arising in the
ordinary course of business.

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MANAGEMENT

EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES

The following are our executive officers, directors and key employees and
their ages as of August 31, 2000:

<TABLE>
<CAPTION>
NAME AGE POSITIONS
---- --- ---------
<S> <C> <C>
Executive Officers and Directors:
Jeffrey R. Beir........................... 42 President, Chief Executive Officer and Director
R. Pito Salas............................. 44 Senior Vice President of Technology, Chief
Technology Officer, Secretary and Director
Robert L. Lentz........................... 50 Senior Vice President of Finance, Chief Financial
Officer, Treasurer and Assistant Secretary
Ralph Breslauer........................... 36 Senior Vice President of Field Operations
Timothy A. Barrows........................ 43 Director
Richard D'Amore........................... 46 Director
Ronald Nordin............................. 49 Director
Thomas F. Bogan........................... 48 Director
David A. Litwack.......................... 53 Director
Key Employees:
Mary Lou Dymski........................... 45 Vice President, Finance
Eric Fischer.............................. 34 Vice President, Sales
Francois Gossieaux........................ 40 Vice President and Chief Marketing Officer
Michele Hagan............................. 39 Vice President, Marketing
Melissa Leffler........................... 36 Vice President, Engineering
Craig Morrissey........................... 35 Vice President, Core Engineering
Sara Poulton.............................. 33 Vice President, Services
Barry Ruditsky............................ 39 Vice President, Business Development
</TABLE>

EXECUTIVE OFFICERS AND DIRECTORS

Jeffrey R. Beir co-founded eRoom Technology and has served as our
president, chief executive officer and a director since our inception in 1996.
From May 1985 to February 1996, Mr. Beir held a variety of executive and general
management positions at Lotus Development Corporation, most recently senior vice
president of applications. Prior to Lotus, he held a variety of development
positions at IBM and Xerox. Mr. Beir received a B.S. degree in electrical
engineering from Northwestern University, a M.S. degree in electrical
engineering from Syracuse University and an M.B.A. degree from the Harvard
Business School.

R. Pito Salas co-founded eRoom Technology and has served as our chief
technology officer and secretary and a director since our inception and our
senior vice president of technology since August 2000. From September 1995 until
co-founding eRoom Technology in 1996, Mr. Salas was the owner and sole employee
of R. Pito Salas and Associates, a computer consulting business. Prior to that,
from May 1984 to September 1995, Mr. Salas held a variety of senior technical
and development positions at Lotus Development Corporation, most recently
director of technology of the Lotus Notes Emerging Products Group. Mr. Salas
received a B.S. degree in computer science from Brandeis University.

Robert L. Lentz has served as our senior vice president of finance and
chief financial officer since February 2000 and our treasurer and assistant
secretary since June 2000. Immediately prior to joining

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eRoom Technology, from April 1998 to February 2000, Mr. Lentz was senior vice
president of finance and administration and chief financial officer at Xionics
Document Technologies, which was acquired by Oak Technology in January 2000.
From March 1996 to April 1998, he was senior vice president of finance and
administration and chief financial officer at Individual, which merged with
DesktopData to become NewsEdge Corp. Prior to that, from 1993 to March 1996, Mr.
Lentz was vice president of finance and operations at Teloquent Communications
Corp. Mr. Lentz received a B.S. degree in business administration from
Northeastern University and an M.B.A. degree from Babson College.

Ralph Breslauer has served as our senior vice president of field operations
since July 2000. Prior to joining eRoom Technology, from March to July 2000, Mr.
Breslauer was vice president marketing and business development for the transact
systems group of Informix. From January 1998 to February 2000, he was vice
president of product marketing and, more recently, vice president of marketing,
database and tools, at Ardent Software, which was acquired by Informix in
November 1999. Prior to that, from November 1995 to December 1997, he held
senior sales and marketing positions at Unidata, a predecessor of Ardent
Software. From August 1990 to November 1995, he served in senior executive
positions with System Builder USA, a predecessor of Unidata. Mr. Breslauer has a
bachelor of economic science degree from the University of the Witwatersrand in
South Africa.

Timothy A. Barrows has served as one of our directors since July 1996.
Since 1985, Mr. Barrows has been a general partner of the general partner of
Matrix Partners, a venture capital firm. His prior experience also includes
corporate finance and mergers and acquisitions operations at Merrill Lynch
Capital Markets. Mr. Barrows serves as a director of SilverStream Software,
Sycamore Networks and several private companies. Mr. Barrows holds a B.A. degree
in political-economics from Williams College and an M.B.A. degree from Stanford
University.

Richard D'Amore has served as one of our directors since July 1996. Since
March 1994, Mr. D'Amore has been a general partner of the general partner of
North Bridge Venture Partners, a venture capital firm. From 1982 to 1994, he was
a general partner of Hambro Venture funds. Mr. D'Amore serves as a director of
Centra Software, Veeco Instruments, SilverStream Software, SmarterKids.com and
Solectron. Mr. D'Amore holds a B.S. degree from Northeastern University and an
M.B.A. degree from Harvard University.

Ronald Nordin has served as one of our directors since August 1998. Mr.
Nordin is a senior principal at Atlas Venture, a venture capital firm. He joined
Atlas Venture in April 1998. From August 1992 to February 1997, Mr. Nordin was
chief executive officer of SQA, a developer of software and services for quality
assurance, which was acquired by Rational Software in February 1997. From 1983
to 1992, Mr. Nordin held various positions with Cognos, a supplier of business
intelligence software, most recently as senior vice president. He serves as a
director of Context Integration, a private company. Mr. Nordin holds a B.A.Sc.
degree in systems design engineering from the University of Waterloo in Canada.

Thomas F. Bogan has served as one of our directors since July 2000. Mr.
Bogan has been the president and chief operating officer of Rational Software
since April 2000. From April 1999 until April 2000, Mr. Bogan served as senior
vice president and chief operating officer of Rational Software. From 1997 to
1999, he served as vice president and general manager, automated test of
Rational Software. From July 1996 until February 1997, Mr. Bogan served as
senior vice president, finance and administration, chief financial officer,
treasurer and assistant secretary of SQA, Inc., which was acquired by Rational
Software in February 1997. From 1993 to 1996 Mr. Bogan was president and chief
executive officer of Pacific Data Products, a printer peripherals and networking
vendor. Mr. Bogan holds a B.S. degree from Stonehill College.

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David A. Litwack has served as one of our directors since July 2000. Mr.
Litwack has served as president and chief executive officer of SilverStream
Software since May 1997 and as a member of SilverStream Software's board of
directors since November 1996. Before joining SilverStream Software, Mr. Litwack
served as executive vice president of Sybase, an enterprise software company,
from February 1995 to May 1997 and as president of Powersoft Corporation, a
client server development tools company, from June 1991 to its acquisition by
Sybase in February 1995. In addition, Mr. Litwack is a director of Trellix
Corporation, a private company. Mr. Litwack holds a B.A. degree in mathematics
from Brandeis University and a M.A.S. degree in computer science from Boston
University.

KEY EMPLOYEES

Mary Lou Dymski has served as our vice president, finance since February
2000. From September 1997 to February 2000, Ms. Dymski served as our chief
financial officer and vice president, finance. From January 1997 to September
1997, she served as senior vice president of operations and chief financial
officer at Corporate Software & Technology. From March 1995 to December 1996,
Ms. Dymski was vice president of finance at Stream International. From July 1993
to March 1995, she was chief financial officer and vice president of finance at
Corporate Software. From June 1982 to June 1993, Ms. Dymski worked at Intel as a
division and group controller. Ms. Dymski holds a B.A. degree in political
science from Swarthmore College and an M.B.A. degree from Northwestern
University.

Eric Fischer has served as our vice president, sales since June 1997. From
March 1994 to June 1995, Mr. Fischer was a strategic account manager and from
June 1995 to May 1997, he was a district sales manager of the northeast region
at Powersoft. Mr. Fischer received a Vor-Diplom in economics and engineering at
University of Karlsruhe in Germany.

Francois Gossieaux has served as our vice president and chief marketing
officer since July 2000. From October 1999 to July 2000, he served as our vice
president, eRoom.net. From May 1998 to October 1999, he served as our vice
president, marketing. Prior to joining eRoom Technology, Mr. Gossieaux founded
Power1 Interactive, a media consulting firm to high-technology clients. From
November 1996 to May 1998, he served as president at Power1 Interactive. From
June 1997 to January 1998, Mr. Gossieaux served as vice president, marketing and
new product development at Inunity Corporation. From June 1995 to November 1996,
Mr. Gossieaux was director of marketing at Stratus Computer. From 1992 to June
1995, he served as business line manager at the Agfa Division of Bayer Corp. Mr.
Gossieaux received a M.S. degree in electrical engineering from the University
of Gent in Belgium and a graduate degree in management and administration from
Harvard University.

Michele Hagan has served as our vice president, marketing since November
1999. She was our director of marketing from April 1999 to November 1999 and a
consultant to us from September 1998 to April 1999. From June 1987 to June 1998,
she held various management positions at Lotus, first as a senior manager in the
Consulting Services Group, and more recently as general manager of eSuite
Product Development and director of product marketing for Lotus 1-2-3
components. Ms. Hagan holds a B.S. degree in political science from Tufts
University.

Melissa Leffler has served as our vice president, engineering since
inception. From October 1995 to July 1996, she was vice president of marketing
and application development at Revelation Software. From October 1991 to July
1995, Ms. Leffler was director of development for Lotus Notes ViP at Lotus. Ms.
Leffler received a B.A. degree in computer science and english from Boston
University.

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Craig Morrissey has served as our vice president, core engineering since
September 2000. He was our director of engineering from January 2000 to
September 2000, director of development from October 1998 to January 2000 and
engineering team leader from October 1996 to October 1998. From September 1993
to October 1996, he held various positions at Avid Technology, first as
principal engineer and more recently as engineering manager. Mr. Morrissey
received a B.S. degree in electrical engineering from Cornell University and an
M.B.A. degree from Babson College.

Sara Poulton has served as our vice president, services since June 1999.
From March 1999 to April 1999, she was consulting director of XML Solutions at
Interleaf. From October 1998 to March 1999, she was vice president of services
at Politzer & Haney. From July 1997 to September 1998, Ms. Poulton was vice
president of professional services at Advanced Visual Systems. From December
1991 to July 1997, she held various management positions at OneSource
Information Services, most recently as director of product management and
application services. From 1989 to 1991, Ms. Poulton was a senior investment
research consultant at Datastream International. She received a B.A. degree in
history and economics from University of London and an M.B.A. degree from
Simmons Graduate School of Management.

Barry Ruditsky has served as our vice president, business development since
November 1999. From July 1998 to August 1999, he was director of sales for
Lotus. From January 1993 to June 1998, Mr. Ruditsky served as vice president of
sales at DataBeam, which was acquired by Lotus. He received a B.A. degree in
computer science from Brandeis University and an M.B.A. degree from Rutgers
University Graduate School of Management.

BOARD OF DIRECTORS

The board of directors is fixed at eight members. Seven members are
currently serving on our board. At each annual meeting of stockholders,
directors will be elected by the holders of common stock to succeed the
directors whose terms are expiring.

All of our current directors originally were elected as directors pursuant
to provisions of an investors' rights agreement that will terminate upon the
completion of this offering.

Each executive officer serves at the discretion of the board of directors
and holds office until his successor is elected and qualified or until his
earlier resignation or removal. There are no family relationships among any of
our directors and executive officers.

BOARD COMMITTEES

The board of directors has formed an audit committee to review the results
and scope of the audit of our annual financial statements, to discuss various
matters with the auditors, to receive statements from the auditors and to make
recommendations to the board of directors regarding the inclusion of audited
financial statements in our annual reports. The current members of our audit
committee are Thomas F. Bogan, Richard D'Amore and Ronald Nordin.

The board of directors has also formed a compensation committee to
recommend salaries and incentive compensation for executive officers and to
administer our stock plans. The members of the compensation committee are
Timothy A. Barrows, David A. Litwack and Ronald Nordin.

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<PAGE> 55

DIRECTOR COMPENSATION

Our directors do not receive cash compensation for their services as
directors but are reimbursed for their reasonable and necessary expenses
incurred in connection with attendance at meetings of the board of directors or
its committees. Our directors are eligible to participate in our 2000 stock
plan.

Upon joining our board in July 2000, Messrs. Bogan and Litwack were each
granted non-qualified stock options to purchase 25,000 shares of our common
stock. Provided they maintain a business relationship with us, these options
will vest monthly over four years. Upon a sale of eRoom Technology, all unvested
options will immediately vest. Our board currently intends to make similar
option grants to future outside directors that are not employees of our company
or one of our affiliates or principal stockholders upon joining our board.

In October 2000, our board of directors approved guidelines for the grant
of non-qualified stock options under our 2000 stock plan to directors who are
not also one of our employees. These guidelines provide that at the closing of
this offering non-employee directors will receive options to purchase 25,000
shares vesting monthly over four years and exercisable at the public offering
price per share listed on the cover of this prospectus. Messrs. Bogan and
Litwack will not receive these initial grants. Additional grants of options to
purchase 6,250 shares to all non-employee directors will be made on or about the
date of each annual stockholders' meeting. Upon a sale of eRoom Technology, all
unvested options will immediately vest.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDE PARTICIPATION

Since December 1998, Messrs. Barrows and Nordin have served as the members
of the compensation committee and since September 2000, Mr. Litwack has served
on that committee. No executive officer of our company has served as a director
or member of the board of directors or compensation committee of any other
entity that had one or more executive officers serving as a director or member
of the board of directors or compensation committee of our company.

EXECUTIVE COMPENSATION

The following table presents compensation earned for services rendered to
us in 1999 by our current chief executive officer and the one other executive
officer whose salary and bonus compensation for 1999 exceeded $100,000,
collectively referred to below as the named executive officers.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION SHARES
-------------------- UNDERLYING
NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS
--------------------------- --------- -------- ------------
<S> <C> <C> <C>
Jeffrey R. Beir........................................ $ 135,000 $ 57,687 --
President and Chief Executive Officer

R. Pito Salas.......................................... 126,540 36,048 --
Senior Vice President of Technology,
Chief Technology Officer and Secretary
</TABLE>

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<PAGE> 56

OPTION GRANTS

Prior to 2000, no stock options or stock appreciation rights were granted
to the named executive officers. In January 2000, Mr. Beir was granted an option
to purchase 300,000 shares of our common stock and Mr. Salas was granted an
option to purchase 100,000 shares of our common stock at an exercise price of
$1.50 per share. In addition, our other executive officers were also granted
options in 2000. In February 2000, Robert L. Lentz was granted an option to
purchase 262,500 shares of our common stock at an exercise price of $1.50 per
share. In July 2000, Ralph Breslauer was granted an option to purchase 200,000
shares of our common stock at an exercise price of $4.50 per share. All of the
foregoing options are exercisable within ten years of the original grant date to
the extent vested and not subject to earlier termination as set forth in the
option agreements governing the options.

STOCK PLANS

1996 Stock Plan

Our 1996 Stock Plan was adopted by the board of directors and approved by
our stockholders in July 1996, and was amended on August 8, 1997, August 13,
1998, March 3, 1999, September 1, 1999 and February 18, 2000. The aggregate
number of shares of common stock which may be issued under the 1996 stock plan
is 5,284,302. Under the 1996 stock plan, we are authorized to grant incentive
stock options, within the meaning of Section 422 of the Internal Revenue Code,
to employees and non-qualified stock options, awards of common stock and
opportunities to make direct purchases of common stock to employees, officers,
directors and consultants.

The 1996 stock plan is currently administered by the board of directors.
Subject to the provisions of the 1996 stock plan, the board of directors or a
committee of the board of directors has the authority to select the persons to
whom stock options, awards and purchase rights are granted and to determine the
terms of each stock option, award and purchase right.

Options granted under the 1996 stock plan are exercisable within ten years
of the original grant date. Initial options granted to employees generally
become exercisable one year from the vesting start date with respect to 25% of
the shares originally granted under the option. Thereafter, the options become
exercisable monthly over each of the next thirty-six months with respect to
approximately 2.08% of the shares originally granted under the option. Follow-on
options granted to employees generally become exercisable monthly with respect
to approximately 2.08% of the shares originally granted under the option,
starting one month after the vesting start date. Options may be granted which
are immediately exercisable subject to repurchase by us at the original price
for all of the shares up until one year following the date of grant, at which
time our right to repurchase terminates with respect to 25% of the shares
originally granted. Thereafter, our right to repurchase terminates monthly over
the next 36 months with respect to approximately 2.08% of the shares originally
granted under the option. The board of directors or a board committee may
specify a different vesting schedule for any particular grant.

An incentive stock option is not transferable by the recipient except by
will or by the laws of descent and distribution. Non-qualified stock options and
other awards are transferable only to the extent provided in the agreement
relating to such option or award. No stock option may be exercised more than
three months following the date the recipient ceases to be a consultant or
employee, and no incentive stock option may be exercised following termination
of employment for cause. Incentive stock options are exercisable for a maximum
of six months following termination due to death or disability. The 1996 stock
plan provides that the board of directors or a board committee has the right to
accelerate the date that any installment of an option becomes exercisable.

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<PAGE> 57

As of August 31, 2000, options to purchase 2,878,279 shares of common stock
were outstanding under the 1996 stock plan. Upon the closing of this offering,
and assuming the offering closed as of August 31, 2000, the authorization to
grant options to purchase 511,566 shares of our common stock under the 1996
stock plan will terminate, although options granted prior to this offering under
the 1996 stock plan that are subsequently returned to us because they did not
vest or were not timely exercised may be regranted.

2000 Stock Option and Incentive Plan

In September 2000, our board of directors approved our 2000 Stock Option
and Incentive Plan, to become effective on the closing of the offering. The
aggregate number of shares of common stock which may be issued under the 2000
stock plan is 2,500,000 shares. In addition, the number of shares reserved under
the 2000 stock plan will automatically be increased on the first day of each of
our fiscal years beginning in 2002 and ending in 2010 in an amount equal to the
lesser of 2,000,000 shares or 6.5% of our total shares outstanding on the last
day of the preceding fiscal year, unless the board of directors determines to
increase the amount by a lesser number of shares.

Under the 2000 stock plan, we are authorized to grant incentive stock
options, within the meaning of Section 422 of the Internal Revenue Code, to
employees and non-qualified stock options, awards of common stock and
opportunities to make direct purchases of common stock to our employees,
officers, directors and consultants. The maximum number of shares that may be
granted to any employee under the 2000 stock plan shall not exceed 1,000,000
shares of common stock during any calendar year.

The 2000 stock plan will be administered by the board of directors or a
board committee. Subject to the provisions of the 2000 stock plan, the board of
directors or a board committee each has the authority to select the persons to
whom awards are granted and to determine the terms of each award, including the
number of shares of common stock to be granted. Payment of the exercise price of
an award may be made in cash, shares of common stock, a combination of cash or
stock or by any other method approved by the board or a board committee,
consistent with Section 422 of the Internal Revenue Code and Rule 16b-3 under
the Securities and Exchange Act of 1934. Unless otherwise permitted by us,
awards are not assignable or transferable except by will or the laws of descent
and distribution.

Each of the board of directors or a board committee may, in its sole
discretion, amend, modify or terminate any award granted or made under the 2000
stock plan, so long as such amendment, modification or termination would not
materially and adversely affect the participant. Each of the board or a board
committee may also, in its sole discretion, accelerate or extend the date or
dates on which all or any particular option or options granted under the 2000
stock plan may be exercised.

2000 Employee Stock Purchase Plan

In September 2000, our board of directors approved our 2000 Employee Stock
Purchase Plan, to become effective on the closing of the offering. The purchase
plan provides for the issuance of a maximum of 450,000 shares of common stock.
In addition, the number of shares reserved under the purchase plan will
automatically be increased on the first day of each of our fiscal years
beginning in 2002 and ending in 2010 in an amount equal to the lesser of 350,000
shares or 1.0% of our total shares outstanding on the last day of the preceding
fiscal year, unless the board of directors determines to increase the amount by
a lesser number of shares.

The purchase plan is administered by the board of directors or a board
committee. Employees who are customarily employed for more than 20 hours per
week and for more than five months in

53
<PAGE> 58

any calendar year and who have completed more than 90 days of employment on or
before the first day of any six-month payment period are eligible to participate
in the purchase plan, except that with respect to the first offering period, all
employees at our company as of the date of this prospectus are eligible to
participate in the purchase plan. Outside directors and employees who would own
5% or more of the total combined voting power or value of our stock immediately
after the grant may not participate in the purchase plan. To participate in the
purchase plan, an employee must authorize us to deduct an amount not less than
1% nor more than 10% of a participant's total cash compensation from his or her
pay during six-month payment periods. The first payment period will commence on
the date on which our common stock is first publicly traded and end on April 30,
2001. Thereafter, the payment periods will commence on the first day of May and
November, and end on the last day of the following October and April,
respectively, of each year. In no case shall an employee be entitled to purchase
more than 750 shares of common stock in any one payment period. The exercise
price for the option granted in each payment period is 85% of the lesser of the
average market price of the common stock on the first or last business day of
the payment period, in either event rounded up to the nearest cent. For purposes
of determining the exercise price, the date on which our common stock is first
publicly traded is deemed to be the first business day of the payment period for
the first two payment periods.

If an employee is not a participant on the last day of the payment period,
such employee is not entitled to exercise his or her option, and the amount of
his or her accumulated payroll deductions will be refunded. Options granted
under the purchase plan may not be transferred or assigned. An employee's rights
under the purchase plan terminate upon his or her voluntary withdrawal from the
plan at any time or upon termination of employment. No options have been granted
to date under the purchase plan.

CHANGE OF CONTROL ARRANGEMENTS

We have entered into agreements with each of Jeffrey R. Beir, our president
and chief executive officer, and R. Pito Salas, our senior vice president of
technology, chief technology officer and secretary, that provide that upon the
consummation of a sale of our company, 50% of the executive's unvested options
will vest and become immediately exercisable. We have also entered into
agreements with Robert L. Lentz, our senior vice president of finance and chief
financial officer, and Ralph Breslauer, our senior vice president of field
operations, that provide that upon the consummation of a sale of our company,
50% of our right to repurchase their restricted stock will terminate. A "sale of
the company" means:

- any merger or consolidation which results in the voting shares
outstanding immediately prior to the merger or consolidation,
representing immediately after the merger or consolidation, less than 50%
of the voting power of the surviving entity;

- a sale of all or substantially all of our assets; or

- the sale of our shares in a single transaction or a series of related
transactions, representing at least 50% of the voting power of our voting
shares.

Upon the consummation of a sale of our company, 100% of the unvested
options held by Messrs. Beir and Salas will vest and become immediately
exercisable and 100% of our right to repurchase Mr. Lentz and Mr. Breslauer's
restricted stock will terminate if, at the time of the consummation of the sale
of our company, the executive officer is not offered employment by the acquiror
with the terms described below or if those terms are violated, or the executive
officer is terminated without cause, within 12 months following the sale of our
company. The terms are as follows:

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<PAGE> 59

- the executive officer must be paid at the same or higher total
compensation level than the level then in effect for the executive
officer prior to the sale of our company;

- the executive officer's responsibilities are not materially reduced from
the level of responsibilities undertaken by the executive officer prior
to the sale of our company; and

- the executive officer must not be required to relocate outside a 40-mile
radius of the location of our principal office prior to the sale of our
company.

We have also entered into an agreement with Mr. Lentz that provides that,
in connection with a sale of our company, if the terms described above are
violated, or if he is terminated without cause within 12 months after a sale of
the company, he will be entitled to continue to receive compensation and
benefits for a period of six months from the date of termination of employment.

The compensation committee of the board of directors, as administrator of
the 1996 stock plan and the 2000 stock plan, can provide for accelerated vesting
of the shares of common stock subject to outstanding options or accelerate the
release of rights to repurchase restricted stock held by any of our executive
officers or directors in connection with specified changes of control of our
company. The accelerated vesting and release of rights to repurchase may be
conditioned on the termination of the individual's employment following the
change of control.

Each of our executive officers has signed a non-competition agreement for a
one-year period after termination of employment.

401(k) Plan

We have a 401(k) plan covering our full-time employees. The 401(k) plan is
intended to qualify under Section 401(k) of the Internal Revenue Code of 1986.
Contributions to the 401(k) plan by employees or by us, and the investment
earnings thereon, are not taxable to employees until withdrawn from the 401(k)
plan. Consequently, contributions by us, if any, will be deductible by us when
made. Employees may elect to reduce their current compensation by up to 15% (up
to the statutorily prescribed annual limit) and to have the amount of such
reduction contributed to the 401(k) plan. The 401(k) plan permits, but does not
require, additional matching contributions to the 401(k) plan by us on behalf of
all participants in the 401(k) plan. Since April 2000, our practice has been to
match 50% of an employee's contributions, up to a maximum matching contribution
of 3% of the employee's compensation.

55
<PAGE> 60

RELATED PARTY TRANSACTIONS

ORGANIZATION OF eROOM TECHNOLOGY

In connection with our formation in June 1996, we sold 1,500 shares of our
common stock at a price of $33.33 per share for gross proceeds of $24,997.50 to
our founders, Jeffrey R. Beir and R. Pito Salas. In July 1996, we issued a cash
dividend in the amount of $13.79 per share and effected a 1,953.48934-for-one
stock split in the form of a stock dividend of 1,952.48934 shares of common
stock for each outstanding share of our common stock.

SALE OF PREFERRED STOCK

In July 1996 and May 1997, we sold an aggregate of 3,565,000 shares of
series A redeemable convertible preferred stock at a price of $1.00 per share,
for gross proceeds of $3.6 million.

- We sold 1,712,500 of the shares to Matrix Partners IV, L.P. and Matrix IV
Entrepreneurs Fund, L.P. for a total purchase price of $1.7 million.
Timothy A. Barrows, one of our directors, is affiliated with Matrix
Partners IV, L.P. and Matrix IV Entrepreneurs Fund, L.P. Matrix Partners
IV, L.P. owns more than 5% of our outstanding common stock, assuming
conversion of the preferred stock owned by it.

- We sold 1,712,500 of the shares to North Bridge Venture Partners, L.P.
for a total purchase price of $1.7 million. Richard D'Amore, one of our
directors, is affiliated with North Bridge Venture Partners, L.P. North
Bridge Venture Partners, L.P. owns more than 5% of our outstanding common
stock, assuming conversion of the preferred stock owned by it.

In August 1997, we sold 2,851,065 shares of series B redeemable convertible
preferred stock at a price of $2.35 per share, for gross proceeds of $6.7
million.

- We sold 638,298 of the shares to Matrix Partners IV, L.P. and Matrix IV
Entrepreneurs Fund, L.P. for a total purchase price of $1.5 million.

- We sold 1,523,405 of the shares to New Enterprise Associates VII, Limited
Partnership, NEA Presidents' Fund, L.P. and NEA Ventures 1997, L.P. for a
total purchase price of $3.6 million. New Enterprise Associates VII
Limited Partnership owns more than 5% of our outstanding common stock,
assuming conversion of the preferred stock owned by it.

- We sold 638,298 of the shares to North Bridge Venture Partners, L.P. for
a total purchase price of $1.5 million.

In August 1998, we sold 1,250,000 shares of series B-1 redeemable
convertible preferred stock at a price $2.80 per share, for gross proceeds of
$3.5 million, to Atlas Venture Fund III, L.P. and Atlas Venture Entrepreneurs'
Fund, L.P. Ronald Nordin, one of our directors, is affiliated with Atlas Venture
Fund III, L.P. and Atlas Venture Entrepreneurs' Fund, L.P. Atlas Venture Fund
III, L.P. owns more than 5% of our outstanding common stock, assuming conversion
of the preferred stock owned by it.

In September and October 1999, we sold an aggregate of 3,236,918 shares of
series C redeemable convertible preferred stock at a price of $4.80 per share,
for gross proceeds of $15.5 million.

- We sold 209,030 of the shares to Atlas Venture Fund III, L.P. and Atlas
Venture Entrepreneurs' Fund, L.P. for a total purchase price of $1.0
million.

- We sold 1,250,000 of the shares to HarbourVest Partners VI-Direct Fund
L.P. for a total purchase price of $6.0 million. Thomas F. Bogan, one of
our directors, was designated as a

56
<PAGE> 61

director by HarbourVest. HarbourVest Partners VI-Direct Fund L.P. owns
more than 5% of our outstanding common stock, assuming conversion of the
preferred stock owned by it.

- We sold 393,110 shares to Matrix Partners IV, L.P. and Matrix IV
Entrepreneurs Fund, L.P. for a total purchase price of $1.9 million.

- We sold 254,750 of the shares to New Enterprise Associates VII, Limited
Partnership for a total purchase price of $1.2 million.

- We sold 393,110 of the shares to North Bridge Venture Partners, L.P. for
a total purchase price of $1.9 million.

In April and July 2000, we sold an aggregate of 2,009,571 shares of series
D redeemable convertible preferred stock at a price of $10.45 per share, for
gross proceeds of $21.0 million.

- We sold 122,651 of our series D redeemable convertible preferred stock to
North Bridge Venture Partners, L.P. for a total purchase price of $1.3
million.

- We sold 122,651 of our series D redeemable convertible preferred stock to
Matrix Partners IV, L.P. and Matrix IV Entrepreneurs Fund, L.P. for a
total purchase price of $1.3 million.

- We sold 79,482 of our series D redeemable convertible preferred stock to
New Enterprise Associates VII, Limited Partnership for a total purchase
price of $800,000.

- We sold 65,218 of our series D redeemable convertible preferred stock to
Atlas Venture Fund III, L.P. and Atlas Venture Entrepreneurs' Fund III,
L.P. for a total purchase price of $700,000.

- We sold 55,874 of our series D redeemable convertible preferred stock to
HarbourVest Partners VI-Direct Fund, L.P. for a total purchase price of
$600,000.

RELATIONSHIP WITH FORD MOTOR COMPANY

In March 2000, we entered into a license agreement with Ford Motor Company.
Under the agreement, we granted Ford a license to use our eRoom software and
agreed to provide specified maintenance and other support services and Ford
agreed to pay us $5.3 million.

In April 2000, we sold 956,938 shares of our series D redeemable
convertible preferred stock to Ford. The purchase price was $10.45 per share,
resulting in $10.0 million of gross proceeds to us. Ford owns more than 5% of
our outstanding common stock, assuming conversion of the preferred stock owned
by it.

REGISTRATION RIGHTS

We entered into an investor rights agreement granting registration rights
to the securityholders listed above and each of our other preferred
stockholders. For more information on these registration rights, please see the
section titled "Description of Capital Stock -- Registration Rights."

EMPLOYMENT AND COMPENSATION ARRANGEMENTS

We also have entered into agreements with some of our executive officers.
For more information about these employment arrangements, please see the section
titled "Management -- Change of Control Arrangements."

In addition, we have granted options to some of our directors and executive
officers. Please see the sections titled "Management -- Director Compensation,"
"-- Option Grants" and "-- Stock Plans" and "Principal Stockholders" for more
information on the options we granted to some of our directors and executive
officers.

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<PAGE> 62

We believe that all of the transactions set forth above were made on terms
no less favorable to us than could have been obtained from unrelated third
parties. All future transactions between us and our officers, directors,
principal stockholders and their affiliates will be approved by a majority of
the outside independent and disinterested directors on the board of directors,
and will continue to be on terms no less favorable to us than could be obtained
from unrelated third parties.

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<PAGE> 63

PRINCIPAL STOCKHOLDERS

The following table sets forth certain information regarding the beneficial
ownership of our common stock as of August 31, 2000 and as adjusted to reflect
the sale of the common stock offered hereby for:

- each person or entity who is known by us to own beneficially 5% or more
of our outstanding common stock;

- each of our directors;

- each of the named executive officers; and

- all of our directors and executive officers as a group.

Each individual or entity named below has agreed with the underwriters not
to sell any of our common stock during the period ending 180 days after the date
of this prospectus.

Unless otherwise indicated, each of the stockholders has sole voting and
investment power for the shares of common stock listed opposite its name below,
subject to community property laws, where applicable. Beneficial ownership is
determined under the rules of the Securities and Exchange Commission. Percentage
of beneficial ownership is based on:

- 17,737,245 shares outstanding as of August 31, 2000; and

- shares outstanding after completion of this offering.

All options exercisable within 60 days of August 31, 2000, are reported
under the "Right to Acquire" column. The shares issuable under these options are
treated as if outstanding for computing the percentage ownership of the person
holding these options but are not treated as if outstanding for the purposes of
computing the percentage ownership of any other person.

Unless otherwise indicated, the principal address of each of the
stockholders in the table below is c/o eRoom Technology, Inc., 725 Concord
Avenue, Cambridge, Massachusetts 02138.

<TABLE>
<CAPTION>
PERCENTAGE
OF SHARES
NUMBER OF SHARES BENEFICIALLY OWNED BENEFICIALLY OWNED
----------------------------------- -------------------
OUTSTANDING RIGHT TO TOTAL BEFORE AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER SHARES ACQUIRE NUMBER OFFERING OFFERING
------------------------------------ ----------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C>
Matrix Partners entities(1).............. 2,866,559 -- 2,866,559 16.2%
Bay Colony Corporate Center
1000 Winter Street, Suite 4500
Waltham, MA 02451
North Bridge Venture Partners, L.P....... 2,866,559 -- 2,866,559 16.2
950 Winter Street, Suite 4600
Waltham, MA 02451
New Enterprise Associates entities(2).... 1,857,637 -- 1,857,637 10.5
1119 St. Paul Street
Baltimore, MD 21202
Atlas Venture entities(3)................ 1,524,248 -- 1,524,248 8.6
222 Berkeley Street
Suite 1950
Boston, MA 02116
HarbourVest Partners VI-Direct Fund
L.P.................................... 1,305,874 -- 1,305,874 7.4
One Financial Center
44th Floor
Boston, MA 02111
</TABLE>

59
<PAGE> 64

<TABLE>
<CAPTION>
PERCENTAGE
OF SHARES
NUMBER OF SHARES BENEFICIALLY OWNED BENEFICIALLY OWNED
----------------------------------- -------------------
OUTSTANDING RIGHT TO TOTAL BEFORE AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER SHARES ACQUIRE NUMBER OFFERING OFFERING
------------------------------------ ----------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C>
Ford Motor Company....................... 956,938 -- 956,938 5.4%
1 American Road
Dearborn, MI 48126
Jeffrey R. Beir(4)....................... 1,430,117 18,747 1,448,864 8.2
R. Pito Salas(5)......................... 1,434,117 6,249 1,440,366 8.1
Timothy Barrows(6)....................... 2,866,559 -- 2,866,559 16.2
Richard D'Amore(7)....................... 2,866,559 -- 2,866,559 16.2
Ronald Nordin(8)......................... 1,524,248 -- 1,524,248 8.6
Thomas F. Bogan.......................... -- 1,560 1,560 *
David A. Litwack......................... -- 1,560 1,560 *
All directors and executive officers as a
group (nine persons)(9)................ 10,414,100 198,116 10,612,216 59.2%
</TABLE>

-------------------------
* Represents less than 1%.

(1) Represents 2,723,231 shares held by Matrix Partners IV, L.P. and 143,328
shares held by Matrix IV Entrepreneurs Fund, L.P.

(2) Represents 1,834,232 shares held by New Enterprise Associates VII, Limited
Partnership, 21,277 shares held by NEA Presidents' Fund, L.P. and 2,128
shares held by NEA Ventures 1997, L.P.

(3) Represents 1,491,812 shares held by Atlas Venture Fund III, L.P. and 32,436
shares held by Atlas Venture Entrepreneurs' Fund III, L.P.

(4) Includes 1,190,117 shares held by Mr. Beir and 240,000 shares held by the
Beir Irrevocable Trust, a trust created for the benefit of certain members
of Mr. Beir's immediate family. Mr. Beir disclaims beneficial ownership of
the shares held by the Beir Irrevocable Trust.

(5) Includes 1,330,117 shares held by Mr. Salas, 4,000 shares held by Christine
Salas, as custodian for the benefit of Daniel A. Salas, Mr. Salas' son and
100,000 shares held by the R. Pito Salas Grantor Retained Annuity Trust, a
trust created for the benefit of Daniel A. Salas, referred to as the Salas
GRAT. Mr. Salas disclaims beneficial ownership of the shares held by (i)
the Salas GRAT, except to the extent of his pecuniary interest, if any, and
(ii) Christine Salas, as custodian for Daniel A. Salas. Mr. Salas is the
sole trustee of the Salas GRAT and has sole voting and dispositive power
over the shares held in the Salas GRAT.

(6) Represents 2,866,559 shares beneficially owned by the Matrix Partners
entities. Mr. Barrows is a general partner of Matrix IV Management Co.,
L.P., which is the general partner of Matrix Partners IV, L.P. and Matrix
IV Entrepreneurs Fund, L.P. Mr. Barrows disclaims beneficial ownership of
these shares except to the extent of his pecuniary interest, if any.

(7) Represents 2,866,559 shares beneficially owned by North Bridge Venture
Partners, L.P. Mr. D'Amore is a general partner of North Bridge Venture
Management, L.P., which is the general partner of North Bridge Venture
Partners, L.P. Mr. D'Amore disclaims beneficial ownership of these shares
except to the extent of his pecuniary interest, if any.

(8) Represents 1,524,248 shares beneficially owned by the Atlas Venture
entities. Mr. Nordin is a vice president of Atlas Venture Associates III,
Inc., which is the general partner of Atlas Venture Associates III, L.P.,
which is a general partner of Atlas Venture Fund III, L.P. and Atlas
Venture Entrepreneurs' Fund III, L.P.

(9) We currently have the right to repurchase at the exercise price 292,500 of
the 10,414,100 shares under the outstanding shares column and 170,000 of
the 198,116 shares underlying options exercisable within 60 days of August
31, 2000 under the right to acquire column.

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<PAGE> 65

DESCRIPTION OF CAPITAL STOCK

Upon completion of this offering, we will be authorized to issue 95,000,000
shares of common stock, par value $0.01, and 15,000,000 shares of preferred
stock, par value $0.01. The following description of our securities is subject
to and qualified by our charter and by-law documents which are included as
exhibits to the registration statement of which this prospectus is a part and by
the provisions of applicable Delaware law.

COMMON STOCK

As of August 31, 2000, there were 17,737,245 shares of common stock
outstanding, as adjusted to reflect the conversion of all outstanding preferred
stock upon completion of this offering. The shares were held of record by 140
stockholders.

Holders of common stock are entitled to one vote per share on all matters
to be voted upon by the stockholders and vote together as a single class with
the holders of any then outstanding preferred stock. Holders of common stock are
entitled to receive their proportionate share of dividends, if any, declared
from time to time by the board of directors out of funds legally available for
that purpose subject to any preferential rights of any then outstanding
preferred stock. In the event of our liquidation, dissolution or winding up,
holders of common stock are entitled to their proportionate share of all assets
remaining after payment of liabilities, after taking into consideration the
prior distribution rights of any then outstanding preferred stock. Common stock
has no preemptive or conversion rights or other subscription rights. No
redemption or sinking fund provisions apply to the common stock. All outstanding
shares of common stock are fully paid and nonassessable, and the shares of
common stock being offered by us will be fully paid and nonassessable as of the
completion of this offering.

PREFERRED STOCK

Immediately prior to this offering, our Fifth Amended and Restated
Certificate of Incorporation, as amended, provided for five series of preferred
stock:

- series A redeemable convertible preferred stock, of which 3,565,000
shares were issued and outstanding;

- series B redeemable convertible preferred stock, of which 2,851,065
shares were issued and outstanding;

- series B-1 redeemable convertible preferred stock, of which 1,250,000
shares were issued and outstanding;

- series C redeemable convertible preferred stock, of which 3,236,918
shares were issued and outstanding; and

- series D redeemable convertible preferred stock, of which 2,009,571
shares were issued and outstanding.

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

Upon the completion of this offering, the board of directors will be
authorized, without stockholder approval, from time to time to issue up to an
aggregate of 15,000,000 shares of preferred stock, $0.01 par value per share, in
one or more series, each of the series to have such rights and preferences,
including voting rights, dividend rights, conversion rights, redemption
privileges and

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<PAGE> 66

liquidation preferences, as shall be determined by the board of directors. The
rights of the holders of common stock will be affected by, and may be adversely
affected by, the rights of holders of any preferred stock that may be issued in
the future. Issuance of preferred stock, while providing desirable flexibility
in connection with possible acquisitions and other corporate purposes, could
have the effect of making it more difficult for others to acquire, or of
discouraging others from attempting to acquire, a majority of our outstanding
voting stock. We have no current plans to issue any shares of preferred stock.

REGISTRATION RIGHTS

After the offering, the holders of 16,242,788 shares of outstanding common
stock and common stock issuable upon the exercise of stock options will be
entitled to rights with respect to the registration of those shares under the
Securities Act. Under the terms of the agreements between us and the holders of
those registrable shares, if we propose to register any of our securities under
the Securities Act, either for our own account or for other security holders
exercising registration rights, those holders are entitled to include their
shares of common stock in the registration. Additionally, some holders are also
entitled to specified demand registration rights pursuant to which they may
require us on up to two occasions to file a registration statement under the
Securities Act at our expense with respect to their shares of common stock.
Further, certain holders may require us to file additional registration
statements of Form S-3 at our expense. All of these registration rights are
subject to various conditions and limitations, among them the right of the
underwriters of an offering to limit the number of shares included in a
registration and our right not to effect a requested registration more than once
in any 18-month period or within 180 days of this offering.

DELAWARE ANTI-TAKEOVER PROVISIONS

We are subject to Section 203 of the Delaware General Corporation Law
regulating corporate takeovers. Section 203, 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 time that
the stockholder became an interested stockholder unless:

- prior to such time, the board of directors of the corporation approved
either the business combination or the transaction that resulted in the
stockholder becoming an interested stockholder;

- upon consummation 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, excluding those shares owned by persons who
are directors and also officers, and employee stock plans in which
employee participants do not have the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or
exchange offer; or

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

Section 203 defines "business combination" to include:

- any merger or consolidation involving the corporation and the interested
stockholder;

- any sale, transfer, pledge or other disposition involving the interested
stockholder of 10% or more of the assets of the corporation;

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<PAGE> 67

- subject to certain exceptions, any transaction that results in the
issuance or transfer by the corporation of any stock of the corporation
to the interested stockholder; or

- the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or
through the corporation.

In general, Section 203 defines an "interested stockholder" as any entity
or person beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by that entity or person.

CHARTER AND BY-LAWS ANTI-TAKEOVER PROVISIONS

The Sixth Amended and Restated Certificate of Incorporation provides that
directors may be removed only by the affirmative vote of the holders of 75% of
the shares of our capital stock entitled to vote. Under our Amended and Restated
By-laws, any vacancy on the board of directors, however occurring, including a
vacancy resulting from an enlargement of the board, may only be filled by vote
of a majority of the directors then in office. The likely effect of the
limitations on the removal of directors and filling of vacancies is an increase
in the time required for the stockholders to change the composition of the board
of directors.

The Sixth Amended and Restated Certificate of Incorporation also provides
that after the closing of this offering, any action required or permitted to be
taken by our stockholders at an annual meeting or special meeting of
stockholders may only be taken if it is properly brought before the meeting and
may not be taken by written action in lieu of a meeting. The Amended and
Restated By-laws provide that special meetings of the stockholders may only be
called by the chairman of the board of directors, a majority of the board of
directors, the chief executive officer or the president of our company. The
Amended and Restated By-laws further provide that in order for any matter to be
considered "properly brought" before a meeting, a stockholder must comply with
certain requirements regarding advance notice to our company. The foregoing
provisions could have the effect of delaying until the next stockholders meeting
stockholder actions which are favored by the holders of a majority of our
outstanding voting securities. These provisions may also discourage another
person or entity from making a tender offer for our common stock, because the
person or entity, even if it acquired a majority of our outstanding voting
securities of, would be able to take action as a stockholder (such as electing
new directors or approving a merger) only at a duly called stockholders meeting,
and not by written consent.

The General Corporation Law of Delaware provides generally that the
affirmative vote of a majority of the shares entitled to vote on any matter is
required to amend a corporation's certificate of incorporation or bylaws, unless
a corporation's certificate of incorporation or by-laws, as the case may be,
requires a greater percentage. The Sixth Amended and Restated Certificate of
Incorporation requires the affirmative vote of the holders of at least 75% of
the shares of our capital stock issued and outstanding and entitled to vote to
amend or repeal any of the foregoing provisions of the Sixth Amended and
Restated Certificate of Incorporation. The Amended and Restated By-Laws may be
amended or repealed by the affirmative vote of the holders of at least 75% of
the shares of our capital stock issued and outstanding and entitled to vote. The
Amended and Restated By-Laws may also be amended or repealed by a majority vote
of our board of directors. The 75% stockholder vote would be in addition to any
separate class vote that might in the future be required pursuant to the terms
of any series of preferred stock that might be outstanding at the time any such
amendments are submitted to stockholders.

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<PAGE> 68

LIMITATION OF LIABILITY AND INDEMNIFICATION

The Sixth Amended and Restated Certificate of Incorporation limits the
liability of our directors to the maximum extent permitted by Delaware law.
Delaware law provides that directors of a corporation will not be personally
liable for monetary damages for breach of their fiduciary duties as directors,
except liability for:

- any breach of their duty of loyalty to the corporation or its
stockholders;

- acts of omissions that are not in good faith or that involve intentional
misconduct or a knowing violation of law;

- unlawful payments of dividends or unlawful stock repurchases or
redemptions; or

- any transaction from which the director derived an improper personal
benefit.

The limitations do not apply to liabilities arising under the federal
securities laws and do not affect the availability of equitable remedies,
including injunctive relief or rescission.

The Amended and Restated By-laws provide that we will indemnify our
directors and officers, and may indemnify other employees and agents, to the
maximum extent permitted by law. We believe that indemnification under our
by-laws covers at least negligence and gross negligence on the part of
indemnified parties. Our by-laws also permit us to secure insurance on behalf of
any director, officer, employee or agent for any liability arising out of his or
her actions in their capacity as an director, officer, employee or agent,
regardless of whether the by-laws would permit indemnification. We intend to
obtain an insurance policy that insures our directors and officers against
losses, above a deductible amount, from specified types of claims.

The limited liability and indemnification provisions in our Sixth Amended
and Restated Certificate of Incorporation and our Amended and Restated By-laws
may discourage stockholders from bringing a lawsuit against our directors for
breach of their fiduciary duty and may reduce the likelihood of derivative
litigation against our directors and officers, even though a derivative action,
if successful, might otherwise benefit us and our stockholders. A stockholder's
investment in us may be adversely affected to the extent we pay the costs of
settlement or damage awards against our directors and officers under these
indemnification provisions.

At present, there is no pending litigation or proceeding involving any of
our directors, officers or employees in which indemnification is sought, nor are
we aware of any threatened litigation that may result in claims for
indemnification.

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to our directors, officers and controlling persons under our
Sixth Amended and Restated Certificate of Incorporation or our Amended and
Restated By-laws described above, we have been advised that in the opinion of
the SEC this indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for our common stock is .

LISTING

We have applied to have our common stock quoted on the Nasdaq National
Market under the symbol "ERMT."

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<PAGE> 69

SHARES ELIGIBLE FOR FUTURE SALE

Future sales of substantial amounts of shares of our common stock in the
public market could adversely affect prevailing market prices. Furthermore,
since only a limited number of shares will be available for sale shortly after
this offering because of contractual and legal restrictions on resale, as
described below, sales of substantial amounts of common stock in the public
market after the restrictions lapse could adversely affect the prevailing market
price.

NUMBER OF SHARES

After this offering, shares of common stock will be
outstanding, assuming the issuance of an aggregate of shares of
common stock. The number of shares outstanding after this offering is based on
the number of shares outstanding as of August 31, 2000 and assumes no exercise
of outstanding options. The shares sold in this offering will be
freely tradable without restriction under the Securities Act.

The remaining shares of common stock held by existing
stockholders are restricted shares or are subject to the contractual
restrictions described below. Restricted shares may be sold in the public market
only if registered or if they qualify for an exception from registration under
Rules 144, 144(k) or 701 under the Securities Act, which are summarized below.
Of these restricted shares,

- shares will be available for resale in the public market
in reliance on Rule 144(k) immediately following this offering, of which
shares are subject to lock-up agreements described below;

- shares will be available for resale in the public market
in reliance on Rule 144 beginning 90 days following this offering, of
which shares are subject to lock-up agreements; and

- shares become eligible for resale in the public market at
various dates beginning 90 days following this offering,
of which shares are subject to lock-up agreements.

LOCK-UP AGREEMENTS

Each of our executive officers and directors, and other stockholders who
will own in the aggregate shares of common stock after the
offering, have entered into lock-up agreements generally providing that they
will not:

- offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase, lend, or otherwise transfer or dispose of,
directly or indirectly, any of the shares of common stock or any
securities convertible into, or exercisable or exchangeable for, common
stock owned by them; or

- enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of the
common stock, for a period of 180 days after the date of this prospectus,
without the prior written consent of Thomas Weisel Partners LLC.

Thomas Weisel Partners LLC may, in its sole discretion and at any time
without notice, release all or any portion of the securities subject to lock-up
agreements. Following the expiration of the 180 day lock-up period, additional
shares of common stock will be available for sale in the public market subject
to compliance with Rule 144 or Rule 701.

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<PAGE> 70

We have agreed not to sell or dispose of any shares of common stock during
the 180-day period following the date of this prospectus, except we may issue,
and grant options to purchase, shares of common stock under our stock option
plans.

RULE 144

In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned shares of our
common stock for at least one year would be entitled to sell within any
three-month period a number of shares that does not exceed the greater of:

- 1% of the number of shares of our common stock then outstanding, which
will equal approximately shares immediately after this offering;
or

- the average weekly trading volume of our common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing of a
notice on Form 144 concerning that sale.

Sales under Rule 144 are also subject to manner of sale provisions and
notice requirements and to the availability of current public information about
us.

RULE 144(k)

Under Rule 144(k) as currently in effect, a person who has not been one of
our affiliates at any time during the 90 days preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years,
including the holding period of any prior owner other than an affiliate, is
entitled to sell those shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144. Therefore,
unless otherwise restricted, Rule 144(k) shares may be sold immediately upon the
completion of this offering.

RULE 701

In general, our employees, officers, directors and consultants who
purchased shares of our common stock in connection with written compensatory
benefit plans or written contracts relating to the compensation of the
purchaser, may rely on Rule 701 to resell those shares. The SEC has indicated
that Rule 701 will apply to stock options granted by an issuer before it becomes
subject to the reporting requirements of the Exchange Act, along with the shares
acquired upon exercises of those options, including exercises after the date of
this offering. Securities issued in reliance on Rule 701 are restricted
securities and beginning 90 days after the date of this prospectus:

- may be sold by persons other than affiliates subject only to the manner
of sale provisions of Rule 144; and

- may be sold by affiliates under Rule 144 without complying with its
one-year minimum holding requirement.

STOCK OPTIONS

At August 31, 2000:

- we had reserved an aggregate of 5,284,302 shares of common stock for
issuance under the 1996 stock plan, and options to purchase 2,878,279
shares were outstanding under the 1996 stock plan; and

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<PAGE> 71

- we had reserved an aggregate of 2,500,000 shares of common stock for
issuance under the 2000 stock plan, and no options were outstanding under
the 2000 stock plan.

As soon as practicable following the offering, we intend to file a
registration statement under the Securities Act to register shares of common
stock reserved for issuance under our stock option plans. This registration
statement will automatically become effective immediately upon filing. Any
shares issued upon the exercise of stock options will be eligible for immediate
public sale, subject to the lock-up agreements noted above.

REGISTRATION RIGHTS

After the completion of this offering, holders of 16,242,788 shares of
outstanding common stock and common stock issuable upon the exercise of stock
options will be entitled to specific rights to register those shares for sale in
the public market. See "Description of Capital Stock -- Registration Rights."
Registration of these shares under the Securities Act would result in the shares
becoming freely tradable without restriction under the Securities Act, except
for shares purchased by affiliates, immediately upon the effectiveness of the
registration.

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<PAGE> 72

UNDERWRITING

GENERAL

Subject to the terms and conditions set forth in an agreement among the
underwriters and us, each of the underwriters named below, through their
representatives, Thomas Weisel Partners LLC, SG Cowen Securities Corporation and
Wit SoundView Corporation, has severally agreed to purchase from us the
aggregate number of shares of common stock set forth opposite its name below:

<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
----------- ---------
<S> <C>
Thomas Weisel Partners LLC..................................
SG Cowen Securities Corporation.............................
Wit SoundView Corporation...................................
Total.....................................................
</TABLE>

The underwriting agreement provides that the obligations of the several
underwriters are subject to various conditions. The nature of the underwriters'
obligations commits them to purchase and pay for all of the shares of common
stock listed above if any are purchased.

The underwriting agreement provides that we will indemnify the underwriters
against liabilities specified in the underwriting agreement under the Securities
Act or will contribute to payments that the underwriters may be required to make
relating to these liabilities.

OVER-ALLOTMENT OPTION

We have granted a 30-day over-allotment option to the underwriters to
purchase up to a total of additional shares of our common stock from us at
the initial public offering price, less the underwriting discounts and
commissions, as set forth on the cover page of this prospectus. If the
underwriters exercise this option in whole or in part, then each of the
underwriters will be severally committed, subject to conditions described in the
underwriting agreement, to purchase the additional shares of our common stock in
proportion to their respective commitments set forth in the table above.

COMMISSIONS AND DISCOUNTS

The underwriters propose to offer the shares of common stock directly to
the public at the public offering price set forth on the cover page of this
prospectus, and at this price less a concession not in excess of $ per share
of common stock to other dealers specified in a master agreement among
underwriters who are members of the National Association of Securities Dealers,
Inc. The underwriters may allow, and the other dealers specified may reallow,
concessions, not in excess of $ per share of common stock, to these other
dealers. After this offering, the offering price, concessions and other selling
terms may be changed by the underwriters. Our common stock is offered subject to
receipt and acceptance by the underwriters and to other conditions, including
the right to reject orders in whole or in part.

The following table summarizes the compensation to be paid to the
underwriters by us and the expenses payable by us:

<TABLE>
<CAPTION>
TOTAL
---------------------------------------------
WITHOUT WITH
PER SHARE OVER-ALLOTMENT OVER-ALLOTMENT
--------- -------------- --------------
<S> <C> <C> <C>
Underwriting discounts and commissions paid by
us............................................ $ $ $
Expenses payable by us.......................... $ $ $
</TABLE>

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RESERVED SHARES

The underwriters, at our request, have reserved for sale at the initial
public offering price up to shares of common stock to be sold in this
offering for sale to our employees and other persons designated by us. The
number of shares available for sale to the general public will be reduced to the
extent that any reserved shares are purchased. Any reserved shares not purchased
in this manner will be offered by the underwriters on the same basis as the
other shares offered in this offering.

NO SALES OF SIMILAR SECURITIES

All of our directors, officers and securityholders have agreed or have a
contractual obligation to agree, subject to specified exceptions, generally not
to offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right or
warrant to purchase, lend, or otherwise transfer or dispose of, directly or
indirectly, any shares of common stock or any securities convertible into or
exercisable or exchangeable for shares of common stock without the prior written
consent of Thomas Weisel Partners LLC for a period of 180 days after the date of
this prospectus. These holders have also generally agreed not to enter into any
swap or other arrangement that transfers to another, in whole or in part, any of
the economic consequences of ownership of our common stock for the same period
without the prior written consent of Thomas Weisel Partners LLC.

We have agreed that for a period of 180 days after the date of this
prospectus we will not, without the prior written consent of Thomas Weisel
Partners LLC, offer, sell or otherwise dispose of any shares of common stock,
except for the shares of common stock offered in the offering and the shares of
common stock issuable upon exercise of outstanding options and warrants on the
date of this prospectus.

INFORMATION REGARDING THOMAS WEISEL PARTNERS LLC

Thomas Weisel Partners LLC, one of the representatives of the underwriters,
was organized and registered as a broker-dealer in December 1998. Since December
1998, Thomas Weisel Partners LLC has been named as a lead or co-manager on 208
filed public offerings of equity securities, of which 144 have been completed,
and has acted as a syndicate member in an additional 121 public offerings of
equity securities. Thomas Weisel Partners LLC does not have any material
relationship with us or any of our officers, directors or controlling persons,
except with respect to its contractual relationship with us under the
underwriting agreement entered into in connection with this offering.

NASDAQ NATIONAL MARKET LISTING

Prior to this offering, there has been no public market for our common
stock. Consequently, the initial public offering price for our common stock will
be determined through negotiations between us and representatives of the
underwriters. Some of the factors to be considered in these negotiations include
our results of operations in recent periods, estimates of our prospects and the
industry in which we compete, an assessment of our management, the general state
of the securities markets at the time of this offering and the prices of similar
securities of generally comparable companies. We have applied to have our common
stock quoted on the Nasdaq National Market under the symbol "ERMT." We cannot
assure you that an active or orderly trading market will develop for our common
stock or that our common stock will trade in the public markets subsequent to
this offering at or above the initial offering price.

The underwriters do not expect sales of shares of common stock offered by
this prospectus to any accounts over which they exercise discretionary authority
to exceed 5% of the shares offered.

MARKET STABILIZATION, SHORT POSITIONS AND PENALTY BIDS

In order to facilitate this offering, persons participating in this
offering may engage in transactions that stabilize, maintain or otherwise affect
the price of our common stock during and
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<PAGE> 74

after this offering. Specifically, the underwriters may over-allot or otherwise
create a short position in our common stock for their own account by selling
more shares of common stock than we have sold to them. A short sale is covered
if the short position is no greater than the number of shares available for
purchase by the underwriters from us under the over-allotment option. The
underwriters can close out a covered short sale by exercising the over-allotment
option or purchasing shares in the open market. In determining the source of
shares to close out a covered short sale, the underwriters will consider, among
other things, the open market price of shares compared to the price available
under the over-allotment option. The underwriters may also sell shares in excess
of the over-allotment option, creating a naked short position. The underwriters
must close out any naked short position by purchasing shares in the open market.
In addition, the underwriters may stabilize or maintain the price of the common
stock by bidding for or purchasing shares of common stock in the open market and
may impose penalty bids. Under these penalty bids, selling concessions that are
allowed to syndicate members or other broker-dealers participating in this
offering are reclaimed if shares of common stock previously distributed in this
offering are repurchased, usually in order to stabilize the market. The effect
of these transactions may be to stabilize or maintain the market price of our
common stock at a level above that which might otherwise prevail in the open
market. No representation is made as to the magnitude or effect of any
stabilization or other transaction. These transactions may be effected on the
Nasdaq National Market or otherwise and may be discontinued at any time after
they are commenced.

OTHER MATTERS

A prospectus in electronic format is being made available on an Internet
website maintained by Wit SoundView Corporation's strategic partner, E*Trade
Securities, Inc., and may be made available on websites maintained by other
underwriters or selected dealers. Other than the prospectus in electronic
format, the information on the website maintained by E*Trade Securities, other
underwriters and any selected dealers relating to this offering is not part of
this prospectus and has not been approved or endorsed by us or any underwriter,
other than Wit SoundView and such other underwriters and selected dealers.

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LEGAL MATTERS

The validity of the shares of common stock offered by this prospectus will
be passed upon for us by Testa, Hurwitz & Thibeault, LLP, Boston, Massachusetts.
Various legal matters related to the sale of the common stock offered by this
prospectus will be passed upon for the underwriters by Hale and Dorr LLP,
Boston, Massachusetts.

EXPERTS

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

WHERE YOU CAN FIND MORE INFORMATION

We have filed with the SEC a registration statement on Form S-1 for the
registration of the common stock offered by this prospectus. This prospectus,
which forms a part of the registration statement, does not contain all the
information included in the registration statement, parts of which have been
omitted as permitted by SEC rules and regulations. For further information about
us and our common stock, you should refer to the registration statement.
Statements contained in this prospectus about any contract or other document are
not necessarily complete. Statements made about any contract or document are
summaries of all material information about the documents summarized, but are
not complete descriptions of all terms. If a document has been filed as an
exhibit to the registration statement, you may read the document itself for a
complete description of its terms.

Copies of all or any portion of the registration statement can be obtained
from, and inspected and copied at, the public reference room at the SEC's
Headquarters Office, 450 Fifth Street, N.W., Washington, D.C. 20549. Copies are
available at prescribed rates. You can obtain information on the operation of
the public reference room by calling the SEC at 1-800-SEC-0330. In addition, the
registration statement is publicly available through the SEC's website located
at http://www.sec.gov.

We will also file annual, quarterly and current reports, proxy statements
and other information with the SEC. You may obtain copies of the documents that
we file electronically with the SEC through the SEC's website located at
http://www.sec.gov. You can also request copies of these documents, for a
copying fee, by writing to the SEC.

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eROOM TECHNOLOGY, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants........................... F-2
Consolidated Balance Sheets at December 31, 1998 and 1999,
June 30, 2000 (unaudited) and pro forma June 30, 2000
(unaudited)............................................... F-3
Consolidated Statements of Operations for the years ended
December 31, 1997, 1998 and 1999 and the six months ended
June 30, 1999 (unaudited) and 2000 (unaudited)............ F-4
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1998 and 1999 and the six months ended
June 30, 1999 (unaudited) and 2000 (unaudited)............ F-5
Consolidated Statements of Redeemable Convertible Preferred
Stock and Stockholders' Deficit for the years ended
December 31, 1997, 1998 and 1999 and the six months ended
June 30, 2000 (unaudited)................................. F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>

F-1
<PAGE> 77

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders
of eRoom Technology, Inc.:

In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, redeemable convertible preferred
stock and stockholders' deficit and cash flows present fairly, in all material
respects, the financial position of eRoom Technology, Inc. (formerly,
Instinctive Technology, Inc.) and its subsidiary at December 31, 1998 and 1999,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1999 in conformity with accounting
principles generally accepted in the United States of America. 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 of these statements in accordance with
auditing standards generally accepted in the United States of America, 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 our opinion.

/s/ PRICEWATERHOUSECOOPERS LLP

Boston, Massachusetts
April 28, 2000, except for Note 12
as to which the date is September 26, 2000

F-2
<PAGE> 78

eROOM TECHNOLOGY, INC.

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA
--------------------------- JUNE 30, JUNE 30,
1998 1999 2000 2000
------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 3,516,648 $ 13,094,048 $ 3,038,638 $ 3,038,638
Short-term investments.................................... -- -- 12,377,863 12,377,863
Accounts receivable, net of allowance for doubtful
accounts of $64,000 at December 31, 1998 and $275,000 at
December 31, 1999, June 30, 2000 (unaudited) and pro
forma June 30, 2000 (unaudited), respectively........... 1,165,517 2,113,968 6,029,907 6,029,907
Prepaid expenses and other current assets................. 130,113 217,543 897,346 897,346
------------ ------------ ------------ ------------
Total current assets.................................. 4,812,278 15,425,559 22,343,754 22,343,754
Property and equipment, net................................. 484,840 1,042,450 1,851,034 1,851,034
Other assets................................................ 38,876 118,160 676,205 676,205
------------ ------------ ------------ ------------
Total assets.......................................... $ 5,335,994 $ 16,586,169 $ 24,870,993 $ 24,870,993
============ ============ ============ ============
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND
STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current portion of long-term debt......................... $ 37,430 $ -- $ -- $ --
Accounts payable.......................................... 217,890 902,358 1,065,156 1,065,156
Accrued expenses.......................................... 93,087 540,219 874,284 874,284
Accrued payroll and benefits.............................. 417,608 826,632 1,801,425 1,801,425
Deferred revenue.......................................... 1,602,990 4,946,410 10,247,603 10,247,603
------------ ------------ ------------ ------------
Total current liabilities............................. 2,369,005 7,215,619 13,988,468 13,988,468
Deferred revenue............................................ 183,750 306,750 3,683,031 3,683,031
------------ ------------ ------------ ------------
Total liabilities..................................... 2,552,755 7,522,369 17,671,499 17,671,499
------------ ------------ ------------ ------------
Commitments and contingencies (Note 11)..................... -- -- -- --
Redeemable convertible preferred stock (Note 6):
Series A redeemable convertible preferred stock; $.01 par
value; 3,565,000 shares authorized, issued and
outstanding at December 31, 1998 and 1999 and June 30,
2000 (unaudited); no shares authorized, issued and
outstanding pro forma June 30, 2000 (unaudited)
(liquidation preference $3,565,000 at December 31,
1999)................................................... 3,565,000 3,565,000 3,565,000 --
Series B redeemable convertible preferred stock; $.01 par
value; 2,851,065 shares authorized, issued and
outstanding at December 31, 1998 and 1999 and June 30,
2000 (unaudited); no shares issued and outstanding pro
forma June 30, 2000 (unaudited) (liquidation preference
$6,700,000 at December 31, 1999)........................ 6,700,000 6,700,000 6,700,000 --
Series B-1 redeemable convertible preferred stock; $.01
par value; 1,250,000 shares authorized, issued and
outstanding at December 31, 1998 and 1999 and June 30,
2000 (unaudited); no shares authorized, issued and
outstanding pro forma June 30, 2000 (unaudited)
(liquidation preference $3,500,000 at December 31,
1999)................................................... 3,500,000 3,500,000 3,500,000 --
Series C redeemable convertible preferred stock; $.01 par
value; 3,236,918 shares authorized, issued and
outstanding at December 31, 1999 and June 30, 2000
(unaudited); no shares authorized, issued and
outstanding at December 31, 1998 and pro forma June 30,
2000 (unaudited) (liquidation preference $15,537,206 at
December 31, 1999)...................................... -- 15,537,206 15,537,206 --
Series D redeemable convertible preferred stock; $.01 par
value; 956,938 shares authorized, issued and outstanding
at June 30, 2000 (unaudited); no shares authorized,
issued and outstanding at December 31, 1998 and 1999 and
pro forma June 30, 2000 (unaudited)..................... -- -- 10,000,002 --
------------ ------------ ------------ ------------
Total redeemable convertible preferred stock.......... 13,765,000 29,302,206 39,302,208 --
------------ ------------ ------------ ------------
Stockholders' equity (deficit) (Notes 6 and 7):
Common stock; $.01 par value; 15,000,000, 19,125,000,
60,000,000 and 60,000,000 shares authorized at December
31, 1998, 1999 and June 30, 2000 (unaudited) and pro
forma June 30, 2000 (unaudited), respectively;
3,034,544, 3,659,040, 4,754,845 and 16,614,766 shares
issued and outstanding at December 31, 1998 and 1999 and
June 30, 2000 (unaudited) and pro forma June 30, 2000
(unaudited), respectively............................... 30,345 36,590 47,548 166,148
Additional paid-in capital.................................. 1,104,257 4,913,623 14,526,824 53,710,432
Deferred stock-based compensation........................... (904,997) (4,073,194) (11,404,766) (11,404,766)
Accumulated deficit......................................... (11,211,366) (21,115,425) (35,272,320) (35,272,320)
------------ ------------ ------------ ------------
Total stockholders' equity (deficit).................. (10,981,761) (20,238,406) (32,102,714) 7,199,494
------------ ------------ ------------ ------------
Total liabilities, redeemable convertible preferred
stock and stockholders' equity (deficit)............ $ 5,335,994 $ 16,586,169 $ 24,870,993 $ 24,870,993
============ ============ ============ ============
</TABLE>

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

F-3
<PAGE> 79

eROOM TECHNOLOGY, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------------- --------------------------
1997 1998 1999 1999 2000
----------- ----------- ------------ ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue:
Product license....................... $ 10,042 $ 814,049 $ 3,339,958 $ 1,214,870 $ 4,530,147
Services.............................. -- 12,000 247,694 58,701 459,895
----------- ----------- ------------ ----------- ------------
Total revenue.................. 10,042 826,049 3,587,652 1,273,571 4,990,042
----------- ----------- ------------ ----------- ------------
Operating expenses:
Cost of product license revenue,
exclusive of $0, $203, $50,234,
$6,948 and $70,934, respectively,
reported below as stock-based
compensation........................ 27,996 256,589 619,671 222,157 827,400
Cost of services revenue, exclusive of
$0, $21, $21,229, $1,931 and
$58,025, respectively, reported
below as stock-based compensation... -- 25,988 189,315 45,125 385,944
Research and development, exclusive of
$0, $7,471, $92,975, $27,225 and
$293,802, respectively, reported
below as stock-based compensation... 2,015,190 2,351,356 3,010,027 1,439,026 4,072,569
Sales and marketing, exclusive of $0,
$4,525, $228,437, $83,882 and
$523,961, respectively, reported
below as stock-based compensation... 1,769,751 3,796,931 7,192,772 2,902,262 10,586,633
General and administrative, exclusive
of $0, $9,622, $181,904, $82,016 and
$564,930, respectively, reported
below as stock-based compensation... 374,330 872,046 2,129,630 940,555 2,109,226
Employee stock-based compensation
expense............................. -- 21,842 574,779 202,002 1,511,652
----------- ----------- ------------ ----------- ------------
Total operating expenses....... 4,187,267 7,324,752 13,716,194 5,751,127 19,493,424
----------- ----------- ------------ ----------- ------------
Loss from operations.................... (4,177,225) (6,498,703) (10,128,542) (4,477,556) (14,503,382)
Interest income......................... 161,897 209,266 287,832 49,076 387,757
Interest expense........................ (21,885) (8,725) (1,495) (219) --
----------- ----------- ------------ ----------- ------------
Net loss................................ $(4,037,213) $(6,298,162) $ (9,842,205) $(4,428,699) $(14,115,625)
=========== =========== ============ =========== ============
Basic and diluted net loss per share.... $ (3.63) $ (3.60) $ (3.89) $ (1.92) $ (3.52)
=========== =========== ============ =========== ============
Shares used in computing basic and
diluted net loss per share............ 1,111,502 1,749,163 2,530,595 2,302,210 4,012,172
=========== =========== ============ =========== ============
Pro forma basic and diluted net loss per
share (unaudited)..................... $ (0.84) $ (0.74)
============ ============
Shares used in computing pro forma basic
and diluted net loss per share
(unaudited)........................... 11,752,820 18,980,175
============ ============
</TABLE>

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

F-4
<PAGE> 80

eROOM TECHNOLOGY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------------------- --------------------------
1997 1998 1999 1999 2000
----------- ----------- ----------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss............................ $(4,037,213) $(6,298,162) $(9,842,205) $(4,428,699) $(14,115,625)
Adjustments to reconcile net loss to
net cash used by operating
activities:
Stock-based compensation
expense........................ 133,750 55,192 592,863 211,632 1,705,788
Depreciation...................... 114,073 235,123 327,865 144,749 361,454
Income from short-term
investments.................... -- -- -- -- (84,426)
Provision for doubtful accounts... 1,518 70,212 267,894 104,624 59,435
Loss on disposal of fixed
assets......................... 3,468 -- 3,889 -- --
Changes in assets and liabilities:
Accounts receivable............ (74,889) (1,162,358) (1,216,345) (141,909) (3,975,374)
Prepaid expenses and other
assets....................... (130,010) 3,979 (166,714) 7,058 (759,700)
Accounts payable............... 142,334 61,119 684,468 224,053 162,798
Accrued expenses............... 89,570 (52,236) 447,132 464,749 334,065
Accrued payroll and benefits... 146,382 294,680 409,024 (110,537) 974,793
Deferred revenue............... 150,779 1,635,962 3,466,420 1,069,886 8,677,474
----------- ----------- ----------- ----------- ------------
Net cash used by operating
activities................. (3,460,238) (5,156,489) (5,025,709) (2,454,394) (6,659,318)
----------- ----------- ----------- ----------- ------------
Cash flows from investing activities:
Purchases of short-term
investments....................... -- -- -- -- (12,293,437)
Purchases of fixed assets........... (479,232) (215,564) (889,364) (157,664) (1,170,038)
Proceeds from sale of fixed
assets............................ 25,000 -- -- -- --
----------- ----------- ----------- ----------- ------------
Net cash used by investing
activities................. (454,232) (215,564) (889,364) (157,664) (13,463,475)
----------- ----------- ----------- ----------- ------------
Cash flows from financing activities:
Borrowings under line of credit..... 53,442 -- -- -- --
Repayment of borrowings under line
of credit......................... (74,859) (112,288) (37,430) (37,430) --
Proceeds from issuance of redeemable
convertible preferred stock, net
of issuance costs................. 6,733,196 3,458,675 15,475,352 -- 9,958,732
Proceeds from issuance of common
stock............................. 150 11,181 54,551 12,229 586,799
Stock issuance costs................ -- -- -- -- (478,148)
----------- ----------- ----------- ----------- ------------
Net cash provided (used) by
financing activities....... 6,711,929 3,357,568 15,492,473 (25,201) 10,067,383
----------- ----------- ----------- ----------- ------------
Net increase (decrease) in cash and
cash equivalents.................... 2,797,459 (2,014,485) 9,577,400 (2,637,259) (10,055,410)
Cash and cash equivalents, beginning
of period........................... 2,733,674 5,531,133 3,516,648 3,516,648 13,094,048
----------- ----------- ----------- ----------- ------------
Cash and cash equivalents, end of
period.............................. $ 5,531,133 $ 3,516,648 $13,094,048 $ 879,389 $ 3,038,638
=========== =========== =========== =========== ============
Supplemental disclosure of cash flow
information:
Cash paid for interest................ $ 18,253 $ 9,425 $ 1,994 $ 719 $ --
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 81

eROOM TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND
STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
STOCKHOLDERS' DEFICIT
REDEEMABLE CONVERTIBLE ----------------------------------
PREFERRED STOCK COMMON STOCK
------------------------ -------------------- ADDITIONAL
NUMBER OF CARRYING NUMBER OF $.01 PAR PAID-IN
SHARES VALUE SHARES VALUE CAPITAL
---------- ----------- --------- -------- -----------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996.......................... 3,500,000 $ 3,500,000 2,931,734 $29,317 $ 15
Issuance of Series A redeemable convertible
preferred
stock............................................. 65,000 65,000 -- -- --
Issuance of Series B redeemable convertible
preferred stock, including issuance costs of
$31,804........................................... 2,851,065 6,700,000 -- -- --
Issuance of common stock subject to restriction..... -- -- 15,000 150 1,350
Stock options granted to non-employees.............. -- -- -- -- 133,750
Net loss............................................ -- -- -- -- --
---------- ----------- --------- ------- -----------
Balance at December 31, 1997.......................... 6,416,065 10,265,000 2,946,734 29,467 135,115
Issuance of Series B-1 redeemable convertible
preferred stock, including issuance costs of
$41,325........................................... 1,250,000 3,500,000 -- -- --
Issuance of common stock pursuant to the exercise of
stock options..................................... -- -- 87,810 878 10,303
Deferred compensation related to stock option
grants............................................ -- -- -- -- 925,489
Employee stock-based compensation expense........... -- -- -- -- --
Stock options granted to non-employees.............. -- -- -- -- 33,350
Net loss............................................ -- -- -- -- --
---------- ----------- --------- ------- -----------
Balance at December 31, 1998.......................... 7,666,065 13,765,000 3,034,544 30,345 1,104,257
Issuance of Series C redeemable convertible
preferred stock, including issuance costs of
$61,854........................................... 3,236,918 15,537,206 -- -- --
Issuance of common stock pursuant to the exercise of
stock options..................................... -- -- 624,496 6,245 48,306
Deferred compensation related to stock option
grants............................................ -- -- -- -- 3,742,976
Employee stock-based compensation expense........... -- -- -- -- --
Stock options granted to non-employees.............. -- -- -- -- 18,084
Net loss............................................ -- -- -- -- --
---------- ----------- --------- ------- -----------
Balance at December 31, 1999.......................... 10,902,983 29,302,206 3,659,040 36,590 4,913,623
Issuance of Series D redeemable convertible
preferred stock, including issuance costs of
$41,270 (unaudited)............................... 956,938 10,000,002 -- -- --
Issuance of common stock pursuant to the exercise of
stock options (unaudited)......................... -- -- 1,095,805 10,958 575,841
Deferred compensation related to stock option grants
(unaudited)....................................... -- -- -- -- 8,843,224
Employee stock-based compensation expense
(unaudited)....................................... -- -- -- -- --
Stock options granted to non-employees
(unaudited)....................................... -- -- -- -- 194,136
Net loss (unaudited)................................ -- -- -- -- --
---------- ----------- --------- ------- -----------
Balance at June 30, 2000 (unaudited).................. 11,859,921 $39,302,208 4,754,845 $47,548 $14,526,824
========== =========== ========= ======= ===========

<CAPTION>
STOCKHOLDERS' DEFICIT
------------------------------------------

DEFERRED ACCUMULATED
COMPENSATION DEFICIT TOTAL
------------ ------------ ------------
<S> <C> <C> <C>
Balance at December 31, 1996.......................... $ -- $ (802,862) $ (773,530)
Issuance of Series A redeemable convertible
preferred
stock............................................. -- -- --
Issuance of Series B redeemable convertible
preferred stock, including issuance costs of
$31,804........................................... -- (31,804) (31,804)
Issuance of common stock subject to restriction..... (1,350) -- 150
Stock options granted to non-employees.............. -- -- 133,750
Net loss............................................ -- (4,037,213) (4,037,213)
------------ ------------ ------------
Balance at December 31, 1997.......................... (1,350) (4,871,879) (4,708,647)
Issuance of Series B-1 redeemable convertible
preferred stock, including issuance costs of
$41,325........................................... -- (41,325) (41,325)
Issuance of common stock pursuant to the exercise of
stock options..................................... -- -- 11,181
Deferred compensation related to stock option
grants............................................ (925,489) -- --
Employee stock-based compensation expense........... 21,842 -- 21,842
Stock options granted to non-employees.............. -- -- 33,350
Net loss............................................ -- (6,298,162) (6,298,162)
------------ ------------ ------------
Balance at December 31, 1998.......................... (904,997) (11,211,366) (10,981,761)
Issuance of Series C redeemable convertible
preferred stock, including issuance costs of
$61,854........................................... -- (61,854) (61,854)
Issuance of common stock pursuant to the exercise of
stock options..................................... -- -- 54,551
Deferred compensation related to stock option
grants............................................ (3,742,976) -- --
Employee stock-based compensation expense........... 574,779 -- 574,779
Stock options granted to non-employees.............. -- -- 18,084
Net loss............................................ -- (9,842,205) (9,842,205)
------------ ------------ ------------
Balance at December 31, 1999.......................... (4,073,194) (21,115,425) (20,238,406)
Issuance of Series D redeemable convertible
preferred stock, including issuance costs of
$41,270 (unaudited)............................... -- (41,270) (41,270)
Issuance of common stock pursuant to the exercise of
stock options (unaudited)......................... -- -- 586,799
Deferred compensation related to stock option grants
(unaudited)....................................... (8,843,224) -- --
Employee stock-based compensation expense
(unaudited)....................................... 1,511,652 -- 1,511,652
Stock options granted to non-employees
(unaudited)....................................... -- -- 194,136
Net loss (unaudited)................................ -- (14,115,625) (14,115,625)
------------ ------------ ------------
Balance at June 30, 2000 (unaudited).................. $(11,404,766) $(35,272,320) $(32,102,714)
============ ============ ============
</TABLE>

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

F-6
<PAGE> 82

eROOM TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(ALL INFORMATION AS OF AND FOR THE SIX MONTHS ENDED
JUNE 30, 2000 IS UNAUDITED)

1. NATURE OF THE BUSINESS:

eRoom Technology, Inc. (the "Company") (formerly, Instinctive Technology,
Inc.) was incorporated in Delaware in June 1996. The Company is a provider of
business collaboration software products and hosted offerings for professional
service firms and manufacturing organizations. The Company's product, eRoom,
enables organizations and their suppliers, partners and customers to manage
their business relationships over the Internet.

The Company has a single operating segment, marketing of collaboration
software. The Company has no organizational structure dictated by product line,
geography or customer type. Primarily all revenue earned to date has been
generated from U.S. based customers. During 1999, the Company opened a branch
office in the United Kingdom.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Significant accounting policies followed in the preparation of the
consolidated financial statements are as follows:

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiary. All intercompany transactions have been
eliminated in consolidation.

CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS

The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents, and investments with
original maturity dates greater than three months to be short-term investments.
Short-term investments consist of high-grade commercial paper and are carried at
amortized cost, which approximates fair market value. At December 31, 1998, cash
equivalents were comprised of money market funds, repurchase agreements and
high-grade commercial paper. At December 31, 1999, cash equivalents were
comprised of repurchase agreements and high-grade commercial paper. The money
market funds and repurchase agreements were carried at cost, and the high-grade
commercial paper was carried at amortized cost, which approximates fair market
value.

F-7
<PAGE> 83
eROOM TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(ALL INFORMATION AS OF AND FOR THE SIX MONTHS ENDED
JUNE 30, 2000 IS UNAUDITED)

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost, net of accumulated depreciation.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets as follows:

<TABLE>
<CAPTION>
ESTIMATED USEFUL LIFE
---------------------
<S> <C>
Computer equipment, purchased software and internally
developed software........................................ 2 - 3 years
Office equipment............................................ 3 years
Furniture and fixtures...................................... 5 years
Leasehold improvements...................................... Shorter of lease term
or asset useful life
</TABLE>

On disposal, the assets disposed of and the related accumulated
depreciation are removed from the accounts and any resulting gain or loss is
included in results from operations. Repairs and maintenance costs are expensed
as incurred.

REVENUE RECOGNITION

The Company recognizes revenue in accordance with Statement of Position, or
SOP, No. 97-2, Software Revenue Recognition, as amended by SOP No. 98-4 and
Staff Accounting Bulletin (SAB) No. 101, Revenue Recognition in Financial
Statements. The Company sells its software under perpetual license arrangements
that are sold together with a maintenance contract having a specified term,
typically one year. Revenue under these arrangements is recognized ratably as
product license revenue over the specified maintenance contract term beginning
at the time the software is delivered to the customer, provided that the fee is
fixed or determinable, evidence of the arrangement exists and collection is
probable. Customers may purchase additional maintenance contracts after the
initial term at then negotiated prices. Revenue from these contracts is
recognized ratably as services revenue over the length of the contract.

Amounts collected or billed prior to satisfying the above revenue
recognition criteria are reflected as deferred revenue.

COST OF REVENUE

Cost of product license revenue consists of royalties for third-party
technology, cost of technical support, primarily salaries for consulting and
training including cost of services provided by third-party consultants engaged
by the Company, and offer costs directly attributable to supporting the

F-8
<PAGE> 84
eROOM TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(ALL INFORMATION AS OF AND FOR THE SIX MONTHS ENDED
JUNE 30, 2000 IS UNAUDITED)

Company's product and customers. Cost of services revenue consists of cost of
services, primarily for consulting and customer support personnel.

RESEARCH AND SOFTWARE DEVELOPMENT COSTS

Costs incurred in the research and development of the Company's products
are expensed as incurred, except for certain software development costs. Costs
associated with the development of computer software are expensed prior to
establishment of technological feasibility (as defined by Statement of Financial
Accounting Standards ("SFAS") No. 86, "Accounting for the Costs of Computer
Software to be Sold, Leased, or Otherwise Marketed") and capitalized thereafter.
Software development costs subject to capitalization during 1998 and 1999 were
not significant.

On January 1, 1999, the Company adopted SOP 98-1, "Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use." Accordingly, the
Company's policy is to capitalize costs associated with the development and
implementation of its operating systems, including internally and externally
developed software. Internal costs eligible for capitalization under SOP 98-1 of
$148,085 were capitalized in 1999. These costs are being amortized over 24
months. Amortization expense for the year ended December 31, 1999 was $12,340.

STOCK-BASED COMPENSATION

The Company accounts for stock-based awards to employees using the
intrinsic value method as prescribed by Accounting Principles Board ("APB")
Opinion No. 25, "Accounting for Stock Issued to Employees," and related
interpretations. Accordingly, compensation expense is recorded for options
issued to employees in fixed amounts to the extent that the exercise prices are
less than the fair market value of the Company's common stock at the date of
grant. The Company applies the provisions of SFAS No. 123, "Accounting for
Stock-Based Compensation," through disclosure only (See Note 8 to Notes to
Consolidated Financial Statements). Stock-based awards to non-employees are
accounted for at their fair value in accordance with SFAS No. 123 and the
Emerging Issues Task Force ("EITF") Issue No. 96-18, "Accounting for Equity
Investments That Are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services."

COMPREHENSIVE LOSS

The Company adopted SFAS No. 130, "Reporting Comprehensive Income,"
effective January 1, 1998. SFAS No. 130 requires that financial statements
include the reporting of "comprehensive loss." Comprehensive loss is comprised
of two components: net loss and other comprehensive loss, with other
comprehensive loss being generally comprised of foreign currency translation
items and unrealized gains and losses on certain investments in debt and equity
securities. During the years ended December 31, 1997, 1998 and 1999 and the six
months ended June 30, 2000, the Company had no other comprehensive loss items
which were material to its financial position or results of operations.

F-9
<PAGE> 85
eROOM TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(ALL INFORMATION AS OF AND FOR THE SIX MONTHS ENDED
JUNE 30, 2000 IS UNAUDITED)

ADVERTISING COSTS

The Company expenses advertising costs as they are incurred. During the
years ended December 31, 1997, 1998 and 1999 and the six months ended June 30,
2000, advertising expense totaled $40,538, $63,555, $53,864 and $125,521,
respectively.

UNAUDITED INTERIM FINANCIAL STATEMENTS

The interim consolidated financial statements and related notes as of June
30, 2000 and for the six month periods ended June 30, 1999 and 2000 are
unaudited. In the opinion of the Company's management, the unaudited interim
consolidated financial statements include all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of the
consolidated financial position and results of operations for these interim
periods. The results of operations for the six months ended June 30, 2000 are
not necessarily indicative of the results of operations for the year ending
December 31, 2000.

PRO FORMA BALANCE SHEET (UNAUDITED)

Upon the closing of the Company's initial public offering, all of the
outstanding shares of the Company's Series A, B, B-1, C and D Redeemable
Convertible Preferred Stock will automatically convert on a 1-for-1 basis into
shares of the Company's common stock (11,859,921 shares in the aggregate as of
June 30, 2000), assuming an offering price of greater than $10.45 per share and
at least $20,000,000 of net proceeds to the Company in the aggregate. The
unaudited pro forma balance sheet illustrates this conversion as if it had
occurred on June 30, 2000.

NET LOSS PER SHARE

Basic net loss per share is computed by dividing the net loss for the
period by the weighted average number of common shares outstanding during the
period, which excludes shares of restricted common stock subject to repurchase.
Diluted net loss per share is computed by dividing the net loss for the period
by the weighted average number of common and potential common shares outstanding
during the period, if dilutive.

RISKS AND UNCERTAINTIES

The Company operates in one segment, has only one product and is subject to
a number of risks similar to other companies in the industry, including but not
limited to, rapid technology change, uncertainty of market acceptance of its
product, competition from substitute products and larger companies, protection
of proprietary technology, ability to scale up its operations to support
additional users of its service, the need to obtain additional financing to
support growth, and dependence on third parties and key individuals. The
Company's revenue is primarily derived from customers based in the United
States.

Financial instruments that potentially expose the Company to concentrations
of credit risk consist primarily of cash, cash equivalents, short-term
investments and accounts receivable. At December 31, 1998 and 1999, the Company
had cash balances at certain financial institutions in

F-10
<PAGE> 86
eROOM TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(ALL INFORMATION AS OF AND FOR THE SIX MONTHS ENDED
JUNE 30, 2000 IS UNAUDITED)

excess of federally insured limits; however, the Company does not believe that
it is subject to unusual credit risk beyond the normal credit risk associated
with commercial banking relationships.

The Company anticipates a substantial increase in its capital expenditures
consistent with anticipated growth in operations, infrastructure and personnel.
The Company believes that existing cash, cash equivalents and short-term
investments, together with the net proceeds of this offering, will be sufficient
to meet the Company's anticipated cash need for working capital and capital
expenditures for planned expansion for at least the next 12 months. However, the
Company may need to raise additional funds in the next 12 months or in the
future to support more rapid expansion of the Company's sales force, develop new
or enhanced products or services, respond to competitive pressures, acquire
complementary businesses or technologies or respond to unanticipated
requirements. If the Company seeks to raise additional funds, the Company may
not be able to obtain funds on terms which are favorable or acceptable to the
Company. If the Company raises additional funds through the issuance of equity
securities, the percentage ownership of its stockholders would be reduced.
Furthermore, these securities may have rights, preferences or privileges senior
to the Company's common stock.

One customer accounted for 27% of accounts receivable at December 31, 1998.
No one customer accounted for more than 10% of accounts receivable at December
31, 1999. Each of two customers accounted for 38% and 12% of accounts receivable
at June 30, 2000. The Company performs ongoing credit evaluations of its
customers; however, collateral is not required. The Company maintains reserves
for credit losses that, in the aggregate, have not exceeded management's
expectations.

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 the
disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenue and expenses during the reporting
periods. Actual results could materially differ from those estimates.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44, "Accounting for Certain Transactions involving Stock
Compensation -- an Interpretation of APB Opinion No. 25," ("FIN 44"). FIN 44
clarifies the application of APB Opinion No. 25 and is effective July 1, 2000,
but certain conclusions in FIN 44 cover specific events if they had occurred
after either December 15, 1998 or January 12, 2000. The Company does not expect
its application to have a material impact on its consolidated financial
statements.

In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements,"
("SAB 101") which summarizes certain of the staff's views in applying generally
accepted accounting principles to revenue recognition in financial statements.
In June 2000, the SEC deferred the implementation date of SAB 101 so that it
will not apply to financial statements until the fourth fiscal quarter of fiscal
years commencing after December 15, 1999. The Company believes it is currently
in compliance with the bulletin.

F-11
<PAGE> 87
eROOM TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(ALL INFORMATION AS OF AND FOR THE SIX MONTHS ENDED
JUNE 30, 2000 IS UNAUDITED)

In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. In June
1999, the FASB issued SFAS No. 137, which defers the effective date of SFAS No.
133 to apply to fiscal years beginning after June 15, 2000. The Company does not
expect SFAS No. 133 to have a material impact on its consolidated financial
statements.

3. NET LOSS PER SHARE

The following potential common shares were excluded from the calculation of
diluted net loss per share for all periods presented since their inclusion would
be antidilutive:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1997 1998 1999
--------- --------- ----------
<S> <C> <C> <C>
Redeemable convertible preferred stock........... 6,416,065 7,666,065 10,902,983
Stock options.................................... 1,761,003 2,208,683 2,253,462
</TABLE>

PRO FORMA NET LOSS PER SHARE (UNAUDITED)

Pro forma basic and diluted net loss per share have been calculated
assuming the conversion of all outstanding shares of redeemable convertible
preferred stock into common stock, as if the shares had converted as of the
beginning of the applicable period or, if later, the time the shares were
issued. Pro forma basic and diluted net loss per share is also calculated
assuming the termination of repurchase rights as if such repurchase rights on
restricted stock (see footnote 7) had terminated at the time the shares were
issued.

F-12
<PAGE> 88
eROOM TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(ALL INFORMATION AS OF AND FOR THE SIX MONTHS ENDED
JUNE 30, 2000 IS UNAUDITED)

The following is a calculation of net loss per share and pro forma net loss
per share:

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------------------- --------------------------
1997 1998 1999 1999 2000
----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Numerator:
Net loss..................... $(4,037,213) $(6,298,162) $(9,842,205) $(4,428,699) $(14,115,625)
----------- ----------- ----------- ----------- ------------
Denominator:
Historical
Weighted average common
shares outstanding........ 2,940,487 2,987,058 3,132,671 3,052,013 4,328,978
Weighted average common
shares outstanding subject
to repurchase............. (1,828,985) (1,237,895) (602,076) (749,803) (316,806)
----------- ----------- ----------- ----------- ------------
Denominator for basic and
diluted calculation....... 1,111,502 1,749,163 2,530,595 2,302,210 4,012,172
=========== =========== =========== =========== ============
Basic and diluted net loss
per share................. $ (3.63) $ (3.60) $ (3.89) $ (1.92) $ (3.52)
=========== =========== =========== =========== ============
Pro Forma (unaudited):
Historical weighted average
common shares
outstanding............... 2,530,595 4,012,172
Weighted average number of
shares with assumed
conversion of redeemable
preferred stock and
expiration of repurchase
rights.................... 9,222,225 14,968,003
----------- ------------
Shares used in computing pro
forma basic and diluted
net loss per share........ 11,752,820 18,980,175
=========== ============
Pro forma basic and diluted
net loss per share........ $ (0.84) $ (0.74)
=========== ============
</TABLE>

4. PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1998 1999
-------- ----------
<S> <C> <C>
Computer equipment, purchased software and internally
developed software........................................ $656,931 $1,349,898
Office equipment............................................ 54,588 109,762
Furniture and fixtures...................................... 125,793 243,381
Leasehold improvements...................................... 15,206 33,842
-------- ----------
852,518 1,736,883
Less -- accumulated depreciation............................ 367,678 694,433
-------- ----------
$484,840 $1,042,450
======== ==========
</TABLE>

F-13
<PAGE> 89
eROOM TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(ALL INFORMATION AS OF AND FOR THE SIX MONTHS ENDED
JUNE 30, 2000 IS UNAUDITED)

Depreciation and amortization expense was $114,073, $235,123, $327,865 and
$361,454 for the years ended December 31, 1997, 1998 and 1999 and the six months
ended June 30, 2000, respectively.

5. LINE OF CREDIT

In October 1996, the Company entered into an agreement with a bank that
established a line of credit which enabled the Company to borrow up to $400,000
for purchases of fixed assets ("Fixed Asset Borrowings") and for working capital
purposes ("Working Capital Borrowings"), subject to certain limitations. All
borrowings under the line of credit were collateralized by all of the Company's
assets and accrued interest at the bank's prime rate plus 1% (8.75% at December
31, 1998).

The Company's ability to make Fixed Asset Borrowings under the line of
credit expired in April 1997. No Working Capital Borrowings were made under the
line of credit and the Company's ability to make such borrowings expired in
April 1998. Fixed Asset Borrowings outstanding at December 31, 1998 of $37,430
were repaid in full during the first quarter of 1999.

6. REDEEMABLE CONVERTIBLE PREFERRED STOCK

In April 2000, the Company sold 956,938 shares of Series D Redeemable
Convertible Preferred Stock ("Series D preferred stock") to a strategic investor
in exchange for approximately $10,000,000 in cash. During the six months ended
June 30, 2000, the Company recorded revenue of $350,667 from this strategic
investor. Deferred revenue related to this strategic investor was $2,866,821 at
June 30, 2000. At June 30, 2000, Series A redeemable convertible preferred stock
("Series A Preferred Stock"), Series B redeemable convertible preferred stock
("Series B Preferred Stock"), Series B-1 redeemable convertible preferred stock
("Series B-1 Preferred Stock"), Series C redeemable convertible preferred stock
("Series C Preferred Stock") and Series D redeemable convertible preferred stock
("Series D Preferred Stock") have the following characteristics (collectively,
"Redeemable Convertible Preferred Stock"):

REDEMPTION

The Series A, Series B, Series B-1, Series C and Series D Preferred Stock
are redeemable at the request of 55% of the holders of Series A, Series B,
Series B-1 and Series C preferred stock, voting as a single class, beginning on
September 13, 2004 at per share prices of $1.00, $2.35, $2.80, $4.80 and $10.45,
respectively, plus all declared but unpaid dividends, as of June 30, 2000 as
follows:

<TABLE>
<CAPTION>
PRINCIPAL
REDEMPTION
YEAR AMOUNT
---- -----------
<S> <C>
2004............................................... $13,100,736
2005............................................... 13,100,736
2006............................................... 13,100,736
-----------
$39,302,208
===========
</TABLE>

F-14
<PAGE> 90
eROOM TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(ALL INFORMATION AS OF AND FOR THE SIX MONTHS ENDED
JUNE 30, 2000 IS UNAUDITED)

CONVERSION

Each share of Series A, Series B, Series B-1, Series C and Series D
Preferred Stock is convertible at any time at the option of the holder into
shares of common stock at a ratio of one share of common stock for each share of
Series A, Series B, Series B-1, Series C or Series D Preferred Stock, subject to
certain anti-dilution adjustments. All shares of Series A, Series B, Series B-1
or Series C Preferred Stock will automatically convert to shares of common stock
upon the closing of a public offering of the Company's common stock involving
aggregate net proceeds to the Company of at least $20,000,000 and a per share
price of not less than $9.60. All shares of Series D Preferred Stock will
automatically convert to shares of common stock upon the closing of a public
offering of the Company's common stock involving aggregate net proceeds to the
Company of at least $20,000,000 and a per share price of not less than $10.45.

At June 30, 2000, the Company has reserved 11,859,921 shares of common
stock for issuance upon the conversion of the Series A, Series B, Series B-1,
Series C and Series D Preferred Stock.

DIVIDENDS RIGHTS

Holders of Redeemable Convertible Preferred Stock are entitled to receive
dividends only when and if declared by the Board of Directors but must be paid
on redemption, liquidation or a sale of the company. No dividends have been
declared or paid by the Company on Redeemable Convertible Preferred Stock
through June 30, 2000.

LIQUIDATION, DISSOLUTION OR WINDING-UP OF THE COMPANY

In the event of any liquidation, dissolution, or winding-up of the Company,
the holders of the Redeemable Convertible Preferred Stock will be entitled to
receive, in preference to the holders of the common stock, an amount per share
equal to the greater of (i) $1.00, $2.35, $2.80, $4.80 and $10.45 for Series A,
Series B, Series B-1, Series C and Series D Preferred Stock, respectively, plus
any declared but unpaid dividends thereon, subject to certain anti-dilution
adjustments, or (ii) such amount per share as would have been payable had the
shares been converted into common stock immediately prior to such liquidation,
dissolution or winding-up of the Company.

If the remaining assets of the Company are insufficient to pay the
Redeemable Convertible Preferred Stockholders the full amount to which they are
entitled, the stockholders shall share ratably in any distribution of the
remaining assets in proportion to the respective amounts which would otherwise
by payable if all amounts payable were paid in full. Any assets remaining after
the initial distribution to the holders of the Redeemable Convertible Preferred
Stock shall be available for distribution ratably among the Company's common
stockholders.

VOTING RIGHTS

Each holder of the Redeemable Convertible Preferred Stock is entitled to
the number of votes equal to the number of shares of common stock into which
such holder's shares are convertible at the record date for such vote.

F-15
<PAGE> 91
eROOM TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(ALL INFORMATION AS OF AND FOR THE SIX MONTHS ENDED
JUNE 30, 2000 IS UNAUDITED)

7. COMMON STOCK

Each share of common stock entitles the holders to one vote on all matters
submitted to a vote of the Company's stockholders. Common stockholders are
entitled to receive dividends only when and if declared by the Board of
Directors, subject to the preferential dividend rights of the holders of the
Redeemable Convertible Preferred Stock.

RESTRICTED STOCK

During 1996, the Company issued 2,930,234 shares of common stock which are
subject to certain resale restrictions. These restrictions provide the Company
with the option to repurchase, at a price of $.01 per share, any or all unvested
shares of common stock held by either of the Company's founders in the event of
voluntary resignation or termination of their employment by the Company. The
number of shares that may be repurchased by the Company upon termination is
reduced ratably over a four-year period, which began in July 1996. At December
31, 1999, an aggregate of 341,830 shares of the Company's common stock are
subject to repurchase under the aforementioned stock restriction arrangements.

In the event of a closing of a fully underwritten initial public offering
of the Company's common stock or a sale of the Company, as defined, all stock
repurchase rights will terminate immediately.

8. 1996 STOCK PLAN

During 1996, the Company adopted the 1996 Stock Plan (the "1996 Plan"). As
amended, the 1996 Plan provides for the issuance of up to 3,709,302 shares of
the Company's common stock pursuant to the exercise of incentive and
nonqualified stock options granted to management, other key employees,
consultants and directors of the Company. The exercise price of each stock
option issued under the 1996 Plan is specified by the Board of Directors at the
time of grant. However, incentive stock options may not be granted at less than
the fair market value of the Company's common stock at the date of grant or for
a term in excess of ten years. For holders of more than 10% of the Company's
total combined voting power of all classes of stock, incentive stock options may
not be granted at less than 110% of the fair market value of the Company's
common stock at the date of grant and for a term not to exceed five years.
Options typically vest either over a four-year period for employees or over the
service period for non-employees and expire ten years from the date of grants.

In March 2000, the Company's Board of Directors approved an increase in the
number of shares provided for issuance under the 1996 Plan to 5,284,302.

SFAS No. 123, "Accounting for Stock-Based Compensation," encourages but
does not require companies to record compensation cost for stock-based employee
compensation at fair value. The Company has chosen to account for stock-based
compensation granted to employees using the intrinsic value method prescribed in
APB No. 25, "Accounting for Stock Issued to Employees," and related
interpretations. Accordingly, deferred compensation cost for restricted stock
awards and stock options granted to employees is measured as the excess, if any,
of the fair value of the Company's stock at the date of the grant over the
amount that must be paid to acquire the stock.

F-16
<PAGE> 92
eROOM TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(ALL INFORMATION AS OF AND FOR THE SIX MONTHS ENDED
JUNE 30, 2000 IS UNAUDITED)

Had the value of options granted to employees been measured using the fair
value method prescribed by SFAS 123, the Company's net loss would have been as
indicated below. The effects of applying SFAS No. 123 in this pro forma
disclosure are not indicative of future amounts.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1997 1998 1999
----------- ----------- ------------
<S> <C> <C> <C>
Net loss available to common stockholders:
As reported................................. $(4,037,213) $(6,298,162) $ (9,842,205)
Pro forma................................... (4,044,085) (6,351,524) (10,466,929)
Basic and diluted net loss per common share:
As reported................................. $ (3.63) $ (3.60) $ (3.89)
Pro forma................................... (3.64) (3.63) (4.14)
</TABLE>

The fair value of each option grant was estimated as of the date of grant
using the Black-Scholes option pricing model. The following assumptions were
used to value grants made during the years ended December 31, 1997, 1998 and
1999, respectively: a dividend yield and volatility of 0.001% for all years;
weighted-average risk free interest rate of 6.4%, 5.3% and 5.8%, respectively;
and an expected option term of 8, 7 and 6 years, respectively.

Activity under the 1996 Plan during the years ended December 31, 1997, 1998
and 1999 is summarized as follows:

<TABLE>
<CAPTION>
1997 1998 1999
-------------------- -------------------- --------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
NUMBER OF EXERCISE NUMBER OF EXERCISE NUMBER OF EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
--------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of
year...................... 870,150 $0.02 1,761,003 $0.11 2,208,683 $0.17
Granted................... 971,853 0.18 836,680 0.30 996,872 0.74
Exercised................. -- -- (87,810) 0.13 (624,496) 0.09
Canceled.................. (81,000) 0.02 (301,190) 0.16 (327,597) 0.33
--------- --------- ---------
Outstanding at end of
year................... 1,761,003 $0.11 2,208,683 $0.17 2,253,462 $0.43
========= ========= =========
Weighted average fair
value of options
granted during the
year................... $0.07 $1.17 $4.26
</TABLE>

F-17
<PAGE> 93
eROOM TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(ALL INFORMATION AS OF AND FOR THE SIX MONTHS ENDED
JUNE 30, 2000 IS UNAUDITED)

The following table summarizes information about stock options outstanding
under the 1996 Plan at December 31, 1999:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-------------------------------------------------
WEIGHTED AVERAGE OPTIONS EXERCISABLE
REMAINING ------------------------------
NUMBER WEIGHTED AVERAGE CONTRACTUAL LIFE NUMBER WEIGHTED AVERAGE
EXERCISE PRICE OUTSTANDING EXERCISE PRICE (IN YEARS) EXERCISABLE EXERCISE PRICE
-------------- ----------- ---------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$0.02 299,559 $0.02 6.7 18,229 $0.02
0.10 232,625 0.10 7.3 147,605 0.10
0.25 547,998 0.25 8.0 217,003 0.25
0.35 715,730 0.35 9.1 135,619 0.35
0.75 182,300 0.75 9.8 2,608 0.75
1.50 275,250 1.50 9.9 -- --
--------- -------
$0.02 - $1.50 2,253,462 $0.43 8.1 521,064 $0.23
========= =======
</TABLE>

During 1998, the Company recorded $925,489 in stock-based compensation for
options to purchase common stock granted at exercise prices subsequently
determined to be below fair value of the common stock. Compensation expense of
$21,842 was recognized during 1998.

During 1999, the Company recorded $3,742,976 in stock-based compensation
for options to purchase common stock granted at exercise prices subsequently
determined to be below the fair value of common stock. Compensation expense of
$574,779 was recognized during 1999.

The Company recorded equity related expense totaling $133,750, $33,350,
$18,084 and $194,136 related to stock options granted to certain non-employee
consultants during the years ended December 31, 1997, 1998 and 1999 and the six
months ended June 30, 2000, respectively.

At December 31, 1999, a total of 2,253,462 shares of common stock were
reserved for issuance upon exercise of the options under the 1996 Plan and
743,534 options were available for future grant.

F-18
<PAGE> 94
eROOM TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(ALL INFORMATION AS OF AND FOR THE SIX MONTHS ENDED
JUNE 30, 2000 IS UNAUDITED)

9. INCOME TAXES

Deferred tax assets (liabilities) consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1998 1999
----------- -----------
<S> <C> <C>
Deferred tax asset:
Net operating loss carryforwards.......................... $ 4,184,650 $ 7,493,674
Research and development tax credits...................... 364,128 464,230
Stock-based compensation.................................. 67,110 297,022
Bad debt reserve.......................................... 25,600 110,000
Deferred revenue.......................................... 73,500 401,400
Accrued expenses.......................................... 44,544 23,120
Depreciation and amortization............................. 25,876 14,330
----------- -----------
Gross deferred tax assets................................. 4,785,408 8,803,776
Less: valuation allowance................................. (4,785,408) (8,803,776)
----------- -----------
Total net deferred tax assets........................ $ -- $ --
=========== ===========
</TABLE>

The Company has provided a full valuation allowance for its net deferred
tax assets since it is more likely than not that these future benefits will not
be realized. If the Company achieves future profitability, a significant portion
of these deferred tax assets could be available to offset future income taxes.

At December 31, 1999, the Company has federal and state net operating loss
carryforwards of approximately $14,600,000 and $14,400,000, respectively,
available to reduce future taxable income and federal and state research and
development credit carryforwards of approximately $350,000 and $180,000,
respectively, available to reduce future tax liabilities. If not utilized, these
credits and carryforwards will expire between 2001 and 2019.

The reconciliation of the statutory federal tax rate to the Company's
actual rate is as follows:

<TABLE>
<CAPTION>
1997 1998 1999
----- ----- -----
<S> <C> <C> <C>
Income tax benefit computed at the federal statutory rate... (34.0)% (34.0)% (34.0)%
Permanent items............................................. -- 0.1 0.1
State income taxes, net of federal benefit.................. (7.0) (6.9) (5.9)
Research and development credit generated................... (2.4) (1.9) (1.0)
Increase in valuation allowance............................. 43.4 42.7 40.8
----- ----- -----
--% --% --%
===== ===== =====
</TABLE>

Under the provisions of the Internal Revenue Code, certain substantial
changes in the Company's ownership may limit the amount of net operating loss
and tax credit carryforward which could be utilized annually to offset future
taxable income and taxes payable. The amount of this annual limitation is
determined based upon the Company's value prior to an ownership change.

F-19
<PAGE> 95
eROOM TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(ALL INFORMATION AS OF AND FOR THE SIX MONTHS ENDED
JUNE 30, 2000 IS UNAUDITED)

10. BENEFIT PLAN

401(k) Savings Plan

The Company has established a retirement savings plan under section 401(k)
of the U.S. Internal Revenue Code (the "401(k) Plan"). The 401(k) plan covers
substantially all U.S. based employees of the Company who meet minimum age and
service requirements, and allows participants to defer a portion of their annual
compensation on a pre-tax basis. Matching contributions to the 401(k) Plan may
be made at the discretion of the Company. The Company has not made any
contributions to the 401(k) Plan for the years ended December 31, 1997, 1998 and
1999.

11. COMMITMENTS AND CONTINGENCIES

OPERATING LEASES

The Company leases its office space under various noncancelable operating
leases. In June 2000, the Company entered into a new facility lease for its
corporate headquarters which expires in June 2005. The approximate future
minimum payments under this new facility lease as of December 31, 1999 are as
follows:

Total rent expense under operating leases was $153,599, $220,591 and
$327,110 for the years ended December 31, 1997, 1998 and 1999, respectively.

12. SUBSEQUENT EVENTS

In July 2000, the Company sold an additional 1,052,633 shares of Series D
Preferred Stock to investors for proceeds of approximately $11,000,000 in cash
(see note 6 to Notes to Consolidated Financial Statements). In connection with
this offering, the Company granted pro rata redemption rights to holders of its
Series D Preferred Stock, although such holders are not entitled to vote on
whether the Company's preferred stock is redeemed.

In September 2000, the 2000 Stock Option and Incentive Plan and the 2000
Employee Stock Purchase Plan were adopted by the Board of Directors and are
subject to stockholder approval. A total of 2,500,000 and 450,000 shares of
common stock has been initially authorized for issuance under the stock option
and incentive plan and the employee stock purchase plan, respectively.

In September 2000, the Company entered into two one-year lines of credit
with Fleet Bank. The first line is a $1.5 million working capital line for which
the borrowing capacity is based on 80% of the Company's eligible domestic
accounts receivable, the interest rate is 0.25% above the prime rate

F-20
<PAGE> 96
eROOM TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(ALL INFORMATION AS OF AND FOR THE SIX MONTHS ENDED
JUNE 30, 2000 IS UNAUDITED)

and a commitment fee is applicable. The second line is a $1.5 million equipment
acquisition line for which the interest rate is 0.75% above the prime rate.
These loans are secured by all of the Company's assets except the Company's
intellectual property, which is only subject to a negative pledge. In addition,
in connection with these loans the Company has agreed to keep its tangible net
worth and quick ratio, as defined in the loan documents, at specified levels.
The Company has also agreed to limitations on its ability to incur indebtedness,
make investments and acquisitions and buy back, or pay cash dividends on, its
capital stock.

* * *

F-21
<PAGE> 97

PROSPECTUS
LOGO

[EROOM LOGO]

Shares
Common Stock

THOMAS WEISEL PARTNERS LLC
SG COWEN
WIT SOUNDVIEW
--------------------------------------------------------------------------------

UNTIL , 2000 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS THAT BUY, SELL, OR TRADE OUR COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS REQUIREMENT IS
IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
<PAGE> 98
[Inside Back Cover]

[NOTE: THE FOLLOWING SCREEN SHOTS ARE FROM VERSION 5.0 OF OUR EROOM SOFTWARE
APPLICATION. THIS PRODUCT IS CURRENTLY BEING TESTED AT CUSTOMER SITES AND IS
SCHEDULED FOR COMMERCIAL RELEASE WITHIN THE NEXT TWO QUARTERS.

A computer screen shot showing the proposal development page of a sample
eRoom digital workplace.

A computer screen shot showing a discussion page of a sample eRoom
digital workplace.

A computer screen shot showing the calendar page of a sample eRoom digital
workplace.]
<PAGE> 99

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table sets forth all expenses, other than the underwriting
discounts and commissions, payable by the Registrant in connection with the sale
of the common stock being registered. All the amounts are estimates except for
the SEC registration fee.

<TABLE>
<S> <C>
SEC registration fee........................................ $18,480
Nasdaq National Market listing fee.......................... *
NASD filing fee............................................. 7,500
Blue sky qualification fees and expenses.................... 12,000
Printing and engraving expenses............................. *
Legal fees and expenses..................................... *
Accounting fees and expenses................................ *
Transfer agent and registrar fees........................... *
Miscellaneous............................................... *
-------
Total....................................................... *
=======
</TABLE>

-------------------------
* To be provided by amendment.

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

As permitted by Delaware law, the Registrant's Sixth Amended and Restated
Certificate of Incorporation provides that no director of the Registrant will be
personally liable to the Registrant or its stockholders for monetary damages for
breach of fiduciary duty as a director, except for liability (a) for any breach
of duty of loyalty to the Registrant or to its stockholders, (b) for acts or
omissions not in good faith or that involve intentional misconduct or a knowing
violation of law, (c) under Section 174 of the Delaware General Corporation Law,
or (d) for any transaction from which the director derived an improper personal
benefit. The Registrant's Sixth Amended and Restated Certificate of
Incorporation further provides that the Registrant must indemnify its directors
and executive officers and may indemnify its other officers and employees and
agents to the fullest extent permitted by Delaware law. The Registrant maintains
a policy of directors and officers insurance that provides insurance against
certain expenses and liabilities which may be incurred by directors and
officers.

The Underwriting Agreement (Exhibit 1.01) will provide for indemnification
by the underwriters of the Registrant, its directors, its officers who sign the
registration statement, and the Registrant's controlling persons for certain
liabilities, including liabilities arising under the Securities Act.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

During the last three years, the Registrant has sold or issued the
following unregistered securities:

(a) Issuance of Capital Stock

In May 1997, the Registrant issued and sold an aggregate of 65,000 shares
of series A convertible preferred stock for an aggregate of $65,000.
II-1
<PAGE> 100

In August 1997, the Registrant issued and sold an aggregate of 2,851,065
shares of series B convertible preferred stock for an aggregate of
$6,700,002.75.

In August 1998, the Registrant issued and sold an aggregate of 1,250,000
shares of series B-1 convertible preferred stock for an aggregate of $3,500,000.

In September 1999, the Registrant issued and sold an aggregate of 3,132,751
shares of series C convertible preferred stock for an aggregate of
$15,037,204.80.

In October 1999, the Registrant issued and sold an aggregate of 104,167
shares of series C convertible preferred stock for an aggregate of $500,001.60.

In April 2000, the Registrant issued and sold an aggregate of 956,938
shares of series D convertible preferred stock for an aggregate of
$10,000,002.10.

In July 2000, the Registrant issued and sold an aggregate of 1,052,633
shares of series D convertible preferred stock for an aggregate of
$11,000,014.85.

Each share of the Registrant's series A, series B, series B-1, series C and
series D convertible preferred stock will automatically convert into one share
of common stock upon the closing of this offering.

(b) Exercises of Stock Options

Since inception, the Registrant granted options to purchase 5,603,555
shares of common stock at exercise prices ranging from $0.02 to $4.50.
Registrant issued 1,894,457 shares of common stock pursuant to exercise of
employee options.

The foregoing sales were made in reliance upon an exemption from the
registration provisions of the Securities Act set forth in Section 4(2) thereof
relative to sales by an issuer not involving any public offering or the rules
and regulations thereunder, or, in the case of options to purchase common stock
and shares of common stock issued upon the exercise of such options, Rule 701
under the Securities Act. All of the foregoing securities are deemed restricted
securities for purposes of the Securities Act.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) The following is a list of exhibits filed as a part of this
registration statement.

II-2
<PAGE> 101

<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
----------- -------
<C> <S>
4.02 Description of Capital Stock (contained in the Sixth Amended
and Restated Certificate of Incorporation filed as Exhibit
3.03)
5.01* Legal Opinion of Testa, Hurwitz & Thibeault, LLP
10.01 1996 Stock Plan
10.02 2000 Stock Option and Incentive Plan (to be effective as of
the closing of the offering)
10.03 2000 Employee Stock Purchase Plan (to be effective as of the
closing of the offering)
10.04 Non-Qualified Stock Option Agreement between the Registrant
and Jeffrey R. Beir dated January 19, 2000
10.05 Non-Qualified Stock Option Agreement between the Registrant
and R. Pito Salas dated January 19, 2000
10.06 Non-Qualified Stock Option and Stock Repurchase Agreement
between the Registrant and Robert L. Lentz dated February
18, 2000
10.07 Non-Qualified Stock Option Agreement between the Registrant
and David A. Litwack dated July 14, 2000
10.08 Non-Qualified Stock Option Agreement between the Registrant
and Thomas F. Bogan dated July 14, 2000
10.09 Severance Letter between the Registrant and Robert L. Lentz
dated September 6, 2000
10.10 Non-Qualified Stock Option and Stock Repurchase Agreement
between the Registrant and Ralph Breslauer dated July 19,
2000.
10.11 Fourth Amended and Restated Investor Rights Agreement dated
as of April 20, 2000
10.12 Amendment No. 1 to Fourth Amended and Restated Investor
Rights Agreement dated as of July 14, 2000
10.13 Third Amendment and Restatement of Lease between Registrant
and Koll Bren Fund V, L.P. dated as of June 28, 2000
10.14* License Software Agreement between the Registrant and Ford
Motor Company dated March 15, 2000
10.15* Commercial Application Partner Agreement between the
Registrant and Sybase, Inc. dated July 31, 1997
10.16* Adaptive Server Anywhere Master Disk Addendum to the
Commercial Application Partner Agreement between the
Registrant and Sybase, Inc. dated March 28, 2000
10.17* Credit Agreement by and between the Registrant and Fleet
National Bank dated as of September 22, 2000
10.18* Revolving Credit Note from the Registrant in favor of Fleet
National Bank
10.19* Equipment Note from the Registrant in favor of Fleet
National Bank
10.20* Security Agreement by and between the Registrant and Fleet
National Bank dated as of September 22, 2000
21.01 List of Subsidiaries
23.01* Consent of Testa, Hurwitz & Thibeault, LLP (contained in
Exhibit 5.01)
23.02 Consent of PricewaterhouseCoopers LLP
</TABLE>

II-3
<PAGE> 102

<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
----------- -------
<C> <S>
24.01 Power of Attorney (contained on pg. II-6)
27.01 Financial Data Schedule
</TABLE>

-------------------------
* To be filed by amendment.

(b) FINANCIAL STATEMENT SCHEDULES

All schedules have been omitted because they are not required or because
the required information is given in the Registrant's Financial Statements or
Notes thereto.

ITEM 17. UNDERTAKINGS.

The undersigned registrant 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
of 1933 may be permitted to directors, officers, and controlling persons of the
registrant pursuant to the provisions described in Item 14 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
Securities Act of 1933 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, 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
Securities Act of 1933 and will governed by the final adjudication of such
issue.

The undersigned registrant undertakes that: (1) for purposes of determining
any liability under the Securities Act of 1933, the information omitted from the
form of prospectus filed as part of the 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 Securities Act of 1933 shall be
deemed to be part of this registration statement as of the time it was declared
effective and (2) for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.

II-4
<PAGE> 103

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Cambridge, Commonwealth
of Massachusetts on the 2nd day of October, 2000.

eROOM TECHNOLOGY, INC.

By: /s/ JEFFREY R. BEIR
------------------------------------
Jeffrey R. Beir
President and Chief Executive
Officer

II-5
<PAGE> 104

POWERS OF ATTORNEY

KNOW ALL MEN AND WOMEN BY THESE PRESENTS that each person whose signature
appears below constitutes and appoints Jeffrey R. Beir and Robert L. Lentz, and
each of them, as his true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement, any related
registration statement filed pursuant to Rule 462 promulgated pursuant to the
Securities Act, and to file the same with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or either of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

In accordance with the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>

/s/ JEFFREY R. BEIR President, Chief Executive October 2, 2000
--------------------------------------------------- Officer and Director
Jeffrey R. Beir (principal executive
officer)

/s/ ROBERT L. LENTZ Senior Vice President of October 2, 2000
--------------------------------------------------- Finance, Chief Financial
Robert L. Lentz Officer, Treasurer and
Assistant Secretary
(principal financial and
accounting officer)

/s/ TIMOTHY A. BARROWS Director October 2, 2000
---------------------------------------------------
Timothy A. Barrows

/s/ THOMAS F. BOGAN Director October 2, 2000
---------------------------------------------------
Thomas F. Bogan

/s/ RICHARD D'AMORE Director October 2, 2000
---------------------------------------------------
Richard D'Amore

/s/ DAVID A. LITWACK Director October 2, 2000
---------------------------------------------------
David A. Litwack

/s/ RONALD NORDIN Director October 2, 2000
---------------------------------------------------
Ronald Nordin

/s/ R. PITO SALAS Director October 2, 2000
---------------------------------------------------
R. Pito Salas
</TABLE>

II-6
<PAGE> 105

<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
----------- -------
<C> <S>
1.01* Form of Underwriting Agreement
3.01 Fifth Amended and Restated Certificate of Incorporation of
Registrant
3.02 Certificate of Amendment of Fifth Amended and Restated
Certificate of Incorporation of Registrant
3.03 Sixth Amended and Restated Certificate of Incorporation of
Registrant (to be effective as of the closing of the
offering)
3.04 By-Laws of the Registrant
3.05 Amended and Restated By-Laws of the Registrant (to be
effective as of the closing of the offering)
4.01* Specimen Certificate for shares of Common Stock of
Registrant
4.02 Description of Capital Stock (contained in the Sixth Amended
and Restated Certificate of Incorporation filed as Exhibit
3.03)
5.01* Legal Opinion of Testa, Hurwitz & Thibeault, LLP
10.01 1996 Stock Plan
10.02 2000 Stock Option and Incentive Plan (to be effective as of
the closing of the offering)
10.03 2000 Employee Stock Purchase Plan (to be effective as of the
closing of the offering)
10.04 Non-Qualified Stock Option Agreement between the Registrant
and Jeffrey R. Beir dated January 19, 2000
10.05 Non-Qualified Stock Option Agreement between the Registrant
and R. Pito Salas dated January 19, 2000
10.06 Non-Qualified Stock Option and Stock Repurchase Agreement
between the Registrant and Robert L. Lentz dated February
18, 2000
10.07 Non-Qualified Stock Option Agreement between the Registrant
and David A. Litwack dated July 14, 2000
10.08 Non-Qualified Stock Option Agreement between the Registrant
and Thomas F. Bogan dated July 14, 2000
10.09 Severance Letter between the Registrant and Robert L. Lentz
dated September 6, 2000
10.10 Non-Qualified Stock Option and Stock Repurchase Agreement
between the Registrant and Ralph Breslauer dated July 19,
2000
10.11 Fourth Amended and Restated Investor Rights Agreement dated
as of April 20, 2000
10.12 Amendment No. 1 to Fourth Amended and Restated Investor
Rights Agreement dated as of July 14, 2000
10.13 Third Amendment and Restatement of Lease between Registrant
and Koll Bren Fund V, L.P. dated as of June 28, 2000
10.14* License Software Agreement between the Registrant and Ford
Motor Company dated March 15, 2000
10.15* Commercial Application Partner Agreement between the
Registrant and Sybase, Inc. dated July 31, 1997
</TABLE>
<PAGE> 106

<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
----------- -------
<C> <S>
10.16* Adaptive Server Anywhere Master Disk Addendum to the
Commercial Application Partner Agreement between the
Registrant and Sybase, Inc. dated March 28, 2000
10.17* Credit Agreement by and between the Registrant and Fleet
National Bank dated as of September 22, 2000
10.18* Revolving Credit Note from the Registrant in favor of Fleet
National Bank
10.19* Equipment Note from the Registrant in favor of Fleet
National Bank
10.20* Security Agreement by and between the Registrant and Fleet
National Bank dated as of September 22, 2000
21.01 List of Subsidiaries
23.01* Consent of Testa, Hurwitz & Thibeault, LLP (contained in
Exhibit 5.01)
23.02 Consent of PricewaterhouseCoopers LLP
24.01 Power of Attorney (contained on pg. II-6)
27.01 Financial Data Schedule
</TABLE>

-------------------------
* To be filed by amendment.