As filed with the Securities and Exchange Commission on February 3, 2000
Registration No. 333-

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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

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FORM S-1
REGISTRATION STATEMENT
Under
The Securities Act of 1933

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CROSSWORLDS SOFTWARE, INC.
(Exact Name of Registrant as Specified in Its Charter)

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Delaware 7372 94-3240149
(State or Other Jurisdiction
of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)

577 Airport Boulevard, Suite 800
Burlingame, CA 94010
(650) 685-9000
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)

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Mark R. Kent
Chief Financial Officer
577 Airport Boulevard, Suite 800
Burlingame, CA 94010
(650) 685-9000
(Name, Address Including Zip Code, and Telephone Number Including Area Code,
of Agent For Service)

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Copies to:

Jon E. Gavenman Neil Wolff
C. Howard Korrell John Y. Sasaki
Venture Law Group Jon P. Layman
A Professional Corporation Wilson Sonsini Goodrich & Rosati
2800 Sand Hill Road Professional Corporation
Menlo Park, CA 94025 650 Page Mill Road
(650) 854-4488 Palo Alto, CA 94304
(650) 493-9300

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Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this Registration
Statement.

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

If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, 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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Proposed
Maximum
Aggregate Amount Of
Title Of Each Class Of Offering Registration
Securities To Be Registered Price(1) Fee
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Common Stock, par value $0.001........................ $50,000,000 $13,200
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(1) Estimated solely for the purpose of computing the amount of the
registration fee pursuant to Rule 457(o) under the Securities Act.

The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until this Registration
Statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.

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+The information in this preliminary 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 becomes effective. This +
+preliminary prospectus is not an offer to sell these 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 , 2000

PROSPECTUS

[LOGO OF CROSSWORLDS SOFTWARE, INC. APPEARS HERE]

Common Stock

CrossWorlds Software, Inc. is offering shares of its common
stock. This is our initial public offering. We anticipate that the initial
public offering price will be between $ and $ per share.

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Prior to this offering, there has been no public market for our common stock.
We have applied to have our common stock approved for quotation on the Nasdaq
National Market under the symbol "CWLD."

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Per Share Total
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Initial public offering price................................ $ $
Underwriting discounts and commission........................ $ $
Proceeds, before expenses, to CrossWorlds.................... $ $

CrossWorlds has granted the underwriters on option for a period of 30 days to
purchase up to additional shares of common stock.

The underwriters are severally underwriting the shares being offered. The
underwriters expect to deliver the shares against payment in New York, New York
on , 2000.

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Investing in our common stock involves a high degree of risk.
See "Risk Factors" beginning on page 8.

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The Securities and Exchange Commission and state securities regulators have
not approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.

Chase H&Q

Dain Rauscher Wessels
a division of Dain Rauscher Incorporated

Thomas Weisel Partners LLC

Prospectus dated , 2000

[COLOR ARTWORK]

TABLE OF CONTENTS

Page
----

Prospectus Summary....................................................... 4
Risk Factors............................................................. 8
You Should Not Rely on Forward-Looking Statements Because They Are
Inherently Uncertain.................................................... 19
Use of Proceeds.......................................................... 19
Dividend Policy.......................................................... 19
Capitalization........................................................... 20
Dilution................................................................. 21
Selected Consolidated Financial Data..................................... 23
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 24
Business................................................................. 34
Management............................................................... 53
Certain Relationships and Related Transactions........................... 63
Principal Stockholders................................................... 66
Description of Capital Stock............................................. 68
Shares Eligible for Future Sale.......................................... 70
Underwriting............................................................. 72
Legal Matters............................................................ 74
Experts.................................................................. 74
Additional Information Available to You.................................. 74
Index to Consolidated Financial Statements............................... F-1

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CrossWorlds Software, Inc. was incorporated in Delaware in March 1996. As
used in this prospectus, references to "we," "our," "us" and "CrossWorlds"
refer to CrossWorlds Software, Inc., its predecessors and its consolidated
subsidiaries and not to the underwriters.

We maintain a World Wide Web site at www.crossworlds.com. Information
contained on our website does not constitute part of this prospectus.

We have applied for federal registration of the marks "CrossWorlds,"
"CrossWorlds Software," "United Applications Architecture," "UAA" and our
logo. Each logo, product name, tradename or service mark of any other company
appearing in this prospectus belongs to its holder.

Dealer Prospectus Delivery Obligation

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

PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this prospectus.
This summary is not complete and does not contain all the information you
should consider before buying shares in the offering. You should read the
entire prospectus carefully. Unless otherwise indicated, this prospectus
assumes that the underwriters have not exercised their option to purchase
additional shares and all shares of preferred stock have been automatically
converted into shares of common stock.

CrossWorlds Software, Inc.

We are a leading provider of e-business infrastructure software that enables
the integration and automation of business processes within enterprises and
among trading partners using the Internet. Our products help traditional and
emerging businesses leverage the Internet as a platform to increase
productivity, improve responsiveness to customer demands and enhance overall
competitiveness.

In response to an increasingly competitive business environment, many large
companies are pursuing collaborative e-business strategies that require close
coordination across internal functions and among trading partners. Examples of
these strategies include the use of Internet-based marketplaces and trading
exchanges; collaborative supply and demand planning among trading partners;
outsourcing of customer service and manufacturing activities to third parties;
and inventory management across multiple company divisions and distribution
channels. The implementation of these strategies, however, has been hampered by
the challenges of integrating incompatible enterprise applications used by
multiple business functions and trading partners.

We believe that the market for e-business infrastructure software is
comprised of the market for e-business software and the related market for
enterprise application integration software. A variety of organizations--
including systems integrators, other information technology service providers,
information technology departments within companies, and software vendors--have
provided companies with integration solutions in support of e-business
initiatives. The market for e-business software, according to Forrester
Research, will grow from $121.0 million in 1997 to $3.8 billion in 2002.
According to the Yankee Group, the market for data integration tools and
enterprise application integration software will grow from $1.6 billion in 1998
to $5.0 billion in 2001. We believe that many of the software products offered
by participants in these markets lack key elements of a complete e-business
infrastructure solution. Examples of these missing elements include business
process support, architectural flexibility and the ability to support e-
business strategies.

Our products are based on an enterprise-class architecture that scales to
meet the requirements of global organizations and trading networks with large
volumes of mission critical transactions. We offer a set of tools that our
customers can use to customize and extend their integration solution to fulfill
their unique e-business requirements. We also provide pre-built connectivity
solutions to leading e-business and enterprise applications, as well as common
technology environments, and have developed pre-built components for automating
many of the common business processes within the enterprise and among trading
partners.

Our business strategy is to be the leading provider of e-business
infrastructure software to traditional and emerging companies. Our product
strategy focuses on expanding our support for e-business applications and
technologies, building connectivity for additional enterprise applications and
expanding our set of pre-built business process integration modules. Our sales
strategy is to focus on selling our products to customers in selected vertical
markets, including technology, industrial manufacturing, process manufacturing
and telecommunications.

To support these strategic efforts, we intend to leverage and expand our
strategic partnerships with IBM, SAP AG and global systems integrators through
technology sharing and cooperative marketing and

sales efforts. In addition, we expect our systems integrator partners to
provide an increasing portion of the implementation services associated with
our products. Since late 1997, when we shipped our first product, we have
licensed our products to 47 customers in these markets, including Applied
Materials, Inc., Delphi Automotive Systems, E.I. DuPont de Nemours and Company,
Ingersoll-Rand Company, Nortel Networks Corporation, Siemens AG, Solar
Turbines, Inc., a wholly owned subsidiary of Caterpillar Inc., and U S WEST.

Our principal executive offices are located at 577 Airport Boulevard, Suite
800, Burlingame, California 94010, and our telephone number is (650) 685-9000.

The Offering

Common stock offered by
CrossWorlds Software, Inc.... shares
Common stock to be outstanding
after this offering.......... shares
Use of proceeds............... Working capital and general corporate purposes.
Proposed Nasdaq National
Market symbol................ CWLD

The following information is based on 19,696,563 shares outstanding on
December 31, 1999. This number excludes 6,793,436 shares of common stock
issuable upon exercise of stock options outstanding on December 31, 1999 at a
weighted average exercise price of $5.78 per share and 1,064,087 shares of
common stock reserved for future issuance under our stock option plan and
executive stock plan. This number also excludes 343,431 shares of common stock
issuable upon exercise of warrants outstanding on December 31, 1999 at a
weighted average exercise price of $5.85 per share.

Our Board of Directors, subsequent to December 31, 1999, approved certain
changes to our stock option plan reserves. Effective on the date of completion
of this offering, the shares reserved for future issuance under our stock
option plans, will be as follows:

. 1997 Stock Plan: 3,000,000 shares.

. 2000 Employee Stock Purchase Plan: 750,000 shares.

. 2000 Directors' Stock Option Plan: 300,000 shares.

The above share reserves replace any stock option reserves existing immediately
prior to the date of completion of the offering, which reserves totalled
1,064,087 shares on December 31, 1999.

Additionally, subsequent to December 31, 1999, our Board approved the
issuance of warrants to purchase 199,996 shares of common stock at a weighted
average exercise price of $11.00 per share.

See "Management-- Stock Plans," "Certain Relationships and Related
Transactions" and "Note 5 to Consolidated Financial Statements."

Summary Consolidated Financial Information

Year Ended December 31,
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1997 1998 1999
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(in thousands,
except per share data)

Consolidated Statement of Operations Data:
Revenue........................................ $ 1,108 $ 7,706 $ 19,094
Operating loss................................. (14,118) (41,853) (36,274)
Net loss....................................... (13,952) (41,374) (38,186)
Pro forma basic and diluted net loss per
share......................................... $ (1.70) $ (3.55) $ (2.38)

Weighted average shares used in pro forma per
share computation............................. 8,201 11,641 16,062

Our software license revenue is generally recognized using the percentage-of-
completion method over the respective project implementation cycles, which
typically range from three to nine months. Consulting and service revenue is
recognized as the services are performed. Maintenance revenue from customer
support and product upgrades, including maintenance bundled with original
software licenses, are deferred and recognized ratably over the term of the
maintenance agreement.

Weighted average shares used in computing pro forma basic and diluted net
loss per share includes the shares used in computing basic and diluted net loss
per share adjusted for the conversion of preferred stock to common stock, as if
the conversion occurred at the date of original issuance.

December 31, 1999
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Actual As Adjusted
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(in thousands)

Consolidated Balance Sheet Data:
Cash and cash equivalents............................... $12,506 $
Working capital (deficit)............................... (1,052)
Total assets............................................ 29,177
Deferred revenue........................................ 13,158
Long-term debt and capital lease obligations, less
current portion........................................ 3,513
Total stockholders' equity (deficit).................... (726)

The consolidated balance sheet data as of December 31, 1999 is set forth on
an actual basis and on an as adjusted basis to reflect the sale of shares
of common stock offered at an assumed initial public offering price of $ per
share after deducting the estimated underwriting discount and the estimated
offering expenses.

RISK FACTORS

You should carefully consider the risks and uncertainties described below
before making an investment decision. If any of the following risks actually
occur, our business, financial condition or operating results could be
materially harmed. This could cause the trading price of our common stock to
decline, and you may lose all or part of your investment.

This prospectus contains forward-looking statements that involve known and
unknown risks and uncertainties. These statements relate to our plans,
objectives, expectations and intentions. Our actual results could differ
materially from those discussed in these statements. Factors that could
contribute to these differences include those discussed below and elsewhere in
this prospectus.

Our business is difficult to evaluate because our operating history is limited.

We were incorporated in March 1996 and shipped our first products in November
1997. Because our operating history is limited, the revenue and income
potential of our business and the market for our products are unproven. This
makes the value of an investment in us difficult to evaluate. In addition,
because of our limited operating history, we have limited insight into trends
that may emerge and affect our business. In the months ahead, we will encounter
many challenges and difficulties frequently encountered by companies in new and
rapidly evolving markets such as ours. In order to succeed in our market we
will need to:

. expand our customer base;

. increase our ability to attract and retain qualified personnel, including
engineering and sales personnel, which are vital to attracting and
retaining customers;

. compete effectively with internal information technology departments of
potential customers, systems integrators that develop customized
solutions and other software vendors that offer business integration
solutions;

. manage expanding operations--specifically our ability to install
management information and control systems in an efficient and timely
manner;

. continue to establish and maintain strategic relationships with key
systems integrators, enterprise application vendors and technology
partners; and

. retain our senior management team and other key personnel.

We may not be successful in addressing all or any of these challenges. Our
failure to meet these challenges would negatively affect our business and
operating results and the value of your investment.

We have a history of losses and our projected expenditures on research and
development and other activities are expected to cause us to incur future
losses.

We have experienced operating losses in each quarterly and annual period
since inception. Despite our history of losses, we believe that it is vital to
our future success that we significantly increase our research and development,
sales and marketing and general and administrative expenses. As a result of
these additional expenses, we will need to significantly increase our quarterly
revenue to achieve and maintain profitability. We incurred net losses of $15.5
million from inception through December 31, 1997 against revenue of $1.1
million, $41.4 million for the year ended December 31, 1998 against revenue of
$7.7 million and $38.2 million for the year ended December 31, 1999 against
revenue of $19.1 million. As of December 31, 1999, we had an accumulated
deficit of approximately $95.1 million. Though these historical results
indicate a trend of recent revenue growth, we may not be able to sustain these
growth rates in the future. As a result, we expect to incur significant losses
in the future. For a more detailed description of our operating results, see
"Selected Consolidated Financial Information" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."

Our revenue is subject to significant fluctuations and is unpredictable. If we
experience future revenue shortfalls, the value of your investment could be
adversely affected.

Our quarterly operating results have varied significantly in the past and
will likely vary significantly in the future due to a number of factors
inherent to our business. As a result, we believe that period-to-period
comparisons of our operating results are not meaningful and should not be
relied on as indicators of our future performance. These factors include, among
others:

. the small number, large size and diverse scope of the integration
projects in which we are engaged;

. the delay or deferral of product implementation schedules by us or by our
customers;

. the amount and timing of our customers' purchases of our products and
services;

. the length of the sales cycle and the implementation schedule for a
product or service;

. the degree of competitive pressures in the market for business
integration software which would affect our software licensing and
service fees;

. the timing of new products and product enhancements by us and our
competitors; and

. software defects and other product quality problems that our customers
may encounter which we may be required to solve.

Due to any or all of these factors, our results of operations may be below
the expectations of public market analysts and investors. Our failure to meet
these expectations may cause the market price of our common stock to fall.

Because we experience significant variability in our quarterly revenue due to
the nature of our sales and implementation cycles, we may not fulfill the
expectations of financial analysts which could negatively affect our stock
price.

Sales Cycle. Our e-business infrastructure solutions have a median selling
price of approximately $530,000, comprised of licensing fees for the software
products deployed and service fees for related consulting and maintenance
services. Because our median selling price is high, we often engage in a
lengthy sales effort. A customer's decision to purchase our products involves a
significant commitment of resources, requires executive-level approval and is
influenced by customer budget cycles. To successfully sell our products, we
generally must educate our potential customers regarding the uses and benefits
of our products, which can require significant time and resources. In addition,
some of our prospective customers evaluate our products on a trial basis before
entering a sales contract. Consequently, our sales cycle is often long, varying
typically from two to nine months, and subject to delays associated with the
lengthy budgetary, approval and competitive evaluation processes that often
accompany significant capital expenditures. This lengthy sales cycle makes it
difficult to predict the quarter in which expected orders will occur. During
such sales cycles, events beyond our control may affect the scope and timing of
our sales contracts with prospective customers. Delays in the execution of
orders could cause some or all of the licensing fee revenue from that order to
be shifted from the expected quarter to a subsequent quarter or quarters.

Implementation Cycle. Because we generally recognize revenue from orders on a
percentage-of- completion basis as the customer reaches certain milestones in
the implementation of the business integration solutions purchased, the timing
of our revenue depends on our customers' implementation cycles. The
implementation of our products often involves a significant commitment of
resources by customers over an extended period of time. The implementation
cycle may be delayed due to product defects or errors and factors over which we
have little or no control, including customers' budgetary constraints, internal
acceptance reviews, delays by third party systems integrators involved in the
implementation process, implementation schedules for related applications and
the complexity of our customers' business integration requirements. Our future
revenue, including both licensing fee revenue

derived from sales contracts subject to percentage-of-completion accounting and
service fee revenue derived from all of our sales contracts, depends on
continued progress on the applicable product implementation schedules. Because
of the complexity of our products and because of each customer's particular
integration requirements and the variety of enterprise applications being
integrated, our product implementation schedules can take three to nine months
or more and span multiple quarterly periods. If we fail to achieve continued
progress on anticipated implementation schedules or our customers delay,
suspend or terminate their implementation efforts, expected licensing fee
revenue from our sales contracts subject to percentage-of-completion accounting
and service fee revenue from all of our sales contracts may not be recognized
until subsequent quarters, if at all. If any of these eventualities occur, the
value of your investment may be adversely affected. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Overview" for a discussion of our revenue recognition policies.

Seasonal factors may affect the timing of our sales orders which could
negatively affect our results of operations.

Seasonal factors, including the quarterly and annual nature of budgetary,
purchasing, sales and implementation cycles, have historically affected the
timing of our sales orders. This seasonality may continue in the future. For
instance, we expect that our sales orders in the first quarter of each year
will typically be lower than sales orders in the fourth quarter of the
preceding year. We believe that this pattern is due, in part, to budgetary
decisions that are made by our customers before the end of the year and the
annual compensation incentives we provide to our direct sales force. Similarly,
the pace of new sales tends to be slower during the summer which, we believe,
is influenced by the difficulty many of our customers have in obtaining
required internal approvals during that time given customary vacation schedules
and planning cycles. When interpreted by financial analysts, the seasonality of
our sales orders may negatively affect our stock price. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

A substantial majority of our revenue has been derived from sales of our
software products and related services to a small number of selected
industries.

A large majority of our revenue to date has been derived from sales of our
software and related services to customers in the telecommunications industry
and the manufacturing industry, which is comprised of customers in the
technology, industrial and process manufacturing sectors. Of our customer base,
comprised as of December 31, 1999 of 47 customers, 23 customers are in the
manufacturing industry and 14 customers are in the telecommunications industry.
Sales of products to the manufacturing and telecommunications industries
accounted for approximately 72% of our revenue in 1997, approximately 96% of
our revenue in 1998 and approximately 90% of our revenue in 1999. We expect
that sales of our software and related services to these industries will
continue to account for substantially all of our revenue for the foreseeable
future. As a result, any significant decline in the demand for, and market
acceptance of, our software in the manufacturing and telecommunications
industries due to the pricing of our products and services, our failure to
compete effectively, respond to technological change, withstand an economic
downturn or other factors in these industries could adversely affect our
results of operations.

Because our revenue is derived from a small number of customers, our revenue
could suffer if we lose a major customer.

We have generated a substantial portion of our annual and quarterly revenue
from a limited number of customers and we expect that a small number of
customers will continue to account for a substantial portion of our revenue for
the foreseeable future. As of December 31, 1999, our customer base was
comprised of 47 customers, many of whom we believe will continue to provide a
substantial portion of our revenue through additional license, implementation
services and maintenance fees. In 1999, one customer accounted for more than
21% of our revenue and six customers collectively accounted for more than 50%
of our revenue. As a result, the loss of even one customer could have a
material adverse effect on our revenue, particularly if such customer accounts
for a significant portion of our revenue.

Our gross margins could fail to improve if we are unable to increase software
license revenue as a portion of our overall revenue.

We intend to invest in further developing our relationships with systems
integrators with the goal of having them perform a greater share of the
consulting services associated with our products. If we are unable to further
develop these relationships, it will be significantly more difficult to migrate
to a business model that is more heavily weighted towards software license
revenue, thus limiting our ability to increase gross margins over time.

Our revenue will likely decline if we do not continue to develop and maintain
successful relationships with systems integrators and other strategic partners.

We engage in joint sales, marketing and/or implementation efforts with a
number of systems integrators, such as Cap Gemini Group, Computer Sciences
Corporation, Deloitte Consulting LLC, EDS, Ernst & Young LLP, and
PricewaterhouseCoopers LLP. In many cases, these parties have extensive
relationships with our existing and potential customers and influence the
decisions of these customers. We rely upon these firms to recommend our
products during the evaluation stage of the purchasing process, to refer
prospective customers and to provide access to their executive-level decision
makers. We expect to increasingly rely on these systems integrators to provide
our customers with product implementation and consulting services. In addition,
if these systems integrators are not appropriately trained to implement our
products, this could significantly harm our reputation with existing and
prospective customers. A number of our competitors may have or develop stronger
relationships with these systems integrators and, as a result, these systems
integrators may be more likely to recommend competitors' products and services.
Our failure to establish or maintain these relationships would significantly
harm our ability to license and successfully implement our e-business
infrastructure software products.

In addition to our relationship with systems integrators, we have begun and
intend to continue to develop relationships with other strategic partners who
can similarly enhance sales and marketing leverage. In particular, our
relationship with IBM announced in June 1999 provides for the joint marketing
and cooperative sale of a combined product offering. Our failure to maintain
this relationship with IBM or to develop additional strategic relationships
could significantly harm our ability to license and successfully implement our
products.

We could lose market share and be unable to maintain current pricing levels if
we do not keep up with the significant competition in the market for business
integration solutions.

The market for our products is intensely competitive, and is expected to
become increasingly competitive as current competitors enhance and expand their
product offerings and new competitors enter the market. Our current competitors
include a number of companies offering one or more solutions to the application
integration problem, some of which are directly competitive with our products.

To date, we have faced competition and some sales resistance from the
internal information technology departments of potential customers that have
developed or may develop in-house integration solutions that may substitute for
those offered by us. We expect that these internal development initiatives will
continue to be a principal source of competition for the foreseeable future.
The competitive factors in this area require that we produce a product that
conforms to the prospective customer's information technology standards, scales
to meet the needs of large enterprises and costs less than the internal
development efforts.

A second source of competition results from systems integrators and other
information technology service providers engaged to build customized
integration solutions across multiple customer applications. The competitive
factors in this area require that we demonstrate to our prospective customers,
systems integrators and other service providers the cost savings, risk
reduction, and other advantages of an integration solution based on
commercially supported software.

Our competitors also include a large number of software vendors targeting one
or more segments of the business integration software market through various
technological solutions. Many of these competitors have longer operating
histories, significantly greater financial, technical, marketing and other
resources, significantly greater name recognition and a larger installed base
of customers than CrossWorlds. In addition, many competitors have well-
established relationships with current and potential customers. As a result,
these competitors may be able to respond more quickly to new or emerging
technologies and changes in customer requirements, or to devote greater
resources to the development, promotion and sale of their products than
CrossWorlds can.

In addition, current and potential competitors have established or may
establish cooperative relationships among themselves or with third parties to
increase the ability of their products to address customer needs. Accordingly,
it is possible that new competitors or alliances among competitors may emerge
and rapidly acquire significant market share. Increased competition could
result in price reductions, reduced gross margins and loss of market share, any
one of which could significantly reduce our future revenues.

If the market for business integration slows, our revenue might be negatively
affected.

All of our revenue has come from sales of software and related business
integration consulting and maintenance services. We expect these sales to
account for substantially all of our revenue for the foreseeable future.
Although demand for business integration solutions has grown in recent years,
the market for these solutions is relatively new and rapidly evolving. We
cannot assure you that this market will continue to grow. If the market for
business integration solutions fails to grow, our business would be adversely
affected through reduced pricing and lower volume of sales.

If we lose our right to use technology licensed to us by third parties, our
revenue could be adversely affected.

We incorporate into our products certain software licensed to us by third
parties, including IBM, Inprise/Borland Corporation and BEA Systems, Inc.,
which provides important messaging and other functionality. Any interruption in
the supply of our licensed software or changes in the pricing or other terms of
these licenses could disrupt our operations, delay our sales and hinder our
ability to support our existing customers, unless and until we can replace the
functionality provided by this licensed software. Because our products
incorporate software developed and maintained by third parties, we depend on
these third parties to deliver and support reliable products, enhance their
current products, develop new products on a timely and cost-effective basis and
respond to emerging industry standards and other technological changes. In the
event that the licensed software becomes unavailable, obsolete or incompatible
with future versions of our products or is otherwise not adequately maintained
or updated, we may not be able to replace the functionality of the licensed
software on comparable terms or at all. Any significant delay in the
replacement of this functionality could harm our business.

If we fail to keep up with rapid technological change, we could lose market
share or our products could become obsolete.

The market for our products is characterized by rapid technological change,
frequent new product introductions and enhancements, uncertain product life
cycles, changing customer requirements and evolving industry standards,
including Internet standards. The introduction of products embodying new
technologies and the emergence of new industry standards could quickly make our
existing products obsolete and unmarketable. Our future success will depend
upon our ability to continue to develop and introduce a variety of new products
and product enhancements to address the increasingly sophisticated needs of our
customers. We cannot assure you that our new products and product enhancements
will achieve market acceptance or that a new technology will not render our
products obsolete.

If our products do not operate with the many hardware and software platforms
and applications used by our customers, we will not be successful.

We currently serve a customer base with a wide variety of constantly changing
hardware, enterprise applications and networking platforms. To increase market
acceptance, we believe that our products will have to operate within an
increasing number of technical environments. Our success will depend on the
following factors, among others:

. our ability to continue to integrate our products with multiple platforms
and applications and to modify our products as new versions of packaged
applications are introduced;

. access to the application programming interfaces of the packaged
applications with which our products need to integrate;

. the portability of our products across a number of hardware platforms,
operating systems and databases;

. our ability to anticipate and support new standards, especially Internet
standards; and

. the integration of additional software modules with existing products.

If we fail to achieve these objectives, our business and operating results
could be adversely affected.

If we are unable to maintain relationships with enterprise application vendors
whose products we integrate or plan to integrate, our results of operations
would be adversely affected.

We have strategic relationships with a number of enterprise application
vendors who provide access to their software and documentation to enable us to
effectively develop our product interfaces to be compatible with their packaged
enterprise applications. If any of our strategic relationships with these
vendors is terminated or access to their software and documentation is
otherwise restricted, or we are unsuccessful in establishing strategic
relationships with other vendors, our ability to develop product interfaces to
support new and existing versions of these vendors' packaged enterprise
applications would be adversely affected.

The loss of our senior management or other key personnel or our failure to
attract additional personnel could negatively affect our business and decrease
the value of your investment.

Our future success depends on the skills, experience and performance of our
senior management team and other key personnel and their ability to operate
effectively, both individually and as a group. In addition, the services and
expertise of our senior management team would be difficult to replace. We do
not maintain "key person" life insurance for any of our personnel. The intense
competition for qualified personnel in our industry and geographic region could
hinder our ability to replace any of these members of our senior management
team if we were to lose their services in the future. If we do not succeed in
attracting new personnel, or retaining and motivating existing personnel, our
business will be adversely affected. For a more detailed description of our
senior management team, see "Management."

If we fail to expand our direct sales, consulting and customer support
organizations, our business could suffer.

To date, we have sold our products primarily through our direct sales force
and have supported our customers through our consulting and customer support
staff. Although we intend to invest significant resources to recruit additional
direct sales, consulting and customer support personnel, competition for
qualified personnel is intense and many of our competitors have greater
recruiting resources than we do. We believe that the retention of qualified
direct sales personnel in our business is particularly difficult given that the
market for business integration solutions is still emerging, further market
acceptance of our products has not yet been achieved, and the sales cycles
associated with our products are lengthy. Our direct sales, consulting and
customer support organizations are vital to our success. If we fail to
sufficiently expand our

direct sales force or our consulting and customer support staffs, we may not be
able to increase revenue or achieve increased market acceptance of our
products.

Our failure to retain skilled technical personnel in a tight labor market may
adversely affect our product development.

Qualified technical personnel are in great demand throughout the software
industry. The demand for qualified technical personnel is particularly acute in
the San Francisco Bay Area where our corporate headquarters are located. Our
success depends in large part upon our continued ability to attract and retain
highly skilled technical employees, particularly software architects and
engineers. Our failure to attract and retain the highly-trained technical
personnel that are integral to our product development and customer support
teams may limit the rate at which we can generate sales and develop new
products or product enhancements. This could have a material adverse effect on
our business, financial condition and operating results.

Our products may suffer from undetected errors and defects. We could face
litigation if one of these errors or defects causes our products to
malfunction, which might require considerable effort and expense to defend and
result in significant liability.

Our software products are complex and may contain undetected errors or
defects, especially when first introduced or when new versions are released.
Any errors or defects that are discovered after commercial release could result
in loss of revenue or delay in market acceptance, diversion of development
resources, damage to our customer relationships or reputation, increased
service and warranty cost or costly litigation defense. We have previously
discovered software errors in certain of the products that we have developed
and sold. These errors, when discovered by our customers, have impaired our
customer relationships to varying degrees. Despite testing, we cannot be
certain that errors will not be found in current versions, new versions or
enhancements of our products after commencement of commercial shipments to
customers. The license and support of software products generally involves the
risk of product liability claims. Any defects and errors found in our products
could cause customers to seek damages for loss of data, lost revenue, systems
costs or other adverse consequences they may suffer. Although our customer
license agreements typically contain provisions designed to limit our exposure
to these claims, it is possible that these limitation of liability provisions
may not be effective as a result of federal, state or local laws or ordinances
or unfavorable judicial decisions. Although we have not experienced any product
liability claims to date, a successful product liability claim brought against
us could adversely affect our business.

The cost and difficulties of implementing our products could significantly harm
our reputation with customers, which may diminish our ability to license
additional products to our customers.

Our products are often purchased as part of large business integration
projects undertaken by our customers. These projects are complex, time
consuming and expensive. Failure by customers to successfully deploy our
products, or the failure by us or third party consultants to ensure customer
satisfaction, could damage our reputation with existing and future customers
and reduce future revenue. In many cases, our customers must interact with,
modify or replace significant elements of their existing computer systems. The
costs of our products and services represent only a portion of the related
hardware, software, development, training and consulting costs. The significant
involvement of third parties, including system integrators, reduces the control
we have over the implementation of our product and the quality of customer
service provided to organizations which license our software. If our customers
are dissatisfied with any part of the implementation process, for any reason,
our ability to license further products to these customers would diminish.

Because our products could interfere with the operations of our customers'
other software and hardware applications, we may be subject to potential
product liability and warranty claims by these customers, which may be costly
and may not be adequately covered by insurance.

Our e-business infrastructure products are integrated with our customers'
networks and software applications. The sale and support of our products may
entail the risk of product liability or warranty claims based on damage to, or
interference with, these networks or applications. Any of these claims, even if
not meritorious, could result in costly litigation or divert management's
attention and resources. Although we carry general liability insurance, our
current insurance coverage would likely be insufficient to protect us from all
liability that may be imposed under these types of claims.

We may be subject to claims related to year 2000 issues, and year 2000 problems
could adversely affect our revenue.

Many currently installed computer systems may not be capable of
distinguishing 21st century dates from 20th century dates. As a result,
beginning on January 1, 2000, computer systems and software used by many
companies and organizations in a wide variety of industries will produce
erroneous results or fail unless they have been modified or upgraded to process
date information correctly. In particular, although January 1, 2000 is past, it
is possible that problems have gone undetected, or that other dates in the year
2000, such as February 29, 2000, may further affect computer software and
systems. We are currently unable to assess completely whether our products, our
internal computer systems, the operation of our software or the software of
third parties contains errors or faults with respect to the year 2000. Known or
unknown errors or defects that affect the operation of our software and systems
or those of third parties could result in delay or loss of revenue,
interruption of services, cancellation of customer contracts, diversion of
development resources, damage to our reputation, increased service and warranty
costs and litigation costs, any of which could harm our business.

Managing growth may be difficult, time consuming and expensive. Our failure to
properly manage growth may hurt the value of your investment.

Our recent growth has strained, and we expect that any future growth will
continue to strain, our management systems and resources, which could hinder
our ability to grow in the future. In particular, we may not be able to install
management information and control systems in an efficient and timely manner,
and our current or planned personnel, systems, procedures and controls may not
be adequate to support our future operations. We have grown from 111 employees
as of December 31, 1997 to 202 employees as of December 31, 1999. As of
December 31, 1999, we have also opened 14 sales offices and established
subsidiaries in Australia, France, Germany, Ireland and the United Kingdom.
Additionally, several of our executive officers, including our President and
CEO and Senior VP Worldwide Sales, joined us within the last 6 months. In order
to effectively manage our growth, we will be required to integrate, train,
motivate and manage our work force, continue to improve our operational,
financial and management controls, reporting systems and procedures and
maintain close coordination among our executive engineering, accounting,
finance, marketing, sales and operations organizations. In addition, if our
currently planned expenditures related to the expansion of our operations are
not accompanied or shortly followed by significantly increased revenue, our
losses would be even greater than expected until we were able to delay or
reduce these expenditures. For example, during 1998 we increased our operating
expenses significantly, particularly sales and marketing expenses, based on our
expectations of revenue growth that did not materialize as quickly as
anticipated. These increased expense levels materially adversely affected our
operating results for that period. If we fail in any of these respects, our
business would be adversely affected.

If our international operations, which involve additional risks that do not
affect our domestic operations, do not perform as projected, our operating
results could be negatively affected.

As part of our strategy to address the global needs of our customers and
partners, we have committed significant resources to the opening of
international offices and the expansion of international sales and

support channels in advance of revenue. Revenues from international sales
represented 20% of total 1997 revenue, 28% of total 1998 revenue and 22% of
total 1999 revenue. We have only limited experience in marketing, selling and
distributing our products and services internationally. If our international
expansion strategy does not generate sufficient revenue to offset our
expenditures to establish and maintain our international operations, our
business could be adversely affected. In December 1998, we implemented
strategic decisions to cease our Asian and Australian operations because our
capital expenditures in those markets were not producing sufficient returns. We
cannot assure you that this will not happen to other of our international
operations. We cannot be sure that we will be able to successfully localize,
market, sell and deliver our products in foreign markets, and our failure to do
so could adversely affect the value of your investment.

Risks of our international operations include:

. difficulties in collecting accounts receivable and longer collection
periods;

. difficulties in staffing and managing foreign operations;

. changing and conflicting regulatory requirements;

. increased operating expenses such as higher rents and costs of
employees--particularly in our European locations;

. potentially adverse tax consequences;

. tariffs and general export restrictions, including export controls
relating to encryption technology;

. political instability;

. fluctuations in currency exchange rates;

. seasonal reduction in business activity during the summer months in
Europe and certain other parts of the world; and

. the impact of local economic conditions and practices.

In addition, as we expand our international operations, we may allow payment in
foreign currencies and exposure to losses in foreign currency transactions may
increase. We may choose to limit such exposure through the purchase of forward
foreign exchange contracts or other hedging strategies, but there can be no
assurance that any currency hedging strategy would be successful in avoiding
exchange related losses. Any of the above factors could have a material and
adverse effect on our international sales and operations, which, in turn, could
adversely affect our overall business, operating results and financial
condition.

Our business could be hurt if we make acquisitions that are unsuccessful.

We may in the future pursue acquisitions of businesses, products and
technologies, or enter into joint venture arrangements, that could complement
our products, enhance our technical capabilities or expand our business. The
negotiation of potential acquisitions or joint ventures as well as the
integration of an acquired business, product or technology could cause the
diversion of management's time and resources. Future acquisitions could result
in potentially dilutive issuances of equity securities, the incurrence of debt
and contingent liabilities, amortization of goodwill and other intangibles,
research and development write-offs and other acquisitions-related expenses.
Further, we cannot assure you that any businesses, products or technologies we
may acquire will be successfully integrated with our current operations. If any
such acquisition were to occur, we cannot assure you that the intended benefits
of the acquisition will be realized. Future acquisitions, whether or not
consummated, could adversely affect our business.

If we are unable to adequately protect our proprietary rights, we may lose some
or all of our competitive advantage and our business could suffer.

We rely primarily on a combination of patents, copyrights, trademarks, trade
secret laws and contractual obligations with employees and third parties to
protect the proprietary aspects of our technology. The legal

protection affords only limited protection. Despite our efforts to protect our
proprietary rights, unauthorized parties may copy aspects of our products and
obtain and use information that we regard as proprietary. In addition, other
parties may breach confidentiality agreements or other protective contracts.
Furthermore, the laws of many foreign countries do not protect our intellectual
property rights to the same extent as the laws of the United States. Litigation
may be necessary to enforce our intellectual property rights and to protect our
trade secrets. Such litigation has an inherently uncertain outcome and could
result in substantial costs and diversion of management's attention and
resources.

We may be subject to liability for intellectual property infringement claims,
which could adversely affect our results of operations.

We may be subject to legal proceedings and claims for alleged infringement of
third party proprietary rights, such as patents, trademarks or copyrights,
particularly as the number of products and competitors in our industry grow and
functionalities of products overlap. This risk is higher in a new market in
which a larger number of patent applications have been filed but are not yet
publicly disclosed, such that we are less able to determine which patents our
products may infringe and take measures to avoid infringement. Any litigation
could result in substantial costs and diversion of management's attention and
resources. Further, parties making infringement claims against us may be able
to obtain injunctive or other equitable relief, which could prevent us from
selling our products or require us to enter into royalty or license agreements
which are not advantageous to us.

We expect that the market price for our common stock may be volatile.

Equity markets, particularly the market for high-technology companies, have
recently experienced significant price and volume fluctuations that are
unrelated to the operating performance of individual companies. These broad
market fluctuations may adversely affect the market price of our common stock.
In addition, the market price of our common stock is likely to be highly
volatile. Factors such as fluctuations in our operating results, announcements
of technological innovations, new products or new services by us or by our
partners, competitors or customers or our competitors' developments with
respect to patents or proprietary rights, the announcement of litigation by or
against us, changes in stock market analyst recommendations regarding us or our
competitors, general market conditions and other factors may have a significant
effect on the market price of our common stock.

In the past, securities class action litigation has often been instituted
against companies following periods of volatility in the market price of their
securities. Such litigation could result in substantial costs and a diversion
of management's attention and resources.

Because our directors and officers will own approximately % of our
outstanding stock after this offering, you and other investors will have
minimal influence on stockholder decisions.

Upon completion of this offering, our executive officers and directors and
their affiliates will, in the aggregate, own approximately % of our
outstanding common stock. As a result, these stockholders will be able to
exercise control over all matters requiring stockholder approval, including the
election and removal of directors and approval of significant corporate
transactions. Such control could discourage others from initiating potential
merger, takeover or other change of control transactions, even if it would be
beneficial to other stockholders. See "Principal Stockholders."

Our charter document provisions could limit another party's ability to acquire
us.

Certain provisions of our Certificate of Incorporation and Bylaws, as well as
provisions of Delaware law, could make it more difficult for a third party to
acquire us, even if doing so would be beneficial to our stockholders. For
example our certificate of incorporation allows our board of directors to issue
up to 5,000,000 shares of preferred stock without a stockholder vote. Our
Bylaws provide that special meetings of

stockholders can be called only by the Board of Directors or an authorized
committee of the Board. For information regarding these provisions, see
"Description of Capital Stock--Delaware Anti-Takeover Law and Certain Charter
and Bylaw Provisions."

Some of our shares will be eligible for future sale which may cause our stock
price to decline.

Sales of significant amounts of our common stock, including shares issued
upon the exercise of outstanding options, in the public market after this
offering could adversely affect the market price of our common stock. These
sales also might make it more difficult for us to sell equity securities or
equity-related securities in the future at a time and price that we deem
appropriate. Upon completion of this offering, we will have outstanding
shares of common stock, based upon 19,696,563 shares outstanding as of December
31, 1999 as adjusted to reflect the conversion of all outstanding shares of
preferred stock into 16,542,628 shares of common stock and to include the
shares of common stock issued in connection with this offering. All of the
shares sold in this offering will be freely tradable without restriction unless
held by our affiliates. The remaining 19,696,563 shares of our common stock
outstanding after this offering will be restricted as a result of securities
laws or lock-up agreements signed by the holder and will be available for sale
in the public market as follows:

Number of Shares Date of Availability for Sale
---------------- -----------------------------

0 At the date of this prospectus
0 90 days after the date of this prospectus
19,696,563 180 days after the date of this prospectus

This table excludes 7,136,867 shares of our common stock issuable upon
exercise of outstanding options and warrants outstanding as of December 31,
1999, which shares will be tradable in the public market subject to vesting and
the expiration of lock-up agreements.

Chase Securities Inc. may, in its sole discretion and at any time without
prior notice, release all or any portion of the common stock subject to lock-up
agreements. See "Shares Eligible for Future Sale" and "Underwriting."

New investors will incur substantial and immediate dilution.

Purchasers of the common stock offered hereby will suffer an immediate and
substantial dilution of $ per share in the net tangible book value of our
common stock from the initial public offering price of $ per share. To the
extent outstanding options are exercised, there will be further dilution. See
"Dilution."

We may need more money, which may not be available to us on favorable terms or
at all.

Although we expect the net proceeds from this offering and borrowings under
our credit facility to be sufficient to meet our working capital and capital
expenditure needs for at least the next twelve months, such sources may be
inadequate. Consequently, we may require additional funds during or after such
period. Additional financing may not be available on favorable terms or at all.
This could seriously harm our business and operating results. Furthermore, if
we issue additional equity securities, stockholders may experience dilution and
the new equity securities could have rights senior to those of existing holders
of our common stock. If we cannot raise adequate funds to satisfy our capital
requirements, we may not be able to develop or enhance our products, take
advantage of future opportunities or respond to competitive pressures or
unanticipated requirements. For a more detailed discussion regarding our use of
proceeds from this offering or our working capital, see "Use of Proceeds" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."

YOU SHOULD NOT RELY ON FORWARD-LOOKING
STATEMENTS BECAUSE THEY ARE INHERENTLY UNCERTAIN

This prospectus contains forward-looking statements that involve risks and
uncertainties. We use words such as "anticipates," "believes," "plans,"
"expects," "future," "intends" and similar expressions to identify forward-
looking statements. This prospectus also contains forward-looking statements
attributed to third parties relating to their estimates regarding the growth of
various markets. You should not place undue reliance on these forward-looking
statements, which apply only as of the date of this prospectus. Our actual
results could differ materially from those anticipated in these forward-looking
statements for many reasons, including the risks faced by us and described in
the preceding pages and elsewhere in this prospectus.

We are under no duty to update any of the forward-looking statements after
the date of this prospectus to conform these statements to actual results.

USE OF PROCEEDS

We estimate that the net proceeds from the sale of the shares of
common stock that we are selling in this offering will be approximately $
million, or $ million if the underwriters' option to purchase additional
shares is exercised in full, assuming an offering price of $ per share and
after deducing the underwriting discount and estimated offering expenses.

We currently expect to use the net proceeds primarily for working capital,
for general corporate purposes, including increased sales and marketing
expenditures, increased research and development expenditures and capital
expenditures made in the ordinary course of business. We intend, if the
opportunity arises, to use an unspecified portion of the net proceeds to
acquire or invest in complementary businesses, products and technologies. From
time to time, in the ordinary course of business, we expect to evaluate
potential acquisitions of such businesses, products or technologies. See "Risk
Factors--Our business could be hurt if we make acquisitions that are
unsuccessful."

Pending such uses, we intend to invest the net proceeds from this offering in
short-term, interest-bearing, investment-grade securities.

DIVIDEND POLICY

We have never 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 therefore do not anticipate paying any cash
dividends in the foreseeable future. Our credit facility with Silicon Valley
Bank prohibits us from paying dividends without the bank's prior approval.

CAPITALIZATION

The following table sets forth our short-term debt and capitalization as of
December 31, 1999:

. on an actual basis;

. on a pro forma as adjusted basis to reflect the conversion of all
outstanding shares of convertible preferred stock into 16,542,628 shares
of common stock upon the closing of this offering and to reflect our sale
and issuance of shares of common stock in this offering at an
assumed initial public offering price of $ per share and the
application of the net proceeds we receive.

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

December 31, 1999
---------------------
Pro Forma
Actual As Adjusted
-------- -----------
(in thousands)

Cash and cash equivalents................................ $ 12,506 $
======== ======
Long-term debt and capital lease obligations, less
current portion......................................... 3,513
--------
Stockholders' equity (deficit):
Convertible preferred stock, $0.01 par value per share;
17,000,000 shares authorized, 16,126,003 shares issued
and outstanding, actual; 5,000,000 shares authorized,
none issued or outstanding, pro forma as adjusted .... 161
Common stock, $0.001 par value per share; 45,000,000
shares authorized, 3,153,935 shares issued and out-
standing, actual; 150,000,000 shares authorized,
shares issued and outstanding, pro
forma as adjusted .................................... 3
Additional paid-in capital............................. 96,757
Deferred stock-based compensation...................... (2,540)
Accumulated deficit.................................... (95,107)
-------- ------
Total stockholders' equity (deficit)................. (726)
-------- ------
Total capitalization............................... $ 2,787 $
======== ======

The outstanding share information in the table above is as of December 31,
1999 and excludes:

. 6,793,436 shares of common stock issuable upon the exercise of
outstanding options at a weighted average exercise price of $5.78 per
share;

. 343,431 shares of common stock issuable upon the exercise of outstanding
warrants at a weighted average exercise price of $5.85 per share; and

. 423,612 shares reserved for future issuance under our 1997 stock option
plan and 640,475 shares reserved for future issuance under our 1999
executive stock plan.

. 1997 Stock Plan: 3,000,000 shares.

. 2000 Employee Stock Purchase Plan: 750,000 shares.

. 2000 Directors' Stock Option Plan: 300,000 shares.

The above share reserves replace any stock option reserves existing immediately
prior to the date of completion of the offering, which reserves totalled
1,064,087 shares on December 31, 1999.

Additionally, subsequent to December 31, 1999, our Board approved the
issuance of warrants to purchase 199,996 shares of common stock at a weighted
average exercise price of $11.00 per share.

DILUTION

As of December 31, 1999, our pro forma net tangible book deficit was
approximately $(726,000) or $(0.23) per share of common stock. Pro forma net
tangible book deficit per share represents the amount of our total tangible
assets reduced by our total liabilities, divided by the number of shares of
common stock outstanding. After giving effect to the receipt of the estimated
net proceeds from our sale of shares of common stock in this
offering at an assumed initial public offering price of $ per share, our pro
forma net tangible book value at December 31, 1999 would have been
approximately $ million or $ per share of common stock. This represents
an immediate increase in 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:

Assumed initial public offering price per share................... $
Pro forma net tangible book deficit per share as of December 31,
1999........................................................... $
Increase per share attributable to new investors................
----
Pro forma net tangible book value after the offering..............
----
Dilution per share to new investors............................... $
====

The following table summarizes on a pro forma basis, as of December 31, 1999,
the differences between existing stockholders and new investors with respect to
the number of shares of common stock purchased from us, the total consideration
paid and the average price per share paid.

Shares Purchased Total Consideration Average
------------------ ------------------- Price
Number Percent Amount Percent Per Share
---------- ------- ----------- ------- ---------

Existing stockholders....... 19,696,563 % $88,145,000 % $4.48
New investors...............
---------- ----- ----------- -----
Totals.................... 100.0% $ 100.0%
========== ===== =========== =====

The information presented above with respect to existing stockholders
includes 16,126,003 shares of preferred stock which will be automatically
converted into 16,542,628 shares of common stock upon the closing of this
offering. This information is as of December 31, 1999 and excludes:

. 6,793,436 shares of common stock issuable upon the exercise of
outstanding options at a weighted average exercise price of $5.78 per
share;

. 343,431 shares of common stock issuable upon the exercise of outstanding
warrants at a weighted average exercise price of $5.85 per share; and

. 423,612 shares reserved for future issuance under our 1997 stock option
plan and 640,475 shares reserved for future issuance under our 1999
executive stock plan.

. 1997 Stock Plan: 3,000,000 shares.

. 2000 Employee Stock Purchase Plan: 750,000 shares.

. 2000 Directors' Stock Option Plan: 300,000 shares.

The above share reserves replace any stock option reserves existing immediately
prior to the date of completion of the offering, which reserves totalled
1,064,087 shares on December 31, 1999.

Additionally, subsequent to December 31, 1999, our Board approved the
issuance of warrants to purchase 199,996 shares of common stock at a weighted
average exercise price of $11.00 per share.

The issuance of common stock in connection with the exercise of outstanding
options and warrants or options and warrants issued in the future will result
in further dilution to new investors. See "Management--Stock Plans" and Note 5
to Consolidated Financial Statements.

SELECTED CONSOLIDATED FINANCIAL DATA

The following selected consolidated financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," our consolidated financial statements and related
notes, and other financial information included elsewhere in this prospectus.
The consolidated statements of operations data for the years ended December 31,
1997, 1998 and 1999, and the selected consolidated balance sheet data at
December 31, 1998 and 1999 presented below are derived from consolidated
financial statements that have been audited by KPMG LLP, independent auditors,
which are included elsewhere in this prospectus. The selected historical
consolidated financial data set forth below for the period from March 8, 1996
(inception) to December 31, 1996 and as of December 31, 1996 and 1997 have been
derived from audited financial statements, which include, in the opinion of
management, all adjustments, consisting only of normal recurring adjustments,
considered necessary for a fair presentation of financial position and results
of operations for that period and as of that date. The historical results
presented below are not necessarily indicative of the results to be expected
for any future fiscal period. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

Period From
March 8, 1996
(Inception) Year Ended December 31,
to December ----------------------------
31, 1996 1997 1998 1999
------------- -------- -------- --------
(in thousands, except per share data)

Consolidated Statements of
Operations:
Revenue:
Software license................ $ -- $ 748 $ 3,973 $ 8,194
Service, maintenance and other.. -- 360 3,733 10,900
------- -------- -------- --------
Total revenue................... -- 1,108 7,706 19,094
Cost of revenue:
Software license and royalties.. -- 36 438 1,599
Service, maintenance and other.. -- 1,860 5,392 10,127
------- -------- -------- --------
Total cost of revenue........... -- 1,896 5,830 11,726
------- -------- -------- --------
Gross profit (loss)........... -- (788) 1,876 7,368
------- -------- -------- --------
Operating expenses:
Research and development........ 757 4,080 11,748 14,243
Sales and marketing............. 375 6,954 23,141 21,792
General and administrative...... 503 2,296 4,066 6,145
Amortization of deferred stock-
based compensation............. -- -- 4,774 1,462
------- -------- -------- --------
Total operating expenses........ 1,635 13,330 43,729 43,642
------- -------- -------- --------
Operating loss................ (1,635) (14,118) (41,853) (36,274)
Other income (expense), net....... 41 166 479 (1,912)
------- -------- -------- --------
Net loss...................... $(1,594) $(13,952) $(41,374) $(38,186)
======= ======== ======== ========
Net loss per share:
Basic and diluted............... $ (2.83) $ (11.88) $ (19.99) $ (13.40)
======= ======== ======== ========
Weighted average shares used in
computation.................... 564 1,175 2,069 2,850
======= ======== ======== ========
Pro forma net loss per share(1):
Basic and diluted............... $ (0.31) $ (1.70) $ (3.55) $ (2.38)
======= ======== ======== ========
Weighted average shares used in
computation.................... 5,162 8,201 11,641 16,062
======= ======== ======== ========

(1) Shares used in computing pro forma basic and diluted net loss per share
includes the shares used in computing basic and diluted net loss per share
adjusted for the conversion of preferred stock to common stock, as if the
conversion occurred at the date of original issuance.

December 31,
-------------------------------
1996 1997 1998 1999
------ ------- ------- -------
(in thousands)

Consolidated Balance Sheet Data:
Cash and cash equivalents................... $1,273 $24,741 $ 5,415 $12,506
Working capital (deficit)................... 1,074 21,938 (4,648) (1,052)
Total assets................................ 1,606 28,085 15,757 29,177
Long term debt and capital lease
obligations, less current portion.......... -- 986 6,254 3,513
Stockholders' equity (deficit).............. 1,391 22,947 (6,670) (726)

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

You should read the following discussion and analysis in conjunction with
"Selected Consolidated Financial Data" and our consolidated financial
statements and related notes included elsewhere in this prospectus. In addition
to historical information, the following discussion contains certain forward-
looking statements that involve known and unknown risks and uncertainties, such
as statements of our plans, objectives, expectations and intentions. You should
read the cautionary statements made in this prospectus as being applicable to
all related forward-looking statements wherever they appear in this prospectus.
Our actual results could differ materially from those discussed in the forward-
looking statements. Factors that could cause or contribute to such differences
include, but are not limited to, those discussed below and in the section
entitled "Risk Factors," as well as those discussed elsewhere in this
prospectus.

Overview

We are a leading provider of e-business infrastructure software that enables
the integration and automation of business processes within enterprises and
among trading partners over the Internet. Our products help traditional and
emerging businesses to leverage the Internet as a platform to increase
productivity, improve responsiveness to customer demands and enhance overall
competitiveness.

Our products are based on a modular architecture that scales to meet the
requirements of large enterprises, and combines standard Internet technologies
with proprietary innovations. We offer a suite of tools that customers can use
to build comprehensive e-business integration solutions, as well as extend and
customize CrossWorlds' pre-built components. In order to accelerate time to
market and leverage industry best practices, our customers can utilize
CrossWorlds' pre-built connectivity to leading applications and pre-built
process automation components for common e-business and enterprise processes.

We were incorporated in March 1996 and released our first product in November
1997. Since inception, we have incurred substantial research and development
costs, invested heavily in our sales, marketing and professional services
organizations and have expanded our global operations and corporate
infrastructure to support our long-term growth strategy. We have also made
substantial investments in marketing and in building strategic partnerships.
Our full-time employees increased from 111 as of December 31, 1997 to 202 as of
December 31, 1999. Because our expenditures have been much higher than our
revenue, we have incurred net losses in each fiscal quarter since inception
and, as of December 31, 1999, we had an accumulated deficit of $95.1 million.
We anticipate that our operating expenses will continue to increase for the
foreseeable future, as we expand our product lines and sales and marketing
efforts. Accordingly, we expect to incur net losses at least through the end of
2001.

Revenues to date have been derived from the license of our e-business
infrastructure software and from maintenance and support, consulting and
training services. Customers who license our software generally purchase
maintenance contracts, typically covering a twelve month period. Additionally,
customers may purchase consulting services, which are customarily billed by us
at a fixed daily rate plus out-of-pocket expenses. We also offer training
services that are billed on a per student or per class session basis. The
initial total orders from end-user customers, including licenses and services,
have ranged from $250,000 to over $5.0 million.

Because our software arrangements typically involve significant customization
or implementation services, our software license revenue is generally
recognized using the percentage-of-completion method over the respective
project implementation cycles, which typically range from three to nine months.
In certain circumstances where we are unable to estimate the amount of effort
required to customize or implement the software, software license revenue is
recognized using the completed contract method. In the future we may recognize
upon shipment certain revenues associated with projects implemented by our
systems integrator partners when our services are not essential to the
functionality of the software. Consulting and service

revenue is recognized as the services are performed. Maintenance revenue from
customer support and product upgrades, including maintenance bundled with
original software licenses, are deferred and recognized ratably over the term
of the maintenance agreement. Our revenue recognition policy complies with the
American Institute of Certified Public Accountants' (AICPA) Statement of
Position (SOP) 97-2, Software Revenue Recognition.

As a result of our revenue recognition policy, the current period revenue mix
between software license revenue and service and other revenue does not
necessarily reflect the mix in current period sales activities. For example,
revenues recognized during the quarter ended December 31, 1999 generally
resulted from sales made during the first two quarters of fiscal 1999. We
expect the future revenue mix to be more reflective of our current period sales
mix, which has been weighted more heavily towards software licenses than
previous quarters.

Our sales to date have been primarily generated by our direct sales force,
with a small percentage derived from indirect channels. In an effort to drive
additional sales by our direct sales force and provide additional skilled
implementation resources for use by our customers, we have established
relationships with third-party systems integrators including Cap Gemini, CSC,
Deloitte Consulting, EDS, Ernst & Young and PricewaterhouseCoopers. In June
1999, CrossWorlds and IBM announced a strategic relationship focused on joint
marketing and cooperative sales of a combined product offering.

We established an international presence in mid-1997 by opening a sales
office in Germany. We subsequently opened sales offices in the United Kingdom
and France in 1998. Revenues from international sales represented 20% of total
1997 revenue, 28% of total 1998 revenue and 22% of total 1999 revenue. The
percentage decrease during the year ended December 31, 1999 was due primarily
to significant revenue contribution from five U.S.-based customers,
collectively accounting for greater than 48% of total revenue during the
period.

Because of our revenue recognition policy, we calculate accounts receivable
days sales outstanding ("DSO") as the ratio of the quarter-end accounts
receivable to the sum of quarterly revenue and the net change in quarter-end
current deferred revenue, multiplied by 90. We believe this calculation is
appropriate because license fees are typically billable regardless of whether
revenue has been recognized or deferred. Under this method, DSO was 102 days as
of December 31, 1999. Since the terms of certain of our sales agreements spread
our billings over the applicable project implementation cycle and our sales
activity is concentrated at the end of each quarter, we anticipate that our DSO
will continue to be substantial in future periods.

At certain times throughout 1998 and to a lesser extent during 1999, we
issued stock options to employees at exercise prices that were subsequently
deemed to have been below fair value. We recognized the difference between the
exercise prices and the deemed fair values as deferred stock-based
compensation. We amortize deferred stock-based compensation over the vesting
period of the related award as a noncash expense in accordance with Financial
Accounting Standards Board Interpretation No. 28. As of December 31, 1999,
$2.5 million in deferred stock-based compensation remained on our balance sheet
which will be amortized to the Consolidated Statements of Operations through
the first quarter of 2002.

In view of the rapidly changing nature of our business and our limited
operating history, we believe that period-to-period comparisons of revenue and
operating results are not necessarily meaningful and should not be relied upon
as indications of future performance. Additionally, despite our revenue growth,
we do not believe that historical growth rates are necessarily sustainable or
indicative of future growth. See "Risk Factors-- Our business is difficult to
evaluate because our operating history is limited" and "Our revenue is subject
to significant fluctuations and is unpredictable. If we experience future
revenue shortfalls, the value of your investment could be adversely affected."

Results of Operations

The following table sets forth certain operating data as a percentage of
total revenue.

Year Ended December 31,
---------------------------
1997 1998 1999
-------- ------- ------

Revenue:
Software license............................... 67.5 % 51.6 % 42.9 %
Service, maintenance and other................. 32.5 48.4 57.1
-------- ------- ------
Total revenue.................................. 100.0 100.0 100.0
Cost of revenue:
Software license and royalties................. 3.2 5.7 8.4
Service, maintenance and other................. 167.8 70.0 53.0
-------- ------- ------
Total cost of revenue.......................... 171.0 75.7 61.4
-------- ------- ------
Gross margin................................. (71.0) 24.3 38.6
Operating expenses:
Research and development....................... 368.3 152.4 74.6
Sales and marketing............................ 627.6 300.3 114.1
General and administrative..................... 207.2 52.8 32.2
Amortization of deferred stock-based
compensation.................................. -- 62.0 7.7
-------- ------- ------
Total operating expenses....................... 1,203.1 567.5 228.6
-------- ------- ------
Operating loss............................... 1,274.1 (543.2) (190.0)
Other income (expense), net...................... 15.0 6.2 (10.0)
-------- ------- ------
Net loss..................................... (1,259.1)% (537.0)% (200.0)%
======== ======= ======

Years Ended December 31, 1997, 1998 and 1999

Software License Revenue. Our total revenue increased from $1.1 million to
$7.7 million to $19.1 million in 1997, 1998 and 1999, representing growth of
595% and 148%. Our software license revenue increased from $748,000 to $4.0
million to $8.2 million in 1997, 1998 and 1999, representing growth of 431% and
106%. The increases were due to increased acceptance of our expanded product
offering in the marketplace resulting in a larger average transaction size and
a greater number of transactions.

As a result of our revenue recognition policy, the current period revenue mix
between software license revenue and service and other revenue does not
necessarily reflect the mix in current period sales activities. For example,
revenues recognized during the quarter ended December 31, 1999 generally
resulted from sales made during the first two quarters of fiscal 1999. We
expect the future revenue mix to be more reflective of our current period sales
mix which has been weighted more heavily towards software licenses than
previous quarters.

Service, Maintenance and Other Revenue. Service, maintenance and other
revenue increased from $360,000 to $3.7 million to $10.9 million in 1997, 1998
and 1999, representing growth of 937% and 192%. These increases were due to an
increase in consulting, training and maintenance fees associated with both the
increased number of licenses sold and the increased average transaction size,
along with a larger installed license base.

Cost of Software License Revenue and Royalties. Cost of software license
revenue and royalties revenue increased from $36,000 to $438,000 to
$1.6 million in 1997, 1998 and 1999, representing approximately 3%, 6% and 8%
of total revenue. The increase in absolute dollar amount was due to increases
in software license and royalties revenue which increased the related royalty
costs. The increase from 1997 to 1998 in cost of software license and royalties
revenue as a percentage of total revenue related to an increase in royalty fees
associated with certain technology licensed

by CrossWorlds. The increase from 1998 to 1999 in cost of software license and
royalties revenue as a percentage of total revenue related to the amortization
of certain guaranteed minimum royalty payments associated with certain
technology licensed by CrossWorlds. We expect this percentage to decrease in
the future as a result of our replacing the licensed technology with our own
internally developed product during the fourth quarter of 1999.

Cost of Service, Maintenance and Other Revenue. Cost of service, maintenance
and other revenue increased from $1.9 million to $5.4 million to $10.1 million
in 1997, 1998 and 1999, representing 168%, 70% and 53% of total revenue. The
increase in cost of service, maintenance and other revenue in absolute dollars
was due to an increase in personnel costs. Cost of service, maintenance and
other revenue as a percentage of total revenue declined in 1998 and 1999 due
primarily to higher utilization of our consulting staff, most of whom were not
engaged in revenue generating activities in 1997.

Research and Development Expenses. Research and development expenses
increased from $4.1 million to $11.7 million to $14.2 million in 1997, 1998 and
1999. The increase in each of these periods was due to an increase in head
count dedicated to new product initiatives. Research and development expenses
represented 368%, 152% and 75% of total revenue in 1997, 1998 and 1999. The
decrease as a percentage of total revenue was due to growth in our total
revenue offset somewhat by an increase in our personnel costs.

Sales and Marketing Expenses. Sales and marketing expenses increased from
$7.0 million to $23.1 million from 1997 to 1998 and decreased to $21.8 million
in 1999. The increase from 1997 to 1998 reflects the hiring of additional sales
and marketing personnel in connection with the building of our direct sales
channel and higher sales commissions associated with increased sales volume
during the period. In 1998, we also made significant expenditures on
advertising and marketing programs and invested in foreign operations in
Australia and Asia. The decrease from 1998 to 1999 reflects the closure of
foreign operations in Australia and Asia and significant reductions in
expenditures on advertising. Sales and marketing expenses represented 628%,
300% and 114% of our total revenue in 1997, 1998 and 1999. The decrease as a
percentage of total revenue was due to the growth in total revenue during both
periods and the reduction of expenditures from 1998 to 1999.

General and Administrative Expenses. General and administrative expenses
increased from $2.3 million to $4.1 million to $6.1 million in 1997, 1998 and
1999, representing 207%, 53% and 32% of our total revenue in 1997, 1998 and
1999. Expenses increased in each period due primarily to increased staffing
necessary to manage and support our growth. The decrease as a percentage of our
total revenue was due primarily to the growth in our total revenue.

Other Income (Expense). Other income increased from $166,000 in 1997 to
$479,000 in 1998, despite the lower year end cash balance in 1998. This
increase was due primarily to our completion of a $23.0 million financing at
the end of 1997, resulting in a higher average cash balance in 1998 than in
1997. In 1999, other expense was $1.9 million. This increase in expense was due
primarily to interest payments on outstanding debt and the write-off of a
prepaid royalty asset (See Note 4 of Notes to Consolidated Financial
Statements).

Amortization of Deferred Stock-Based Compensation. During 1998 and 1999, we
recorded total deferred stock-based compensation of $8.6 million and $225,000,
respectively, in connection with stock option grants. We are amortizing these
amounts over the vesting periods of the applicable options, resulting in
amortization expense of $4.8 million and $1.5 million in 1998 and 1999.

Provision for Income Taxes. We incurred net operating losses in 1997 and 1998
and 1999 and consequently paid no federal, state and foreign income taxes in
each of those years.

As of December 31, 1999, we had federal and state net operating loss
carryforwards of approximately $85.1 million and $70.2 million. We also had
federal and state research and development tax credit carryforwards of
approximately $1.2 million and $852,000. Our federal net operating loss
carryforwards will expire at various dates beginning 2011 through 2019 if not
utilized and our state net operating loss carryforward expires beginning in the
year 2004.

As of December 31, 1998 and 1999, we had deferred tax assets of approximately
$24.8 million and $39.2 million. Our net deferred tax assets have been fully
offset by a valuation allowance. Our net valuation allowance increased by $18.0
million and $14.4 million during 1998 and 1999. Deferred tax assets relate
primarily to net operating loss carryforwards, capitalized research and
development costs and deferred stock compensation. See Note 6 of Notes to
Consolidated Financial Statements.

Eight Quarters Ended December 31, 1999

The following tables set forth CrossWorlds' statement of operations data for
each of the eight quarters ended December 31, 1999, including such amounts
expressed as a percentage of total revenue. You should read the following table
in conjunction with our consolidated financial statements and related notes
included elsewhere in this prospectus. This unaudited quarterly information has
been prepared on the same basis as CrossWorlds' audited consolidated financial
statements and, in the opinion of management, reflects all adjustments
(consisting only of normal recurring entries) necessary for a fair presentation
of the information for the periods presented. The operating results for any
quarter are not necessarily indicative of results for any future period.

Quarter Ended
-------------------------------------------------------------------------------
Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31, June 30, Sept. 30, Dec. 31,
1998 1998 1998 1998 1999 1999 1999 1999
-------- -------- --------- -------- -------- -------- --------- --------
(in thousands)

Consolidated Statement
of Operations Data:
Revenue:
Software licenses..... $ 977 $ 1,155 $ 545 $ 1,296 $ 1,617 $ 1,811 $ 2,270 $ 2,496
Service, maintenance
and other............ 990 818 964 961 2,019 2,353 3,012 3,516
------- -------- -------- -------- ------- ------- ------- --------
Total revenue......... 1,967 1,973 1,509 2,257 3,636 4,164 5,282 6,012
Cost of revenue:
Software license and
royalties............ 70 24 73 271 128 311 562 598
Service, maintenance
and other............ 1,159 948 1,598 1,687 1,779 2,420 2,698 3,230
------- -------- -------- -------- ------- ------- ------- --------
Total cost of
revenue.............. 1,229 972 1,671 1,958 1,907 2,731 3,260 3,828
------- -------- -------- -------- ------- ------- ------- --------
Gross profit
(loss)............. 738 1,001 (162) 299 1,729 1,433 2,022 2,184
------- -------- -------- -------- ------- ------- ------- --------
Operating expenses:
Research and
development.......... 2,152 3,224 2,973 3,399 3,124 3,561 3,790 3,768
Sales and marketing... 3,545 6,234 6,173 7,189 4,647 5,103 5,439 6,603
General and
administrative....... 833 1,213 763 1,257 789 1,223 1,399 2,734
Amortization of
deferred stock-based
compensation......... 659 940 1,587 1,588 140 782 823 (283)
------- -------- -------- -------- ------- ------- ------- --------
Total operating
expenses............. 7,189 11,611 11,496 13,433 8,700 10,669 11,451 12,822
------- -------- -------- -------- ------- ------- ------- --------
Operating loss...... (6,451) (10,610) (11,658) (13,134) (6,971) (9,236) (9,429) (10,638)
Other income (expense),
net.................... 299 192 10 (22) (291) (197) (369) (1,055)
------- -------- -------- -------- ------- ------- ------- --------
Net loss............ $(6,152) $(10,418) $(11,648) $(13,156) $(7,262) $(9,433) $(9,798) $(11,693)
======= ======== ======== ======== ======= ======= ======= ========

Quarter Ended
--------------------------------------------------------------------------------
Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31, June 30, Sept. 30, Dec. 31,
1998 1998 1998 1998 1999 1999 1999 1999
-------- -------- --------- -------- -------- -------- --------- --------

As a Percentage of
Revenue:
Revenue:
Software license...... 49.7 % 58.5 % 36.1 % 57.4 % 44.5 % 43.5 % 43.0 % 41.5 %
Service, maintenance
and other............ 50.3 41.5 63.9 42.6 55.5 56.5 57.0 58.5
------ ------ ------ ------ ------ ------ ------ ------
Total revenue......... 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Cost of revenue:
Software license and
royalties............ 3.6 1.2 4.8 12.1 3.5 7.5 10.6 9.9
Service, maintenance
and other............ 58.9 48.0 105.9 74.7 48.9 58.1 51.1 53.7
------ ------ ------ ------ ------ ------ ------ ------
Total cost of reve-
nue.................. 62.5 49.2 110.7 86.8 52.4 65.6 61.7 63.6
------ ------ ------ ------ ------ ------ ------ ------
Gross margin......... 37.5 50.8 (10.7) 13.2 47.6 34.4 38.3 36.4
------ ------ ------ ------ ------ ------ ------ ------
Operating expenses:
Research and develop-
ment................. 109.4 163.4 197.0 150.6 85.9 85.5 71.7 62.7
Sales and marketing... 180.2 316.0 409.0 318.5 127.8 122.6 103.0 109.8
General and adminis-
trative.............. 42.3 61.5 50.6 55.7 21.7 29.4 26.5 45.5
Amortization of de-
ferred stock-based
compensation......... 33.5 47.6 105.2 70.4 3.9 18.8 15.6 (4.7)
------ ------ ------ ------ ------ ------ ------ ------
Total operating ex-
penses............... 365.4 588.5 761.8 595.2 239.3 256.3 216.8 213.3
------ ------ ------ ------ ------ ------ ------ ------
Operating loss....... (327.9) (537.7) (772.5) (582.0) (191.7) (221.9) (178.5) (176.9)
Other income (expense),
net.................... 15.2 9.7 0.7 (1.0) (8.0) (4.7) (7.0) (17.5)
------ ------ ------ ------ ------ ------ ------ ------
Net loss............. (312.7)% (528.0)% (771.8)% (583.0)% (199.7)% (226.6)% (185.5)% (194.4)%
====== ====== ====== ====== ====== ====== ====== ======

The trends discussed in the annual comparisons of operating results from 1997
through 1999 generally apply to the comparison of results of operations for our
eight most recent quarters ended December 31, 1999. Our software license and
service revenue mix fluctuated significantly at various times during the last
eight quarters. As a result of our revenue recognition policy, the current
period revenue mix between software license revenue and service, maintenance
and other revenue does not necessarily reflect the mix in current period sales
activities. For example, revenues recognized during the quarter ended December
31, 1999 generally resulted from sales made during the first two quarters of
fiscal 1999. We expect the future revenue mix to be more reflective of our
current period sales mix which has been weighted more heavily towards software
licenses than previous quarters. Specifically, in the quarter ended September
30, 1998, software license revenue was lower as a percentage of total revenue
relative to the other seven quarters ended December 31, 1999 due to the
completion of several significant projects in the preceding quarter and a
reduction in the number of sales closed in the prior quarter. Additionally, we
initiated several service projects that were designed to allow customers to
evaluate our software on a trial basis but did not immediately include software
license sales, thus resulting in a decrease in software license revenue during
the period. Services, maintenance and other revenue increased significantly
from the quarter ended December 31, 1998 to the quarter ended March 31, 1999
due primarily to the implementation of two significant projects.

During the quarter ended December 31, 1998, cost of software license and
royalties revenue increased as a percentage of total revenue due to an increase
in royalty fees associated with certain technology licensed by CrossWorlds. The
increase for the two quarters ended December 31, 1999 in cost of software
license and royalties revenue as a percentage of total revenue related to the
amortization of certain guaranteed minimum royalty payments associated with
certain technology licensed by CrossWorlds. We expect this percentage to
decrease in the future as a result of our replacing the licensed technology
with our own internally developed product during the fourth quarter of 1999. In
addition, in anticipation of increased customer demand which did not
materialize until later periods, we expanded our professional services
organization during the quarter ended September 30, 1998, resulting in
significant services costs as a percentage of total revenue during that
quarter.

Total operating expenses, in absolute dollar terms and as a percentage of
revenue, also fluctuated significantly during 1998. Total operating expenses in
absolute dollars increased in 1999 but decreased as a percentage of revenue.
Research and development expenses increased during the quarter ended June 30,
1998 due to increased staffing as we accelerated our efforts to expand our
product lines. Sales and marketing expenses increased during the quarter ended
June 30, 1998 due to increased advertising and expanded business development
efforts as we established our presence in the marketplace and built strategic
partnerships. Sales and marketing expenses decreased during the quarter ended
March 31, 1999 primarily due to our reorganization, and the reduction in the
size of our marketing organization, our election not to pursue advertising
campaigns similar to those we pursued in 1998, and our strategic decisions in
December 1998 to cease our Asian and Australian operations because our
expenditures in those markets were not producing sufficient returns. Sales and
marketing expenses increased during the quarter ended December 31, 1999 due to
increased commissions expense payable to sales and business development
personnel. Commission expense increases are generally not comparable to revenue
increases given that we typically recognize revenues on a percentage-of-
completion basis while commissions are earned and expensed in the quarter in
which the sale is made.

General and administrative expenses increased during the quarter ended
December 31, 1999 due to expenses associated with the employment of our Chief
Executive Officer. Total operating expenses increased during the quarter ended
June 30, 1999 from the prior quarter as we increased our investment in research
and development, expanded our direct sales force, and built our finance
infrastructure to support our growth. Total operating expenses increased during
the quarter ended December 31, 1999 from the prior quarter primarily as a
result of the increase in sales commission expense and expenses associated with
the employment of our Chief Executive Officer. Other expense increased during
the quarter ended December 31, 1999 due to the write-off of a prepaid royalty
asset (See Note 4 of Notes to Consolidated Financial Statements). Our quarterly
results have varied widely in the past, and we expect that they may continue to
fluctuate in the future as a result of a number of factors. See "Risk Factors--
Our quarterly financial results are subject to significant fluctuations that
could adversely affect our stock price."

We have experienced, and expect to continue to experience, seasonality with
respect to software and service orders. In recent years, there has been a
relatively greater demand for our products in the fourth quarter than in each
of the first three quarters of the year, particularly the first quarter. As a
result, we have historically experienced relatively higher sales in the fourth
quarter and relatively light sales in the first quarter. We believe that these
fluctuations are caused, in part, by customer buying patterns (often influenced
by year end budgetary pressures) and the efforts of our direct sales force to
meet or exceed year-end sales quotas. In addition, European sales may tend to
be relatively lower during the summer months than during other periods. We
expect that seasonal trends will continue for the foreseeable future. See "Risk
Factors--Seasonal factors may affect the timing of our business activity which
could negatively affect our stock price."

Software license revenue is generally recognized over the project
implementation cycle which is typically from three to nine months. As a result,
we expect that software license revenue will only be partially affected by
seasonal trends.

Liquidity and Capital Resources

We have funded our operations through December 31, 1999 primarily through
private sales of preferred equity securities, totaling $85.7 million and to a
lesser extent, commercial bank loans and equipment leases. As of December 31,
1999, we had $12.5 million in cash and cash equivalents.

Our operating activities resulted in net cash outflows of $11.4 million,
$32.0 million and $28.8 million in 1997, 1998 and 1999. The sources of cash
were primarily increases in accrued liabilities, increases in accrued
compensation and related expenses, and increases in deferred revenue in 1997,
1998 and 1999. Uses of cash in operating activities were primarily due to net
operating losses and increases in accounts receivable for 1997, 1998 and 1999.

Investing activities used cash of $1.8 million in 1997, $3.7 million in 1998
and $785,000 in 1999, due primarily to the purchase of capital equipment. In
April 1999, we began leasing equipment through a $1.5 million

Master Lease Agreement with a lender. The Master Lease Agreement is accounted
for as a capital lease and therefore the $1.1 million purchased through the
Master Lease Agreement as of December 31, 1999 is reflected on our balance
sheet.

Financing activities provided cash of $36.7 million in 1997 and $16.3 million
in 1998, primarily through the issuance of preferred stock, proceeds from an
equipment loan in 1997 and 1998 and proceeds from the issuance of convertible
subordinated notes and proceeds from a revolving line of credit in 1998.
Financing activities provided cash totaling $36.6 million in 1999, due
primarily to the issuance of a subordinated loan and the issuance of preferred
stock.

As of December 31, 1999, our principal commitments consisted of obligations
under a revolving line of credit, equipment facility loans, an irrevocable
letter of credit, obligations under the Master Lease Agreement and a
subordinated loan and security agreement. As of December 31, 1999, we had
$6.5 million in outstanding borrowings which are payable through 2002. Our
revolving line of credit provides for borrowing of up to $10.0 million based on
60% of eligible accounts receivable. Borrowings under this line of credit
accrue interest, payable monthly, at 0.10% above prime rate. As of December 31,
1999, we had no borrowings against this line of credit. Borrowings are secured
by substantially all of our assets, and certain agreements also require us to
comply with certain financial covenants. See Notes 3 and 4 of Notes to
Consolidated Financial Statements.

Deferred revenue consists primarily of the unrecognized portion of license
and maintenance sales contracts. Our deferred revenue balance or changes
therein may not be indicative of our total backlog or changes in the ordering
patterns of our customers. Capital expenditures were primarily for computer
workstations used for product development, product demonstrations and customer
support.

We believe that the net proceeds from this offering, together with our
current cash balances and the cash flows generated by operations and tax
refunds, if any, will be sufficient to satisfy our anticipated cash needs for
working capital and capital expenditures for at least the next twelve months.
Thereafter, we may require additional funds to support our working capital
requirements, or for other purposes, and may seek to raise such additional
funds through public or private equity financings or from other sources. We may
not be able to obtain adequate or favorable financing at that time. Any
financing we obtain may dilute your ownership interests.

A portion of our cash may be used to acquire or invest in complementary
businesses or products or to obtain the right to use complementary
technologies. From time to time, in the ordinary course of business, we may
evaluate potential acquisitions of such businesses, products or technologies.
We have no current plans, agreements or commitments, and are not currently
engaged in any negotiations with respect to any such transaction.

Year 2000 Readiness

The year 2000 issue refers generally to the problems that some software may
have in determining the correct century for the year. For example, software
with date-sensitive functions that is not year 2000

compliant may not be able to distinguish whether "00" means 1900 or 2000, which
may result in failures or the creation of erroneous results. We have defined
year 2000 compliant with regard to our products as follows: our software
products, when used in accordance with their associated documentation, will be
capable upon installation of accurately processing, providing and/or receiving
date data from, into, and between the twentieth and twenty-first centuries,
including the years 1999 and 2000, and leap year calculations, provided that
all other products (e.g., hardware, software and firmware) used in combination
with our software products properly exchange date data with them. We believe
that our current product is year 2000 compliant when configured and used in
accordance with the related documentation, and provided that the underlying
operating system of the host machine and any other software (including third
party applications) used with or in the host machine or our product are year
2000 compliant. However, we have not exhaustively tested our product for year
2000 compliance. To date, we have not received any reports from our customers
of year 2000 compliance problems with our product. Although January 1, 2000 is
past, it is possible that problems have gone undetected, or that other dates in
the year 2000, such as February 29, 2000, may further affect computer software
and systems. We expect to continue to respond to customer questions about year
2000 compliance of our product. We have inquired of the vendors whose
technology is included within our products as to the year 2000 compliance of
their technology and have received various assurances. Despite testing by us
and current and potential customers, and assurances from developers of product
incorporated into our product, our product may contain undetected errors or
defects associated with year 2000 date functions. Known or unknown errors or
defects in our product could result in delay or loss of revenues, diversion of
development resources, damage to our reputation, increased service and warranty
costs, or liability from our customers, any of which could seriously harm our
business.

Some commentators have predicted significant litigation regarding year 2000
compliance issues, and we believe there may be lawsuits against other software
vendors. Because of the unprecedented nature of this litigation, it is
uncertain whether or to what extent we may be affected by it. Congress has
passed a law that is intended to limit liability for some failures to achieve
year 2000 compliance. There can be no assurance that this bill will provide us
with any protection.

We have completed an assessment of our material internal information and non-
information technology systems, all or substantially all of which are provided
by third party vendors. To the extent that we are not able to test the
technology provided by third party vendors, we have sought assurances from
these vendors that their systems are year 2000 compliant and have received
various responses. We are not currently aware of any material operational
issues or costs associated with conforming our internal information technology
and non-information technology systems for the year 2000. However, we may
experience material unanticipated problems and costs caused by undetected
errors or defects in the technology used in our internal information technology
and non-information technology systems. To date, there has been no material
adverse effect on our business due to potential year 2000 problems. We have
funded our year 2000 plan from operating cash flows and have not separately
accounted for these costs in the past. To date, these costs have not been
material. We may incur additional costs related to the year 2000 issues for
administrative personnel to manage these issues. In addition, we may experience
material problems and costs with year 2000 compliance that could seriously harm
our business, but as of the date of this prospectus, we have not experienced
any material problems or costs. We do not have a contingency plan to address
situations that may result if our critical operations are not year 2000 ready,
and we do not anticipate the need to do so. The cost of developing and
implementing the plan may itself be material. Finally, we are also subject to
external forces that might generally affect industry and commerce, including
utility or transportation company year 2000 compliance failure interruptions.
Year 2000 issues affecting our business, if not adequately addressed by us, our
third party vendors or suppliers or our customers, could have a number of
"worst case" consequences. These include: claims from our customers asserting
liability, including liability for breach of warranties related to the failure
of our product and services to function properly, and any resulting settlements
or judgments; and our inability to operate our business.

See "Risk Factors--We may be subject to claims related to year 2000 issues,
and year 2000 problems could adversely affect our revenue."

Qualitative and Quantitative Disclosures about Market Risk

Given that we market our products both in the United States and in foreign
countries, our financial results could be affected by factors including changes
in foreign currency exchange rates or weak economic conditions in foreign
markets. Our interest income is sensitive to changes in the general level of
U.S. interest rates, particularly since the majority of our investments are in
short-term instruments. Due to the nature of our short-term investments, we
believe that there is no material interest rate risk exposure. Therefore, no
quantitative tabular disclosures are required.

Recent Accounting Pronouncements

In December 1998, the Accounting Standards Executive Committee, the governing
body of the AICPA, issued SOP 98-9, Software Revenue Recognition, with Respect
to Certain Arrangements, which requires recognition of revenue using the
"residual method" in a multiple-element arrangement when fair value does not
exist for one or more of the undelivered elements in the arrangement. Under the
residual method, the total fair value of the undelivered elements is deferred
and subsequently, recognized in accordance with SOP 97-2. We adopted SOP 98-9
on January 1, 2000, and do not expect such adoption to have a material effect
on our consolidated financial position or results of operations.

BUSINESS

Overview

We are a leading provider of e-business infrastructure software to enable the
integration and automation of business processes within enterprises and among
trading partners using the Internet. Our products help traditional and emerging
businesses to leverage the Internet as a platform to increase productivity,
improve responsiveness to customer demands and enhance overall competitiveness.

We sell and market our products primarily through a direct sales force which
targets global companies in selected high-potential vertical markets such as
technology, industrial manufacturing, process manufacturing and
telecommunications. Additionally, we leverage our relationships with IBM, SAP,
global systems integrators and software providers to sell and implement our
products in these and other markets. Our customers include industry-leading
companies such as Applied Materials, Caterpillar/Solar Turbines, Delphi
Automotive, DuPont, Ingersoll-Rand, Nortel Networks, Siemens and U S WEST.

Industry Background

The Need for Collaborative Business Strategies

In recent years, many large companies have faced an increasingly competitive
business environment. This competitive environment has been exacerbated by such
factors as deregulation, mergers and acquisitions, and the increasing adoption
of e-business strategies. In response to this changing environment, many
companies have begun to fundamentally realign their operations to increase
efficiency and become more responsive to customer and market demands.

In pursuit of these goals, many companies are implementing collaborative e-
business strategies. Examples of these strategies include the use of Internet-
based marketplaces and trading exchanges; collaborative supply and demand
planning among trading partners; outsourcing of customer service and
manufacturing activities to third parties; and inventory management across
multiple company divisions and distribution channels.

Efforts to implement collaborative business strategies within and beyond
enterprises, however, have been constrained by various information technology
and business issues, including the following:

. Companies have traditionally been managed on a functional "silo" basis
with minimal coordination between functions such as procurement,
manufacturing, sales, logistics and administration;

. Companies have adopted disparate packaged and custom enterprise
applications to automate each business function, including enterprise
resource planning applications from vendors such as SAP and Oracle
Corporation, customer relationship management applications from vendors
such as Siebel Systems, Inc. and Clarify Inc., supply chain management
applications from vendors such as i2 Technologies, Manugistics Group,
Inc. and Numetrix, a J.D. Edwards Company, e-business applications from
vendors such as SAP, Ariba, Inc. and BroadVision, Inc., and industry-
specific applications from vendors such as Portal Software Inc. and
MetaSolv Software, Inc.;

. Business processes typically span multiple functions and applications,
requiring a significant level of integration within the enterprise;

. Extending supply chain and outsourced business processes outside the
enterprise requires integration and coordination among trading partners
and their applications; and

. Technological incompatibilities and functional differences among
disparate applications make it difficult for many of these enterprise
systems to inter-operate in real time and to allow integration over the
Internet.

For example, a seemingly simple task such as receiving and fulfilling a
customer's order over the Internet may require interaction among the e-
business, order management, manufacturing, logistics and accounting systems
within one company and the customer service, manufacturing and accounting
systems of multiple trading partners, each of which utilizes its own enterprise
applications. The total dollar value of such business-to-business transactions
over the Internet is expected to grow to $1.3 trillion by 2003, according to
Forrester Research.

As a result, most large organizations face significant integration challenges
and need a flexible e-business infrastructure that automates cross-functional
and Internet-based business processes while leveraging investments made in
enterprise applications. The Yankee Group estimates that approximately 35% to
40% of total corporate information technology spending is now consumed by
system integration costs. This spending includes the cost of integration both
within the enterprise and among trading partners over the Internet.

Current Business Integration Market

Business integration solutions have traditionally been provided by numerous
parties, including systems integrators, other information technology service
providers, information technology departments within companies and software
vendors. The market for e-business software excluding related services,
according to Forrester Research, will grow from $121.0 million in 1997 to
$3.8 billion in 2002. According to International Data Corporation Research, the
worldwide systems integration services market will grow from $41.0 billion in
1996 to $90.0 billion by 2003. The related market for data integration tools
and enterprise application integration software, according to the Yankee Group,
will grow from $1.6 billion in 1998 to $5.0 billion in 2001. The Yankee Group
defines enterprise application integration software as software products that
integrate business applications both within an enterprise and, to a lesser
extent, among trading partners.

To date, the business integration software market has been comprised of three
segments:

. Messaging-Oriented Middleware is the underlying software that manages the
movement of simple messages between applications. In general, such
products have provided an infrastructure for application integration
projects but have offered limited functionality to support business
logic, the set of rules that support business processes by defining how,
when and in what form data is transmitted between applications. Companies
offering products in this segment include IBM, TIBCO Software, Inc. and
BEA, among others.

. Enterprise Application Integration Tools are designed to allow
information technology professionals to more rapidly build customized
links between pairs of applications, also known in the industry as point-
to-point integration. Development tools, in their simplest form, enable
users to convert data from one application into a format that is readable
by another application. The more sophisticated products enable the
developer to model and program more complex application connections that
utilize business logic. Companies offering products in this segment
include Active Software Inc., New Era of Networks Inc. and Mercator
Software (formerly TSI Software International), among others.

. Electronic Data Interchange is software that uses industry-specific
formats to enable point-to-point electronic links for the purpose of
transmitting business documents periodically. Companies offering products
in this segment include Sterling Commerce and Harbinger, among others.

. Extensible Markup Language (XML) Tools enable companies to build
integration solutions based on the exchange of XML-formatted documents,
representing an alternative to EDI. These solutions typically do not
address the integration requirements of applications within the
enterprise--a capability we believe to be critical to the enablement of
e-business strategies. Companies offering products in this segment
include OnDisplay, Inc. and webMethods, Inc., among others.

Shortcomings of Common Business Integration Approaches

While the adoption of these products has driven substantial growth in the
business integration software market, we believe these products have fallen
short of providing a complete business integration solution in a number of
respects:

. Inability to Support e-Business. Many current business integration
products lack support for standard Internet data formats and
communication protocols. In addition, most solutions are not able to
support complex, Internet-based processes between trading partners.

. Lack of Sophisticated Business Process Support. Many tools-based or
electronic data interchange solutions support the transmission of data or
business documents rather than automating business processes between
applications and enterprises. In addition, many products do not provide
pre-built support for the most common business process integration
requirements to accelerate time-to-market.

. Lack of Pre-built Application Connectivity. Many business integration
solutions do not provide pre-built connectivity to the market's leading
packaged e-business and enterprise applications. With such incomplete
solutions, companies find it difficult to leverage their existing
information technology infrastructure as they pursue e-business
strategies.

. Architectural Inflexibility. Most custom connections provide simple
point-to-point interfaces that cannot be easily applied to similar
situations and require significant modifications or full-scale
reprogramming when adding additional trading partners or applications. In
addition, many business integration products are based on out-dated
technologies or do not provide a unified integration architecture.

New Approaches for Business Integration

We believe that a large opportunity exists for software vendors to address
these limitations by providing software solutions that:

. provide an e-business infrastructure for the integration and automation
of end-to-end business processes both within the enterprise and among
trading partners over the Internet;

. provide an open platform to support the scaleability and manageability
requirements of large enterprises;

. leverage the functionality of leading enterprise application packages;
and

. operate in a variety of technical environments including those comprised
of custom and legacy applications, leading packaged applications, various
operating systems and the Internet.

Such a comprehensive business integration solution would improve operating
efficiencies, enable organizations to adapt rapidly to changes in business and
information technology requirements and allow companies to more fully capture
the benefits of e-business.

The CrossWorlds Solution

Our e-business infrastructure software enables the integration and automation
of business processes within enterprises and among trading partners over the
Internet. We offer a suite of integration products including development and
management tools, connectivity to leading e-business and enterprise application
packages and pre-built modules for the most common business integration
requirements.

Our products are characterized by the following five elements:

Flexible e-Business Infrastructure

We believe our products provide a strong foundation for e-business between
companies and their trading partners. We support a number of the leading
packaged e-business applications and development platforms. Our architecture
also supports standard e-business and Internet data formats and communication
protocols. When combined with our application integration and business process
automation products, customers are able to quickly deploy e-business solutions
that leverage their existing information technology infrastructures.

Real-time Business Process Automation

We believe our business process level integration solutions enable customers
to accelerate their e-business initiatives by integrating disparate enterprise
applications and automating their underlying business processes. While many
application integration and e-business solutions focus primarily on
transferring data between applications, our solution allows companies to
automate business processes that span applications thereby eliminating process
redundancies and data inconsistencies between applications. We offer both a
robust process modeling toolset for building custom business process
integration solutions as well as pre-built business process integration modules
that leverage our knowledge of industry best practices to automate the most
common integration requirements in our target markets.

Deep Packaged Application Integration

We offer pre-built connectivity products for many of the leading packaged e-
business and enterprise applications. These connectivity products leverage and
complement the standard interfaces provided by each application vendor. Where
required, we offer version specific connectivity products to accommodate
functional and technological changes in these standard interfaces. In some
cases, we have created additional tools to facilitate the use of standard
interfaces provided by various application vendors. This allows customers to
migrate between existing and new application releases with minimal changes to
their integration solution, thereby reducing their long term cost of
integration.

Extensive Custom and Legacy Application Integration

We offer a suite of tools that enable customers to extend their integration
solutions to include custom and legacy applications. Our tools automate common
integration development tasks such as data transformation, data cross-
referencing and communications between applications and the CrossWorlds
environment. To accelerate development efforts, we also provide pre-built
connectivity to many common technology environments.

Scalable Integration Architecture

Our Java-based, enterprise class architecture provides a modular application
integration environment that is both highly flexible and scalable. Our
architecture supports all relevant Internet and technology standards and can be
easily extended to support new standards as they emerge. This architecture has
been designed to allow customers to quickly adapt to changes in business and
information technology environments, including the addition of new applications
or trading partners. We have been granted a patent on key elements of our
technology and have additional patents pending on other portions of our
architecture.

Strategy

Our objective is to establish and maintain a market leadership position in
the e-business infrastructure software market. To this end, our strategy
includes the following key elements:

Provide Comprehensive e-Business Solutions

As enterprises increasingly conduct business over the Internet, they will
face a growing number of integration challenges. To address these challenges,
we intend to enhance our current e-business product offering by developing
Internet-based business process integration modules and adding packaged
connectivity for additional leading e-business applications such as those used
for web-based procurement and web-based order management. In addition, we
intend to continue to enhance our architecture by providing additional security
and by supporting emerging Internet standards.

Expand Business Process Automation and Application Integration Solutions

We believe that the breadth and depth of our business process automation and
application integration solutions are a primary competitive differentiator in
our target markets. Within a unified architecture, our solution addresses a
broad range of integration requirements faced by global enterprises, thereby
allowing them to simplify their overall informational technology
infrastructure. We plan to add connectivity for additional packaged
applications and technology environments as well as to expand our set of pre-
built business process integration modules.

Maintain and Extend Technology Leadership

Our Java-based, open architecture leverages industry leading messaging
middleware and proprietary innovations, providing an extensible, high-
performance e-business infrastructure. We intend to continue to improve this
technology platform to ensure that our solutions scale to meet the demanding
requirements of large enterprises. We have been granted a patent on key
elements of our technology and have additional patents pending on other
portions of our architecture.

Penetrate High-Potential Vertical Markets

We believe that sales to global companies in selected vertical markets such
as technology, industrial manufacturing, process manufacturing and
telecommunications represent the greatest growth opportunities for us in the
near term. Many companies in these industries have made significant investments
in packaged and custom applications and are pursuing collaborative business
strategies that require the integration of these applications both internally
and with trading partners over the Internet. We have developed significant
functionality to address the integration and e-business requirements of these
industries and will continue to expand these offerings. We intend to target
additional vertical markets in the future where our solution can provide
significant strategic benefit.

Leverage Strategic Partnerships

We intend to continue to develop and extend our strategic partnerships to
promote adoption of our e-business infrastructure solutions. We believe that
these strategic partnerships are a competitive advantage. Our partnerships with
enterprise application and other technology vendors and systems integrators
provide sales and marketing leverage and access to required technology and
expertise. A number of our partners have also made equity investments in
CrossWorlds. Currently, our most significant strategic partners are:

IBM. CrossWorlds and IBM have a strategic relationship focused on joint
sales and marketing of a combined product offering. As part of the
agreement, CrossWorlds and IBM have also established a Joint Design Council
to identify areas of potential development cooperation such as joint
product development and technology transfer, and to accelerate the
development of IBM's MQSeries-based

enterprise application integration solutions. In addition, CrossWorlds has
agreed to incorporate additional technology from IBM as part of
CrossWorlds' infrastructure. We plan to expand our relationship to include
a sales, marketing and implementation partnership with IBM Global Services,
IBM's systems integration organization.

SAP. SAP made equity investments in CrossWorlds in 1997 and 1999. SAP
and CrossWorlds have committed resources towards joint development,
marketing and sales. CrossWorlds supports SAP's Business Framework
architecture and is a certified partner in SAP's Complementary Software
Program. SAP has certified the CrossWorlds Connector for R/3 for the SAP
Business Application Programming Interface (BAPI). An executive from SAP
sits on CrossWorlds' technical advisory board. We have recently expanded
our partnership efforts to include cooperative sales efforts surrounding
SAP's B2B Procurement and mySAP.com product lines.

Global Systems Integrators. We have established relationships with
several other global systems integrators including Cap Gemini, CSC,
Deloitte Consulting, EDS, Ernst & Young and PricewaterhouseCoopers. These
partners provide implementation support and sales and marketing leverage
and, in some cases, leverage their industry expertise to build extensions
to the CrossWorlds product line. We intend to invest in further developing
our relationships with systems integrators. We believe this investment is a
crucial component of our overall strategy to migrate to a business model
that is more heavily weighted toward software licenses.

Products and Technology

CrossWorlds' e-business infrastructure products include business process
integration software and application connectivity components. These products
are supported by a robust architecture and toolset that can be used to develop
and deploy customized solutions. The table below provides a summary view of our
product offerings.

e-Business Infrastructure Products

Product Description
-------------------------------------- --------------------------------------

Business Process Integration Products Business process integration toolset
.CrossWorlds Process Designer
Pre-built business process integration
modules
.CrossWorlds eBusiness
.CrossWorlds Customer Interaction
.CrossWorlds Enterprise
Pre-built application connectivity
Application Integration Products solutions
.CrossWorlds Application Connectors
.CrossWorlds Technology Connectors
Custom and legacy application
integration toolset
.CrossWorlds Connector Development Kit
.CrossWorlds Map Designer
.CrossWorlds Relationship Designer
Infrastructure Products .CrossWorlds InterChange Server
.CrossWorlds System Manager

Initial software license orders from end-user customers have ranged from
approximately $150,000 to $5 million. A typical installation would include one
or more InterChange Servers, and a set of pre-built

business process integration modules and connectors that support a customer's
specific requirements. We also provide software maintenance and support,
training and associated implementation services. When these services are
included, initial total sales to end-user customers have ranged from $250,000
to over $5 million. In some cases, customers have licensed additional software
or purchased additional consulting services as their use of our products has
expanded.

Business Process Integration Products

Our business process integration solution is comprised of pre-built modules
and related tools that together enable business process integration both within
the enterprise and among trading partners over the Internet. Our solution
allows customers to:

. extend the functionality of individual applications, thereby enabling
additional e-business capabilities;

. reconcile differences and redundancies in the information managed by
disparate applications; and

. provide access to information not usually available to the user of a
single application.

The foundation for our business process integration solution is our Common
Object Model. All business processes within our system operate using a data
model that is designed to be independent of the way any specific application
represents its data. This Common Object Model is a superset of the models
employed by the most widely deployed packaged enterprise applications. We
believe that the use of a Common Object Model provides a significant advantage
over other integration approaches because it isolates the business process from
changes in the participating applications, thereby reducing the maintenance
effort typically associated with integration.

Business Process Integration Toolset

Business process integration modules are created and extended using the
CrossWorlds Process Designer suite of tools. The CrossWorlds Process Designer
is a standards-based tool for creating CrossWorlds Common Objects, designing
business process flows and automatically generating the underlying Java
programming code to operate on the CrossWorlds InterChange Server. Process
components are presented to the user visually, and are defined and configured
through the Process Designer's graphical user interface. This greatly
simplifies the development effort and provides the user with a flexible and
powerful customization environment.

Pre-Built Business Process Integration Modules

In addition to using the Process Designer to create their own business
process integration modules, customers can leverage a number of pre-built
components from CrossWorlds that integrate many of the common business
processes required for e-business and other enterprise business functions.
These pre-built components leverage our Common Object Model, allowing multiple
processes to be combined into solutions that address complex requirements.
CrossWorlds' pre-built process integration modules are grouped into three
product lines that are detailed in the following three tables.

CrossWorlds eBusiness. Our eBusiness product line includes business process
integration modules for integrating e-business applications and enabling
companies to collaborate with their trading partners over the Internet.
CrossWorlds eBusiness is designed to allow enterprises to rapidly implement e-
business solutions that leverage their existing information technology
investments. CrossWorlds eBusiness also partially leverages available process
integration modules from other product lines.

CrossWorlds eBusiness

Module Description
------------------------------- ---------------------------------------------

CrossWorlds eSales Integrates the various applications involved
in the Internet-based sales and ordering
process, creating a seamless environment for
creating, processing, tracking and fulfilling
sales orders

CrossWorlds eProcurement Integrates self-service procurement
applications with back-office financial and
inventory systems

CrossWorlds eCustomer Service Provides self-service information to
customers and suppliers by integrating
Internet-based customer relationship
management applications and back-office
systems

CrossWorlds Demand Planning Integrates forecasting applications with
operational systems to enable effective
demand planning within the enterprise and to
support a forecasting process spanning
multiple trading partners

CrossWorlds Supply Planning Enables effective planning in batch and real-
time modes by integrating supply planning
applications with operational systems within
the enterprise and at trading partners

CrossWorlds Customer Interaction. Our Customer Interaction product line
includes the business process integration modules that link customer
relationship management (sales force automation and customer service), order
management, billing and enterprise resource planning applications. These
products enable our customers to provide their sales and customer service
staffs with real time access to enterprise information thereby improving
customer service effectiveness and enhancing sales efficiency.

CrossWorlds Customer Interaction

Module Description
------------------------------- ---------------------------------------------

CrossWorlds Sales Processing Allows companies to seamlessly integrate
sales management applications with order
management and other back-end systems

CrossWorlds Service and Support Enables improved customer service by
integrating customer relationship management
applications with back-end systems to provide
customer service representatives with up-to-
date customer, billing, purchase, product and
pricing information

CrossWorlds Enterprise. Our Enterprise product line includes business process
integration modules that synchronize information about key corporate assets
such as customers, products, inventory and employees. This enables companies to
maintain a single, consistent and up-to-date view of information that is often
duplicated across multiple systems, and simplifies the task of exchanging data
among trading partners.

CrossWorlds Enterprise

Module Description
------------------------------- --------------------------------------------

CrossWorlds Human Resources Synchronizes relevant human resources
information such as employee master files,
departmental structures and payroll
information across multiple human resources
applications and with multiple enterprise
resource planning applications

CrossWorlds Procurement Enables an enterprise to synchronize product
and vendor databases and generate purchase
requisitions and orders among multiple
procurement and financial applications

CrossWorlds Inventory Synchronizes and tracks inventory movements
Management between inventory management and order
fulfillment applications, providing a
consistent view of distributed inventory
across multiple plants and disparate
applications

CrossWorlds Financial Integrates various functional applications
Transactions with financial applications by posting
accounts receivable, accounts payable and
general ledger transactions

Application Integration Products

CrossWorlds' application integration products include pre-built connectivity
for many of the leading packaged applications and common technology platforms
as well as a toolkit for building connectivity to custom and legacy
applications.

Many of our connectors are targeted at specific versions of enterprise
applications and are maintained and upgraded by CrossWorlds to support new
functionality and interfaces as they are released by application vendors.
CrossWorlds also maintains a library of application and technology connectivity
solutions for less common environments, some of which are included in the
listings below. This connector library can be leveraged by CrossWorlds
implementation staff, customers and our systems integrator partners to more
rapidly build new connectors on site.

Pre-built Application Connectivity Solutions

CrossWorlds Application Connectors. Our Application Connectors are designed
to understand the means by which a packaged application communicates with its
external environment via published interfaces or other import/export methods.
Our Application Connectors have the ability to monitor the events occurring
within an application and make them available to the CrossWorlds environment in
real-time. Many of our Application Connectors also include pre-built components
that support the most common business integration scenarios, enabling our
customers to deploy e-business infrastructure solutions more rapidly. In most
cases we support multiple releases of the supported applications to allow our
customers to more easily upgrade their packaged applications and related
integration solutions.

CrossWorlds Application Connectors are available for a number of the leading
e-business and enterprise applications used by manufacturing and
telecommunications companies, including those offered by Baan Company N.V.,
BroadVision, Clarify, J.D. Edwards & Company, Kenan Systems, a subsidiary of
Lucent Technologies, Inc., Manugistics, MetaSolv, Numetrix, Oracle, PeopleSoft
Inc., Portal, SAP, including SAP R/3, and SAP B2B Procurement, Siebel, Trilogy
Software, Inc. and Vantive, a subsidiary of PeopleSoft. We intend to add
connectors for additional packaged applications focusing initially on emerging
e-business applications and applications utilized by the telecommunications
industry.

CrossWorlds Technology Connectors. We also provide Technology Connectors to
leading enterprise and e-business technology environments to allow integration
with legacy applications and applications which

lack well-defined interfaces. This is accomplished by using widely adopted,
standard technologies such as ODBC, JDBC, HTML, CORBA, XML, EDI, CICS, IBM MQSI
and Oracle RDBMS.

Custom and Legacy Application Integration Toolset

Three tools are used to build connectivity solutions involving custom and
legacy applications.

CrossWorlds Connector Development Kit. The CrossWorlds Connector Development
Kit (CDK) can be used to build connectors to custom applications and extend the
connectivity provided by our pre-built connectors. The CDK provides a uniform
framework for connector development, allowing customers to reuse previously
built components. The combination of our Technology Connectors and the CDK
enables us to offer connectivity to the most common environments while
minimizing the amount of programming our customers need to perform.

CrossWorlds Map Designer. The CrossWorlds Map Designer is used to build and
extend transformation maps that convert data from application specific formats
into the CrossWorlds Common Object Model. The Map Designer is a visual tool and
is tightly integrated with the CrossWorlds environment to support high volumes
of transformations.

CrossWorlds Relationship Designer. The CrossWorlds Relationship Designer
maintains references between integrated data that resides in disparate
applications. Using a graphical user interface, the Relationship Designer
enables the definition of cross-reference relationships between applications
necessary for simultaneously synchronizing data across multiple applications.

Infrastructure Products

CrossWorlds process automation and application integration solutions are
deployed on the CrossWorlds InterChange Server, a Java-based, enterprise-class
software product that scales to meet the requirements of global organizations
and trading networks with large volumes of mission-critical transactions.

We believe that CrossWorlds' infrastructure products exhibit the key
characteristics of enterprise class software solutions:

Modern Technology Infrastructure. The CrossWorlds InterChange Server utilizes
a combination of proprietary technologies and industry-standard messaging
middleware from IBM. The InterChange Server is a modular, Java-based
infrastructure that allows us to leverage new technologies and industry
standards as they emerge. It supports the most widely-accepted operating system
standards, including Microsoft Windows NT and the Sun Solaris version of UNIX,
although the InterChange Server can interoperate with applications based on all
common operating systems. We have been granted a patent on key elements of our
architecture.

eBusiness Foundation. CrossWorlds' open platform supports a variety of
Internet standards including XML, RosettaNet, HTML, HTTP, ftp, and EDI. The
CrossWorlds InterChange Server provides interfaces for multiple data formats
and supports communications over multiple protocols, and is engineered to allow
us to rapidly add support for new and emerging e-business standards. Integrated
security ensures the integrity and confidentiality of exchanges between trading
partners.

Enterprise Scalability. Our e-business infrastructure is designed to scale to
meet the needs of organizations with multiple packaged and custom applications.
The CrossWorlds InterChange Server is multi-threaded and capable of executing
multiple business processes simultaneously in a distributed environment. Our
modular architecture gives customers flexibility in deploying our solution, and
allows them to improve performance of individual components to maximize
scalability in the overall solution.

Manageability. We provide a distributed system management capability in the
form of the CrossWorlds System Manager. The CrossWorlds System Manager is
highly visual and tightly integrated with the CrossWorlds InterChange Server
enabling users to monitor and control the execution of our business process
integration modules and connectivity solutions from a centralized user
interface.

Adaptability. We provide an effective method of separating the functionality
of our process integration modules and connectors. This separation provides
multiple benefits to corporations implementing CrossWorlds' products. These
benefits include the ability to mix and match business process integration
modules and connectors, enabling greater adaptability to constantly changing
business requirements.

Customers and Markets

We have targeted and licensed our software to large global organizations in
four industries: technology, industrial manufacturing, process manufacturing
and telecommunications. In addition, customers in other vertical markets have
licensed our software to support specific functional integration projects. For
our four targeted industries, we have developed vertical market initiatives to
increase our market penetration, including:

. industry-specific product development;

. support for industry-specific applications;

. dedicated sales and pre-sales teams; and

. focused marketing initiatives.

A representative list of our customers includes:

Technology Telecommunications
- ------------------------------------- -------------------------------------

. Applied Materials . Avantel S.A./MCIWorldCom
. Nortel Networks . Axtel
. Royal Philips N.V. . Carrier Pro Services
. Siemens . Citykom Munster GmbH

. CodeNet
Industrial Manufacturing . EWE TEL AG
- ------------------------------------- . Excel Communications, Inc.

. Orange Plc.
. Andersen Corporation . Orbitel
. Caterpillar/Solar Turbines . U S WEST
. Delphi Automotive

. Ingersoll-Rand Other Industries
. 3M -------------------------------------
. Vorwerk AG

. Whirlpool Corporation . EnBW International GmbH
(Utilities)

Process Manufacturing . LodgeNet Entertainment Corporation
- ------------------------------------- (Entertainment)

. Neoforma.com, Inc. (Health Care)
. DuPont . Premier, Inc. (Health Care)
. Farmland Industries
. Hercules, Inc.
. Roche Group

Customer Case Studies

Customer: Neoforma.com (healthcare e-business network provider)

Problem: Neoforma.com is building an online healthcare marketplace over the
Internet that will serve as a global network to bring together healthcare
providers and medical suppliers to exchange information and buy and sell
medical products, supplies and equipment. To accomplish this, Neoforma.com
is integrating mySAP.com Marketplace with its internal applications and
plans to integrate its online marketplace with the exchange participants'
order management and purchasing applications. The integration solution
should manage the diversity of packaged, custom and legacy applications
from each buyer and seller.

Solution: Neoforma.com is implementing CrossWorlds as the core integration
solution to provide healthcare providers and suppliers a conduit to connect
with the mySAP.com Marketplace. CrossWorlds eBusiness will be used to
automate the exchange by capturing order information from healthcare
providers and product information from medical suppliers and formatting it
for the mySAP.com Marketplace. CrossWorlds will standardize and maintain
the core business logic and master data definitions involved in the
transactions such as item, master customer, master vendor, master orders,
account status and inventory level. This standardization ensures
consistent, accurate exchange of information and facilitates the buying and
selling of medical products, supplies and equipment. Neoforma.com will also
use CrossWorlds to integrate mySAP.com and Neoforma.com's internal ERP
system.

Customer: Delphi Automotive (automotive technologies, systems and
components)

Problem: Delphi needed a standardized integration solution that could tie
together numerous packaged, legacy and custom applications and support the
company's complex business processes. These applications operate within
multiple business units, and Delphi wanted a solution that would improve
the efficiency of data sharing across the company. Delphi currently has a
large SAP ERP implementation along with a myriad of custom and legacy
applications that manage production, purchasing and fulfillment.

Solution: Delphi is implementing CrossWorlds to integrate the company's
complex application environment across the enterprise. From CrossWorlds,
Delphi purchased the SAP and multiple technical Connectors, the InterChange
Server, development toolset and multiple pre-built business process modules
to integrate key information and automate the processes across business
units.

Customer: U S WEST (telecommunications service provider)

Problem: U S WEST !NTERPRISE, U S WEST's data networking and new product
development division, needed to integrate the common business processes for
customer relationship management, order history and service contracts
across their three mission-critical customer service and back office
applications.

Solution: U S WEST implemented CrossWorlds Customer Interaction solution to
enable a bi-directional flow of information between these applications,
ensuring a consistent and accurate picture of its customers, products and
contracts. As a part of U S WEST's new systems architecture, CrossWorlds'
solution helped U S WEST achieve a five-fold increase in the number of
quotes for contracts and renewals processed within the first month of
implementation. U S WEST estimates they have achieved a 35% cost savings in
this first phase of the CrossWorlds implementation, simply because of the
ease of making changes to customer contracts.

Partners

Strategic Partners

An important element of our overall strategy is to continue to enhance and
expand our strategic partnerships with key industry leaders in order to
increase market awareness and acceptance of our integration applications. These
relationships include a variety of joint development, cooperative sales and
marketing efforts that are significantly more in-depth than the relationships
we have with other partners. For more detailed information on these strategic
partners, see "--Strategy--Leverage Strategic Partnerships." Our strategic
partners include:

Strategic Partner Description of Partner
------------------------------- -------------------------------------------

IBM IBM is a provider of information technology
products and services.

SAP AG SAP is a provider of inter-enterprise
software solutions.

Strategic Investors

In addition to SAP, we have received equity investments of at least $1
million from a variety of leading companies in the technology industry. Some of
these investors also provide marketing and sales leverage. Strategic investors
include:

Strategic Investor Description of Investor
-------------------------------------- --------------------------------------

Axon Solutions Axon is a United Kingdom-based systems
integrator.

Compaq Computer Corporation Compaq is a supplier of computer
equipment and related services.

Industri-Matematik International Corp. IMI is a provider of order management
(IMI) applications for manufacturers and
wholesale distributors.

Intel Corporation Intel is a manufacturer of computer,
networking and communications
products.

J.D. Edwards J.D. Edwards is a provider of
enterprise resource planning
applications.

Manugistics Manugistics is a provider of supply
chain planning and management
applications.

Omron Corporation Omron is a Japan-based supplier of
industrial automation, service
automation, healthcare automation and
information processing.

Application Partners

We have established formal business relationship with a number of enterprise
application software providers. These relationships typically include one or
more of the following: technical cooperation, joint marketing, cooperative
development and/or joint sales. CrossWorlds has access to each company's
software and documentation. Our application partners include:

Application Partner Description of Partner
-------------------------------------- --------------------------------------

Baan Baan is a provider of enterprise
resource planning applications.

BroadVision BroadVision is a provider of
electronic commerce applications.

Clarify Clarify is a provider of customer
relationship management applications.

MetaSolv MetaSolv is a provider of operating
support system applications for the
telecommunications industry.

Oracle Oracle is a provider of enterprise
resource planning applications.

PeopleSoft/Vantive PeopleSoft is a provider of enterprise
resource planning and customer
relationship management applications.

Portal Portal is a supplier of customer
relationship management and billing
software for Internet service
providers.

Siebel Siebel is a provider of customer
relationship management applications.

In addition, CrossWorlds provides connectivity solutions for products from
other vendors with whom we have no formal relationship including those provided
by Kenan, Mannesmann, Numetrix and Trilogy.

Systems Integrators/Consulting Firms

Systems integrators and consulting firms provide strategic sales, marketing
and product development leverage. Partnerships with key systems integrator and
consulting firms can help shorten the sales cycle for customer situations and
enable sales representatives to make calls to higher level executives at
potential prospects. In some instances, these partnerships also include joint
product development efforts. In addition to our strategic partnerships with SAP
and IBM listed above, our systems integrator and consulting firm partners
include:

Systems Integrator Partner Description of Relationship
-------------------------------------- --------------------------------------

Cap Gemini Cap Gemini and CrossWorlds have a
joint sales, implementation, marketing
and development partnership focused on
the telecommunications industry and
the United Kingdom market. CrossWorlds
and Cap Gemini have cooperatively
developed a connectivity solution for
the Portal application for this
market. Cap Gemini has installed
CrossWorlds' software in its solution
centers.

CSC CSC Consulting and CrossWorlds have a
joint sales and implementation
partnership focused on large
enterprises in the United States and
Europe.

Deloitte Consulting Deloitte Consulting and CrossWorlds
have a joint sales, implementation and
marketing partnership focused on the
telecommunications and enterprise
resource planning markets.

EDS EDS and CrossWorlds have a joint
sales, implementation and marketing
partnership focused on providing e-
business integration solutions to
selected vertical markets.

Ernst & Young Ernst & Young and CrossWorlds have a
joint sales, implementation, marketing
and development partnership focused on
selected vertical markets, including
manufacturing and telecommunications.
CrossWorlds and Ernst & Young have
cooperatively developed a connectivity
solution for the MetaSolv application
for the telecommunications industry.
An Ernst & Young executive is a member
of our technical advisory board.

PricewaterhouseCoopers PricewaterhouseCoopers and CrossWorlds
have a joint sales, implementation and
marketing partnership focused on
providing e-business integration
solutions for selected vertical
markets. CrossWorlds is being bundled
into selected PricewaterhouseCoopers'
solution sets which include software
and implementation services.

In addition, CrossWorlds has worked cooperatively with other systems
integrators and consulting firms including Andersen Consulting and Cambridge
Technology Partners, although we have no formal partnerships with these
companies.

Sales

We sell our software primarily through our direct sales organization. As of
December 31, 1999 our direct sales force consisted of 24 sales professionals
located in offices in North America and Europe. We have domestic offices
located in Burlingame, California; Los Angeles, California; Chicago, Illinois;
Bethesda, Maryland; Newton, Massachusetts; Edina, Minnesota; Princeton, New
Jersey; White Plains, New York; Charlotte, North Carolina; and Dallas, Texas.
Our European headquarters is based in Munich, Germany and we have also
established subsidiaries and local offices in France and the United Kingdom.
Technical sales support is provided by 15 pre-sales representatives co-located
in the corporate and field offices. The field sales force is complemented by
four telebusiness staff based in our Burlingame, California headquarters and
two telebusiness/marketing staff based in our Munich office.

We deploy sales teams consisting of both sales and technical sales support
professionals to create industry-specific proposals, presentations and
demonstrations that address the specific requirements of the customer. The
decision makers within CrossWorlds' prospective customers for the CrossWorlds
products are their executive teams, frequently consisting of the Chief
Information Officer, Chief Financial Officer and Chief Executive Officer. Our
typical customer profile includes Fortune 1000 companies in technology,
industrial manufacturing, process manufacturing and telecommunications, among
other industries. While the sales cycle varies significantly from customer to
customer for initial sales, the cycle has ranged to date from two to nine
months.

Marketing

Our marketing efforts are directed at establishing a market leadership
position for our software in the e-business infrastructure software market.
Targeted at information technology managers as well as Chief Information
Officers, Chief Financial Officers and other senior executives within global
Fortune 1000 companies, CrossWorlds' marketing programs are focused on creating
awareness and generating interest in the CrossWorlds solution in order to
increase sales. Our marketing plan includes the following critical elements:

Brand Awareness/Public Relations. Increasing brand awareness is a key
component of our marketing strategy. We believe that the building of the
CrossWorlds brand has improved our sales effectiveness by providing access to
higher level executives at target accounts and contributed to our ability to
attract leading partners. In order to build brand awareness we engage in a wide
range of public relations activities, including industry analyst relations,
press releases, media relations and media tours.

Lead Generation. We have developed lead-generation programs, including direct
mail campaigns, seminar series and audioseminars, targeted at specific
audiences and account profiles. In addition, we exhibit at selected trade shows
and partner user group events with the goal of identifying prospective
customers. These efforts are complemented by our own internal telebusiness
organization, which provides support for lead-generation activities.

Joint Marketing. We highly value our strategic partners and recognize how
critical those relationships are to our success. We leverage these
relationships by working jointly with application partners, technology partners
and systems integrators to establish joint marketing programs. We have worked
with our partners to execute a variety of marketing programs including trade
shows and user groups, joint speaking opportunities, seminar tours, public
relations and advertising campaigns. To date, we have executed joint marketing
activities with Cambridge Technology Partners, Clarify, Compaq, Deloitte
Consulting, Ernst & Young, IBM, MetaSolv, Oracle, PeopleSoft, Portal,
PricewaterhouseCoopers, SAP and Siebel.

Customer Support, Implementation and Training

Customer Support

We have implemented a customer support strategy designed to ensure successful
implementation and customer satisfaction. This multi-tiered approach includes
on-line support via the Internet, toll-free

telephone technical support and on-site support from our client services team
when required. Our Internet service programs provide links to selected
CrossWorlds systems, including product documentation, technical notes and a
frequently asked questions database. Customers can directly check the status of
their technical support requests over the Internet. Separately, a toll-free
phone number provides customers with access to technical service professionals
on a 24-hour a day, 7-day a week basis. Our staff also provides on-site support
to resolve more complex issues, typically on a fee-for-service basis.

We have an on-going initiative with a customer satisfaction research firm to
measure the satisfaction level of each customer and help us identify, analyze
and solve customer service problems.

Client Services

To install and configure our products, we maintain an internal client
services implementation team with expertise at installing and configuring our
products at client sites. While most implementations to date have been
performed by our internal staff, our long term implementation strategy is to
support the efforts of our third-party systems integrator partners with a small
number of CrossWorlds' client services resources on each client project. We
believe the presence of our client service staff has helped maintain the
consistency and quality of our product implementation.

Training

We offer a wide range of training courses in the installation, configuration,
customization and administration of CrossWorlds products. Typically, these
courses are attended by the relevant members of a customer's information
technology team. CrossWorlds also trains third-party implementation personnel
on the installation, customization and configuration of CrossWorlds products.
Training is available at CrossWorlds' training facility in Burlingame,
California and at various locations around the world through a third-party
training provider. In addition, customers and implementation partners can
arrange for dedicated classes to be provided at their own facilities.

Research and Development

Since inception, we have made substantial investments in research and
development. In addition, whenever practicable, we have also leveraged
technology from leading third-party providers and cooperative development with
systems integrator partners to reduce our own research and development
expenditures. Through December 31, 1999, we have invested approximately $30.8
million in research and development.

A high level of expenditure on research and development continues to be vital
to our success due to:

. the complexity of developing a comprehensive integration solution for e-
business and the enterprise;

. the need to support an increasing number of packaged enterprise
applications, particularly in the e-business and telecommunications
markets;

. the ongoing expansion of the functionality in each of our product lines;
and

. the increasing functional depth of our industry solutions for
manufacturing and telecommunications.

Our research and development efforts are focused on the development of
collaboration modules and connectivity solutions, the supporting infrastructure
and tools, quality assurance and technical publications that support all facets
of product usage. Our research and development staff are also engaged in the
development of advanced technologies and the evaluation of emerging third-party
products that can be leveraged in future releases of the product.

As of December 31, 1999, there were 75 employees in our research and
development organization, approximately half of which were dedicated to the
development of collaboration modules and connectivity

solutions, with the balance focused on infrastructure development, quality
assurance, documentation and technical support.

We have assembled a Technical Advisory Board, made up of senior executives
from Compaq, McKinsey & Company, Ernst & Young and SAP, that provides feedback
on existing product plans and guidance for future research and development
activities.

Intellectual Property and Other Proprietary Rights

We rely on a combination of patent, copyright, trademark and trade secret
laws and restrictions on disclosure to protect our intellectual property
rights. We have been granted one patent on certain aspects of our architecture
and four U.S. patent applications relating to the architecture of our products
pending. We cannot assure you that these applications will be approved, that
any issued patents will protect our intellectual property or that they will not
challenged by third parties. Furthermore, there can be no assurance that others
will not independently develop similar or competing technology or design around
any patents that may be issued to us. We also have five pending U.S. and
international trademark applications.

We also enter into confidentiality or license agreements with our employees,
consultants and corporate partners, and control access to and distribution of
our software, documentation and other proprietary information. In addition, we
provide our products to end-users primarily pursuant to non-exclusive license
agreements which impose restrictions on customers' ability to utilize the
software. Despite our efforts to protect our proprietary rights, existing laws
afford only limited protection. Attempts may be made to copy or reverse
engineer aspects of our product or to obtain and use information that we regard
as proprietary. Accordingly, there can be no assurance that we will be able to
protect our proprietary rights against unauthorized third-party copying or use.
Use by others of our proprietary rights could materially harm our business.
Monitoring unauthorized use of our products is difficult, and we cannot assure
you that the steps we have taken will prevent misappropriation of our
technology, particularly in foreign countries where the laws may not protect
our proprietary rights as fully as in the United States.

The software industry is characterized by the existence of a large number of
patents and frequent litigation based on allegations of patent infringement and
the violation of other intellectual property rights. Although we attempt to
avoid infringing known proprietary rights of third parties in our product
development efforts, we expect that we may be subject to legal proceedings and
claims for alleged infringement by us or our licensees of third party
proprietary rights, such as patents, trademarks or copyrights, by us or our
licensees from time to time in the ordinary course of business. Any claims
relating to the infringement of third party proprietary rights, even if not
meritorious, could result in costly litigation, divert management's attention
and resources, or require us to enter into royalty or license agreements which
are not advantageous to us. In addition, parties making these claims may be
able to obtain an injunction, which could prevent us from selling our products
in the United States and abroad. Any of these results could harm our business.
We may increasingly be subject to infringement claims as the number of products
and competitors in our industry grow and functionalities of products overlap.
Furthermore, former employers of our current and future employees may assert
that our employees have improperly disclosed confidential or proprietary
information to us.

Competition

The market for our products is intensely competitive, and is expected to
become increasingly competitive as current competitors expand their product
offerings and new competitors enter the market. Our current competitors include
a number of companies offering one or more solutions to the application
integration problem, some of which are directly competitive with our products.

may substitute for those offered by us. We expect that these internal
development initiatives will continue to be a principal source of competition
for the foreseeable future. The competitive factors in this area require that
we produce a product that conforms to the prospective customer's information
technology standards, scales to meet the needs of large enterprises and costs
less than their internal development efforts.

A second source of competition results from systems integrators and other
information technology service providers engaged to build customized
integration solutions across multiple customer applications. The competitive
factors in this area require that we demonstrate to our prospective customers,
systems integrators and other service providers the cost savings, risk
reduction and other advantages of an integration solution based on
commercially-supported software.

Our competitors also include a large number of software vendors targeting one
or more segments of the business integration software market through various
technological solutions. Most of the competitors offer components of a complete
solution centered on such technologies as messaging and data transport,
including BEA, Microsoft Corporation, and TIBCO and e-business and integration
tools including Active Software, Extricity Software, Inc., Mercator Software,
New Era of Networks, OnDisplay, Software Technologies Corporation, Vitria
Technology Inc. and webMethods. Many of these competitors have longer operating
histories, significantly greater financial, technical, marketing, and other
resources, significantly greater name recognition and a larger installed base
of customers than CrossWorlds. In addition, many competitors have well-
established relationships with current and potential customers. As a result,
these competitors may be able to respond more quickly to new or emerging
technologies and changes in customer requirements, or to devote greater
resources to the development, promotion and sale of their products than
CrossWorlds.

In addition, current and potential competitors have established or may
establish cooperative relationships among themselves or with third parties to
increase the ability of their products to address customer needs. Accordingly,
it is possible that new competitors or alliances among competitors may emerge
and rapidly acquire significant market share. Potential competition could
emerge from Hewlett-Packard, IBM, Microsoft and Oracle, among others. Increased
competition is likely to result in price reductions, reduced gross margins and
loss of market share.

Employees

As of December 31, 1999 CrossWorlds had a total of 202 employees, of which
178 were based in North America, including the United States and Canada, and 24
were based in Europe, principally in the United Kingdom and Germany. Of the
total, 65 were engaged in sales and marketing, 75 were in product development
and customer support, 40 were in implementation services and 22 were in
finance, administration and operations. None of our employees is represented by
a labor union. We have not experienced any work stoppages and consider our
relations with our employees to be good.

Facilities

Our principal administrative, sales, marketing, support and research and
development facilities are located in approximately 40,000 square feet in
Burlingame, California. The lease on this office space expires in April 2008.
We currently lease other domestic sales and support offices in Los Angeles,
California; Denver, Colorado; Westport, Connecticut; Chicago, Illinois;
Bethesda, Maryland; Newton, Massachusetts; Ann Arbor, Michigan; Princeton, New
Jersey; White Plains, New York; Charlotte, North Carolina; and Dallas, Texas.
We also maintain international offices in leased facilities located in the
United Kingdom, France and Germany. The German office also serves as our
European headquarters.

MANAGEMENT

Executive Officers and Directors

The executive officers and directors of CrossWorlds as of February 2, 2000
are as follows:

Name Age Position(s)
- ---- --- -----------

Alfred J. Amoroso....... 49 Chief Executive Officer, President and Director
Katrina A. Garnett...... 38 Founder and Chairman of the Board of Directors
Barton S. Foster ....... 35 Senior Vice President, Marketing and Business Development
Prashant Gupta.......... 39 Chief Technical Officer and Senior Vice President
Mark R. Kent............ 40 Chief Financial Officer and Senior Vice President Finance
Arthur R. Matin......... 43 Senior Vice President, Worldwide Sales
James G. Rowley......... 34 Senior Vice President, Engineering
Terence J. Garnett...... 42 Director
Frederick W. Gluck(1)... 64 Director
Andrew K.
Ludwick(1)(2).......... 54 Director
Albert A."Rocky"
Pimentel(2)............ 44 Director
Colin F. Raymond(2)..... 29 Director

- ---------------------
(1) Member of Compensation Committee
(2) Member of Audit Committee

Alfred J. Amoroso has served as President, Chief Executive Officer and a
director of CrossWorlds since October 1999. Mr. Amoroso served as General
Manager of IBM Global Services Asia Pacific from May 1997 to October 1999. From
1993 to 1997, Mr. Amoroso held various other management positions at IBM,
including General Manager of the Worldwide Insurance Business Unit, General
Manager of the North American Insurance Business Unit and Vice President of the
Insurance Consulting Practice. Prior to IBM, Mr. Amoroso held various positions
at Price Waterhouse, now PricewaterhouseCoopers, from 1985 to 1993 including
Lead Technology Partner and partner in charge of the Worldwide Insurance
Consulting Practice. Prior to Price Waterhouse, Mr. Amoroso founded Computech
Corporation, an information technology consulting and development firm, in 1977
and served as Chief Executive Officer. Computech was purchased by Price
Waterhouse in 1985. Mr. Amoroso has a B.S. degree in Systems Engineering and a
M.S. in Operations Research from the Polytechnic Institute of Brooklyn.

Katrina A. Garnett founded CrossWorlds in April 1996, and has served as
Chairman of CrossWorlds since October 1999 and a director since inception. In
addition, Ms. Garnett served as President and Chief Executive Officer from
inception until October 1999. Prior to founding CrossWorlds, Ms. Garnett served
as Vice President and General Manager of the Distributed Objects and
Connectivity Division at Sybase, Inc., a database software company, from
October 1990 to April 1996. From 1986 to 1990, Ms. Garnett served in various
technical management positions in the areas of workflow and workgroup
applications at Oracle Corporation. Ms. Garnett has a B.S. degree in Industrial
Engineering from State University of New York and an M.B.A. from Webster/IMEDE.

Barton S. Foster has served as Senior Vice President, Marketing and Business
Development for CrossWorlds since November 1998, and served as Vice President,
Corporate Marketing from June 1998 to November 1998. Prior to CrossWorlds, Mr.
Foster held management positions at Connect, Inc., an electronic commerce
software company, where he served as Executive Vice President, Sales and
Marketing and Vice President, Marketing and Business Development, from March
1996 to June 1998. From November 1993 to March 1996, Mr. Foster held various
management positions at Oracle Corporation, including Vice President
Applications and Industry Marketing, and Senior Director Applications and
Industry Marketing. Mr. Foster holds a B.A. degree from Stanford University and
an M.B.A. degree from Harvard University Graduate School of Business
Administration.

Prashant Gupta has served as Chief Technology Officer at CrossWorlds since
April 1996. Prior to joining CrossWorlds, Mr. Gupta served as Chief Architect
at Illustra/Informix from October 1995 until April 1996. From July 1992 to
October 1995, Mr. Gupta held a variety of positions at Sybase, Inc. where he
served as the chief technical architect for several key middleware and
connectivity programs. Mr. Gupta holds a B.S. degree with honors in electrical
and computer engineering from BITS, Pilani, in India. In addition, Mr. Gupta is
a director and consultant to several private companies.

Mark R. Kent has served as Senior Vice President Finance and Chief Financial
Officer for CrossWorlds since March 1999. Prior to CrossWorlds, Mr. Kent held
financial management positions at LSI Logic Corporation, a supplier of
semiconductors, where he served as Treasurer from November 1997 to March 1999,
and as Assistant Treasurer from December 1995 to November 1997. From April 1991
to December 1995, Mr. Kent was a proprietor in the financial management
consulting firm Feldmann, Kent and Associates. From November 1987 to April
1991, he served as a senior officer of the High Technology Group of Bank of the
West. Mr. Kent holds a B.S. degree in Business Administration from Colorado
State University.

Arthur R. Matin has served as Senior Vice President, Worldwide Sales and
Consulting for CrossWorlds since January 2000. Prior to CrossWorlds, Mr. Matin
served as Vice President of the Industrial Sector at IBM from January 1999 to
January 2000. From 1980 to 1999, Mr. Matin held various other management
positions at IBM, including General Manager, Industries, Asia Pacific, General
Manager, Product Management, Asia Pacific and Vice President of Sales,
Manufacturing Industry. Mr. Matin holds a B.A. in Biology from the University
of Rochester and a M.B.A. from the University of Chicago.

James G. Rowley has served as Senior Vice President of Engineering at
CrossWorlds since May 1999, and served as Vice President, Content Engineering
from November 1998 to May 1999 and Vice President Worldwide Sales Consulting
from January 1998 to November 1998. Prior to CrossWorlds, Mr. Rowley served as
Vice President, Worldwide Field Application Engineering at Scopus Corporation,
a software company, from January 1997 to January 1998. From January 1995 to
January 1997, Mr. Rowley established a worldwide sales consulting group at
Siebel Systems, a software company. From 1986 to January 1995, Mr. Rowley
served in several management positions at Oracle Corporation. Mr. Rowley holds
a B.A. degree and an M.B.A. from New York University.

Terence J. Garnett has served as a director of CrossWorlds since inception.
Mr. Garnett has been a managing director of Garnett Capital since January 2000.
Before starting Garnett Capital, Mr. Garnett was a Venture Partner with Venrock
Associates, a venture capital firm, from April 1995 to December 1999. From
October 1990 to August 1994, Mr. Garnett held a variety of management positions
with Oracle Corporation, where he served as Senior Vice President, Worldwide
Marketing and Business Development, Senior Vice President, New Media Group and
was a member of the Executive Committee. Mr. Garnett holds a B.S. degree from
the University of California Berkeley and an M.B.A. from the Stanford Graduate
School of Business. Mr. Garnett is also a director of Neoforma.com and Niku
Corporation and several other private companies.

Frederick W. Gluck has served as a director of CrossWorlds since January
1998. Mr. Gluck is presently serving as a consultant to McKinsey & Company,
Inc., an international management consulting firm. From 1995 to July 1998, Mr.
Gluck served as Vice-Chairman and Director of the Bechtel Group. Mr. Gluck
retired from Bechtel in July 1998. From 1967 to 1995, Mr. Gluck held various
positions with McKinsey including Managing Director of the firm from 1988 to
1994. Mr. Gluck serves as a director for AMGEN, ACT Networks, Columbia/HCA,
SCIENT and a several private companies.

Andrew K. Ludwick has served as a director of CrossWorlds since June 1997.
From 1995 to 1997, Mr. Ludwick served as CEO of Bay Networks, a networking
company. Mr. Ludwick co-founded SynOptics

Communications, a networking company, in 1985 and served as CEO from 1985 to
1995. Mr. Ludwick also serves as a director of several private companies.

Albert A. "Rocky" Pimentel has been a director of CrossWorlds since March
1999. Mr. Pimentel has been Senior Vice President of WebTV Networks, Inc., a
provider of consumer Internet services and designer of Internet access
appliances and a subsidiary of Microsoft Corporation, since November 1996. From
June 1992 to October 1996, Mr. Pimentel served as Senior Vice President and
Chief Financial Officer of LSI Logic Corporation, a leading provider of
semiconductors. Mr. Pimentel serves as a director of ConXion Corporation,
everSearch.com and NetCell Corporation.

Colin F. Raymond has been a director of CrossWorlds since October 1999. Mr.
Raymond has been a partner with Soros Private Equity Partners, a private
investment management firm, since May 1999. From 1996 to 1999, Mr. Raymond was
with Morgan Stanley Capital Partners, most recently as Vice President. Prior to
that time, Mr. Raymond was employed by Wolfensohn & Co. and J.P. Morgan & Co.
working in corporate finance and mergers and acquisitions. Mr. Raymond serves
as a director of ARM Financial Group, Day International and a number of
privately-held companies.

Board Composition

CrossWorlds currently has authorized seven (7) directors. Each director is
elected for a period of one year at CrossWorlds' annual meeting of stockholders
and serves until the next annual meeting or until his successor is duly elected
and qualified. The executive officers serve at the discretion of the Board of
Directors. Katrina A. Garnett, CrossWorlds Founder and Chairman of the Board of
Directors, is married to Terence J. Garnett, a member of CrossWorlds' Board of
Directors.

Board Compensation

Except for reimbursement for reasonable travel expenses relating to
attendance at Board meetings and the grant of stock options, directors are not
compensated for their services as directors. As of the offering, directors who
are employees of CrossWorlds are eligible to participate in CrossWorlds' 1997
Stock Plan and directors who are not employees of CrossWorlds will be eligible
to participate in CrossWorlds' 2000 Director Stock Option Plan. See "Stock
Plans." Our outside directors have received option grants as follows:

Exercise No. of
Name Date of Grant Price Shares
---- ------------- -------- ------

Albert A. Pimentel February 1999 $3.00 53,333
Andrew K. Ludwick June 1997 $0.75 33,333
January 1999 $3.00 41,666
Frederick W. Gluck January 1998 $2.25 20,000
January 1999 $3.00 33,333

All of the above options vest over three years from the date of grant.

Board Committees

In January 1999, the Board established the Audit Committee and Compensation
Committee. The Audit Committee reviews CrossWorlds' annual audit and meets with
CrossWorlds' independent auditors to review CrossWorlds' internal controls and
financial management practices. The Board's Audit Committee currently consists
of directors Ludwick, Pimentel and Raymond. The Compensation Committee
recommends compensation for certain of CrossWorlds' personnel to the Board and
administers CrossWorlds' Stock Plans. The Compensation Committee currently
consists of directors Gluck and Ludwick.

Executive Compensation

The following table provides certain summary information concerning the
compensation received for services rendered to CrossWorlds during the year
ended December 31, 1999 by (i) everyone who served as our Chief Executive
Officer during the year, (ii) each of the other four most highly compensated
executive officers whose total cash compensation exceeded $100,000 during the
year ended December 31, 1999 and (iii) one other person who was not an
executive officer at year end (collectively, the "Named Executive Officers").
The amounts in the column "All Other Compensation," with the exception of
$40,271 paid to Alfred J. Amoroso for moving expenses, are insurance premiums
paid by CrossWorlds.

Summary Compensation Table

Long-Term
Compensation
Awards
------------
Annual
Compensation
----------------- Securities
Salary Bonus Underlying All Other
Name and Principal Position ($) ($) Options (#) Compensation
- --------------------------- -------- -------- ------------ ------------

Alfred J. Amoroso(1)
President and Chief Executive
Officer........................... $115,530 $ -- 2,125,192 $40,346
Barton S. Foster
Senior Vice President, Marketing... 175,000 76,112 216,666 357
Prashant Gupta
Chief Technology Officer........... 175,000 106,112 333,332 2,304
Mark R. Kent(2)
Senior Vice President and Chief
Financial Officer................. 136,719 36,509 399,999 351
James G. Rowley
Senior Vice President,
Engineering....................... 164,583 84,798 204,999 319
Kevin Fitzgerald(3)
Former Senior Vice President,
Sales............................. 149,965 248,606 166,666 1,338
Katrina A. Garnett(4)
Chairman........................... 175,000 106,112 -- 360

- --------
(1) Mr. Amoroso joined CrossWorlds in October 1999.
(2) Mr. Kent joined CrossWorlds in March 1999.
(3) Mr. Fitzgerald resigned as Senior Vice President, Sales in October 1999.
(4) Ms. Garnett resigned as Chief Executive Officer in October 1999.

Option Grants

The following table provides certain summary information regarding stock
options granted to the Named Executive Officers during the year ended December
31, 1999.

Option Grants in Last Fiscal Year

Potential Realizable
Value at Assumed
Percentage Annual Rates of
Number of of Total Stock Price
Shares Options Exercise Appreciation For
Underlying Granted to Price Option Term(2)
Options Employees per Expiration --------------------
Name Granted (1) Share Date 5% 10%
- ---- ---------- ---------- -------- ---------- ---------- -----------

Alfred J. Amoroso....... 2,125,192 30.50% $6.60 10/11/09 $8,821,044 $22,354,258
Barton S. Foster........ 116,666 1.67% 3.00 2/18/09 220,112 557,807
100,000 1.43% 6.60 10/11/09 415,070 1,051,870
Prashant Gupta.......... 249,999 3.58% 5.25 3/11/09 825,421 2,091,779
83,333 1.19% 6.60 10/11/09 345,891 876,555
Mark R. Kent............ 249,999 3.58% 5.25 3/22/09 825,421 2,091,779
83,333 1.19% 6.60 8/12/09 345,891 876,555
66,667 0.96% 6.60 10/11/09 276,715 701,250
James G. Rowley......... 33,333 0.48% 5.25 3/11/09 110,055 278,902
71,666 1.03% 6.60 7/21/09 297,464 753,833
100,000 1.43% 6.60 10/11/09 415,070 1,051,870
Kevin Fitzgerald........ 83,333 1.19% 5.25 3/11/09 275,140 697,260
83,333 1.19% 6.60 7/21/09 345,891 876,555
Katrina A. Garnett...... -- -- -- -- -- --

- --------
(1) Based on an aggregate of 6,968,975 subject to options granted by
CrossWorlds under the 1997 Stock Plan and the 1999 Executive Stock Plan
during the year ended December 31, 1999.
(2) Potential realizable values are net of exercise price, but before taxes
associated with exercise. The 5% and 10% assumed annual rates of compounded
stock price appreciation are mandated by the Securities and Exchange
Commission. There is no assurance provided to any executive officer or any
other holder of our securities that the actual stock price appreciation
over the 10-year term will be at the assumed 5% and 10% levels or at any
other defined level. Unless the market price of the common stock
appreciates over the long term, no value will be realized from the option
grants made to the executive officers.

Option Exercises and Holdings

The following table provides summary information concerning the shares of
common stock represented by outstanding stock options held by each of the Named
Executive Officers as of December 31, 1999.

Fiscal Year-End Option Values

Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at Fiscal Year-End at Fiscal Year End(1)
----------------------------- -------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- -------------- ----------- -------------

Alfred J. Amoroso.... 88,549 2,036,643 $212,518 $4,887,943
Barton S. Foster..... 50,696 215,969 274,177 965,813
Prashant Gupta....... 100,695 315,970 579,169 1,245,823
Mark R. Kent......... 69,793 330,206 230,785 1,066,710
James G. Rowley...... 79,886 158,446 232,665 504,330
Kevin Fitzgerald..... -- -- -- --
Katrina A. Garnett... -- -- -- --

- --------
(1) These values are based on the fair market value of $9.00 per share as of
December 31, 1999, as determined by the board of directors, minus the
exercise price, multiplied by the number of shares underlying the option.

Stock Plans

1997 Stock Plan. Our 1997 Stock Plan was originally adopted by our board of
directors and approved by our stockholders in January 1997. As of December 31,
1999, an aggregate of 4,992,638 shares was reserved for issuance under the 1997
Plan. The 1997 Plan was amended by our board of directors on April 26, 1999 and
October 11, 1999 to increase the total number of shares reserved for issuance
by 666,667 shares and 666,667 shares, respectively, and to incorporate certain
other changes, after which a total of 4,992,638 shares was reserved for
issuance under the plan. In addition, the 1997 Plan was amended to provide for
a total of 3,000,000 shares to be available for grant at the effective time of
this offering, plus an automatic annual increase on the first day of each of
our fiscal years beginning in 2001 and ending in 2005 in an amount equal to the
lesser of 3,000,000 shares, 5% of our outstanding common stock on the last day
of the immediately preceding fiscal year, or such lesser number of shares as
our board determines. This amendment to the 1997 Plan will be submitted to our
stockholders for approval prior to the completion of this offering. If not
terminated earlier by our board of directors, the 1997 Plan will terminate in
2007.

As of December 31, 1999, options to purchase 753,425 shares of common stock
had been exercised, options to purchase a total of 3,845,091 shares at a
weighted average exercise price of $5.26 per share were outstanding and 423,612
shares remained available for future option grants.

The purposes of the 1997 Plan are to attract and retain the best available
personnel to CrossWorlds, to provide additional incentives to CrossWorlds'
employees and consultants and to promote the success of CrossWorlds' business.
The 1997 Plan provides for the granting to employees, including officers and
directors, of incentive stock options within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended, and for the granting to employees
and consultants, including nonemployee directors, of nonstatutory stock options
and stock purchase rights. To the extent an optionee would have the right in
any calendar year to exercise for the first time one or more incentive stock
options for shares having an aggregate fair market value (under all plans of
CrossWorlds and determined for each share as of the date the option to purchase
the shares was granted) in excess of $100,000, any such excess options shall be
treated as nonstatutory stock options.

The 1997 Plan may be administered by the Board of Directors or a committee of
the Board, each known as the administrator. The 1997 Plan is currently
administered by the Compensation Committee. The administrator determines the
terms of options and stock purchase rights granted under the 1997 Plan,
including the number of shares subject to the award, the exercise or purchase
price, the term and the vesting and/or exercisability of the award and any
other conditions to which the award is subject. In no event, however, may an
individual employee receive awards for more than 1,000,000 shares under the
1997 Plan in any fiscal year. The exercise price of all incentive stock options
granted under the 1997 Plan must be at least equal to the fair market value of
our common stock on the date of grant. The exercise price of any incentive
stock option granted to an optionee who owns stock representing more than 10%
of the total combined voting power of all classes of our outstanding capital
stock or the stock of any parent or subsidiary corporation of CrossWorlds must
equal at least 110% of the fair market value of the common stock on the date of
grant. Prior to this offering, the exercise price of all nonstatutory stock
options and stock purchase rights were required to have an exercise or purchase
price of at least 85% of the fair market value of the common stock on the date
of grant. After the date of this offering, the exercise price of nonstatutory
stock options and the purchase price of stock purchase rights will no longer be
subject to these limitations, although nonstatutory stock options and stock
purchase rights granted to our Chief Executive Officer and our four other most
highly compensated officers will be at least 100% of the fair market value of
the common stock on the date of grant if the award is intended to qualify as
performance based compensation under Section 162(m) of the Internal Revenue
Code. Payment of the exercise price may be made in cash or other consideration
as determined by the administrator.

The administrator determines the term of options, which may not exceed 10
years (or 5 years in the case of an incentive stock option granted to an
employee who owns stock representing more than 10% of the

total voting power of our stock or a parent or subsidiary's stock). Generally,
an option may not be transferred by the optionee other than by will or the laws
of descent or distribution and may be exercised during the lifetime of the
optionee only by such optionee. However, the administrator may in its
discretion provide for the limited transferability of nonstatutory stock
options granted under the 1997 Plan under certain circumstances. The
administrator determines when options become exercisable. Options granted under
the 1997 Plan generally become exercisable at the rate of 1/8th of the total
number of shares subject to the options six months after the date of grant, and
1/48th of the total number of shares subject to the options each month
thereafter. Stock purchased pursuant to stock purchase rights granted under the
1997 Plan is generally subject to a repurchase right at the purchaser's
original purchase price exercisable by CrossWorlds upon termination of the
Purchaser's employment or consulting relationship with us, for any reason,
including death or disability. This repurchase right will lapse in accordance
with the terms of the stock purchase right determined by the administrator at
the time of grant.

In the event of the sale of all or substantially all of the assets of
CrossWorlds, or the merger of CrossWorlds with another corporation, then each
option and stock purchase right may be assumed or an equivalent award
substituted by the successor corporation. If the successor corporation refuses
to assume or substitute for an outstanding award, each award shall become fully
vested and/or exercisable prior to the effective date of the transaction. In
addition, in the event that outstanding awards are assumed or new awards are
substituted for them, if an optionee's employment with CrossWorlds is
involuntarily terminated for reasons other than cause within one year following
a merger or sale of assets, subject to certain limitations described in the
1997 Plan, outstanding awards shall become immediately vested and/or
exercisable in an amount equal to 12 months of further vesting of each award at
the rate specified in the applicable stock option or stock purchase agreement.
Outstanding options will adjust in the event of a stock split, stock dividend
or other similar change in capital structure. The administrator has the
authority to amend or terminate the 1997 Plan as long as such action does not
adversely affect any outstanding option and provided that stockholder approval
shall be obtained as required by applicable law.

2000 Directors' Stock Option Plan. The 2000 Directors' Stock Option Plan was
adopted by the Board of Directors in January 2000 and will be submitted to our
stockholders for approval prior to completion of this offering. A total of
300,000 shares of common stock has been reserved for issuance under the
Directors' Plan. No shares have been issued under the Directors' Plan. The
Directors' Plan becomes effective on the date of this offering. The Directors'
Plan provides for the grant of nonstatutory stock options to nonemployee
directors of CrossWorlds. The Directors' Plan is designed to work automatically
without administration; however, to the extent administration is necessary, it
will be performed by the Board of Directors. To the extent conflicts of
interest arise, it is expected that they will be addressed by abstention of any
interested director from both deliberations and voting regarding matters in
which such director has a personal interest.

The Directors' Plan provides that each person who becomes a nonemployee
director of CrossWorlds after the effective date of this offering will be
granted a nonstatutory stock option to purchase 25,000 shares of common stock
on the date on which the optionee first becomes a nonemployee director of
CrossWorlds. On the date of CrossWorlds' Annual Stockholders Meeting each year,
each nonemployee director of CrossWorlds will be granted an option to purchase
5,000 shares of common stock if, on such date, he or she has served on
CrossWorlds' Board of Directors for at least six months.

The Directors' Plan sets neither a maximum nor a minimum number of shares for
which options may be granted to any one nonemployee director, but does specify
the number of shares that may be included in any grant and the method of making
a grant. No option granted under the Directors' Plan is transferable by the
optionee other than by will or the laws of descent or distribution or pursuant
to a qualified domestic relations order, and each option is exercisable, during
the lifetime of the optionee, only by such optionee. The Directors' Plan
provides that each option shall vest at the rate of 1/12 of the total number of
shares subject to such option per month. If a nonemployee Director ceases to
serve as a Director for any reason other than death or disability, he or she
may, but only within 90 days after the date he or she ceases to be a Director
of CrossWorlds, exercise options granted under the Directors' Plan. If he or
she does not exercise such option

(which he or she was entitled to exercise) within such 90 day period, such
option shall terminate. The exercise price of all stock options granted under
the Directors' Plan shall be equal to the fair market value of a share of
CrossWorlds' common stock on the date of grant of the option. Options granted
under the Directors' Plan have a term of ten years.

In the event we sell all or substantially all of our assets or in the event
of a merger or other similar transaction, options will be assumed by the
successor corporation or equivalent options substituted, unless the acquiror
does not agree to such assumption or substitution, in which case the options
will terminate upon consummation of the acquisition to the extent not
previously exercised. Outstanding options will adjust in the event of a stock
split, stock dividend or other similar change in capital structure. The Board
of Directors may amend or terminate the Directors' Plan; provided, however,
that no such action may adversely affect any outstanding option and we obtain
stockholder approval for any amendment to the extent required by applicable
law. If not terminated earlier, the Directors' Plan will have a term of ten
years.

2000 Employee Stock Purchase Plan. Our 2000 Employee Stock Purchase Plan was
adopted by the Board of Directors in January 2000 and will be submitted to our
stockholders for approval prior to completion of this offering. A total of
750,000 shares of common stock has been reserved for issuance under the
Purchase Plan, none of which have been issued as of the date of this offering.
The number of shares reserved for issuance under the Purchase Plan will be
subject to an automatic annual increase on the first day of each of our fiscal
years beginning in 2001 and ending in 2005 in an amount equal to the lesser of
500,000 shares, 2% of our outstanding common stock on the last day of the
immediately preceding fiscal year, or such lesser number of shares as the board
of directors determines. The Purchase Plan becomes effective on the date of
this offering. Unless terminated earlier by our board of directors, the
Purchase Plan will terminate in 2010.

The Purchase Plan, which is intended to qualify under Section 423 of the
Code, will be implemented by a series of overlapping offering periods of
approximately 24 months' duration, with new offering periods (other than the
first offering period) commencing on May 1 and November 1 of each year. Each
offering period will consist of four consecutive purchase periods of
approximately six months' duration. The initial offering period is expected to
commence on the date of this offering and end on April 30, 2002; the initial
purchase period is expected to end on October 31, 2000. The Purchase Plan will
be administered by the Board of Directors or by a committee appointed by the
Board. Employees (including officers and employee directors) of CrossWorlds, or
of any majority-owned subsidiary designated by the Board, are eligible to
participate in the Purchase Plan if they are employed by CrossWorlds or any
such subsidiary for at least 20 hours per week and more than five months per
year. The Purchase Plan permits eligible employees to purchase common stock
through payroll deductions, which may not exceed 15% of an employee's
compensation, at a price equal to the lower of 85% of the fair market value of
CrossWorlds' common stock at the beginning of each offering period or at the
end of each purchase period. Employees may end their participation in the
offering at any time during the offering period, and participation ends
automatically on termination of employment with CrossWorlds. An employee cannot
be granted an option under the Purchase Plan if immediately after the grant the
employee would own stock and/or hold outstanding options to purchase stock
equaling 5% or more of the total voting power or value of all classes of our
stock or stock of our subsidiaries, or if the option would permit an employee's
rights to purchase stock under the Purchase Plan to accrue at a rate that
exceeds $25,000 of the fair market value of the stock for each year in which an
option is outstanding. In addition, no employee may purchase more than 1,500
shares of common stock under the Purchase Plan in any one purchase period.

The Purchase Plan provides that in the event of a merger of CrossWorlds with
or into another corporation or a sale of all or substantially all of
CrossWorlds' assets, each right to purchase stock under the Purchase Plan will
be assumed or an equivalent right substituted by the successor corporation.
However, our board of directors will shorten any ongoing offering period so
that employees' rights to purchase stock under the Purchase Plan are able to be
exercised prior to the transaction if the successor corporation refuses to
assume each purchase right or to substitute an equivalent right. Outstanding
options will adjust in the event of a stock split, stock dividend or other
similar change in capital structure. The board of directors has the

power to amend or terminate the Purchase Plan as long as such action does not
adversely affect any outstanding rights to purchase stock thereunder. However,
our board of directors may amend or terminate the Purchase Plan or an offering
period even if it would adversely affect outstanding options in order to avoid
our incurring adverse accounting charges.

1996 Stock Plan. Our 1996 Stock Plan was originally adopted by our Board of
Directors and approved by our stockholders in March 1996. It provides for the
grant of incentive stock options to employees and nonstatutory stock options to
employees and consultants. As of December 31, 1999, 980,555 shares were
reserved for issuance under the 1996 Plan, but the Board of Directors has
determined that no future grants will be made under the 1996 Plan.

The terms of the options under the 1996 Plan are generally the same as those
that may be issued under the 1997 Plan, except with respect to the following
features. Only options may be granted out of the 1996 Plan. Nonstatutory stock
options granted under the 1996 Plan are nontransferable in all cases and must
generally be granted with an exercise price equal to at least 85% of the fair
market value of our common stock on the date of grant.

In the event of a merger, reorganization or similar transaction involving the
Company, each outstanding option shall be assumed by the successor corporation
or an equivalent option substituted therefore, with appropriate adjustments
made to both the price and number of shares subject to each option. If the
successor corporation does not assume the options, then the outstanding options
will be fully vested and exercisable for a period of fifteen days following
notice provided to the optionee. Outstanding options will adjust in the event
of a stock split, stock dividend or other similar change in capital structure.
The term of options granted under the 1996 Plan is ten years from the date of
grant. Options granted under the 1996 Plan must be exercised within three
months after the end of the optionee's status as an employee of the Company, or
within twelve months after such optionee's termination by death or disability.
Options granted under the 1996 Plan will remain outstanding in accordance with
their terms.

1999 Executive Stock Plan. The 1999 Executive Stock Plan was adopted by our
board of directors and approved by our stockholders in October 1999. A total of
3,500,000 shares of common stock have been reserved for issuance under the 1999
Plan. As of December 31, 1999, 2,859,525 options were issued and outstanding or
committed for issuance and 640,475 shares remained available for future option
or stock purchase right grants. We do not intend to grant any additional
options or stock purchase rights under the 1999 Plan after the date of this
offering. Unless terminated earlier, the 1999 Plan will terminate in October
2009.

The terms of options and stock purchase rights under the 1999 Plan are
generally the same as those that may be issued under the 1997 Plan, except with
respect to the following features. The 1999 Plan does not impose a limitation
on the number of shares subject to options and stock purchase rights that may
be issued to any individual employee. Nonstatutory stock options and stock
purchase rights may not be granted to non-employee directors under the 1999
Plan after the date of this offering. Nonstatutory stock options and stock
purchase rights granted under the 1999 Plan are nontransferable in all cases
and must generally be granted with an exercise price or purchase price equal to
at least 85% of the fair market value of our common stock on the date of grant.

In the event we sell all or substantially all of our assets or merge with or
into another corporation, then each option and stock purchase right may be
assumed or an equivalent option or stock purchase right substituted by the
successor corporation. However, if the successor corporation does not agree to
this assumption or substitution, the option or stock purchase right shall
become fully vested and exercisable for a period of fifteen days from the date
optionee received notice and will terminate following such period. Upon the
closing of the transaction, outstanding repurchase rights will terminate unless
assigned to the successor corporation.

The board of directors may amend, modify or terminate the 1999 Plan at any time
as long as any amendment, modification or termination does not impair vesting
rights of plan participants and provided that stockholder approval shall be
required for an amendment to the extent required by applicable law.

Limitation of Liability and Indemnification Matters

As permitted by the Delaware General Corporation Law, CrossWorlds has
included in its Amended and Restated Certificate of Incorporation a provision
to eliminate the personal liability of its officers and directors for monetary
damages for breach or alleged breach of their fiduciary duties as officers or
directors, respectively, subject to certain exceptions. In addition,
CrossWorlds' Bylaws provide that CrossWorlds is required to indemnify its
officers and directors under certain circumstances, including those
circumstances in which indemnification would otherwise be discretionary, and
CrossWorlds is required to advance expenses to its officers and directors as
incurred in connection with proceedings against them for which they may be
indemnified. CrossWorlds has entered into indemnification agreements with its
officers and directors containing provisions that are in some respects broader
than the specific indemnification provisions contained in the Delaware General
Corporation Law. The indemnification agreements require CrossWorlds, among
other things, to indemnify such officers and directors against certain
liabilities that may arise by reason of their status or service as officers and
directors (other than liabilities arising from willful misconduct of a culpable
nature), to advance their expenses incurred as a result of any proceeding
against them as to which they could be indemnified, and to obtain directors'
and officers' insurance if available on reasonable terms. CrossWorlds has also
obtained directors' and officers' liability insurance.

At present, CrossWorlds is not aware of any pending or threatened litigation
or proceeding involving a director, officer, employee or agent of CrossWorlds
in which indemnification would be required or permitted. CrossWorlds is not
aware of any threatened litigation or proceeding that might result in a claim
for such indemnification. CrossWorlds believes that its charter provisions and
indemnification agreements are necessary to attract and retain qualified
persons as directors and officers.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Since January 1997, we have issued and sold shares of our capital stock as
follows: a total of 2,104,144 shares of Series C preferred stock at a price of
$6.00 per share in March and April, 1997, a total of 2,063,307 shares of
Series D preferred stock at a price of $15.00 per share in December 1997 and
March 1998, 2,883,326 shares of Series E preferred stock at a price of $6.00
per share in January, March and April, 1999, and 3,671,071 shares of Series F
preferred stock at a price of $6.81 per share in October, 1999. The following
table summarizes the shares of capital stock purchased by executive officers,
directors and five-percent stockholders and their affiliates in these
transactions:

Series C Series D Series E Series F
Entities Affiliated with Preferred Preferred Preferred Preferred
Directors(1) Stock Stock Stock Stock
- ------------------------ --------- --------- --------- ---------

Katrina A. Garnett(2)............ 333,333 133,333 775,000(3) 734,224(4)
Andrew K. Ludwick................ 166,666 33,333 41,666(3) --
Frederick W. Gluck............... -- 16,666 16,666(3) 44,052
Albert A. Pimentel(5)............ -- 6,666 -- 3,670
Prashant Gupta................... 8,333 -- -- --

Other 5% Stockholders
- ---------------------

Entities affiliated with Soros Private Equity Partners(6)...... 1,468,429

- --------
(1) Shares held by affiliated persons and entities have been added together for
the purposes of this chart. See "Principal Stockholders" for a chart of
beneficial owners.
(2) Includes shares held by Katrina A. Garnett and Terence J. Garnett in a
family trust.
(3) Shares were issued in exchange for convertible promissory notes issued by
the Company in December 1998.
(4) Includes 100,000 shares sold to Alfred J. Amoroso, CrossWorlds' President
and Chief Executive Officer.
(5) Includes shares held by trusts for the benefit of Mr. Pimentel's children.
Mr. Pimentel disclaims beneficial ownership of shares held by these
entities except to the extent of his pecuniary interest therein.
(6) Includes shares held by Quantum Industrial Partners LDC and SFM Domestic
Investments LLC.

On February 2, 2000, CrossWorlds issued warrants to purchase 199,996 shares
of its common stock at an exercise price of $11.00 per share to the following
persons in the following amounts. These warrants were issued in consideration
of their commitment to provide funding to CrossWorlds of up to $10,000,000, if
necessary, on mutually agreed terms and conditions, in the event that this
offering is not completed.

Name Warrants
---- --------

. Alfred J. Amoroso............................................. 16,528
. Frederick W. Gluck............................................ 8,264
. Andrew K. Ludwick............................................. 82,644
. Albert A. Pimentel............................................ 82,644
. Entities affiliates with Soros Private Equity Partners........ 9,916

On January 27, 2000, CrossWorlds' board of directors approved a change of
control agreement with CrossWorlds' executive officers whereby twenty-five
percent (25%) of each officer's remaining unvested options or shares of
restricted stock shall become fully vested and exercisable upon a change of
control of CrossWorlds. In addition, to the extent options or restricted shares
are assumed by or assigned to a successor corporation, and the officer is
involuntarily terminated for reasons other than cause within one year of the
change of control, then, subject to certain restrictions described in the
change of control agreement or applicable stock option plan, outstanding awards
under the 1996 Stock Plan or the 1999 Executive Stock Plan shall become
immediately vested and exercisable in an amount equal to twelve (12) months of
further vesting of each award at the rate specified in the applicable stock
option or stock purchase agreement. The officer, if involuntarily terminated
for reasons other than cause or constructively terminated (as defined in the
agreement) within one year of the change of control, shall also be entitled to
six months of regular monthly salary plus target bonus, and six months of COBRA
payments.

On January 1, 2000, CrossWorlds and Arthur R. Matin entered into an
employment agreement pursuant to which Mr. Matin became CrossWorlds' Senior
Vice President of Worldwide Sales. This employment agreement established Mr.
Matin's base salary at $20,833.33 per month and provides for the payment of a
sign-on bonus of $300,000 to be paid on or before March 1, 2000. In addition,
Mr. Matin will be eligible to earn a target bonus of up to $225,000. Mr. Matin
is to be granted options to purchase 400,000 shares of CrossWorlds' common
stock, 350,000 of which are subject to CrossWorlds' right of repurchase.
CrossWorlds' right of repurchase lapses in equal monthly installments over
forty-eight (48) months from the date of Mr. Matin's employment. If Mr. Matin's
employment is terminated by the CrossWorlds without cause or if he resigns with
good reason (as defined in the agreement), CrossWorlds' repurchase rights shall
lapse as to that number of shares that would have vested over the next twelve
(12) months. Mr. Matin is also entitled to severance payments of six months'
base salary plus one-half of his annual target bonus, together with six months
of COBRA payments for him and his eligible dependents, if he is terminated
without cause or if he resigns with good reason. In the event of a change in
control of CrossWorlds, then CrossWorlds' repurchase rights shall lapse as to
all of Mr. Matin's unvested shares. If Mr. Matin is terminated without cause or
if he resigns with good reason within one year after a change of control, then
he shall be entitled to nine months' base salary plus three quarters of his
annual target bonus, together with nine months of COBRA payments for him and
his eligible dependents.

On October 11, 1999, CrossWorlds amended its option agreement with Mark Kent,
CrossWorlds' Chief Financial Officer and Senior Vice President, Finance to
provide that all of Mr. Kent's options shall become fully vested and
exercisable upon a change of control of CrossWorlds.

On October 5, 1999 CrossWorlds and Alfred J. Amoroso entered into an
employment agreement pursuant to which Mr. Amoroso became CrossWorlds'
President and Chief Executive Officer. This employment agreement established
Mr. Amoroso's base salary at $41,666.66 per month and provides for a sign-on
bonus of $400,000 to be paid on or before March 1, 2000. In addition, Mr.
Amoroso became eligible for a pro rata target bonus of $250,000 based on the
number of weeks of actual employment in 1999 and a full annual target bonus of
$250,000 for the year 2000. Beginning in the year 2001 Mr. Amoroso will be
eligible to receive an annual bonus equal to at least 50% of his base salary.
CrossWorlds will also provide Mr. Amoroso with relocation expenses and
temporary living costs. The temporary living costs are currently anticipated to
total $200,000 to $300,000. CrossWorlds will provide Mr. Amoroso, at his
request, with a moving assistance loan of $1,500,000 pursuant to a secured non-
recourse promissory note, the principal and interest of which will be forgiven
in equal monthly installments from the date of employment over a period of
forty-eight (48) months, so long as Mr. Amoroso remains employed by
CrossWorlds. CrossWorlds will also make periodic bonus payments to Mr. Amoroso
which, following the deduction of all applicable taxes, will allow Mr. Amoroso
to make all tax payments on the loan, forgiven interest, relocation expenses
and temporary living costs. If Mr. Amoroso is terminated without cause or if he
resigns with good reason, CrossWorlds will forgive an additional twelve (12)
months of loan and accrued interest payments. Under the terms of the employment
agreement, Mr. Amoroso was granted an option to purchase 1,328,245 shares of
CrossWorlds' common stock which vest monthly in equal installments over forty-
eight (48) months. Mr. Amoroso was granted an additional option to purchase
796,947 shares of CrossWorlds' common stock which vest monthly in equal
installments over forty-eight (48) months; however, the vesting shall
accelerate and CrossWorlds' repurchase right will lapse immediately as to such
shares upon the effectiveness of this offering. If Mr. Amoroso's employment is
terminated without cause or if he resigns with good reason in the first year of
employment, then 50% of the shares will vest on the date of termination.
Following the first year of Mr. Amoroso's employment, if Mr. Amoroso's
employment is terminated without cause or if he resigns with good reason, Mr.
Amoroso shall vest in that number of shares that would have vested over the
next twelve (12) months from the date of termination. In the event Mr.
Amoroso's employment with CrossWorlds is terminated without cause or if he
resigns with good reason, then CrossWorlds shall pay Mr. Amoroso a lump sum
severance equal to the sum of (i) twelve months of his base salary plus (ii)
his annual target bonus, together with one year of COBRA payments for him and
his eligible dependents. CrossWorlds will also forgive Mr. Amoroso's repayment
of the moving assistance loan for twelve months. Finally, in the event of a
change of control during the period of Mr. Amoroso's employment, then each of
his outstanding options will become fully vested and CrossWorlds' repurchase
right will lapse immediately as to all shares subject to all options.

In January 2000, CrossWorlds approved a loan of $100,000 to CrossWorlds'
Senior Vice President, Engineering, James G. Rowley, which CrossWorlds will
forgive at the rate of 1/24th per month over twenty-four (24) months based on
his continued employment with us.

In, November 1999, CrossWorlds loaned $150,000 to CrossWorlds' Senior Vice
President, Marketing and Business Development, Barton S. Foster, pursuant to
which CrossWorlds received a Secured Promissory Note, secured by real property.
In January 2000, CrossWorlds approved the forgiveness of Mr. Foster's loan at
the rate of 1/24th per month over twenty-four (24) months based on his
continued employment with us.

In connection with the termination of two of CrossWorlds' former executive
officers, CrossWorlds and such officers entered into severance agreements
pursuant to which each officer received $66,000 and four and one half months of
health insurance premiums.

In December 1998, CrossWorlds entered into a Convertible Note Purchase
Agreement with Katrina A. Garnett, Andrew K. Ludwick and Frederick W. Gluck. In
connection with this agreement we issued convertible promissory notes bearing
interest at 8% per annum, the principal amount of which was convertible into
shares of Series E preferred stock. In December 1998, Ms. Garnett loaned to
CrossWorlds $4,650,000; Mr. Ludwick loaned to CrossWorlds $250,000; and Mr.
Gluck loaned to CrossWorlds $100,000. In January 1999, the interest due under
the notes was paid in cash and the principal amount of the notes was converted
into shares of Series E preferred stock.

Since inception, from time to time we have issued and sold shares of our
common stock and granted options to purchase common stock to our employees,
directors and consultants.

PRINCIPAL STOCKHOLDERS

The following table sets forth certain information regarding the beneficial
ownership of our common stock as of December 31, 1999, and as adjusted to
reflect the sale of common stock in this offering and the conversion of all
outstanding shares of preferred stock into shares of common stock, by (i) each
of our directors and Named Executive Officers, (ii) all directors and executive
officers of CrossWorlds as a group, and (iii) each person who is known by us to
own beneficially more than 5% of CrossWorlds' common stock. Except as otherwise
noted, the following executive officers, directors and stockholders can be
reached at the principal offices of CrossWorlds. This table assumes no exercise
of the Underwriters' over-allotment option. Except pursuant to applicable
community property laws or as indicated in the footnotes to this table, to
CrossWorlds' knowledge, each stockholder identified in the table possesses sole
voting and investment power with respect to all shares of common stock shown as
beneficially owned by such stockholder.

Percent
Beneficially
Owned(1)
Shares -----------------
Beneficially Before After
Name and Address Owned Offering Offering
- ---------------- ------------ -------- --------

Entitles affiliated with Soros Private Equity
Partners(2)................................... 1,478,345 7.50%
c/o Soros Fund Management LLC
ATTN: Michael C. Neus, Esq.
888 Seventh Avenue
New York, NY 10106
Alfred J. Amoroso(3)........................... 2,241,720 10.27
Barton S. Foster............................... 149,307 *
Prashant Gupta................................. 382,638 1.92
Mark R. Kent................................... 148,265 *
James G. Rowley................................ 232,331 1.17
Terence J. Garnett(4).......................... 6,069,478 30.82
Frederick W. Gluck(5).......................... 142,346 *
Andrew K. Ludwick(6)........................... 406,039 2.05
Albert A. Pimentel(7).......................... 147,657 *
Colin F. Raymond(8)............................ 1,478,345 7.50
Katrina A. Garnett(9).......................... 7,402,810 37.58
Kevin Fitzgerald............................... -- --
All directors and executive officers of
CrossWorlds as a group(13 persons)............ 12,781,458 55.83

- --------
* Less than one percent of the outstanding shares of common stock.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission, based on factors including voting and
investment power with respect to shares. Shares of common stock subject to
options that are currently exercisable or exercisable within 60 days of
December 31, 1999 are deemed to be outstanding and to be beneficially owned
by the person holding such options for the purpose of computing the
percentage ownership of such person, but are not treated as outstanding for
the purpose of computing the percentage ownership of any other person.

(2) Includes shares held by Quantum Industrial Partners, LDC and SFM Domestic
Investments LLC. Also includes 9,916 shares issuable upon exercise of a
warrant issued to entities affiliated with Soros Private Equity Partners on
February 2, 2000.
(3) Includes 16,528 shares issuable upon exercise of a warrant issued to Mr.
Amoroso on February 2, 2000.

(4) Includes 6,069,478 shares of common stock held by the Garnett Family Trust
U/D/T April 2, 1997. Excludes 1,333,332 shares of common stock held
directly by Ms. Garnett. Excludes 333,332 shares of common stock held in
trust for the benefit of Mr. Garnett's children. Mr. Garnett does not
possess voting or dispositive power over such shares.
(5) Includes 8,264 shares issuable upon exercise of a warrant issued to Mr.
Gluck on February 2, 2000.
(6) Includes 82,644 shares issuable upon exercise of a warrant issued to Mr.
Ludwick on February 2, 2000.
(7) Includes 82,644 shares issuable upon exercise of a warrant issued to Mr.
Pimentel on February 2, 2000.

(8) Represents 1,468,429 shares held by entities affiliated with Soros Private
Equity Partners. Also includes 9,916 shares issuable upon exercise of a
warrant issued to entities affiliated with Soros Private Equity Partners on
February 2, 2000. Mr. Raymond disclaims beneficial ownership of these
shares except to the extent of his pecuniary interest in Soros Private
Equity Partners and its affiliates.

(9) Includes 6,069,478 shares of common stock held by the Garnett Family Trust
U/D/T April 2, 1997 and 1,333,332 shares of common stock held directly by
Ms. Garnett. Excludes 333,332 shares of common stock held in trust for the
benefit of Ms. Garnett's children. Ms. Garnett does not possess voting or
dispositive power over such shares.

DESCRIPTION OF CAPITAL STOCK

Upon the completion of this offering, CrossWorlds will be authorized to issue
150,000,000 shares of common stock, $0.001 par value per share, and 5,000,000
shares of undesignated preferred stock, $0.01 par value per share. All
currently outstanding shares of preferred stock will be converted into common
stock upon the closing of this offering.

Common Stock

As of December 31, 1999, there were 19,696,563 shares of common stock
outstanding (as adjusted to reflect the conversion of all outstanding shares of
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock, Series E Preferred Stock, and Series F Preferred
Stock, excluding the exercise of any outstanding options or warrants into
common stock), held of record by 332 stockholders. Options to purchase an
aggregate of 6,793,436 shares of common stock were also outstanding. There will
be shares of common stock outstanding (assuming no exercise of the
underwriters' overallotment option or exercise of outstanding options under
CrossWorlds' stock plans) after giving effect to the sale of the shares offered
hereby.

The holders of common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. Subject to
preferences that may be applicable to any outstanding preferred stock, holders
of common stock are entitled to receive ratably such dividends as may be
declared by the Board of Directors out of funds legally available for that
purpose. See "Dividend Policy." In the event of liquidation, dissolution or
winding up of CrossWorlds, the holders of common stock are entitled to share
ratably in all assets remaining after payment of liabilities, subject to the
prior distribution rights of any outstanding preferred stock. The common stock
has no preemptive or conversion rights or other subscription rights. The
outstanding shares of common stock are, and the shares of common stock to be
issued upon completion of this offering will be, fully paid and non-assessable.

Preferred Stock

Upon the closing of the offering, all outstanding shares of preferred stock
except for Series D Preferred Stock will be converted into one share of common
stock and automatically retired. Upon the closing of the offering each share of
Series D will be converted into approximately 1.2 shares of common stock and
automatically retired. Thereafter, the Board of Directors has the authority,
without further action by the stockholders, to issue up to 5,000,000 shares of
preferred stock, $0.01 par value, in one or more series. The Board of Directors
will also have the authority to designate the rights, preferences, privileges
and restrictions of each such series, including dividend rights, dividend
rates, conversion rights, voting rights, terms of redemption, redemption
prices, liquidation preferences and the number of shares constituting any
series.

The issuance of preferred stock may have the effect of delaying, deferring or
preventing a change in control of CrossWorlds without further action by the
stockholders. The issuance of preferred stock with voting and conversion rights
may also adversely affect the voting power of the holders of common stock. In
certain circumstances, an issuance of preferred stock could have the effect of
decreasing the market price of the common stock. As of the closing of the
offering, no shares of preferred stock will be outstanding. CrossWorlds
currently has no plans to issue any shares of preferred stock.

Warrants

At December 31, 1999 there were warrants outstanding to purchase an aggregate
of 343,431 shares of common stock. Generally, each warrant contains provisions
for the adjustment of the exercise price and the aggregate number of shares
issuable upon the exercise of the warrant under certain circumstances,
including stock dividends, stock splits, reorganizations, reclassifications and
consolidations.

Additionally, subsequent to December 31, 1999, our Board approved the
issuance of warrants to purchase 199,996 shares of common stock at a weighted
average exercise price of $11.00 per share.

Generally, each warrant contains provisions for the adjustment of the exercise
price and the aggregate number of shares issuable upon the exercise of the
warrant under certain circumstances, including stock dividends, stock splits,
reorganizations, reclassifications and consolidations.

Registration Rights

The holders of 18,220,000 shares of common stock (assuming the conversion of
all outstanding preferred stock upon completion of this offering) and warrants
to purchase 337,097 shares of common stock (collectively, the "Registrable
Securities") or their transferees are entitled to certain rights with respect
to the registration of such shares under the Securities Act. These rights are
provided under the terms of an agreement between CrossWorlds and the holders of
the Registrable Securities. Subject to certain limitations in the agreement,
(i) the holders of at least thirty percent (30%) of the Registrable Securities
then outstanding or (ii) Quantum Industrial Partners LDC or SFM Domestic
Investments LLC may require, on two occasions beginning six months after the
date of this prospectus, that CrossWorlds use its best efforts to register the
Registrable Securities for public resale if Form S-3 is not available. If
CrossWorlds registers any of its common stock either for its own account or for
the account of other security holders, the holders of Registrable Securities
are entitled to include their shares of common stock in such registration,
subject to the ability of the underwriters to limit the number of shares
included in the offering. Any holder of Registrable Securities then outstanding
may also require CrossWorlds (not more than twice in any twelve-month period)
to register all or a portion of their Registrable Securities on Form S-3 when
use of such form becomes available to CrossWorlds, provided, among other
limitations, that the proposed aggregate selling price (net of any
underwriters' discounts or commissions) is at least $1,000,000. CrossWorlds
will be responsible for paying all registration expenses, and the holders of
Registrable Securities selling their shares will be responsible for paying all
selling expenses.

Delaware Anti-Takeover Law and Certain Charter and Bylaw Provisions

Certain provisions of Delaware law and CrossWorlds' charter documents could
make the acquisition of CrossWorlds and the removal of incumbent officers and
directors more difficult. These provisions are expected to discourage certain
types of coercive takeover practices and inadequate takeover bids and to
encourage persons seeking to acquire control of CrossWorlds to negotiate with
it first. CrossWorlds believes that the benefits of increased protection of our
potential ability to negotiate with the proponent of an unfriendly or
unsolicited proposal to acquire or restructure CrossWorlds outweigh the
disadvantages of discouraging such proposals because, among other things,
negotiation of such proposals could result in an improvement of their terms.

CrossWorlds is subject to the provisions of Section 203 of the Delaware law.
In general, the statute prohibits a publicly-held Delaware corporation from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date that the person became an interested
stockholder unless (with certain exceptions) the business combination or the
transaction in which the person became an interested stockholder is approved in
a prescribed manner. Generally, a "business combination" includes a merger,
asset or stock sale, or other transaction resulting in a financial benefit to
the stockholder. Generally, an "interested stockholder" is a person who,
together with affiliates and associates, owns (or within three years prior, did
own) 15% or more of the corporation's voting stock. These provisions may have
the effect of delaying, deferring or preventing a change in control of
CrossWorlds without further action by the stockholders.

Our certificate of incorporation allows our board of directors to issue up to
5,000,000 shares of preferred stock without a stockholder vote. Our Bylaws
provide that special meetings of stockholders can be called only by the Board
of Directors or an authorized committee of the Board. Moreover, the business
permitted to be conducted at any special meeting of stockholders is limited by
Delaware Law to the business set forth in the notice of the meeting. These
provisions would make it difficult for stockholders to call a special meeting
to take corporate action, and may have the effect of delaying deferring or
preventing a change in control of CrossWorlds.

Transfer Agent and Registrar

The Transfer Agent and Registrar for our common stock is Boston Equiserve.

SHARES ELIGIBLE FOR FUTURE SALE

Prior to this offering, there has been no market for CrossWorlds common
stock. Future sales of substantial amounts of 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 certain contractual and legal restrictions on resale (as described
below), sales of substantial amounts of CrossWorlds common stock in the public
market after the restrictions lapse could adversely affect the prevailing
market price and CrossWorlds' ability to raise equity capital in the future.

Upon completion of the offering, based upon shares outstanding as of
December 31, 1999, CrossWorlds will have outstanding shares of common
stock. Of these shares, the shares sold in the offering (plus any shares
issued upon exercise of the underwriters' overallotment option) will be freely
tradable without restriction under the Securities Act, unless purchased by
"affiliates" of CrossWorlds as that term is defined in Rule 144 under the
Securities Act (generally, officers, directors or 10% stockholders).

The remaining 19,696,563 shares outstanding are "restricted securities"
within the meaning of Rule 144 under the Securities Act. Restricted securities
may be sold in the public market only if registered or if they qualify for an
exemption from registration under Rules 144, 144(k) or 701 promulgated under
the Securities Act, which are summarized below. Sales of the restricted
Securities in the public market, or the availability of such shares for sale,
could adversely affect the market price of the common stock.

Stockholders of CrossWorlds holding an aggregate of 19,696,563 shares of
common stock are subject to lock-up agreements generally providing that they
will not offer, sell, contract to sell or grant any option to purchase or
otherwise dispose of CrossWorlds common stock or any securities exercisable for
or convertible into CrossWorlds common stock owned by them for a period of 180
days after the effective date of the registration statement filed pursuant to
this offering without the prior written consent of Chase Securities Inc. As a
result of these contractual restrictions, notwithstanding possible earlier
eligibility for sale under the provisions of Rules 144, 144(k) and 701, shares
subject to lock-up agreements will not be salable until such agreements expire
or are waived by the designated underwriters' representative. Taking into
account the lock-up agreements, and assuming Chase Securities Inc. does not
release stockholders from these agreements, the following shares will be
eligible for sale in the public market at the following times:

. Beginning on the effective date of this prospectus, only the shares sold
in the offering will be immediately available for sale in the public
market.

. Beginning 180 days after the effective date, approximately 2,405,075
shares will be eligible for sale pursuant to Rule 701 and approximately
20,241,574 additional shares will be eligible for sale pursuant to Rule
144, of which all but 9,215,662 shares are held by affiliates.

In general, under Rule 144 as currently in effect, and beginning after the
expiration of the lock-up agreements (180 days after the effective date) of a
person (or persons whose shares are aggregated) who has beneficially owned
restricted Securities 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:
(i) one percent of the number of shares of common stock then outstanding (which
will equal approximately shares immediately after the offering);
or (ii) the average weekly trading volume of the common stock during the four
calendar weeks preceding the sale. Sales under Rule 144 are also subject to
certain manner of sale provisions and notice requirements and to the
availability of current public information about CrossWorlds. Under Rule
144(k), a person who is not deemed to have been an affiliate of CrossWorlds at
any time during the three months preceding a sale, and who has beneficially
owned the shares proposed to be sold for at least two years, is entitled to
sell such shares without complying with the manner of sale, public information,
volume limitation or notice provisions of Rule 144.

Pursuant to the lock-up agreements, all CrossWorlds employees holding common
stock or stock options may not sell shares acquired upon exercise until 180
days after the effective date. Beginning 180 days after

the effective date, any employee, officer or director of or consultant to
CrossWorlds who purchased shares pursuant to a written compensatory plan or
contract may be entitled to rely on the resale provisions of Rule 701. Rule 701
permits affiliates to sell their Rule 701 shares under Rule 144 without
complying with the holding period requirements of Rule 144. Rule 701 further
provides that non-affiliates may sell such shares in reliance on Rule 144
without having to comply with the holding period, public information, volume
limitation or notice provisions of Rule 144. In addition, CrossWorlds intends
to file registration statements under the Securities Act as promptly as
possible after the effective date to register shares to be issued pursuant to
CrossWorlds' employee benefit plans. As a result, any options exercised under
the 1997 Stock Plan or any other benefit plan after the effectiveness of such
registration statement will also be freely tradable in the public market,
except that shares held by affiliates will still be subject to the volume
limitation, manner of sale, notice and public information requirements of Rule
144 unless otherwise resalable under Rule 701. As of December 31, 1999, there
were outstanding options for the purchase of 6,793,436 shares, of which
3,310,545 options were exercisable. No shares have been issued to date under
our Purchase Plan or Directors Plan. See "Risk Factors--Some of our shares will
be eligible for future sale which may cause our stock price to decline,"
"Management--Stock Plans" and "Description of Capital Stock--Registration
Rights."

UNDERWRITING

Subject to the terms and conditions of the underwriting agreement, the
underwriters named below, Chase Securities Inc., Dain Rauscher Wessels, a
division of Dain Rauscher Incorporated, and Thomas Weisel Partners LLC have
severally agreed to purchase from us the following numbers of shares of our
common stock:

Number
of
Name Shares
---- ------

Chase Securities Inc................................................
Dain Rauscher Wessels...............................................
Thomas Weisel Partners LLC..........................................
----
Total...............................................................
====

The underwriting agreement provides that the obligations of the underwriters
are subject to conditions precedent, including the absence of any material
adverse change in our business and the receipt of certificates, opinions and
letters from us, our counsel and independent auditors. The underwriters' are
committed to purchase all shares of common stock offered in this prospectus if
any shares are purchased.

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 to certain dealers at such price less a concession not in excess
of $ per share. The underwriters may allow and such dealers may reallow a
concession not in excess of $ per share to certain other dealers. After
the public offering of the shares, the underwriters may change offering price
and other selling terms.

We have granted to the underwriters an option, exercisable no later than 30
days after the date of this prospectus, to purchase up to additional
shares of common stock at the public offering price, less the underwriting
discount set forth on the cover page of this prospectus. To the extent that the
underwriters exercise this option, each underwriter will have a firm commitment
to purchase approximately the same percentage that the number of shares of
common stock to be purchased by it shown in the above table bears to the total
number of shares of common stock offered in this offering. We will be obligated
to sell shares to the underwriters to the extent the option is exercised. The
underwriters may exercise such option only to cover over-allotments made in
connection with the sale of common stock offered in this prospectus.

The following table shows the per share and total underwriting discounts and
commissions we will pay to the underwriters in connection with this offering:

Total
-------------------
Without With
Over- Over-
allotment allotment
--------- ---------

Per share.............................................. $ $
Total.................................................. $ $

The offering of the shares is made for delivery when, as and if accepted by
the underwriters and subject to prior sale and to withdrawal, cancellation or
modification of the offering without notice. The underwriters reserve the right
to reject an order for the purchase of shares in whole or in part.

Stockholders, including all executive officers and directors, who own in the
aggregate shares of common stock have agreed that they will not,
without the prior written consent of Chase Securities Inc., offer, sell or
otherwise dispose of any shares of common stock, options or warrants to acquire
shares of common stock or securities exchangeable for or convertible into
shares of common stock owned by them until 180 days following the date of this
prospectus. We have agreed that we will not, without the prior written consent
of Chase Securities Inc., offer, sell or otherwise dispose of any shares of
common stock, options or warrants to acquire shares of common stock or
securities exchangeable for or convertible into shares of common stock until
the date 180 days following the date of this prospectus, except that we may
issue shares upon the exercise of options granted prior to the date hereof, and
may grant additional options under our stock option plans, provided that,
without the prior written consent of Chase Securities Inc., such additional
options shall not be exercisable during such period.

Prior to this offering, there has been no public market for our common stock.
The initial public offering price for the common stock will be determined
through negotiation between us and the representatives of the underwriters.
Among the factors to be considered in such negotiation are prevailing market
conditions, our financial information, market valuations of other companies
that we and the representatives of the underwriters believe to be comparable to
us, estimates of our business potential, the present state of our development
and other factors deemed relevant.

Persons participating in this offering may over-allot or effect transactions
which stabilize, maintain or otherwise affect the market price of the common
stock at levels above those which might otherwise prevail in the open market,
including by entering stabilizing bids or effecting syndicate covering
transactions. A stabilizing bid means the placing of any bid or effecting of
any purchase for the purpose of pegging, fixing or maintaining the price of the
common stock. A syndicate covering transaction means the placing of any bid on
behalf of the underwriting syndicate or the effecting of any purchase to reduce
a short position created in connection with this offering. These transactions
may be effected on the Nasdaq National Market, in the over-the-counter market
or otherwise. Stabilizing, if commenced, may be discontinued at any time.

In connection with this offering, certain underwriters and selling group
members (if any) who are qualified market makers on the Nasdaq National Market
may engage in passive market making transactions in our common stock on the
Nasdaq National Market in accordance with Rule 103 of Regulation M under the
Securities Exchange Act of 1934, as amended. During the business day prior to
the pricing of the offering before the commencement of offers or sales of our
common stock, passive market makers must comply with applicable volume and
price limitations and must be identified as such. In general, a passive market
maker must display its bid at a price not in excess of the highest independent
bid of such security; if all independent bids are lowered below the passive
market maker's bid, however, such bid must then be lowered when certain
purchase limits are exceeded.

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 has been named as a lead or co-manager on
110 filed public offerings of equity securities, of which 79 have been
completed, and has acted as a syndicate member in an additional 54 public
offerings of equity securities. Thomas Weisel Partners does not have any
material relationship with us or any of our officers, directors or other
controlling persons, except with respect to its contractual relationship with
us pursuant to the underwriting agreement entered into in connection with this
offering.

We estimate that the total expenses of this offering, excluding underwriting
discounts and commissions, will be approximately $ .

LEGAL MATTERS

The validity of the common stock offered hereby will be passed upon for us by
Venture Law Group, A Professional Corporation, Menlo Park, California. Certain
legal matters in connection with this offering will be passed upon for the
Underwriters by Wilson Sonsini Goodrich & Rosati. As of December 31, 1999, a
certain investment partnership and members of Wilson Sonsini Goodrich & Rosati,
Professional Corporation, beneficially owned an aggregate of 29,165 shares of
our Common Stock.

EXPERTS

The consolidated financial statements and schedule of CrossWorlds Software,
Inc. and subsidiaries as of December 31, 1998 and 1999, and for each of the
years in the three-year period ended December 31, 1999, have been included
herein and in the Registration Statement in reliance upon the report of KPMG
LLP, independent auditors, appearing elsewhere herein, and upon the authority
of said firm as experts in accounting and auditing.

ADDITIONAL INFORMATION AVAILABLE TO YOU

We have filed with the Securities and Exchange Commission a Registration
Statement (which terms shall include any amendments thereto) on Form S-1 under
the Securities Act with respect to the common stock offered hereby. This
prospectus, which constitutes a part of the Registration Statement does not
contain all of the information set forth in the Registration Statement, certain
items of which are contained in exhibits to the Registration Statement as
permitted by the rules and regulations of the Commission. For further
information with respect to CrossWorlds and the common stock offered hereby,
reference is made to the Registration Statement, including the exhibits thereto
and the financial statements and not as filed as a part of the Registration
Statement. Statements made in this prospectus concerning the contents of any
document referred to herein are not necessarily complete. With respect to each
such document filed with the Commission as an exhibit to the Registration
Statement, reference is made to the exhibit for a more complete description of
the matter involved. The Registration Statement, including the exhibits thereto
and the financial statements and not as filed as a part of the Registration
Statement, as well as such reports and other information filed with the
Commission may be inspected without charge at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549,
and at the regional offices of the Commission located at Seven World Trade
Center, 13th Floor, New York, NY 10048, and the Northwestern Atrium Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of all or any
part of the Registration Statement may be obtained from the SEC's offices upon
payment of certain fees prescribed by the Commission. Such reports and other
information may also be inspected without charge at a Web site maintained by
the Commission. The address of this Web site is http://www.sec.gov.

CROSSWORLDS SOFTWARE, INC.
AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Page
----

Independent Auditors' Report............................................. F-2
Consolidated Balance Sheets as of December 31, 1998 and 1999............. F-3
Consolidated Statements of Operations for the three years ended December
31, 1999................................................................ F-4
Consolidated Statements of Stockholders' Equity (Deficit) for the three
years ended December 31, 1999........................................... F-5
Consolidated Statements of Cash Flows for the three years ended December
31, 1999................................................................ F-6
Notes to Consolidated Financial Statements............................... F-7

F-1

INDEPENDENT AUDITORS' REPORT

The Board of Directors
CrossWorlds Software, Inc.:

We have audited the accompanying consolidated balance sheets of CrossWorlds
Software, Inc. and subsidiaries as of December 31, 1998 and 1999, and the
related consolidated statements of operations, stockholders' equity (deficit),
and cash flows for each of the years in the three-year period ended December
31, 1999. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of CrossWorlds
Software, Inc. and subsidiaries for each of the years in the three-year period
ended December 31, 1999, in conformity with generally accepted accounting
principles.

/s/ KPMG LLP

Mountain View, California
January 24, 2000

F-2

CROSSWORLDS SOFTWARE, INC.
AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

December 31,
--------------------------
1998 1999
------------ ------------

ASSETS
Current assets:
Cash and cash equivalents........................ $ 5,415,154 $ 12,506,119
Accounts receivable, net of allowance of $306,130
and $296,675 as of December 31, 1998 and 1999,
respectively.................................... 5,198,351 11,688,430
Prepaids and other current assets................ 820,115 1,019,036
------------ ------------
Total current assets............................. 11,433,620 25,213,585
Property and equipment, net........................ 4,156,515 3,846,379
Deposits and other assets.......................... 166,610 116,610
------------ ------------
Total assets..................................... $ 15,756,745 $ 29,176,574
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable................................. $ 862,408 $ 796,798
Accrued payroll and related expenses............. 1,166,372 2,597,501
Accrued commissions.............................. 1,966,503 2,741,629
Other accrued liabilities........................ 1,268,104 4,001,994
Current portion of capital lease obligations..... -- 347,216
Current portion of long-term debt................ 4,262,552 2,622,482
Deferred revenue................................. 6,555,892 13,157,747
------------ ------------
Total current liabilities........................ 16,081,831 26,265,367
Other long-term liabilities........................ 91,090 123,913
Capital lease obligations, less current portion.... -- 576,711
Long-term debt, less current portion............... 6,254,166 2,936,118
------------ ------------
Total liabilities................................ 22,427,087 29,902,109
------------ ------------
Commitments
Stockholders' equity (deficit):
Convertible preferred stock, $0.01 par value;
17,000,000 shares authorized; 9,571,606 and
16,126,003 shares issued and outstanding; and
aggregate liquidation preference of $88,859,405
as of December 31, 1999 ........................ 95,716 161,260
Common stock, $0.001 par value; 45,000,000 shares
authorized; 2,810,464 and 3,153,935 shares
issued and outstanding 2,810 3,154
Additional paid-in capital....................... 53,929,214 96,757,116
Deferred stock-based compensation................ (3,777,293) (2,540,474)
Accumulated deficit.............................. (56,920,789) (95,106,591)
------------ ------------
Total stockholders' equity (deficit)............. (6,670,342) (725,535)
------------ ------------
Total liabilities and stockholders' equity
(deficit)....................................... $ 15,756,745 $ 29,176,574
============ ============

See accompanying notes to consolidated financial statements.

F-3

CROSSWORLDS SOFTWARE, INC.
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

Year Ended December 31,
----------------------------------------
1997 1998 1999
------------ ------------ ------------

Revenue:
Software license................... $ 748,336 $ 3,972,741 $ 8,193,907
Service, maintenance and other..... 360,019 3,733,694 10,899,886
------------ ------------ ------------
Total revenue...................... 1,108,355 7,706,435 19,093,793
------------ ------------ ------------
Cost of revenue:
Software license and royalties..... 36,503 437,813 1,599,047
Service, maintenance and other..... 1,859,536 5,392,589 10,127,418
------------ ------------ ------------
Total cost of revenue.............. 1,896,039 5,830,402 11,726,465
------------ ------------ ------------
Gross profit (loss).............. (787,684) 1,876,033 7,367,328
------------ ------------ ------------
Operating expenses:
Research and development........... 4,080,461 11,747,877 14,242,556
Sales and marketing................ 6,954,034 23,141,104 21,791,524
General and administrative......... 2,296,426 4,065,794 6,144,879
Amortization of deferred stock-
based compensation................ -- 4,773,927 1,461,652
------------ ------------ ------------
Total operating expenses........... 13,330,921 43,728,702 43,640,611
------------ ------------ ------------
Operating loss................... (14,118,605) (41,852,669) (36,273,283)
Other income (expense), net.......... 166,138 478,584 (1,912,519)
------------ ------------ ------------
Net loss......................... $(13,952,467) $(41,374,085) $(38,185,802)
============ ============ ============
Net loss per share:
Basic and diluted.................. $ (11.88) $ (19.99) $ (13.40)
============ ============ ============
Weighted average shares used in
computation (in thousands)........ 1,175 2,069 2,850
============ ============ ============
Pro forma net loss per share
(unaudited):
Basic and diluted.................. $ (1.70) $ (3.55) $ (2.38)
============ ============ ============
Weighted average shares used in
computation (in thousands)........ 8,201 11,641 16,062
============ ============ ============

See accompanying notes to consolidated financial statements.

F-4

CROSSWORLDS SOFTWARE, INC.
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

Convertible
preferred stock Common stock Additional Stockholder Deferred Total
------------------- ----------------- paid-in note stock-based Accumulated stockholders'
Shares Amount Shares Amount capital receivable compensation deficit equity (deficit)
---------- -------- --------- ------ ----------- ----------- ------------ ------------- ----------------

Balance as of
December 31,
1996........... 5,404,155 $ 54,041 2,240,000 $2,240 $ 2,944,380 $(15,000) $ -- $ (1,594,237) $ 1,391,424
Issuance of
Series C
preferred
stock, net..... 2,104,144 21,041 -- -- 12,560,302 -- -- -- 12,581,343
Issuance of
Series D
preferred
stock, net..... 1,601,307 16,013 -- -- 22,805,259 -- -- -- 22,821,272
Exercise of
options and
restricted
stock purchase
agreements..... -- -- 406,250 406 104,282 937 -- -- 105,625
Repurchase of
restricted
stock.......... -- -- (93,750) (94) (13,969) 14,063 -- -- --
Net loss........ -- -- -- -- -- -- (13,952,467) (13,952,467)
---------- -------- --------- ------ ----------- -------- ----------- ------------- ------------
Balance as of
December 31,
1997........... 9,109,606 91,095 2,552,500 2,552 38,400,254 -- -- (15,546,704) 22,947,197
Issuance of
Series D
preferred
stock, net..... 462,000 4,621 -- -- 6,540,062 -- -- -- 6,544,683
Exercise of
options and
restricted
stock purchase
agreements..... -- -- 446,297 446 455,813 -- -- -- 456,259
Repurchase of
restricted
stock.......... -- -- (188,333) (188) (18,135) -- -- -- (18,323)
Deferred stock-
based
compensation
related to
option grants.. -- -- -- -- 8,551,220 -- (8,551,220) -- --
Amortization of
deferred stock-
based
compensation... -- -- -- -- -- -- 4,773,927 -- 4,773,927
Net loss........ -- -- -- -- -- -- -- (41,374,085) (41,374,085)
---------- -------- --------- ------ ----------- -------- ----------- ------------- ------------
Balance as of
December 31,
1998........... 9,571,606 95,716 2,810,464 2,810 53,929,214 -- (3,777,293) (56,920,789) (6,670,342)
Issuance of
Series E
preferred
stock, net..... 2,883,326 28,833 -- -- 17,221,535 -- -- -- 17,250,368
Issuance of
Series F
preferred
stock, net..... 3,671,071 36,711 -- -- 23,517,594 -- -- -- 23,554,305
Issuance of
preferred stock
warrants....... -- -- -- -- 1,256,449 -- -- -- 1,256,449
Exercise of
options........ -- -- 437,352 438 641,991 -- -- -- 642,429
Repurchase of
restricted
stock.......... -- -- (93,881) (94) (34,500) -- -- -- (34,594)
Deferred stock-
based
compensation
related to
option grants.. -- -- -- -- 224,833 -- (224,833) -- --
Amortization of
deferred stock-
based
compensation... -- -- -- -- -- -- 1,461,652 -- 1,461,652
Net loss........ -- -- -- -- -- -- -- (38,185,802) (38,185,802)
---------- -------- --------- ------ ----------- -------- ----------- ------------- ------------
Balance as of
December 31,
1999........... 16,126,003 $161,260 3,153,935 $3,154 $96,757,116 $ ---- $(2,540,474) $ (95,106,591) $ (725,535)
========== ======== ========= ====== =========== ======== =========== ============= ============

See accompanying notes to consolidated financial statements.

F-5

CROSSWORLDS SOFTWARE, INC.
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Year Ended December 31,
----------------------------------------
1997 1998 1999
------------ ------------ ------------

Cash flows from operating activities:
Net loss............................... $(13,952,467) $(41,374,085) $(38,185,802)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization........ 361,390 1,403,938 2,389,305
Amortization of deferred stock-based
compensation........................ -- 4,773,927 1,461,652
Issuance of warrants for services.... -- -- 756,449
Software licenses exchanged for
property and equipment and prepaid
assets.............................. (346,658) -- --
Changes in operating assets and
liabilities:
Accounts receivable................. (907,200) (4,291,151) (6,490,079)
Prepaids and other current assets... (334,548) (417,572) (198,921)
Accounts payable.................... 1,842,219 (1,045,161) (65,610)
Accrued payroll and related
expenses........................... 713,165 367,630 1,431,129
Accrued commissions................. -- 1,966,503 775,126
Other accrued liabilities........... 367,066 837,773 2,733,890
Deferred revenue.................... 788,413 5,767,479 6,601,855
Other long-term liabilities......... 39,439 51,651 32,823
------------ ------------ ------------
Net cash used in operating activities... (11,429,181) (31,959,068) (28,758,183)
------------ ------------ ------------
Cash flows from investing activities:
Purchases of property and equipment.... (1,784,420) (3,572,632) (834,517)
Other assets........................... -- (120,000) 50,000
------------ ------------ ------------
Net cash used in investing activities... (1,784,420) (3,692,632) (784,517)
------------ ------------ ------------
Cash flows from financing activities:
Proceeds from convertible subordinated
notes payable to stockholder.......... -- 5,000,000 --
Proceeds from equipment facilities..... 1,173,720 1,147,113 --
Proceeds from subordinated debt........ -- -- 5,000,000
Proceeds from revolving working capital
facility.............................. -- 3,479,219 --
Repayments of equipment facilities..... -- -- (783,333)
Repayments of subordinated debt........ -- -- (516,291)
Repayments of working capital
facility.............................. -- (283,334) (3,479,219)
Proceeds from exercise of stock
options............................... 105,625 456,259 642,429
Proceeds from issuance of preferred
stock................................. 35,402,615 6,544,683 35,804,673
Repurchase of restricted stock......... -- (18,323) (34,594)
------------ ------------ ------------
Net cash provided by financing
activities............................. 36,681,960 16,325,617 36,633,665
------------ ------------ ------------
Net increase (decrease) in cash and cash
equivalents............................ 23,468,359 (19,326,083) 7,090,965
Cash and cash equivalents at beginning
of year................................ 1,272,878 24,741,237 5,415,154
------------ ------------ ------------
Cash and cash equivalents at end of
year................................... $ 24,741,237 $ 5,415,154 $ 12,506,119
============ ============ ============
Supplemental disclosures of cash flow
information:
Cash paid during the period for
interest.............................. $ 55,372 $ 208,259 $ 995,393
============ ============ ============
Noncash investing and financial
activities:
Return of restricted stock in
satisfaction of note receivable....... $ 14,063 $ -- $ --
Issuance of preferred stock for
conversion convertible notes.......... -- -- 5,000,000
Issuance of preferred stock warrants in
connection with long-term debt........ -- -- 500,000
Issuance of preferred stock warrants in
connection with services.............. -- -- 756,449
Equipment acquired through equipment
lease facility........................ -- -- 1,077,985

See accompanying notes to consolidated financial statements.

F-6

CROSSWORLDS SOFTWARE, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) Organization and Significant Accounting Policies

(a) Description of Business

CrossWorlds Software, Inc. (the Company) develops, produces, markets and
implements e-business infrastructure software. The Company is headquartered in
Burlingame, California and operates foreign subsidiaries in Germany, the United
Kingdom and France. The majority of the Company's revenues are derived from
domestic sales which were 80%, 72% and 78% for 1997, 1998 and 1999 of total
revenues, respectively. Substantially all of the Company's sales are made in
U.S. dollars.

(b) Principles of Consolidation

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

The Company considers the functional currency of its foreign subsidiaries to
be the U.S. dollar. Accordingly, the foreign subsidiaries' financial statements
are remeasured into U.S. dollars using the historical exchange rate for
nonmonetary items and the current exchange rate for monetary items.
Remeasurement gains and losses, as well as transaction gains and losses, are
included in the determination of net loss and have been immaterial to date.

(d) Cash and Cash Equivalents

The Company considers all highly liquid instruments with a remaining maturity
on the date of purchase of three months or less to be cash equivalents, which
consist primarily of money market funds and overnight deposits.

(e) Property and Equipment

Property and equipment are carried at cost less accumulated depreciation.
Depreciation is calculated using the straight-line method over the estimated
useful lives of the respective assets, generally two to five years. Leasehold
improvements are amortized over the lesser of the asset's useful life or the
remaining lease term.

The Company evaluates long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. If such assets are considered to be impaired, the impairment to
be recognized is measured as the difference between the carrying amount of the
property and equipment and its fair value. To date, the Company has made no
adjustments to the carrying values of its long-lived assets.

(f) Software Development Costs

Software development costs associated with new products and enhancements to
existing products are expensed as incurred until technological feasibility is
established upon completion of a working model. To date, the Company's software
development has been completed concurrent with the establishment of
technological feasibility, and, accordingly, no costs have been capitalized.

F-7

CROSSWORLDS SOFTWARE, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(g) Concentrations of Credit Risk and Major Customers

The Company's cash and cash equivalents are principally on deposit in a
short-term asset management account at a large bank. Accounts receivable
potentially subject the Company to concentrations of credit risk. The Company's
customer base is comprised primarily of large companies. The Company generally
does not require collateral for accounts receivable. When required, the Company
maintains allowances for credit losses, and to date such losses have been
within management's expectations. Information regarding sales to major
customers follows (items with an * indicate percentage was less than 10%):

Percentage of
Percentage of Accounts
Total Revenue Receivable at
---------------- December 31,
Customer 1997 1998 1999 1999
- -------- ---- ---- ---- -------------

A.................................................. 22% * * *
B.................................................. 20% * * *
C.................................................. 25% * * *
D.................................................. 22% * * *
E.................................................. * 14% * *
F.................................................. * 13% * *
G.................................................. * 11% * *
H.................................................. * * 21% *
I.................................................. * * * 44%

(h) Fair Value of Financial Instruments

The fair value of the Company's cash, accounts receivable, accounts payable,
and borrowings approximate their carrying values due to their short maturity or
variable-rate structure.

(i) Use of Estimates

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

(j) Revenue Recognition

The Company's software arrangements typically involve significant production,
customization, or modification of the software, or services that are essential
to the functionality of the software and, as a result, software license revenue
for the entire arrangement is recognized using the percentage-of-completion
method. In certain instances, the Company may recognize software license
revenue upon delivery and when persuasive evidence of an arrangement exists,
provided the fee is fixed and determinable, acceptance is certain, collection
is probable, and the arrangement does not involve significant production,
customization, or modification of the software or services that are essential
to the functionality of the software; however, software license revenue
recognized in this manner has been immaterial to date. In the event costs to
complete a contract are expected to exceed anticipated revenue, a loss is
accrued. Other consulting and service revenue is recognized as the services are
performed. Maintenance revenue from customer support and product upgrades,
including maintenance bundled with original software licenses, are deferred and
recognized ratably over the term of the maintenance agreement, typically 12
months. The Company recognizes revenue in accordance with the American
Institute of Certified Public Accountants' (AICPA) Statement of Position (SOP)
97-2, Software Revenue Recognition.

F-8

CROSSWORLDS SOFTWARE, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

In December 1998, the AcSEC issued SOP 98-9, Software Revenue Recognition,
with Respect to Certain Arrangements, which requires recognition of revenue
using the "residual method" in a multiple-element arrangement when fair value
does not exist for one or more of the undelivered elements in the arrangement.
Under the residual method, the total fair value of the undelivered elements is
deferred and subsequently recognized in accordance with SOP 97-2. The Company
adopted SOP 98-9 on January 1, 2000, and does not expect adoption to have a
material effect on its consolidated financial position or results of
operations.

(k) Stock-Based Compensation

The Company accounts for its stock-based compensation plans using the
intrinsic value method. Deferred stock-based compensation expense is recorded
if, on the date of grant, the current market value of the underlying stock
exceeds the exercise price. The Company amortizes deferred stock-based
compensation in accordance with Financial Accounting Standards Board (FASB)
Interpretation No. 28.

(l) Income Taxes

The Company accounts for income taxes using the asset and liability method.
Deferred income taxes are recognized by applying enacted statutory tax rates
applicable to future years to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. The effect on deferred
tax assets and liabilities of a change in tax rates is recognized in income in
the period that includes the enactment date. The measurement of deferred tax
assets is reduced, if necessary, by a valuation allowance for any tax benefits
for which future realization is uncertain.

(m) Comprehensive Loss

The Company does not have any components of comprehensive income,
consequently comprehensive loss consists entirely of net loss for all periods
presented.

(n) Net Loss Per Share

Basic net loss per share is computed using the weighted-average number of
outstanding shares of common stock, excluding common stock subject to
repurchase. Diluted net loss per share is computed using the weighted-average
number of outstanding shares of common stock and, when dilutive, potential
common shares from options and warrants to purchase common stock and common
stock subject to repurchase using the treasury stock method, and from
convertible securities using the as-if converted basis. All potential common
shares have been excluded from the computation of diluted net loss per share
for all periods presented because the effect would have been antidilutive.

Diluted net loss per share does not include the effect of the following
antidilutive common equivalent shares:

Year Ended December 31,
--------------------------------
1997 1998 1999
---------- ---------- ----------

Stock options and warrants..................... 1,676,039 2,117,220 7,136,867
Common stock subject to repurchase............. 1,321,104 681,312 155,245
Convertible preferred stock.................... 9,109,606 9,571,606 16,538,664
---------- ---------- ----------
12,106,749 12,370,138 23,830,776
========== ========== ==========

F-9

CROSSWORLDS SOFTWARE, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(o) Segment Reporting

The Company is organized in a single operating segment for purposes of making
operating decisions and assessing performance. The chief operating decision
maker evaluates performance, makes operating decisions and allocates resources
based on financial data consistent with the presentation in the accompanying
consolidated financial statements.

(p) Accounting for Derivative Instruments and Hedging Activities

In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, (collectively referred to as
derivatives) and for hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. For a derivative not
designated as a hedging instrument, changes in the fair value of the derivative
are recognized in earnings in the period of change. This statement will be
effective for all annual and interim periods beginning after January 1, 2001.
Management does not believe the adoption of SFAS No. 133 will have a material
effect on the Company's consolidated financial position or results of
operations.

(q) Advertising Costs

The Company expenses advertising costs as incurred. Advertising expense was
approximately $394,000, $2,004,000 and $46,000 for the years ended December 31,
1997, 1998 and 1999, respectively.

(r) Pro Forma Net Loss Per Share (unaudited)

Pro forma net loss per share for the years ended December 31, 1997, 1998 and
1999, is computed using the weighted average number of common shares
outstanding, including the pro forma effects of the automatic conversion of the
Company's convertible preferred stock into shares of the Company's common stock
effective upon the closing of the Company's initial public offering as if such
conversion occurred on January 1, 1997, or at the date of issuance, if later.
Pro forma common equivalent shares, comprised of incremental common shares
issuable upon the exercise of stock options and warrants as well as shares
subject to repurchase agreements are not included in pro forma diluted net loss
per share because they would be anti-dilutive.

(2) Property and Equipment

Property and equipment as of December 31, 1998 and 1999 consisted of the
following:

1998 1999
----------- -----------

Computer equipment and software................. $ 4,672,705 $ 6,476,877
Furniture and fixtures.......................... 689,778 767,615
Leasehold improvements.......................... 569,118 599,611
----------- -----------
5,931,601 7,844,103
Accumulated depreciation........................ (1,775,086) (3,997,724)
----------- -----------
$ 4,156,515 $ 3,846,379
=========== ===========

Equipment under the capital lease aggregated $1,132,726 as of December 31,
1999. Accumulated amortization on the assets under the capital lease aggregated
$179,565 as of December 31, 1999.

F-10

CROSSWORLDS SOFTWARE, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(3) Long Term Debt

On December 23, 1998 the Company entered into a Convertible Subordinated
Promissory Note Agreement (the Promissory Note Agreement) with certain
stockholders of the Company in the amount of $5,000,000. In accordance with the
terms of the Promissory Note Agreement, the entire amount plus accrued
interest, was converted into shares of convertible preferred stock in the
Company's Series E round of financing in January 1999.

During the year ended December 31, 1998 and 1999 the Company had available
two Equipment Facilities Agreements (the Equipment Facilities) which provided
for $350,000 and $2,000,000 and a $10,000,000 working capital facilities with a
bank. In January 1999, the Company had entered into a $5,000,000 credit
facility as a Subordinated Loan and Security Agreement (the Subordinated Loan
Agreement). The following amounts of debt are outstanding as of December 31,
1998 and 1999 (in order of subordination):

December 31,
----------------------
1998 1999
----------- ----------

$350,000 equipment facility with bank, payable in 36
equal monthly installments of principal plus interest
at the bank's prime rate plus 0.75% per annum (8.50%
and 9.25% as of December 31, 1998 and 1999
respectively).......................................... $ 204,166 $ 87,500
$2,000,000 equipment facility with bank, payable in 36
equal monthly installments of principal plus interest
at the bank's prime rate per annum (7.75% and 8.50% as
of December 31, 1998 and 1999 respectively)............ 1,833,333 1,166,667
$10,000,000 working capital facility with a bank
expiring in April 2000, payable in 36 equal monthly
installments of principal plus interest at the bank's
prime rate plus 0.10% per annum (7.85% as of December
31, 1998).............................................. 3,479,219 --
$5,000,000 Subordinated Loan and Security Agreement with
a lender. Note bearing interest at 12% per annum, with
interest payments beginning from April 1, 1999 through
September, 1999 followed by 30 equal monthly payments
of principal plus interest through March, 2002......... -- 4,304,433
$5,000,000 Promissory Note Agreement with stockholders,
bearing interest at 8% per annum, which was converted
into Series E convertible preferred stock in January
1999................................................... 5,000,000 --
----------- ----------
Total................................................... 10,516,718 5,558,600
Less, current portion................................... 4,262,552 2,622,482
----------- ----------
Long term debt.......................................... $ 6,254,166 $2,936,118
=========== ==========

The aggregate future payments of long-term debt are as follows:

2000.............................................................. $2,622,482
2001.............................................................. 2,460,351
2002.............................................................. 475,767
----------
$5,558,600
==========

Outstanding borrowings under the equipment facilities agreements are secured
by all of the Company's assets. The working capital facility agreement
contained affirmative and negative covenants requiring, among other things, the
Company to maintain minimum levels of liquid assets, limit the Company's
ability to incur additional debt, pay cash dividends, or to purchase certain
assets. These covenants require the Company to

F-11

CROSSWORLDS SOFTWARE, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

restrict certain acquisitions, mergers, consolidations, or similar
transactions. In 1999, the Company issued 6,334 warrants to the bank in
exchange for waivers of noncompliance with these covenants. The fair value of
the warrants are not material to the Company's consolidated operating results.
As of December 31, 1999, all amounts drawn under the working capital facility
were repaid.

In connection with the Subordinated Loan Agreement, the Company issued
warrants to the lender to purchase up to 126,666 shares of Series E preferred
stock at an exercise price of $6.00 per share. The warrants are exercisable on
the earlier of seven years after the date of issuance or three years after the
Company's initial public offering. Accordingly, the Company has reserved
126,666 shares of Series E preferred stock for issuance upon the exercise of
the warrant. The warrants had a fair value of $500,000 on the date of grant,
computed using the Black-Scholes pricing model with the following assumptions:
60% volatility, zero dividends, a risk-free rate of 6.1% and a contractual life
of 7 years. The fair value of the warrants has been recorded in equity and as a
reduction of the carrying amount of the related debt and will be amortized into
interest expense over the debt term. Total amortization expense for the year
ended December 31, 1999 was $166,667.

(4) Commitments

(a) Lease Commitment

The Company leases its primary facility under a noncancelable operating lease
expiring in 2008. The Company also leases various facilities which serve as
sales offices in the United States, and subsidiary offices in France, Germany,
and the United Kingdom under noncancelable operating leases with expiration
dates ranging from February 1999 to February 2000. In addition, the Company
leases equipment under noncancelable operating leases expiring in December
2001. In conjunction with the facility lease, the Company issued a warrant for
the purchase of 33,333 shares of Series C preferred stock at an exercise price
equal to $6.00 per share. The warrant shall expire and no longer be exercisable
at the earlier of: (a) December 31, 2002; or (b) the merger or consolidation of
the Company with a third party or the sale of all or substantially all of the
Company's assets to a third party; or (c) the closing of an underwritten public
offering of shares of common stock of the Company. The fair value of the
warrant was not material to the Company's 1997 consolidated operating results.

Future minimum lease payments as of December 31, 1999, are as follows:

Year ending Capital Operating
December 31, leases leases
------------ ---------- -----------

2000............................................. $ 399,846 $ 1,583,400
2001............................................. 399,846 1,418,392
2002............................................. 208,563 1,424,690
2003............................................. -- 1,468,236
2004............................................. -- 1,468,236
Thereafter....................................... -- 4,890,940
---------- -----------
Total minimum payments......................... 1,008,255 $12,253,894
===========
Less amounts representing imputed interest....... (84,328)
----------
Present value of minimum lease payments.......... 923,927
Less current portion........................... (347,216)
----------
Capital lease obligation, less current portion... $ 576,711
==========

F-12

CROSSWORLDS SOFTWARE, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Rent expense for the years ended December 31, 1997, 1998 and 1999 was
approximately $619,000, $1,536,000 and $2,000,000, respectively.

(b) Royalty Commitments

During 1999, the Company entered into royalty agreements with two third party
vendors for certain licensed technology. The agreements include minimum royalty
payments of approximately $2.8 million and $2.0 million, respectively due
through June 2001 and June 2000, respectively.

The Company expects to earn out its remaining minimum royalty obligations
associated with the technology with minimum royalty payments of approximately
$2.8 million due by June 2001 and has recognized the associated cost of license
commensurate with usage.

During the fourth quarter of 1999, the Company developed and began shipping
products which replaced the technology provided under the agreement associated
with the minimum royalty payments of $2.0 million due by June 2000. As a
result, the Company discontinued use of this licensed technology and recorded a
one-time charge to other expense for the remaining $1 million of unamortized
minimum royalties.

In October 1999, the Company entered into an employment agreement with its
President and Chief Executive Officer. The agreement provided for a sign-on
bonus of $400,000 to be paid by March 1, 2000. The sign-on bonus was accrued
and charged to general expense in the fourth quarter of 1999. In addition, the
individual is eligible for a pro rata target bonus of $250,000 based on the
number of weeks of actual employment in 1999 and a full annual target bonus of
$250,000 for the year 2000. In addition, the Company will provide the
individual a moving assistance loan of $1.5 million pursuant to a secured
nonrecourse promissory note, which will be forgiven in equal monthly
installments over a period of 48 months as long as the individual remains
employed by the Company. No amounts have been borrowed through December 31,
1999.

In January 2000, the Company entered into an employment agreement with its
Senior Vice President of Worldwide Sales. The agreement provides for a sign-on
bonus of $300,000 to be paid by March 1, 2000.

(5) Stockholders' Equity

(a) Reverse Stock Split

On October 1, 1999, the Company's Board of Directors authorized a 1 for 3
reverse stock split. The accompanying consolidated financial statements and
related notes have been retroactively restated to give effect to the reverse
stock split.

(b) Convertible Preferred Stock

In January 1999, the Company sold 2,883,326 shares of Series E convertible
preferred stock at $6.00 per share for gross proceeds of $17,300,000. Included
in the issuance were 833,333 shares for the conversion of $5,000,000 in
convertible debt pursuant to the Convertible Subordinated Promissory Note
Purchase Agreement dated December 23, 1998.

F-13

CROSSWORLDS SOFTWARE, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

In October, 1999 the Company sold 3,671,071 of Series F convertible preferred
stock at $6.81 per share for gross proceeds of $25,000,000.

Convertible preferred stock consisted of the following as of December 31,
1999:

Shares
----------------------
Issued and
Series Designated outstanding
------ ---------- -----------

A.................................................. 3,333,333 3,333,333
B.................................................. 2,070,822 2,070,822
C.................................................. 2,137,500 2,104,144
D.................................................. 2,066,667 2,063,307
E.................................................. 3,333,333 2,883,326
F.................................................. 3,671,072 3,671,071
----------
16,126,003
==========

The rights, preferences, and privileges of the holders of Series A, B, C, D,
E and F convertible preferred stock are as follows:

. Dividends are noncumulative and payable only upon declaration by the
Company's Board of Directors at a rate of $0.0075, $0.06, $0.30, $0.75,
$0.30 and $0.34 per share for Series A, B, C, D, E and F preferred stock,
respectively.

. Holders of Series A, B, C, D, E and F preferred stock have a liquidation
preference of $0.15, $1.20, $6.00, $15.00, $6.00 and $6.81 per share,
respectively, plus any declared but unpaid dividends.

. Each share of Series A, B, C, D, E and F preferred stock is convertible
at any time into one share of common stock at the option of the holder,
subject to certain antidilution provisions. Each share of preferred stock
automatically converts upon the earlier of the public offering of the
Company's common stock with gross proceeds in excess of $25,000,000 or
affirmative election of the holders of at least 66 2/3% of the
outstanding shares. The Company has fully reserved shares of common stock
for issuance upon the conversion of Series A, B, C, D, E and F preferred
stock.

. Each holder of preferred stock has voting rights equal to the number of
shares of common stock into which such shares could be converted. In
addition, the holders of Series A, B, C, D, E and F preferred stock vote
as a single class.

The Company has issued 2,417,798 shares of common stock to founders and
employees under restricted stock purchase agreements. Pursuant to the
agreements, the Company has the right to repurchase the unvested common stock
at its original purchase price in the event of voluntary or involuntary
termination of the stockholder for any reason. The repurchase rights expire
through the year 2001. Shares subject to repurchase totaled approximately
1,321,104, 681,312 and 155,245 as of December 31, 1997, 1998 and 1999 ,
respectively.

(d) Common Stock Reserved

The Company has reserved 36,443,583 shares of common stock for issuance under
its stock option plan, for warrants, and upon the conversion of outstanding
convertible preferred stock.

F-14

CROSSWORLDS SOFTWARE, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(e) Stock Option Plan

The Company is authorized to issue up to 9,473,193 shares in connection with
its 1996, 1997 and 1999 stock option plans (the Plans) to directors, employees,
and consultants. The Plans provide for the issuance of stock purchase rights,
incentive stock options, or nonstatutory stock options.

Stock purchase rights are subject to a restricted stock purchase agreement
whereby the Company has the right to repurchase the stock at the original issue
price upon the voluntary or involuntary termination of the purchaser's
employment with the Company. The repurchase rights will lapse at a rate
determined by the stock plan administrator, but at a minimum rate of 20% per
year.

Under the 1997 plan, the exercise price for incentive stock options is at
least 100% of the stock's fair market value on the date of grant for employees
owning less than 10% of the voting power of all classes of stock, and at least
110% of the fair market value on the date of grant for employees owning more
than 10% of the voting power of all classes of stock. For nonstatutory stock
options, the exercise price is also at least 110% of the fair market value on
the date of grant for service providers owning more than 10% of the voting
power of all classes of stock and no less than 85% of the fair market value on
the date of grant for service providers owning less than 10% of the voting
power of all classes of stock.

Options generally expire in 10 years; however, they may be limited to 5 years
if the optionee owns stock representing more than 10% of the Company. Vesting
periods are determined by the stock plan administrator and generally provide
for shares to vest over a 4-year period, with 12.5% of the award vesting after
6 months from the date of grant and then ratably vesting each month thereafter.

The Company uses the intrinsic value method to account for its fixed option
plans. Deferred stock-based compensation cost has been recognized for its stock
option plan for grants to employees when the fair value of the underlying
common stock on the grant date exceeds the exercise price for each stock
option. Deferred stock-based compensation is amortized using the accelerated
method set forth in Financial Accounting Standards Board Interpretation No. 28.
Had compensation cost for the Company's stock-based compensation plan been
determined consistent with SFAS No. 123 for all of the Company's stock-based
compensation plans, net loss (in thousands) and basic and diluted net loss per
share would have been as follows:

Year Ended December 31,
----------------------------
1997 1998 1999
-------- -------- --------

Net loss:
As reported.................................... $(13,952) $(41,374) $(38,186)
Pro forma...................................... (13,973) (41,459) (39,873)
Basic and diluted net loss per share:
As reported.................................... (11.88) (19.99) (13.40)
Pro forma...................................... (11.89) (20.04) (13.99)

The fair value of each option was estimated on the date of grant using the
minimum value method with the following weighted-average assumptions: no
dividend yield; risk-free interest rate of 6.2%, 5.0% and 4.7% for fiscal 1997,
1998 and 1999 respectively; and expected life of four years for all periods.

F-15

CROSSWORLDS SOFTWARE, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

A summary of the status of the Company's options for the years ended December
31, 1997, 1998 and 1999 are as follows:

Options Outstanding
----------------------------
Shares available Number Weighted-average
for grant of shares exercise price
---------------- ---------- ----------------

Balances as of December 31,
1996........................... 525,008 581,661 $0.14
Authorized...................... 1,612,083 -- --
Granted......................... (1,386,624) 1,386,624 0.78
Exercised....................... -- (312,914) 0.15
Canceled........................ 12,665 (12,665) 0.99
---------- ----------
Balances as of December 31,
1997........................... 763,132 1,642,706 0.69
Authorized...................... 861,111 -- --
Granted......................... (1,381,005) 1,381,005 2.93
Exercised....................... -- (426,467) 0.96
Returned to Plans............... 6,875 -- 0.96
Canceled........................ 513,357 (513,357) 1.12
---------- ----------
Balances as of December 31,
1998........................... 763,470 2,083,887 2.00
Authorized...................... 5,386,665
Granted......................... (7,022,308) 7,022,308 6.08
Exercised....................... -- (436,394) 1.46
Returned to Plans............... 59,895 -- --
Canceled........................ 1,876,365 (1,876,365) 3.72
---------- ----------
Balances as of December 31,
1999........................... 1,064,087 6,793,436 $5.78
========== ==========

Options exercisable at:
December 31, 1997.............................. 773,148 $0.12
December 31, 1998.............................. 448,497 1.48
December 31, 1999.............................. 3,310,545 5.89

The weighted-average fair value of options granted in fiscal 1997, 1998 and
1999 was $.15, $.51 and $1.03, respectively.

As of December 31, 1999, the range of exercise prices and weighted-average
remaining contractual life of outstanding options were as follows:

Weighted-average
remaining
Number of contractual life Number of shares
Exercise prices options shares (years) exercisable
--------------- -------------- ---------------- ----------------

$ 0.15 56,840 6.92 25,278
0.45 27,189 7.29 12,121
0.75 172,689 7.64 84,462
1.50 19,583 7.83 9,065
1.80 53,736 7.94 22,658
2.25 9,791 8.05 2,272
3.00 703,992 8.83 347,119
5.25 698,589 9.20 135,152
5.40 137,596 9.32 23,157
6.60 4,913,431 9.75 2,649,261
--------- ---------
6,793,436 3,310,545
========= =========

F-16

CROSSWORLDS SOFTWARE, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(f) Warrants

In October 1999, the Company issued 177,098 warrants, at $6.60 a share, to an
executive search firm for the recruitment of its Chief Executive Officer. The
warrants are immediately exercisable up to seven years from the date of
issuance. The warrants had a fair value of $750,000 on the date of the grant
using the Black-Scholes pricing model with the following assumptions: 60%
volatility, zero dividends, a risk-free rate of 5.21% and a contractual life of
7 years. The amount was recorded as operating expense during 1999.

(6) Income Taxes

The Company has incurred significant losses since inception and has not
incurred any income tax expense to date. The 1999 income tax differed from the
amounts computed by applying the U.S. federal income tax rate of 34% to pretax
income as a result of the following:

1997 1998 1999
----------- ------------ ------------

Expected tax at U.S. Federal statutory
rate of 34% ......................... $(4,730,000) $(11,793,000) $(12,981,100)
Current year net operating losses and
temporary differences for which no
tax benefit is recognized............ 4,714,000 11,672,000 12,262,100
Other................................. 16,000 121,000 719,000
----------- ------------ ------------
Total............................... $ -- $ -- $ --
=========== ============ ============

The tax effects of temporary differences that give rise to significant portions
of the Company's deferred tax assets and liabilities are presented below.

1998 1999
------------ ------------

Deferred tax assets
Net operating loss carryforward .................. $ 17,039,000 $ 28,919,000
Reserves and accrued expenses..................... 476,000 1,151,000
Deferred stock compensation....................... 2,044,000 --
Research credit carryforward...................... 1,228,000 2,099,000
State taxes and net operating loss carryforward... 3,842,000 6,209,000
Fixed assets and intangibles...................... 220,000 824,000
------------ ------------
Total gross deferred tax assets................. 24,849,000 39,202,000
Valuation allowance............................... (24,849,000) (39,202,000)
------------ ------------
Total deferred tax assets........................... $ -- $ --
============ ============

The net change in the total valuation allowance for the period ended December
31, 1999 was a net increase of $14,353,000.

At December 31, 1999, the Company had net operating loss carryforwards for
federal and California income tax purposes of approximately $85,055,000 and
$70,233,000 respectively, available to reduce future income subject to income
taxes. The federal net operating loss carryforwards expire beginning 2011
through 2019. The California net operating loss carryforwards expire in 2004.

At December 31, 1999, the Company also had research credit carryforwards for
federal and California income tax return purposes of approximately $1,247,000
and $852,000 respectively, available to reduce future income subject to income
taxes. The federal research credit carryforward expires beginning in 2011
through 2014. The California research credit carries forward indefinitely.

F-17

CROSSWORLDS SOFTWARE, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The Tax Reform Act of 1986 and the California Conformity Act of 1987 impose
restrictions on the utilization of net operating loss and credit carryforwards
in the event of an "ownership change" as defined by the Internal Revenue Code.
Should an ownership change occur in the future, the Company's ability to
utilize its net operating loss and tax credit carryforwards may be subject to
restriction pursuant to these provisions.

F-18

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

[LOGO OF CROSSWORLDS SOFTWARE, INC. APPEARS HERE]

Common Stock

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

PROSPECTUS
------------

Chase H&Q

Dain Rauscher Wessels
a division of Dain Rauscher Incorporated

Thomas Weisel Partners LLC

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

, 2000
------------

You should rely only on 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.

No action is being taken in any jurisdiction outside the United States to
permit a public offering of the common stock or possession or distribution of
this prospectus in any such jurisdiction. Persons who come into possession of
this prospectus in jurisdictions outside the United States are required to
inform themselves about and to observe any restrictions as to this offering
and the distribution of this prospectus applicable to that jurisdiction.

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

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13. Other Expenses of Issuance and Distribution

The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by CrossWorlds in connection
with the sale of common stock being registered. All amounts are estimates
except the SEC registration fee and the NASD filing fee and the Nasdaq
National Market listing fee.

Amount
to be Paid
----------

SEC registration fee........................................... $ 13,200
NASD filing fee................................................ 5,500
Nasdaq National Market listing fee............................. *
Printing and engraving expenses................................ 200,000
Legal fees and expenses........................................ 400,000
Accounting fees and expenses................................... 200,000
Blue Sky qualification fees and expenses....................... 5,000
Transfer Agent and Registrar fees.............................. *
Miscellaneous fees and expenses................................ *
Total........................................................ *

--------
* to be filed by amendment

Item 14. Indemnification of Directors and Officers

Section 145 of the Delaware General Corporation Law authorizes a court to
award, or a corporation's Board of Directors to grant, indemnity to directors
and officers in terms sufficiently broad to permit such indemnification under
certain circumstances for liabilities (including reimbursement for expenses
incurred) arising under the Securities Act of 1933, as amended (the
"Securities Act"). Article X of CrossWorlds' Amended and Restated Certificate
of Incorporation (Exhibit 3.1 hereto) and Article VI of CrossWorlds' Bylaws
(Exhibit 3.2 hereto) provide for indemnification of CrossWorlds' directors,
officers, employees and other agents to the maximum extent permitted by the
Delaware General Corporation Law. In addition, CrossWorlds has entered into
Indemnification Agreements (Exhibit 10.1 hereto) with its officers and
directors. The Underwriting Agreement (Exhibit 1.1) also provides for cross-
indemnification among CrossWorlds and the Underwriters with respect to certain
matters, including matters arising under the Securities Act.

Item 15. Recent Sales of Unregistered Securities

Since January 1, 1997, CrossWorlds has sold and issued the following
securities:

1. On March 28, 1997, April 8, 1997 and April 15, 1997, CrossWorlds
issued a total of 2,104,144 shares of its Series C preferred stock to
private investors for an aggregate cash consideration of $12,625,000. At
various times between December 23, 1997 and April 6, 1998, CrossWorlds
issued 2,063,307 shares of its Series D preferred stock to private
investors for an aggregate cash consideration of $30,950,000. On January 7,
1999, March 26, 1999, and April 20, 1999, CrossWorlds issued a total of
2,883,326 shares of its Series E preferred stock to private investors for
an aggregate cash consideration of $17,300,000. On October 1, 1999,
CrossWorlds issued 3,671,071 shares of its Series F preferred stock to
private investors for an aggregate cash consideration of $25,000,000.

2. Since inception CrossWorlds has issued 6,793,436 options to purchase
common stock of CrossWorlds with a weighted average price of $5.78 to a
number of employees and directors of and consultants to CrossWorlds.

3. On June 26, 1998 CrossWorlds issued warrants to purchase 33,333 shares
of its Series C preferred stock with an exercise price of $1.20 per share
to Bay Park Plaza Associates LP for value received. On

II-1

January 27, 1999 CrossWorlds issued warrants to purchase a total of 126,666
shares of its Series E preferred stock with an exercise price of $6.00 per
share to Comdisco, Inc. in consideration for a Subordinated Loan and
Security Agreement and Master Lease Agreement. On August 9, 1999,
CrossWorlds issued warrants to purchase 6,334 shares of its Common Stock
with an exercise price of $6.60 per share to Silicon Valley Bank for the
agreed upon value of $1.00 and for other good and valuable consideration.
On October 7, 1999 CrossWorlds issued warrants to purchase a total of
177,098 shares of its Common Stock with an exercise price of $6.60 per
share to Heidrick and Struggles for value received. On February 2, 2000,
CrossWorlds issued warrants to purchase 199,996 shares of its common stock
at an exercise price of $11.00 per share to private investors.

The issuances of the above securities were deemed to be exempt from
registration under the Securities Act in reliance on Section 4(2) or
Regulation D, or other applicable exemption of such Securities Act as
transactions by an issuer not involving any public offering. In addition,
certain issuances described in Item 2 were deemed exempt from registration
under the Securities Act in reliance upon Rule 701 promulgated under the
Securities Act. The recipients of securities in each such transaction
represented their intentions to acquire the securities for investment only and
not with a view to or for sale in connection with any distribution thereof and
appropriate legends were affixed to the share certificates and warrants issued
in such transactions. All recipients had adequate access, through their
relationships with CrossWorlds, to information about CrossWorlds.

II-2

Item 16. Exhibits and Financial Statement Schedules

(a) Exhibits

Number Description
------ -----------

1.1* Form of Underwriting Agreement.
3.1* Amended and Restated Certificate of Incorporation of CrossWorlds.
3.2* Bylaws of CrossWorlds.
4.1* Specimen Stock Certificate.
4.2* Warrant dated January 7, 1999 issued by CrossWorlds to Comdisco, Inc.
Warrant dated August 9, 1999 issued by CrossWorlds to Silicon Valley
4.3* Bank.
4.4* Warrant dated October 11, 1999 issued by CrossWorlds to Heidrick &
Struggles, Inc.
4.5* Form of Warrant dated February 2, 2000 issued by CrossWorlds to certain
private investors.
Opinion of Venture Law Group regarding the legality of the common stock
5.1* being registered.
10.1* Fifth Amended and Restated Investor Rights Agreement dated October 1,
1999 among CrossWorlds and certain investors.
Form of Indemnification Agreement between CrossWorlds and each of its
10.2 officers and directors.
10.3 1996 Stock Plan, as amended.
10.4 1997 Stock Plan, as amended.
10.5 1999 Executive Stock Plan.
10.6 2000 Employee Stock Purchase Plan.
10.7 2000 Directors' Stock Option Plan.
10.8* Employment Agreement dated October 5, 1999 with Alfred J. Amoroso.
10.9* Employment Agreement dated January 1, 2000 with Arthur R. Matin.
10.10* Promissory Note issued to CrossWorlds by James G. Rowley.
10.11* Secured Loan Agreement, Promissory Note and Security Agreement dated
November 15, 1999 between CrossWorlds and Barton S. Foster.
10.12* Form of Change of Control Agreement between CrossWorlds and each of its
executive officers.
10.13* IBM/OEM Program Agreement dated June 3, 1999.
10.14* Software License and Support Agreement with Delphi Automotive System
LLC dated December 21, 1999.
10.15* Lease Agreement, as amended, dated February 1, 1999 between CrossWorlds
and Bay Park Plaza Associates, L.P.
21.1* List of Subsidiaries.
23.1 Consent of KPMG LLP.
23.2* Consent of Venture Law Group (contained in Exhibit 5.1).
24.1 Power of Attorney (see page II-5).
27.1 Financial Data Schedule.

- --------
* To be supplied by amendment.

(b) Financial Statement Schedules

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

II-3

Item 17. Undertakings

The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreements 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 foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act, and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer, or controlling person of the
registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.

The undersigned registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities Act 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

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 Burlingame, State of
California on February 2, 2000.

CROSSWORLDS SOFTWARE, INC.

By: /s/ Alfred J. Amoroso
----------------------------------
Alfred J. Amoroso
President and Chief Executive
Officer

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints, jointly and severally, Alfred J.
Amoroso and Mark R. Kent, and each of them, as his attorney-in-fact, with full
power of substitution, for him in any and all capacities, to sign any and all
amendments to this Registration Statement (including post-effective
amendments), and any and all Registration Statements filed pursuant to Rule
462 under the Securities Act of 1933, as amended, in connection with or
related to the offering contemplated by this Registration Statement and its
amendments, if any, and to file the same, with exhibits thereto and other
documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming our signatures as they may be
signed by our said attorney to any and all amendments to said Registration
Statement.

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

Signature Title Date

/s/ Alfred J. Amoroso President, Chief February 2, 2000
- ----------------------------------- Executive Officer and
Alfred J. Amoroso Director (Principal
Executive Officer)

/s/ Mark R. Kent Chief Financial Officer February 2, 2000
- ----------------------------------- (Principal Financial and
Mark R. Kent Accounting Officer)

/s/ Katrina A. Garnett Chairman of the February 2, 2000
- ----------------------------------- Board
Katrina A. Garnett

/s/ Terence J. Garnett Director February 2, 2000
- -----------------------------------
Terence J. Garnett

/s/ Frederick W. Gluck Director February 2, 2000
- -----------------------------------
Frederick W. Gluck

/s/ Andrew K. Ludwick Director February 2, 2000
- -----------------------------------
Andrew K. Ludwick

/s/ Albert A. Pimentel Director February 2, 2000
- -----------------------------------
Albert A. Pimentel

/s/ Colin F. Raymond Director February 2, 2000
- -----------------------------------
Colin F. Raymond

II-5

SCHEDULE II

CROSSWORLDS SOFTWARE, INC. AND SUBSIDIARIES

VALUATION AND QUALIFYING ACCOUNTS

YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997

Balance Charged Balance
at to Costs at End
Beginning and Deductions of
of Period Expenses Describe Period
--------- -------- ---------- --------

1999
Allowance for doubtful accounts....... $306,130 $15,886 $25,341(1) $296,675

1998
Allowance for doubtful accounts....... -- 333,250 27,120(1) 306,130

1997
Allowance for doubtful accounts....... -- -- -- --

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(1) Accounts written off.

S-1

EXHIBIT INDEX

Number Description
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1.1* Form of Underwriting Agreement.
3.1* Amended and Restated Certificate of Incorporation of CrossWorlds.
3.2* Bylaws of CrossWorlds.
4.1* Specimen Stock Certificate.
4.2* Warrant dated January 7, 1999 issued by CrossWorlds to Comdisco, Inc.
Warrant dated August 9, 1999 issued by CrossWorlds to Silicon Valley
4.3* Bank
4.4* Warrant dated October 11, 1999 issued by CrossWorlds to Heidrick &
Struggles, Inc.
4.5* Form of Warrant dated February 2, 2000 issued by CrossWorlds to certain
investors.
Opinion of Venture Law Group regarding the legality of the common stock
5.1* being registered.
10.1* Fifth Amended and Restated Investor Rights Agreement dated October 1,
1999 among CrossWorlds and certain investors.
Form of Indemnification Agreement between CrossWorlds and each of its
10.2 officers and directors.
10.3 1996 Stock Plan.
10.4 1997 Stock Plan, as amended.
10.5 1999 Executive Stock Plan.
10.6 2000 Employee Stock Purchase Plan.
10.7 2000 Directors' Stock Option Plan.
10.8* Employment Agreement dated October 5, 1999 with Alfred J. Amoroso.
10.9* Employment Agreement dated January 1, 2000 with Arthur R. Matin
10.10* Promissory Note issued to CrossWorlds by James G. Rowley.
10.11* Secured Loan Agreement, Promissory Note and Security Agreement dated
November 15, 1999 between CrossWorlds and Barton S. Foster.
10.12* Form of Change of Control Agreement between CrossWorlds and each of its
executive officers.
10.13* IBM/OEM Program Agreement dated June 3, 1999.
10.14* Software License and Support Agreement with Delphi Automotive Systems
LLC dated December 21, 1999.
10.15* Lease Agreement, as amended dated February 1, 1999 between CrossWorlds
and By Park Plaza Associates, L.P.
21.1* List of Subsidiaries.
23.1 Consent of KPMG LLP.
23.2* Consent of Venture Law Group (contained in Exhibit 5.1).
24.1 Power of Attorney (see page II-5).
27.1 Financial Data Schedule.

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*To be supplied by amendment.