As filed with the Securities and Exchange Commission on May 23, 2000
Registration No. 333-96055

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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

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AMENDMENT NO. 6
TO
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
Kevin G. Montler John Y. Sasaki
Eric M. Bowen Jon P. Layman
Venture Law Group Wilson Sonsini Goodrich & Rosati
A Professional Corporation Professional Corporation
2800 Sand Hill Road 650 Page Mill Road
Menlo Park, CA 94025 Palo Alto, CA 94304
(650) 854-4488 (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 Proposed Maximum
Maximum Aggregate
Title Of Each Class Of Amount To Be Offering Price Offering Amount Of
Securities To Be Registered Registered(1) Per Share(2) Price(2) Registration Fee (3)
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Common Stock, par value $0.001....... 4,600,000 $16.00 $73,600,000 $19,431
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(1) Includes 600,000 shares of common stock issuable upon exercise of the
underwriters' over-allotment option.
(2) Estimated solely for the purpose of computing the amount of the
registration fee pursuant to Rule 457(a) under the Securities Act.
(3) Fees previously paid.

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 MAY 23, 2000

PROSPECTUS

4,000,000 Shares

[LOGO OF CROSSWORLDS SOFTWARE, INC. APPEARS HERE]

Common Stock

CrossWorlds Software, Inc. is offering 4,000,000 shares of its common stock.
This is our initial public offering. We anticipate that the initial public
offering price will be between $14.00 and $16.00 per share.

-----------

Before 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
--------- -----

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 600,000 additional shares of common stock.

-----------

Investing in our common stock involves risks. See "Risk Factors" beginning on
page 8.

-----------

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

Thomas Weisel Partners LLC

Prospectus dated , 2000

[DESCRIPTION OF COLOR ARTWORK]

The inside front cover contains artwork showing CrossWorlds' e-Business
Infrastructure Software. Our eBusiness Infrastructure is represented by a
circle that is encompassing seven squares that represent business functions.
The seven squares are, from left to right, Manufacturing, Procurement, Sales
and Distribution, Finance and Billing, Supply Chain Management, Customer
Service, and e-Business.

Above the circle are the words CrossWorlds eBusiness Infrastructure. A thin
line connects the phrase to the top of the CrossWorlds circle.

Below the circle is text that has the phrase "The CrossWorlds e-business
infrastructure platform integrates applications and business processes within
the enterprise and over the Internet with customers, suppliers, service
providers and business-to-business exchanges."

Outside of the circle are four graphics. In the upper left corner are three
boxes representing suppliers, identified by the word Suppliers. In the upper
right corner are three cylinders representing customers, identified by the word
Customers. In the lower left corner are three cylinders representing outsourced
service providers, identified by the words Outsourced Service Providers. In the
lower right corner are three boxes representing business-to-business exchanges,
identified by the words Business-to-Business Exchanges. Each group of three
boxes and cylinders is connected to an Internet cloud by three pipes. Each
Internet cloud is connected to the CrossWorlds circle by three pipes. Each
Internet cloud has the word Internet in the middle of the cloud.

TABLE OF CONTENTS

Page
----

Prospectus Summary....................................................... 4
Risk Factors............................................................. 8
You Should Not Rely on Forward-Looking Statements Because They Are
Inherently Uncertain.................................................... 16
Use of Proceeds.......................................................... 16
Dividend Policy.......................................................... 16
Capitalization........................................................... 17
Dilution................................................................. 19
Selected Consolidated Financial Data..................................... 21
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 23
Business................................................................. 34
Management............................................................... 52
Related Party Transactions............................................... 64
Principal Stockholders................................................... 69
Private Placement........................................................ 70
Description of Capital Stock............................................. 71
Shares Eligible for Future Sale.......................................... 73
Underwriting............................................................. 75
Legal Matters............................................................ 78
Experts.................................................................. 78
Additional Information Available to You.................................. 78
Index to Consolidated Financial Statements............................... F-1

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PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this prospectus.
This summary 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,

. all shares of preferred stock have been automatically converted into
shares of common stock and

. the sale of 795,094 shares of common stock in a private placement will
close at the same time as this offering at an assumed public offering
price of $15.00 less the underwriting discount.

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.

CrossWorlds Software, Inc.

Who We Are

Our Market

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. 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

We provide pre-built connectivity solutions for common technology
environments and leading e-business and enterprise applications. We offer pre-
built business process modules to support many of the common integration
requirements of companies in our target markets. Our products are based on a
scalable architecture that meets the integration requirements of large
companies and trading networks. We also provide a set of tools that allow our
customers to customize their integration solution to address their unique e-
business requirements.

Our Strategy

Our product strategy is to expand our support for e-business applications and
technologies, build connectivity for additional enterprise applications and
expand our set of pre-built business process integration modules. Our sales
strategy is to sell our products to companies in selected industries, including
technology, industrial manufacturing, process manufacturing and
telecommunications. We intend to expand our partnerships with IBM, SAP AG and
global systems integrators through technology sharing and cooperative marketing
and sales to support our strategies. We expect our systems integrator partners
to provide an increasing portion of the implementation services for our
products.

Our Customers

Since late 1997, when we shipped our first product, we have licensed our
products to 50 customers, 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.

How to Contact Us

CrossWorlds Software, Inc. was incorporated in Delaware in March 1996. 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..... 4,000,000 shares
Common stock offered in a
private placement to be closed
at the same time as this
offering...................... 795,094 shares
Common stock outstanding after
this offering................. 24,817,766 shares
Use of proceeds................ Working capital and general corporate purposes.
Proposed Nasdaq National Market
symbol........................ CWLD

The number of shares of common stock to be outstanding after this offering is
based on the number of shares outstanding as of March 31, 2000, and excludes:

. 7,427,997 shares of common stock issuable upon exercise of stock options
outstanding on March 31, 2000 at a weighted average exercise price of
$6.60 per share;

. 702,588 shares of common stock reserved for future issuance under our
stock option plan and executive stock plan and

. 444,255 shares of common stock issuable upon exercise of warrants
outstanding on March 31, 2000 at a weighted average exercise price of
$7.38 per share.

In January 2000, our board of directors approved 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 equal:

. 1997 stock plan: 3,000,000 shares.

. 2000 employee stock purchase plan: 750,000 shares.

. 2000 directors' stock option plan: 300,000 shares.

These share reserves replace any stock option reserves existing immediately
before the date of completion of the offering, which totalled 702,588 shares on
March 31, 2000.

Summary Consolidated Financial Information

Three Months
Year Ended December 31, Ended March 31,
---------------------------- -----------------
1997 1998 1999 1999 2000
-------- -------- -------- ------- --------
(in thousands, except per share data)

Consolidated Statement of
Operations Data:
Revenue..................... $ 1,108 $ 7,706 $ 19,094 $ 3,636 $ 7,698
Operating loss.............. (14,118) (41,853) (36,274) (6,971) (10,475)
Net loss.................... (13,952) (41,374) (38,186) (7,262) (10,858)
Pro forma basic and diluted
net loss per share......... $ (1.70) $ (3.55) $ (2.38) $ (0.55) $ (0.55)

Weighted average shares used
in pro forma per share
computation................ 8,201 11,641 16,062 13,151 19,723

Revenue Recognition

Revenue Type Method of Recognition
------------ ---------------------

Software license revenue.................... Percentage-of-completion method
over the project implementation
cycles, typically three to nine
months.

Consulting and service revenue.............. As services are performed.

Maintenance revenue from customer support
and product upgrades, including maintenance Ratably over the term of the
bundled with original software licenses.... 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.

March 31, 2000
--------------------
Actual As Adjusted
------- -----------
(in thousands)

Consolidated Balance Sheet Data:
Cash and cash equivalents............................... $ 8,722 $74,414
Working capital (deficit)............................... (8,827) 56,865
Total assets............................................ 28,677 94,369
Deferred revenue........................................ 17,616 17,616
Long-term debt and capital lease obligations, less
current portion........................................ 2,818 2,818
Total stockholders' equity (deficit).................... (7,698) 57,994

Deferred revenue consists primarily of the unrecognized portion of license
and maintenance sales contracts. Our deferred revenue balance or changes in
that balance may not be indicative of our total backlog or changes in the
ordering patterns of our customers.

The consolidated balance sheet data as of March 31, 2000 is presented on an
actual basis and on an as adjusted basis. The as adjusted balance sheet data
reflects the sale of 795,094 shares of common stock in a private placement at
the assumed initial public offering price of $15.00 per share less the
underwriting discount that will close at the same time as this offering and the
sale of 4,000,000 shares of common stock offered at an assumed initial public
offering price of $15.00 per share less the underwriting discount and the
estimated offering expenses.

RISK FACTORS

You should carefully consider the risks and uncertainties described below
before making an investment decision. Any of the risks described below could
seriously harm our business, financial condition or operating results. This
could cause the trading price of our common stock to decline, and you may lose
all or part of your investment.

Risks Related to CrossWorlds' Business

Because of our limited operating history, it is difficult for us to predict and
plan for challenges. As a result, our future performance may be harmed.

We were incorporated in March 1996 and shipped our first products in November
1997. Because our operating history is limited, our future operating results
and our future stock price are difficult to predict. We may not foresee trends
that may emerge and harm our business, and we cannot forecast operating
expenses based on our historical results. It is also difficult to plan to meet
the challenges we face in the future, specifically:

. expanding our customer base;

. competing effectively with:

.internal information technology departments of potential customers,

.systems integrators that develop customized solutions and

.other software vendors that offer e-business infrastructure products
and

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

Also, there is little financial data that you can use to evaluate our business.

We have a history of losses, we expect future losses, and we may never achieve
profitability.

We have experienced operating losses in each quarterly and annual period
since March 1996. We may never achieve profitability. Despite our history of
losses, we believe it is vital to our future success that we increase our
research and development and sales and marketing expenses. If expenditures
related to the expansion of our operations are not accompanied or shortly
followed by significantly increased revenue, our losses could be even greater
than expected until we are 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 harmed our operating results for that period. We incurred a net
loss of $15.5 million from March 1996 through December 31, 1997 against revenue
of $1.1 million. We incurred a net loss of $41.4 million for the year ended
December 31, 1998 against revenue of $7.7 million. We incurred a net loss of
$38.2 million for the year ended December 31, 1999 against revenue of $19.1
million. We incurred a net loss of $10.9 million for the three months ended
March 31, 2000 against revenue of $7.7 million. At March 31, 2000, we had an
accumulated deficit of approximately $106.0 million. We may not be able to
increase our revenue in the future. As a result, we expect to incur significant
losses in the future, and we may never achieve profitability.

Because our quarterly revenue fluctuates significantly due to the nature of our
sales cycles, we may disappoint investors' expectations or may not fulfill the
expectations of the financial markets or financial analysts, which could cause
our stock price to decline.

Our sales cycle causes unpredictable fluctuations in our revenue which could
adversely affect the value of your investment. Our sales cycle varies typically
from two to nine months because:

. our e-business infrastructure solutions are expensive, with a median
selling price of approximately $530,000 comprised of licensing fees and
service fees,

. our products are complex and to generate sales we must spend a
significant amount of time educating our potential customers about the
uses and benefits of our products and

. some of our prospective customers evaluate our products on a trial basis
before entering a sales contract.

This lengthy sales cycle makes it difficult to predict the quarter in which
expected orders will occur. Delays in the execution of orders could cause some
or all of the licensing fee revenue from those orders to be shifted from the
expected quarter to a subsequent quarter or quarters.

Because our quarterly revenue fluctuates significantly due to the nature of our
product implementations, we may disappoint investors, which could cause our
stock price to decline.

We generally recognize license revenue from orders on a percentage-of-
completion basis as the customer reaches milestones in their implementation of
our products. We also recognize services revenue as we perform implementation
services. As a consequence, the timing of our revenue depends on the continued
progress of our customers' implementation cycles. Each customer has unique
integration requirements and, because our products are complex, we must
integrate a variety of enterprise applications in each implementation. 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, we may not recognize the expected
revenue on these orders until subsequent quarters, if at all.

Because a substantial majority of our revenue has been derived from a small
number of selected industries, a decline in demand for our software in these
industries could hurt our operations.

We derive a large majority of our revenue to date from sales of our software
and related services to customers in the telecommunications industry and the
manufacturing industry. Any significant decline in the demand for, and market
acceptance of, our software in these industries could hurt the results of our
operations. As of March 31, 2000, we had 50 customers. 23 customers are in the
manufacturing industry and 15 customers are in the telecommunications industry.
Sales of products to customers in the manufacturing and telecommunications
industries accounted for approximately 72% of our revenue in 1997,
approximately 96% of our revenue in 1998, approximately 90% of our revenue in
1999 and approximately 75% of our revenue for the three months ended March 31,
2000. We expect that sales of our software and related services to customers in
these industries will account for a majority of our revenue over the next
twelve months.

We derive our revenue from a small number of customers, and our revenue could
decline if we lose a major customer.

We have generated a substantial portion of our revenue from a limited number
of customers. We expect that a small number of customers will continue to
account for a substantial portion of our revenue. Many of our current customers
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. The loss of even one
customer could have a material adverse effect on our revenue.

If we are unable to increase software license revenue as a proportion of our
overall revenue, our gross margins and profitability could be harmed.

We believe that increasing our software license revenue as a proportion of
overall revenue is essential to achieve and maintain profitability. To achieve
this goal, we plan to further develop our relationships with systems
integrators to have them perform a majority of the consulting services for our
products. If we are unable to adequately train systems integrators to provide
services for our products, or if systems integrators do not devote resources to
providing services for our products, it will be significantly more difficult
for us to increase software license revenue as a portion of overall revenue,
thus limiting our ability to increase gross margins and profitability.

Our revenue will likely decline or slow if we do not develop and maintain
successful relationships with systems integrators.

We engage in joint sales, marketing and implementation efforts with a number
of systems integrators including Deloitte Consulting, PricewaterhouseCoopers
and CSC Consulting. In many cases, these parties have extensive relationships
with our existing and potential customers and influence the decisions of these
customers. We rely on these firms to:

. recommend our products during the evaluation stage of the purchasing
process,

. to refer prospective customers to us and

. to provide access to customers' executive-level decision makers.

If systems integrators are not appropriately trained to implement our products,
our reputation with existing and prospective customers could be harmed. Our
failure to establish or maintain these relationships could significantly harm
our ability to license and successfully implement our e-business infrastructure
software products. Our competitors may have stronger relationships with some
systems integrators and as a result, those systems integrators may be more
likely to recommend competitors' products.

If we are unable to compete in the market for business integration solutions,
we may lose sales and may be forced to lower our prices, which would cause a
decline in our revenue.

The market for our products is intensely competitive. It is expected to
become increasingly competitive as current competitors enhance and expand their
product offerings and new competitors enter the market. Competition could
result in:

. price reductions,

. reduced gross margins and

. loss of market share.

Any one of these results could significantly reduce our future revenues. Our
current competitors include a number of companies offering alternative e-
business infrastructure solutions.

To date, we have faced competition from:

. internal information technology departments of potential customers,

. systems integrators and other information technology service providers
and

. software vendors targeting one or more segments of our market including
Vitria Technology, Inc., Software Technologies Corporation and TIBCO
Software, Inc.

It is also possible that alliances among competitors or new competitors,
including Oracle Corporation, Microsoft or IBM, may emerge and rapidly acquire
significant market share.

We depend on technology licensed to us by third parties. If we lose our right
to use licensed technology, our revenue could be harmed and our costs could
increase.

Our software products incorporate technology licensed to us by third parties,
currently BEA Systems, IBM and Inprise/Borland Corporation, which provides
important messaging and other functionality. We depend on these third parties
to deliver and support reliable products, and to enhance their products in
response to industry trends and other technological changes. Any interruption
in the supply of our licensed software or increases in the pricing of these
licenses could harm our business by disrupting our operations, increasing our
costs, delaying our sales and hindering our ability to support our existing
customers.

Industry Risks

The loss of, or inability to attract, senior management and other key personnel
could harm 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. The intense competition for
qualified personnel in our industry and geographic region could harm our
ability to replace any of the members of our senior management team if we were
to lose their services in the future. If we do not succeed in attracting new
management and key personnel, or retaining and motivating existing management
and key personnel, our business will be harmed. In particular, the services and
expertise of our senior management team could be difficult to replace.

Our success depends upon our sales, consulting, support and technical
personnel. If we fail to attract and retain these personnel, our business may
be unable to grow and revenues could decline.

If we fail to retain and sufficiently expand our direct sales force, or our
consulting, customer support and technical staffs, we may not be able to
increase revenue or achieve increased market acceptance of our products. 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.
Our technical personnel develop and maintain our new products and product
enhancements. We believe that attracting and retaining these personnel is
particularly difficult for us because:

. the market for e-business infrastructure software is still emerging,

. market acceptance of our products has not yet been achieved,

. the sales cycles for our products are lengthy and

. we must constantly produce new products and product enhancements to
compete. Also, the high demand for qualified technical personnel in the
San Francisco metropolitan area makes it difficult to attract and retain
technical personnel.

Our recent growth has strained our existing resources. Any failure to manage
this growth may harm the value of your investment.

Our recent growth has strained, and future growth may continue to strain, our
personnel, management systems and resources, which could harm our business. We
have grown from 111 employees as of December 31, 1997 to 235 employees as of
March 31, 2000. As of March 31, 2000, we have also opened 15 sales offices and
established five foreign subsidiaries. To effectively manage and support our
operations, 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.

If we fail to manage and support our operations, our business would be harmed
and our operating losses could increase.

Our management team has limited prior experience together and may not
effectively manage our operations.

Three of our seven current executive officers, our president and chief
executive officer, senior vice president global services and senior vice
president global sales and marketing, joined us within the last 9 months. They
have limited prior experience working together and may not be effective working
together. Management ineffectiveness may disrupt our entire business operation,
distract our employees and impair our ability to execute our strategy.

Our international operations are expensive and challenging. If our
international operations do not perform as projected, our operating losses may
increase.

We have committed significant resources to the opening of international
offices and the expansion of international sales and support channels in
advance of revenue. We expect to incur expenses for localizing our software for
foreign markets. If our international expansion strategy does not generate
sufficient revenue to offset these expenditures, our operating losses may
increase. Revenues from international sales represented:

. 20% of total 1997 revenue,

. 23% of total 1998 revenue,

. 14% of total 1999 revenue and

. 33% of total revenue for the three months ended March 31, 2000.

We have limited experience in marketing, selling and distributing our
products and services internationally. 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. As
we expand our international operations, we may allow payment in foreign
currencies and exposure to losses in foreign currency transactions would
increase as a result.

If we fail to adapt to the rapid technological change which characterizes our
market, we could lose market share or our products could become obsolete.

The market for e-business infrastructure software is characterized by:

. rapid technological change,

. frequent new product introductions and enhancements,

. uncertain product life cycles,

. changing customer requirements and

. evolving industry standards including Extensible Markup Language, or
XML, and Secure Sockets Layer, or SSL.

The introduction of products embodying new technologies and the emergence of
new industry standards could quickly make our existing products obsolete and
unmarketable, which could harm our revenue. Our future success depends upon our
ability to develop and introduce a variety of new products and product
enhancements to address the increasingly sophisticated needs of our customers.

If our products do not work with multiple hardware, software and networking
platforms, some customers will not buy our products, and our revenue will
decline.

We currently serve a customer base with a wide variety of constantly changing
hardware, software and networking platforms. If we are unable to provide and
support our products on these multiple platforms, some customers will not buy
our products and our business would be hurt. We may have lost potential sales
due to our products' inability to support multiple hardware and software
platforms.

If we are unable to build and maintain relationships with application software
vendors, we could be unable to create and maintain our connectivity products
and our revenue could be harmed.

We have relationships with a number of application software vendors including
SAP, Oracle Corporation, Siebel Systems, Clarify Inc., Portal Software, Inc.,
and MetaSolv Software, Inc. These vendors provide access to their software and
documentation which enables us to develop connectivity solutions that are
compatible with their products. If these relationships are terminated or
restricted, or we are unsuccessful in establishing relationships with other
vendors, our ability to develop connectivity solutions to integrate new and
existing versions of these vendors' packaged enterprise applications would be
harmed.

Defects in or slow performance of our software products could diminish demand
for our products and cause costly liability, which would adversely affect our
operating results.

Our software products may contain undetected errors or defects, especially
when first introduced or when new versions are released. Any errors, defects or
slow performance that is discovered could result in:

. loss of revenue,

. delay in market acceptance,

. diversion of development resources,

. distraction of management,

. damage to our customer relationships or reputation,

. increased service and warranty cost or

. costly litigation defense.

We have previously discovered errors in our software after shipping the
software. These errors, when discovered by our customers, have impaired our
customer relationships. Any defects and errors found in our products could
cause customers to seek damages for loss of data, lost revenue, systems costs
or other harm they may suffer. These damages may be high because our software
products are critical to our customers' business operations. A successful
product liability claim brought against us could harm our business.

The cost and difficulties of implementing our products could significantly harm
our reputation, which may diminish our revenues.

Our products are often implemented as part of complex, time consuming and
expensive projects. Some of our customers have experienced delays and
difficulties in implementing our products. Prolonged delays and difficulties
have impaired our customer relationships. In many cases, our customers must
interact with, modify or replace significant elements of their existing
computer systems. This complicates the implementation process. If our customers
are dissatisfied with the implementation process, our ability to license
further products to these customers could be harmed. Dissatisfied customers may
refuse to recommend our products to prospective customers.

Because our products could interfere with our customers' other software
applications and hardware, we may be subject to 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'
other software and their networks. Customers or others may bring product
liability or warranty claims based on damage to, or interference with, these
networks or applications. Any of these claims could result in costly litigation
or divert management's attention and resources. Our current insurance coverage
would likely be insufficient to protect us from all liability that may be
imposed under these types of claims.

Our failure to safeguard our intellectual property could reduce our revenues,
or cause us to incur costly litigation.

The value of our software products arises from the intellectual property in
those products. 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 is limited. Unauthorized parties may copy aspects of our
products and obtain and use information that we believe is proprietary. Other
parties may breach confidentiality agreements or other protective contracts
they have made with us. 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. Intellectual property litigation has an uncertain outcome and could
result in substantial costs and diversion of management's attention and
resources.

Because our market is new, competitive and dependent upon intellectual property
rights, we could face costly litigation brought by third parties for
infringement of their rights.

We may be subject to legal proceedings and claims for alleged infringement of
third party proprietary rights, including patents, trademarks or copyrights.
Any litigation could result in substantial costs and diversion of management's
attention and resources. Parties making infringement claims against us may
obtain judgments against us, which could prevent us from selling our products
or require us to enter into royalty or license agreements which are not
advantageous to us.

Offering Risks

Our stock price may be volatile because of the stock price volatility of other
companies in our industry and because our stock has not been publicly traded
before, and, as a result, you may lose all or part of your investment.

The market price of our common stock is likely to be highly volatile. This
volatility could be caused by fluctuation of market valuations of significant
companies in our industry. The volatility could also be caused by the market
struggling to arrive at a valuation for our newly marketed stock. 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. Volatility in our stock price
may cause you to lose all or part of your investment.

The cost of possible securities class action litigation could increase our
expenses and damage our reputation with prospective and existing customers.

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

Our executive officers and directors own a large percentage of our voting stock
and could delay or prevent a change in our corporate control or other matters
requiring stockholder approval, even if favored by our other stockholders.

Immediately after this offering, our executive officers and directors, and
their affiliates, will continue to own approximately 47.09% of our outstanding
common stock. These stockholders may be able to exert

significant influence over matters requiring approval by our stockholders,
including the election of directors and the approval of mergers or other
business combinations. This concentration of voting power could have the
effect of delaying or preventing a change in control that other stockholders
view as favorable.

Investors in this offering will experience immediate and substantial dilution
and will pay a higher price for our common stock than our existing
stockholders paid.

Purchasers of the common stock in the offering and private placement will
suffer an immediate and substantial dilution of $12.66 per share in the net
tangible book value of our common stock from an assumed initial public
offering price of $15.00 per share. The exercise of options with further
dilute your investment.

Approximately twenty million eight hundred eighteen thousand, or 84%, of our
total outstanding shares are restricted from immediate resale but may be sold
into the market in the near future. This could cause the market price of our
common stock to drop significantly, even if our business is doing well.

After this offering, we will have outstanding 24,817,766 shares of common
stock. This includes the 4,000,000 we are selling in this offering, which may
be resold in the public market immediately. Also, approximately 159,999 shares
that will be issuable on the exercise of warrants may be sold into the market
immediately and 6,334 shares that will be issuable on the exercise of a
warrant may be sold into the market between 60 and 120 days after the date of
this prospectus. The remaining 84%, or 20,817,766 shares, of our total
outstanding shares will become available for resale in the public market as
shown in the chart below.

As restrictions on resale end, the market price could drop significantly if
the holders of these restricted shares sell them or are perceived by the
market as intending to sell them.

Number of shares/
% of total outstanding Date of availability for resale into public market
---------------------- -----------------------------------------------------

19,923,500 / 80.3% 180 days after the date of this prospectus due to an
agreement these shareholders have with the
underwriters, who may waive this restriction, and due
to the requirements of federal securities laws.
99,172 / 0.4% Between 180 and 365 days after the date of this
prospectus due to the requirements of the federal
securities laws.
795,094 / 3.2% 365 days after the date of this prospectus due to the
requirements of the federal securities laws, unless
registered for resale sooner under the federal
securities laws.

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 of 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 to our business described 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 4,000,000 shares of
common stock that we are selling in this offering and from a private placement
of 795,094 shares of common stock that will close at the same time as this
offering will be approximately $65.7 million. We estimate net proceeds of $74.1
million if the underwriters' option to purchase additional shares is exercised
in full. These figures are based upon an offering price of $15.00 per share
less the underwriting discount and estimated offering expenses.

We currently expect to use the net proceeds primarily for:

. working capital,

. general corporate purposes,

. 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.

Before these 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 consequently do not anticipate paying any cash
dividends. Our credit facility with Silicon Valley Bank prohibits us from
paying dividends without the bank's prior approval.

CAPITALIZATION

This table presents our long-term debt and capitalization as of March 31,
2000:

. 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,

. our sale of 4,000,000 shares of common stock in this offering at an
assumed initial public offering price of $15.00 per share less
underwriters' discount and the application of the net proceeds we
receive from that sale and

. our sale of 795,094 shares of common stock in a private placement
that will close at the same time as this offering at the assumed
initial public offering price of $15.00 per share less the
underwriters' discount and the application of the net proceeds we
receive from that sale.

This table should be read 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.

March 31, 2000
----------------------
Pro Forma
Actual As Adjusted
--------- -----------
(in thousands)

Cash and cash equivalents............................... $ 8,722 $ 74,414
========= =========
Long-term debt and capital lease obligations, less
current portion........................................ 2,818 2,818
--------- ---------
Stockholders' equity (deficit):
Convertible preferred stock; actual--17,000,000 shares
authorized, 16,126,003 shares issued and outstanding;
pro forma as adjusted--no shares authorized, issued
or outstanding ...................................... 161 --
Common stock; actual--45,000,000 shares authorized,
3,480,044 shares issued and outstanding; pro forma as
adjusted--150,000,000 shares authorized, 24,817,766
shares issued and outstanding........................ 3 25
Additional paid-in capital............................ 102,312 168,143
Deferred stock-based compensation..................... (4,210) (4,210)
Accumulated deficit................................... (105,964) (105,964)
--------- ---------
Total stockholders' equity (deficit)................ (7,698) 57,994
--------- ---------
Total capitalization.............................. $ (4,880) $ 60,812
========= =========

Additional Share Information

The outstanding share information in the table is as of March 31, 2000 and
excludes:

. 7,427,997 shares of common stock issuable upon the exercise of
outstanding options at a weighted average exercise price of $6.60 per
share;

. 444,255 shares of common stock issuable upon the exercise of outstanding
warrants at a weighted average exercise price of $7.38 per share and

. 506,113 shares reserved for future issuance under our 1997 stock option
plan and 196,475 shares reserved for future issuance under our 1999
executive stock plan.

Share Reserves

In January 2000, our board of directors approved changes to our stock option
plan reserves. On the effective date of this offering, the shares reserved for
future issuance under our stock option plans will be:

. 1997 stock plan: 3,000,000 shares.

. 2000 employee stock purchase plan: 750,000 shares.

. 2000 directors' stock option plan: 300,000 shares.

These share reserves replace any stock option reserves existing immediately
before the effective date of the offering. The reserves which existed
immediately before the effective date totalled 702,588 shares on March 31,
2000.

DILUTION

As of March 31, 2000, our pro forma net tangible book deficit was
approximately $(7,698,000) or $(0.38) per share of common stock after giving
effect for the conversion of all outstanding shares of convertible preferred
into 16,542,628 shares of common stock. Pro forma net tangible book deficit per
share is equal to the total amount of our tangible assets minus our total
liabilities divided by the number of shares of our common stock outstanding.
This formula can be represented by:

total tangible assets -- total liabilities
shares of common stock outstanding

After giving effect to the receipt of the estimated net proceeds from the
sale of 795,094 shares of common stock in a private placement that will close
at the same time as this offering and the sale of 4,000,000 shares of common
stock in this offering at an assumed initial public offering price of $15.00
per share, our pro forma, as adjusted net tangible book value at March 31, 2000
would have been approximately $58.0 million or $2.34 per share of common stock.
This represents an immediate increase in net tangible book value of $2.72 per
share to existing stockholders and an immediate dilution of $12.66 per share to
new investors. This table illustrates this per share dilution:

Assumed initial public offering price per share.............. $15.00
Pro forma net tangible book deficit per share as of March
31, 2000.................................................. $(0.38)
Increase per share attributable to new investors........... 2.72
------
Pro forma net tangible book value after the private placement
and the offering............................................ 2.34
------
Dilution per share to new investors.......................... $12.66
======

Comparative Investment Information

This following table summarizes on a pro forma basis, as of March 31, 2000,
the differences between existing stockholders and new investors in 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...... 20,022,672 80.7% $ 89,917,000 55.8% $ 4.49
New investors.............. 4,795,094 19.3% 71,092,000 44.2% 14.83
---------- ----- ------------ -----
Totals................... 24,817,766 100.0% $161,009,000 100.0%
========== ===== ============ =====

Additional Share Information

The existing stockholders' information presented above 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 March 31, 2000 and excludes:

. 7,427,997 shares of common stock issuable upon the exercise of
outstanding options at a weighted average exercise price of $6.60 per
share,

. 444,255 shares of common stock issuable upon the exercise of outstanding
warrants at a weighted average exercise price of $7.38 per share and

. 506,113 shares reserved for future issuance under our 1997 stock option
plan and 196,475 shares reserved for future issuance under our 1999
executive stock plan.

Share Reserves

In January 2000, our board of directors approved changes to our stock option
plan reserves. Effective on the effective date of this offering, the shares
reserved for future issuance under our stock option plans, will be:

. 1997 stock plan: 3,000,000 shares.

. 2000 employee stock purchase plan: 750,000 shares.

. 2000 directors' stock option plan: 300,000 shares.

The share reserves replace any stock option reserves existing immediately
before the effective date of the offering. These reserves totalled 702,588
shares on March 31, 2000.

The issuance of common stock for outstanding options and warrants or options
issued in the future will result in further dilution to new investors.

SELECTED CONSOLIDATED FINANCIAL DATA

The selected consolidated financial data should be read 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.

Period From
March 8, 1996 Three Months
(Inception) Year Ended December 31, Ended March 31,
to December ---------------------------- -----------------
31, 1996 1997 1998 1999 1999 2000
------------- -------- -------- -------- ------- --------
(in thousands, except per share data)

Consolidated Statements
of Operations:
Revenue:
Software license....... $ -- $ 748 $ 3,973 $ 8,194 $ 1,617 $ 3,183
Service, maintenance
and other ............ -- 360 3,733 10,900 2,019 4,515
------- -------- -------- -------- ------- --------
Total revenue.......... -- 1,108 7,706 19,094 3,636 7,698
Cost of revenue:
Software license and
royalties............. -- 36 438 1,599 128 121
Service, maintenance
and other, excludes
stock-based
compensation of $416
and $254 for the
years ended
December 31, 1998 and
1999 and $34 and $86
for the three months
ended March 31, 1999
and 2000.............. -- 1,860 5,392 10,127 1,779 4,528
------- -------- -------- -------- ------- --------
Total cost of
revenue............... -- 1,896 5,830 11,726 1,907 4,649
------- -------- -------- -------- ------- --------
Gross profit (loss).. -- (788) 1,876 7,368 1,729 3,049
------- -------- -------- -------- ------- --------
Operating expenses:
Research and
development, excludes
stock-based
compensation of
$1,623 and $89 for
the years ended
December 31, 1998 and
1999 and $80 and $179
for the three months
ended March 31, 1999
and 2000.............. 757 4,080 11,748 14,243 3,124 3,775
Sales and marketing,
excludes stock-based
compensation at
$2,052 and $897 for
the years ended
December 31, 1998 and
1999 and $68 and $380
for the three months
ended March 31, 1999
and 2000.............. 375 6,954 23,141 21,792 4,647 6,388
General and
administrative,
excludes stock-based
compensation at $683
and $222 for the
years ended December
31, 1998 and 1999 and
$(42) and $63 for the
three months ended
March 31, 1999 and
2000.................. 503 2,296 4,066 6,145 789 2,653
Amortization of
deferred stock-based
compensation.......... -- -- 4,774 1,462 140 708
------- -------- -------- -------- ------- --------
Total operating
expenses.............. 1,635 13,330 43,729 43,642 8,700 13,524
------- -------- -------- -------- ------- --------
Operating loss....... (1,635) (14,118) (41,853) (36,274) (6,971) (10,475)
Other income (expense),
net................... 41 166 479 (1,912) (291) (383)
------- -------- -------- -------- ------- --------
Net loss............. $(1,594) $(13,952) $(41,374) $(38,186) $(7,262) $(10,858)
======= ======== ======== ======== ======= ========
Net loss per share:
Basic and diluted...... $ (2.83) $ (11.88) $ (19.99) $ (13.40) $ (3.11) $ (3.41)
======= ======== ======== ======== ======= ========
Weighted average
shares used in
computation........... 564 1,175 2,069 2,850 2,332 3,181
======= ======== ======== ======== ======= ========
Pro forma net loss per
share:
Basic and diluted...... $ (0.31) $ (1.70) $ (3.55) $ (2.38) $(0.55) $ (0.55)
======= ======== ======== ======== ======= ========
Weighted average
shares used in
computation........... 5,162 8,201 11,641 16,062 13,151 19,723
======= ======== ======== ======== ======= ========

As of
December 31, March 31,
------------------------------- ---------
1996 1997 1998 1999 2000
------ ------- ------- ------- ---------
(in thousands)

Consolidated Balance Sheet Data:
Cash and cash equivalents......... $1,273 $24,741 $ 5,415 $12,506 $ 8,722
Working capital (deficit)......... 1,074 21,938 (4,648) (1,052) (8,827)
Total assets...................... 1,606 28,085 15,757 29,177 28,677
Long term debt and capital lease
obligations, less current
portion.......................... -- 986 6,254 3,513 2,818
Stockholders' equity (deficit).... 1,391 22,947 (6,670) (726) (7,698)

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 on the prior page 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 for the period from March
8, 1996 to December 31, 1996 and as of December 31, 1996 and 1997 have been
derived from the audited financial statements. The consolidated statement of
operations data for the three months ended March 31, 1999 and 2000 and the
consolidated balance sheet data at March 31, 2000 are derived from unaudited
consolidated financial statements included elsewhere in this prospectus. In
management's opinion, the unaudited statement of operations data and the
unaudited balance sheet data have been prepared on the same basis as the
audited consolidated financial statements and include all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the financial position and results of operations. The
historical results presented on the prior page may not be indicative of the
results to be expected for any future period.

Shares used in computing pro forma basic and diluted net loss per share
include 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.

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

Overview

Business

We provide e-business infrastructure software that enables the integration
and automation of business processes within enterprises and among their
customers and suppliers using the Internet. Our products help businesses use
the Internet to reduce information technology costs, increase productivity,
improve responsiveness to customer demands and enhance overall competitiveness.

Historical spending

We were incorporated in March 1996 and released our first product in November
1997. Since March 1996, 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 235 as of
March 31, 2000. Because our expenditures have been much higher than our
revenue, we have incurred net losses in each fiscal quarter since March 1996.
At March 31, 2000, we had an accumulated deficit of $106.0 million. We
anticipate that our operating expenses will continue to increase as we expand
our product lines and sales and marketing efforts. We expect to incur net
losses at least through the end of 2001.

Revenues

Revenues to date have been derived from the sale 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. Customers may
also 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 just under $100,000 to over $6.0 million.

Revenue recognition policy

Our software arrangements typically involve significant customization or
implementation services. As a result, software license revenue is generally
recognized using the percentage-of-completion method over the project
implementation cycles, which typically range from three to nine months. In
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. To date, we have not encountered any
circumstances where we have been unable to estimate the amount of effort
required to customize or implement our software.

In the future, we may recognize revenues for projects implemented by our
systems integrator partners upon shipment 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. When we enter into software arrangements with resellers,
we do not recognize revenue until the reseller demonstrates it has an
arrangement with the end user that satisfies our revenue recognition criteria.
Our revenue recognition policy complies with the American Institute of
Certified Public Accountants', AICPA, Statement of Position 97-2, Software
Revenue Recognition.

Revenue mix

As a result of our revenue recognition policy, which requires us to defer
recognition of services revenue and other revenue not received for software
licenses, the mix of license, service and other revenue for the current quarter
does not necessarily reflect the mix in sales activities for the current
quarter. For example, revenues recognized during the quarter ended March 31,
2000 generally resulted from sales made during the second and third 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. Because our sales mix for the current quarter
has been weighted more heavily towards software license revenue, as opposed to
service and other revenue, than in previous quarters, we expect that in the
future our revenue mix for a particular quarter will more closely reflect our
sales mix in that quarter.

Sales efforts and strategic relationships

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
increase sales and provide additional skilled implementation resources to 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.

International operations

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, 23% of total 1998 revenue, 14% of total 1999 revenue and 33% of
total revenue for the three months ended March 31, 2000. The percentage
decrease during the year ended December 31, 1999 was the result of significant
revenue contribution from five U.S.-based customers, collectively accounting
for greater than 48% of total revenue during the period. The percentage
increase during the three months ended March 31, 2000 was the result of
significant revenue contribution from four internationally-based customers,
collectively accounting for greater than 26% of total revenue during the
period.

Accounts receivable days sales outstanding

Because of our revenue recognition policy, we calculate accounts receivable
days sales outstanding, DSO, as the total amount of our accounts receivable at
the end of a quarter divided by our revenue for the quarter plus the net change
in our current deferred revenue at the end of a quarter, multiplied by 90. This
formula can be represented as:

quarter-end accounts receivable
X 90
quarterly revenue + net change in quarter-end current deferred revenue

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 98 days as of March 31, 2000. Since the terms of some 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. Although our DSO calculation may not be comparable to other similarly
titled information from other companies, we believe that it is an additional
meaningful measure of liquidity.

Deferred compensation

In 1998, 1999 and during the first quarter of 2000, we issued stock options
to employees at exercise prices that were subsequently judged to have been
below fair value. We recognized the difference between the

exercise prices and the later judged fair values as deferred stock-based
compensation. We amortize deferred stock-based compensation over the vesting
period of the related award as a non-cash expense in compliance with Financial
Accounting Standards Board Interpretation No. 28. As of March 31, 2000,
$4.2 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 2003.

Danger of period-to-period comparisons of results

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.

Results of Operations

The results of operations table presents operating data as a percentage of
total revenue.

Three Months
Ended March
Year Ended December 31, 31,
--------------------------- ---------------
1997 1998 1999 1999 2000
-------- ------- ------ ------ ------

Revenue:
Software license............. 67.5 % 51.6 % 42.9 % 44.5% 41.3%
Service, maintenance and
other....................... 32.5 48.4 57.1 55.5 58.7
-------- ------- ------ ------ ------
Total revenue................ 100.0 100.0 100.0 100.0 100.0
Cost of revenue:
Software license and
royalties................... 3.2 5.7 8.4 3.5 1.6
Service, maintenance and
other....................... 167.9 70.0 53.0 48.9 58.8
-------- ------- ------ ------ ------
Total cost of revenue........ 171.1 75.7 61.4 52.4 60.4
-------- ------- ------ ------ ------
Gross margin............... (71.1) 24.3 38.6 47.6 39.6
Operating expenses:
Research and development..... 368.2 152.4 74.6 85.9 49.0
Sales and marketing.......... 627.6 300.3 114.1 127.8 83.0
General and administrative... 207.2 52.8 32.2 21.7 34.5
Amortization of deferred
stock-based compensation.... -- 62.0 7.7 3.9 9.2
-------- ------- ------ ------ ------
Total operating expenses..... 1,203.0 567.5 228.6 239.3 175.7
-------- ------- ------ ------ ------
Operating loss............. (1,274.1) (543.2) (190.0) (191.7) (136.1)
Other income (expense), net.... 15.0 6.2 (10.0) (8.0) (5.0)
-------- ------- ------ ------ ------
Net loss................... (1,259.1)% (537.0)% (200.0)% (199.7)% (141.1)%
======== ======= ====== ====== ======

Results of Operations for the Three Months Ended March 31, 1999 and 2000

Software license revenue. Our total revenue increased from $3.6 million in
the three months ended March 31, 1999 to $7.7 million for the same period in
2000, representing growth of 112%. Our software license revenue increased from
$1.6 million in the three months ended March 31, 1999 to $3.2 million for the
same period in 2000, representing growth of 97%. The increases were due to
increased acceptance of our expanded product offering in the marketplace, a
greater number of transactions sold and a larger average transaction size.

Service, maintenance and other revenue. Service, maintenance and other
revenue increased from $2.0 million in the three months ended March 31, 1999 to
$4.5 million for the same period in 2000, representing growth of 124%. These
increases were due to an increase in consulting, training and maintenance fees
associated with the increased number of transactions sold, the increased
average transaction size and a larger installed license base.

Cost of software license revenue and royalties. Cost of software license
revenue and royalties was $128,000 in the three months ended March 31, 1999 and
$121,000 for the same period in 2000, representing approximately 4% and 2% of
total revenue. The decrease in absolute dollar amount and as a percentage of
revenue was a result of replacing technology licensed by CrossWorlds with our
own internally developed product in the fourth quarter of 1999.

Cost of service, maintenance and other revenue. Cost of service, maintenance
and other revenue was $1.8 million in the three months ended March 31, 1999 and
$4.5 million for the same period in 2000, representing 49% and 59% of total
revenue. The increase in cost of service, maintenance and other revenue as a
percent of total revenue was due to increased personnel costs necessary to
support increased customer demand. We expect our cost of service, maintenance
and other revenue to continue to increase in absolute dollars in future
periods.

Research and development expenses. Research and development expenses
increased from $3.1 million in the three months ended March 31, 1999 to $3.8
million for the same period in 2000. The increase was due to an increase in
personnel costs associated with new product initiatives. Research and
development personnel costs increased from $2.2 million in the three months
ended March 31, 1999 to $2.8 million in the three months ended March 31, 2000.
Research and development expenses represented 86% and 49% of total revenues in
the three months ended March 31, 1999 and 2000. The decrease as a percentage of
total revenues was due to growth in our total revenues. We expect our research
and development expenses to continue to increase in absolute dollars in future
periods.

Sales and marketing expenses. Sales and marketing expenses increased from
$4.6 million in the three months ended March 31, 1999 to $6.4 million for the
same period in 2000. The increase resulted from higher sales commissions and
bonuses associated with higher sales volume. Sales commissions and bonuses
increased from $656,000 in the three months ended March 31, 1999 to
$2.4 million in the three months ended March 31, 2000. Sales and marketing
expenses represented 128% of total revenues in the three months ended March 31,
1999 and 83% of total revenues in the three months ended 2000. The decline in
sales and marketing expenses as a percentage of total revenues was the result
of growth in total revenue. We expect to continue hiring additional sales
personnel and to increase promotion and other marketing expenditures in the
future. We expect that sales and marketing expenses will increase in absolute
dollars in future periods.

General and administrative expenses. General and administrative expenses
increased from $789,000 in the three months ended March 31, 1999 to $2.7
million for the same period in 2000, representing 22% and 34% of total revenue.
The increase was a result of expenses related to our chief executive officer,
increased staffing necessary to manage and support our growth and professional
services associated with legal and auditing services. Costs associated with our
chief executive officer increased from $148,000 in the three months ended March
31, 1999 to $1.2 million in the three months ended March 31, 2000. Other
general and administrative personnel costs increased from $248,000 to $702,000
in the three months ended March 31, 1999 and 2000. Professional service
expenses increased from $195,000 in the three months ended March 31, 1999 to
$493,000 in the three months ended March 31, 2000.

Other income (expense). Other expense increased from $291,000 in the three
months ended March 31, 1999 to $383,000 for the same period in 2000, due to the
amortization of the funding commitment which was recorded in February 2000.

Amortization of deferred stock-based compensation. During the three months
ended March 31, 1999 and 2000, we recorded total deferred stock-based
compensation of $1.1 million and $2.4 million for stock option grants. We are
amortizing these amounts over the vesting periods of the applicable options,
resulting in amortization expense of $140,000 in the three months ended March
31, 1999 and $708,000 for the same period in 2000.

Provision for income taxes. We incurred net operating losses in the three
months ended March 31, 1999 and 2000 and consequently paid no federal, state
and foreign income taxes in either of these periods.

Results of Operations for the 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 from a greater number of transactions
sold and a larger average transaction size. Total transactions sold that
produced revenue increased from six in 1997 to 26 in 1998 to 41 in 1999.
License revenue from these transactions increased from an average of $125,000
in 1997 to $153,000 in 1998 to $200,000 in 1999.

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 the
increased number of transactions sold that produced revenue and the increased
average transaction size and a larger installed license base. The value of
service, maintenance and other revenue from these transactions increased from
an average of $60,000 in 1997 to $144,000 in 1998 to $266,000 in 1999.

Cost of software license revenue and royalties. Cost of software license
revenue and royalties increased from $36,000 to $438,000 to $1.6 million in
1997, 1998 and 1999, representing 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 was related to an increase in royalty fees for technology
licensed by CrossWorlds. The increase from 1998 to 1999 in cost of software
license and royalties revenue as a percentage of total revenue was related to
the amortization of guaranteed minimum royalty payments. 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
across all periods 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 because of greater usage of our consulting staff to generate revenue.
We expect our cost of service, maintenance and other revenue to continue to
increase in absolute dollars in future periods.

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 personnel
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 the result of growth in our total
revenue. We expect our research and development expenses to continue to
increase in absolute dollars in future periods.

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. Sales and marketing personnel costs

increased from $2.2 million in 1997 to $6.9 million in 1998, travel and
entertainment costs increased from $875,000 to $3.2 million, overhead costs
increased from $1.0 million to $4.2 million and commissions and bonuses
increased from $261,000 in 1997 to $3.3 million in 1998. In 1998, we also made
significant expenditures on advertising and marketing programs, which increased
from $2.3 million in 1997 to $4.3 million in 1998. We also invested in foreign
operations in Australia and Asia in 1998, resulting in $734,000 in expenses.
The decrease from 1998 to 1999 reflects significant reductions in expenditures
on advertising from $4.3 million to $2.3 million, and the closure of foreign
operations in Australia and Asia offset by increases in commissions and bonus
expenses from $3.3 million in 1998 to $4.8 million in 1999. 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 the result of growth in
total revenue during both periods and reduced spending from 1998 to 1999. We
expect our sales and marketing expenses to continue to increase in absolute
dollars in future periods.

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 to increased staffing necessary to
manage and support our growth. The decrease as a percentage of our total
revenue was due 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 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 expense in 1999 was due to the $1.0
million write-off of a prepaid royalty asset and approximately $1.0 million in
interest payments on outstanding debt.

Amortization of deferred stock-based compensation. During 1998 and 1999, we
recorded total deferred stock-based compensation of $8.6 million and $225,000
for 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, 1998
and 1999 and consequently paid no federal, state and foreign income taxes in
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
$23.0 million and $39.7 million. Our net deferred tax assets have been fully
offset by a valuation allowance. Our net valuation allowance increased by $16.2
million and $16.8 million during 1998 and 1999. Deferred tax assets relate
primarily to net operating loss carryforwards, and capitalized research and
development costs.

Nine Quarters Ended March 31, 2000

The first table below shows CrossWorlds' consolidated statement of operations
data for each of the nine quarters ended March 31, 2000. The second table shows
those amounts as a percentage of total revenue for the same periods. This
unaudited quarterly information was prepared on the same basis as CrossWorlds'
audited consolidated financial statements and, in management's opinion,
reflects all adjustments for normal recurring entries that are 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, Mar. 31,
1998 1998 1998 1998 1999 1999 1999 1999 2000
-------- -------- --------- -------- -------- -------- --------- -------- --------
(in thousands)

Consolidated Statement
of Operations Data:
Revenue:
Software licenses....... $ 977 $ 1,155 $ 545 $ 1,296 $ 1,617 $ 1,811 $ 2,270 $ 2,496 $ 3,183
Service, maintenance and
other.................. 990 818 964 961 2,019 2,353 3,012 3,516 4,515
------- -------- -------- -------- ------- ------- ------- -------- --------
Total revenue........... 1,967 1,973 1,509 2,257 3,636 4,164 5,282 6,012 7,698
Cost of revenue:
Software license and
royalties.............. 70 24 73 271 128 311 562 598 121
Service, maintenance and
other(1)............... 1,159 948 1,598 1,687 1,779 2,420 2,698 3,230 4,528
------- -------- -------- -------- ------- ------- ------- -------- --------
Total cost of revenue... 1,229 972 1,671 1,958 1,907 2,731 3,260 3,828 4,649
------- -------- -------- -------- ------- ------- ------- -------- --------
Gross profit (loss)..... 738 1,001 (162) 299 1,729 1,433 2,022 2,184 3,049
------- -------- -------- -------- ------- ------- ------- -------- --------
Operating expenses:
Research and
development(2)......... 2,152 3,224 2,973 3,399 3,124 3,561 3,790 3,768 3,775
Sales and marketing(3).. 3,545 6,234 6,173 7,189 4,647 5,103 5,439 6,603 6,388
General and
administrative(4)...... 833 1,213 763 1,257 789 1,223 1,399 2,734 2,653
Amortization of deferred
stock-based
compensation........... 659 940 1,587 1,588 140 782 823 (283) 708
------- -------- -------- -------- ------- ------- ------- -------- --------
Total operating
expenses............... 7,189 11,611 11,496 13,433 8,700 10,669 11,451 12,822 13,524
------- -------- -------- -------- ------- ------- ------- -------- --------
Operating loss.......... (6,451) (10,610) (11,658) (13,134) (6,971) (9,236) (9,429) (10,638) (10,475)
Other income (expense),
net.................... 299 192 10 (22) (291) (197) (369) (1,055) (383)
------- -------- -------- -------- ------- ------- ------- -------- --------
Net loss................ $(6,152) $(10,418) $(11,648) $(13,156) $(7,262) $(9,433) $(9,798) $(11,693) $(10,858)
======= ======== ======== ======== ======= ======= ======= ======== ========

- --------
(1) Excludes stock-based compensation at $36, $93, $147, $140, $35, $142, $65,
$12 and $86 for each of the quarters, ending March 31, 2000.

(2) Excludes stock-based compensation of $314, $450, $465, $394, $80, $(157),
$123, $43 and $179 for each of the quarters, ending March 31, 2000.

(3) Excludes stock-based compensation of $239, $338, $782, $693, $68, $636,
$322, $(129) and $380 for each of the quarters, ending March 31, 2000.

(4) Excludes stock-based compensation of $70, $59, $193, $361, $(43), $161,
$313, $(209) and $63 for each of the quarters, ending March 31, 2000.

Quarter Ended
------------------------------------------------------------------------------------------
Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31,
1998 1998 1998 1998 1999 1999 1999 1999 2000
-------- -------- --------- -------- -------- -------- --------- -------- --------

As a Percentage of
Revenue:
Revenue:
Software license....... 49.7 % 58.5 % 36.1 % 57.4 % 44.5 % 43.5 % 43.0 % 41.5 % 41.3%
Service, maintenance
and other............. 50.3 41.5 63.9 42.6 55.5 56.5 57.0 58.5 58.7
------ ------ ------ ------ ------ ------ ------ ------ ------
Total revenue.......... 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Cost of revenue:
Software license and
royalties............. 3.6 1.2 4.8 12.1 3.5 7.5 10.6 9.9 1.6
Service, maintenance
and other............. 58.9 48.0 105.9 74.7 48.9 58.1 51.1 53.7 58.8
------ ------ ------ ------ ------ ------ ------ ------ ------
Total cost of revenue.. 62.5 49.2 110.7 86.8 52.4 65.6 61.7 63.6 60.4
------ ------ ------ ------ ------ ------ ------ ------ ------
Gross margin.......... 37.5 50.8 (10.7) 13.2 47.6 34.4 38.3 36.4 39.6
------ ------ ------ ------ ------ ------ ------ ------ ------
Operating expenses:
Research and
development........... 109.4 163.4 197.0 150.6 85.9 85.5 71.7 62.7 49.0
Sales and marketing.... 180.2 316.0 409.0 318.5 127.8 122.6 103.0 109.8 83.0
General and
administrative........ 42.3 61.5 50.6 55.7 21.7 29.4 26.5 45.5 34.5
Amortization of
deferred stock-based
compensation.......... 33.5 47.6 105.2 70.4 3.9 18.8 15.6 (4.7) 9.2
------ ------ ------ ------ ------ ------ ------ ------ ------
Total operating
expenses.............. 365.4 588.5 761.8 595.2 239.3 256.3 216.8 213.3 175.7
------ ------ ------ ------ ------ ------ ------ ------ ------
Operating loss........ (327.9) (537.7) (772.5) (582.0) (191.7) (221.9) (178.5) (176.9) (136.1)
Other income (expense),
net.................... 15.2 9.7 0.7 (1.0) (8.0) (4.7) (7.0) (17.5) (5.0)
------ ------ ------ ------ ------ ------ ------ ------ ------
Net loss.............. (312.7)% (528.0)% (771.8)% (583.0)% (199.7)% (226.6)% (185.5)% (194.4)% (141.1)%
====== ====== ====== ====== ====== ====== ====== ====== ======

Overall trends. The trends discussed previously in the annual comparisons of
operating results from 1997 through the quarter ended March 31, 2000, generally
apply to the comparison of results of operations for our nine most recent
quarters ended March 31, 2000.

Revenue mix. Our software license and service revenue mix fluctuated
significantly at various times during the last nine quarters because the
service components of our sales contracts fluctuated based on the customization
and installation needs of our customers.

In the quarter ended September 30, 1998, software license revenue was lower
as a percentage of total revenue relative to the other eight quarters ended
March 31, 2000 because fewer sales were closed in the prior quarter and three
significant projects were completed in the prior quarter. We also started and
completed three limited implementation projects designed to allow customers to
evaluate our software, resulting in a lower percentage of software license
revenue from those projects during the period. During the quarter ended June
30, 1998, 5 sales closed as compared to 8 sales closing in the immediately
preceding quarter ended March 31, 1998. Services, maintenance and other revenue
increased significantly from the quarter ended December 31, 1998 to the quarter
ended March 31, 1999 because of the implementation of two significant projects.
Revenue increased significantly in the quarter ended March 31, 2000 as a result
of increased sales volumes.

Cost of software license and royalties revenue. 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 paid by
CrossWorlds for third party technology licenses. 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
$500,000 during each of the two quarters for guaranteed minimum royalty
payments for technology licensed by CrossWorlds. This percentage decreased in
the quarter ended March 31, 2000 as a result of our replacing the licensed
technology with our own internally developed product during the fourth quarter
of 1999. 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 increased services costs as
a percentage of total revenue during that quarter. Cost of service, maintenance
and other revenue increased in absolute dollars in the three months ended March
31, 2000 due to increased personnel costs resulting from increased hiring to
meet increased customer demand.

Research and development expenses. 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. Sales and marketing expenses increased during
the quarter ended June 30, 1998 as a result of:

. increased advertising,

. increased personnel costs and

. expanded business development efforts as we established our presence in
the marketplace and built strategic partnerships.

Advertising costs during the quarter ended June 30, 1998 increased from
$690,000 during the quarter ended March 31, 1998 to $1.9 million, salary and
wage expense increased from $1.0 million to $1.9 million and expanded business
development efforts increased from $430,000 to $1.0 million.

Sales and marketing expenses decreased during the quarter ended March 31,
1999 as the result of:

. our reorganization,

. the reduction in the size of our marketing organization,

. our election not to pursue advertising campaigns similar to those we
pursued in 1998,

. a reduction in our travel expenses and

. our strategic decisions in December 1998 to cease our Asian and
Australian operations.

From the quarter ended December 31, 1998 to the quarter ended March 31, 1999,
salary and wage related expenses decreased from $3.7 million to $2.4 million,
advertising expenses decreased from $800,000 to $460,000, travel expenses
decreased from $1.2 million to $600,000 and Asian and Australia related
expenses decreased from $230,000 to $25,000.

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 because 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. General and administrative expenses
increased during the quarter ended December 31, 1999 as a result of expenses
related to our chief executive officer, and costs incurred employing him,
totalling $1.3 million.

Total operating expenses. 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 as a result of the increase in sales

commission expense and expenses incurred employing our chief executive officer.
Sales commission expense increased from $970,000 during the quarter ended
September 30, 1999 to $2.2 million during the quarter ended December 31, 1999
and expenses related to our chief executive officer increased from $200,000 to
$1.5 million during the same period offset by a reduction in the amortization
of deferred stock-based compensation from $823,000 to ($283,000).

Other expenses. Other expense increased during the quarter ended December 31,
1999 compared to the same period in the prior year due to the write-off of a
prepaid royalty asset. Our quarterly results have varied widely in the past,
and we expect that they may continue to fluctuate in the future.

Seasonality. We have experienced, and expect to continue to experience,
seasonality in 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 than in other quarters. 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. European sales may also tend to be lower during the summer months
than during other periods. We expect that seasonal trends will continue.

Revenue recognition. We recognize software license revenue 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

Funding to date. We have funded our operations through March 31, 2000 through
private sales of preferred equity securities, totaling $85.7 million and
commercial bank loans and equipment leases. As of March 31, 2000, we had $8.7
million in cash and cash equivalents.

Sources and uses of cash. Our operating activities resulted in net cash
outflows of $11.4 million, $32.1 million, $28.7 million and $4.4 million in
1997, 1998, 1999 and the three months ended March 31, 2000. The sources of cash
were:

. increases in accumulated liabilities,

. increases in accrued compensation and related expenses and

. increases in deferred revenue.

Uses of cash in operating activities were due to net operating losses and
increases in accounts receivable.

Investing. Investing activities used cash of $1.8 million in 1997, $3.6
million in 1998, $835,000 in 1999 and $245,000 in the three months ended March
31, 2000 because of purchases of capital equipment. In April 1999, we began
leasing equipment through a $1.5 million master lease agreement with a lender.

Financing. Financing activities provided:

. $36.7 million in 1997 through the issuance of preferred stock and
proceeds from an equipment loan;

. $16.3 million in 1998 through the issuance of preferred stock, proceeds
from an equipment loan and proceeds from the issuance of convertible
subordinated notes and proceeds from a revolving line of credit;

. $36.6 million in 1999, from the issuance of preferred stock and the
issuance of a subordinated loan offset by repayments of credit
facilities and

. $884,000 in the three months ended March 31, 2000, from proceeds from
exercise of stock options and warrants offset by repayments of credit
facilities.

Credit facilities. As of March 31, 2000, our principal commitments consisted
of:

. obligations to Silicon Valley Bank under:

. equipment facility loans and

. an irrevocable letter of credit, and

. obligations to Comdisco under:

. the master lease agreement and

. a subordinated loan and security agreement.

As of March 31, 2000, we had $5.9 million in outstanding borrowings which are
payable through 2003. We have a revolving line of credit which provides for
borrowing of up to $10.0 million based on 65% of eligible accounts receivable.
Borrowings under this line of credit accrue interest that is payable monthly at
0.10% above prime rate. As of March 31, 2000, we had no borrowings against this
line of credit. Borrowings are secured by all of our assets. We have agreements
that require us to comply with financial covenants. These covenants are that we
maintain a 1.5 to 1.0 quick ratio, a $3.3 million tangible net worth and a 1.5
to 1.0 liquidity coverage ratio. As of March 31, 2000, we were in compliance
with each of these covenants.

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

Future funding requirements. 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. After that we may require additional funds to
support our working capital requirements, or for other purposes. We may also
seek to raise 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. We have no current plans, agreements or commitments of this
nature, and we are not currently engaged in any negotiations involving a
transaction of this nature.

Qualitative and Quantitative Disclosures about Market Risk

Because we market our products 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 because 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. Consequently, no quantitative
tabular disclosures are required.

Recent Accounting Pronouncements

In December 1998, the governing body of the American Institute of Certified
Public Accountants, issued Statement of Position 98-9, Software Revenue
Recognition, with Respect to Certain Arrangements. Statement of Position 98-9
requires that revenue be recognized 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 compliance with Statement of Position 97-2. We adopted Statement of Position
98-9 on January 1, 2000 and do not expect this adoption to have a material
effect on our consolidated financial position or results of operations.

BUSINESS

Overview

We provide e-business infrastructure software that enables the integration
and automation of business processes within companies and among their customers
and suppliers using the Internet. Our products help traditional and new
businesses use the Internet to reduce information technology costs, increase
productivity, improve responsiveness to customer demands and enhance overall
competitiveness. Our products are based on a modular architecture that meets
the requirements of large enterprises, and combines standard Internet
technologies with proprietary innovations.

We provide pre-built connectivity solutions for leading technology
environments and applications. We offer pre-built business process modules to
support many of the common integration requirements of companies in our target
markets. We also provide a set of tools that allow our customers to customize
their integration solution to address their unique e-business requirements.

We sell and market our products primarily through a direct sales force that
targets companies in selected industries, including technology, industrial
manufacturing, process manufacturing and telecommunications. Additionally, we
utilize our relationships with IBM, SAP, global systems integrators and
software providers to support the sales and implementation of our products in
these and other markets. Our customers include companies such as Applied
Materials, Delphi Automotive, DuPont, Ingersoll-Rand, Nortel Networks, Siemens,
Solar Turbines/Caterpillar 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 further complicated
by changes in government regulation, mergers and acquisitions, and the
increasing adoption of e-business strategies. In response to this changing
environment, many companies are modifying their operations to increase
efficiency and become more responsive to customer and market demands.

In pursuit of these goals, many companies are implementing collaborative
business strategies that improve coordination and communication among multiple
business functions, divisions and trading partners. Examples of these
strategies include:

. using Internet-based marketplaces and trading exchanges,

. collaborative supply and demand planning among trading partners,

. outsourcing customer service and manufacturing activities to third
parties and

. inventory management across multiple company divisions and distribution
channels.

Efforts to implement these strategies, however, have been constrained by
various information technology and business issues, including:

. companies have traditionally been managed on a functional basis with
minimal coordination between functions including 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 including SAP
and Oracle;
. customer relationship management applications from vendors including
Siebel and Clarify;
. supply chain management applications from vendors including i2
Technologies, Manugistics Group, Inc. and Numetrix, a J.D. Edwards
Company;
. e-business applications from vendors including SAP, Ariba, Inc. and
BroadVision, Inc. and
. industry-specific applications from vendors including Portal and
MetaSolv;

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

. extending internal and outsourced business processes outside the
enterprise requires integration and coordination among customers' and
suppliers' applications and

. technological incompatibilities and functional differences among
disparate applications make it difficult for these systems to communicate
in real time and to be integrated 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 using its own enterprise
applications. The total dollar value of these business-to-business transactions
over the Internet is expected to grow to $1.3 trillion by 2003, according to
Forrester Research.

As a result of this complexity, most large organizations face significant
integration challenges. To address these challenges, companies need a flexible
e-business infrastructure that automates internal and Internet-based business
processes while utilizing existing investments in enterprise applications. The
Yankee Group estimates that approximately 35% to 40% of total corporate
information technology spending is now consumed by systems 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,

. information technology departments within companies and

. software vendors.

According to International Data Corporation Research, the worldwide systems
integration services market is expected to grow from $41.0 billion in 1996 to
$90.0 billion by 2003.

The market for e-business software, according to Forrester Research, is
expected to grow from $121.0 million in 1997 to $3.8 billion in 2002. The
related market for data integration tools and enterprise application
integration software, according to the Yankee Group, is expected to grow from
$1.6 billion in 1998 to $5.0 billion in 2001. The Yankee Group defines
enterprise application integration software as products that integrate business
applications both within an enterprise and among trading partners.

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

. Messaging-Oriented Middleware is the underlying software that manages the
movement of simple messages between applications. These products offer
limited support for business logic that defines how, when and in what
form data is transmitted between applications. Companies offering
products in this segment include IBM, TIBCO and BEA.

. Enterprise Application Integration Tools allow companies to build
customized links between pairs of applications, known in the industry as
point-to-point interfaces. These tools enable users to convert data from
one application into a format that is able to be used by another
application. Companies offering products in this segment include Active
Software Inc., New Era of Networks Inc. and Mercator Software, formerly
TSI Software International.

. Electronic Data Interchange Software uses industry-specific data formats
to enable point-to-point electronic links for the purpose of transmitting
business documents. Companies offering products in this segment include
Sterling Commerce and Harbinger.

. XML Tools enable companies to build integration solutions based on the
exchange of XML-formatted documents. These solutions typically do not
address the integration requirements of applications within the
enterprise. Companies offering products in this segment include
OnDisplay, Inc. and webMethods, Inc.

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 fail to provide
a complete business integration solution for a number of reasons:

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

. Lack of 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. Many products do not provide pre-built support for the
most common business process integration requirements.

. Lack of Pre-built Application Connectivity. Many business integration
solutions do not provide pre-built connectivity to the market's leading
e-business and enterprise applications. Without this pre-built
connectivity, companies may find it difficult to pursue e-business
strategies using their existing information technology infrastructure.

. Architectural Inflexibility. Most custom built interfaces cannot be
easily applied to similar situations and require significant
modifications or full-scale reprogramming when adding applications. Many
business integration products are either based on out-dated technologies
or do not provide an architecture that combines all required integration
technologies into a unified product.

New Approaches for Business Integration

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

. provide an e-business infrastructure for the integration and automation
of business processes both within the enterprise and among customers and
suppliers over the Internet,

. provide an open platform that supports high volumes of business
transactions and meets the system management requirements of large
companies,

. utilize the functionality of leading enterprise application packages,

. reduce changes to existing information technology environments and

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

A comprehensive business integration solution with these features would
improve operating efficiencies, enable organizations to adapt to changes in
business and information technology requirements and allow companies to realize
the benefits of e-business.

The CrossWorlds Solution

Our e-business infrastructure software integrates and automates business
operations within companies and among their customers and suppliers over the
Internet. Our products are based on a modular architecture that meets the
requirements of large enterprises, and combines standard Internet technologies

with proprietary innovations. We offer a set of tools that customers can use to
build e-business integration solutions, and extend and customize our pre-built
components. Our pre-built components consist of connectivity solutions for
leading applications and business process modules for integrating common e-
business and enterprise processes.

Our products are characterized by five elements:

Flexible e-Business Infrastructure

We believe our products provide a foundation for enabling e-business
transactions between companies and their trading partners. We support a number
of the leading packaged e-business applications and development environments.
Our architecture also supports multiple e-business and Internet data and
communication standards. When combined with our application integration and
business process automation products, customers can rapidly deploy e-business
solutions that take advantage of their existing information technology
infrastructure.

Real-time Business Process Automation

We believe our integration solutions allow customers to accelerate their
e-business initiatives by integrating disparate enterprise applications and
automating their underlying business processes. We believe our solution reduces
process redundancies and data inconsistencies between applications. We offer a
process modeling toolset for building custom business process integration
solutions and pre-built business process integration modules that utilize our
knowledge of industry specific business practices.

Extensive Packaged Application Integration

We offer pre-built connectivity products for many of the leading packaged e-
business and enterprise applications. These connectivity products use and
complement the standard interfaces provided by each application vendor. Where
required, we support multiple versions of applications to accommodate
functional and technological changes in their interfaces. This allows customers
to migrate between existing and new application releases with minimal changes
to their integration solution, reducing their long term cost of integration.

Extensive Custom Application Integration

We offer a suite of tools that enables customers to extend their integration
solutions to include custom applications. Our tools automate common integration
development tasks including transforming data among different formats and
establishing 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 architecture supports relevant Internet and technology
standards and can be extended to support new standards as they emerge. This
architecture has been designed to allow customers to adapt to changes in
business and information technology environments, including the addition of new
applications or trading partners and the processing of increasingly large
volumes of information.

Strategy

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

Provide Comprehensive e-Business Solutions

As enterprises increasingly conduct business over the Internet, they will
face a growing number of integration challenges. Over the next twelve months,
we intend to enhance our current e-business product

offering by developing Internet-based business process integration modules and
pre-building connectivity solutions for additional e-business applications
including those used for Internet-based procurement and order management. We
also intend to enhance our architecture by providing support for additional
security and Internet standards as they emerge.

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 single architecture, our solution addresses a
broad range of integration requirements faced by global enterprises. Over the
next two years we plan to build connectivity to additional packaged
applications and technology environments. We will expand our set of pre-built
business process integration modules to support additional customer
requirements.

Maintain and Extend Technology Leadership

Our Java-based, open architecture uses industry-leading messaging middleware
and proprietary innovations, providing an extensible, high-performance e-
business infrastructure. As new technologies evolve, we intend to continue to
improve this technology platform to ensure that our solutions 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 Selected Industries

We believe that sales to global companies in selected industries including
technology, industrial manufacturing, process manufacturing and
telecommunications represent our greatest immediate revenue opportunities. Many
companies in these industries have made significant investments in packaged and
custom applications and are pursuing strategies that require the integration of
these applications both internally and with trading partners over the Internet.
Over the next two years we intend to expand our offerings in these markets and
to target additional industries in the future where our solution can provide
significant strategic benefit.

Promote Broad Acceptance of the CrossWorlds Platform

We are planning initiatives to promote broader acceptance of the CrossWorlds
platform. One element of this plan is the CrossWorlds Exchange, an online,
subscription-based resource containing a repository of integration components
based on our open architecture. The CrossWorlds Exchange will also provide
access to methodologies and templates to facilitate product development and
implementation by customers, systems integration and other third parties. The
CrossWorlds Exchange will be implemented in phases over the next six months.
Another element of this plan is to work with partners to expand distribution of
our products into additional industries.

Expand 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 provide us with a competitive advantage. Our
partnerships with enterprise application and other technology vendors and
systems integrators provide sales and marketing support and access to required
technology and expertise. Currently, our most significant strategic partners
are IBM, SAP and a number of global systems integrators. Over the next twelve
to twenty-four months we expect our systems integrator partners will
increasingly provide the resources needed to implement our products.

Products and Technology

Our e-business infrastructure products include business process integration
software and application connectivity components. These products are supported
by a Java-based architecture and a toolset that can be used to develop and
deploy customized integration solutions. The e-Business Infrastructure Products
table 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 application integration toolset
.CrossWorlds Connector Development Kit
.CrossWorlds Map Designer
.CrossWorlds Relationship Designer
Infrastructure Products .CrossWorlds InterChange Server
.CrossWorlds System Manager

A typical installation would include one or more CrossWorlds 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.

Business Process Integration Products

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

. extend the functionality of individual applications, which enables
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 for business process integration
reduces the maintenance burden of the integration.

Business Process Integration Toolset

Business process integration modules are created and extended using the
CrossWorlds 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. To simplify development and customization, process components are
presented to the user visually, and are defined and configured through the
CrossWorlds Process Designer's graphical user interface.

Pre-Built Business Process Integration Modules

Our customers can create their own business process integration modules with
our tools, and can use our pre-built integration modules to integrate many of
the common business processes required for e-business and other enterprise
business functions. These pre-built components utilize our common object model,
allowing multiple processes to be combined into solutions that address complex
requirements. Our pre-built process integration modules are grouped into three
product lines that are detailed in these 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 implement e-business
solutions that take advantage of their existing information technology
investments.

CrossWorlds eBusiness

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

CrossWorlds eSales Integrates the various applications involved
in the Internet-based sales and ordering
process

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

CrossWorlds eCustomer Service Provides self-service information by
integrating Internet-based customer
relationship management applications with
order management and financial systems

CrossWorlds Demand Planning Integrates forecasting applications with
operational systems to enable effective
demand planning within the enterprise and to
support sales forecasting

CrossWorlds Supply Planning Enables effective planning by integrating
supply planning applications with operational
systems

CrossWorlds Customer Interaction. Our Customer Interaction product line
includes the business process integration modules that link customer
relationship management, including 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, improving customer
service effectiveness and enhancing sales efficiency.

CrossWorlds Customer Interaction

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

CrossWorlds Sales Processing Allows companies to seamlessly integrate
sales force automation applications with
order management and other applications

CrossWorlds Service and Support Enables improved customer service by
integrating customer relationship management
applications with order management and
financial systems

CrossWorlds Enterprise. Our Enterprise product line includes business process
integration modules that synchronize information about key corporate assets
including customers, products, inventory and employees. This enables companies
to maintain a single, current 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 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

Our 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 applications.

Many of our connectors support specific versions of enterprise applications
and are upgraded by CrossWorlds as new functionality and interfaces are
released by application vendors. We maintain a library of application and
technology connectivity solutions for less common environments, some of which
are included in the listings below. This library of connectivity solutions
enables CrossWorlds implementation staff, customers and our systems integrator
partners to more rapidly implement integration solutions.

Pre-built Application Connectivity Solutions

CrossWorlds Application Connectors. Our Application Connectors understand the
means by which an application communicates with its external environment. Our
Application Connectors monitor the events occurring within an application and
use published interfaces to make them available to the CrossWorlds environment
in real-time. Many of our Application Connectors include pre-built components
that enable our customers to deploy e-business infrastructure solutions more
rapidly.

We offer Application Connectors for a number of the leading e-business and
enterprise applications used by manufacturing and telecommunications companies,
including those offered by BroadVision, Clarify, J.D. Edwards & Company, Kenan
Systems, a subsidiary of Lucent Technologies, Inc., Manugistics, MetaSolv,
Oracle, PeopleSoft Inc., Portal, SAP, and Siebel.

CrossWorlds Technology Connectors. Our Technology Connectors provide
connectivity to leading enterprise and e-business technology environments for
integrating custom applications and applications that lack well-defined
interfaces. Our Technology Connectors use widely adopted, standard technologies
including:

. Open Database Connectivity, or ODBC;

. Java Database Connectivity, or JDBC;

. Hypertext Markup Language, or HTML;

. Common Object Request Broker Architecture, or CORBA;

. Extensible Markup Language, or XML;

. Electronic Data Interchange, or EDI;

. Customer Information Control System; or CICS;

. IBM MQ Series Integrator, or MQSI and

. Oracle Relational Database Management System, or Oracle RDBMS.

Custom Application Integration Toolset

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

CrossWorlds Connector Development Kit. Our customers can use our Connector
Development Kit to:

. build connectors to custom applications,

. extend the connectivity provided by our pre-built connectors and

. reuse previously built components to minimize the amount of programming
required.

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

CrossWorlds Relationship Designer. Our Relationship Designer is a graphical
tool that maintains references between data residing in disparate applications.
Our customers can use the CrossWorlds Relationship Designer to define data
relationships for maintaining a single view of information across multiple
applications.

Infrastructure Products

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

We believe that CrossWorlds' infrastructure products exhibit the key
characteristics of software solutions used by large global organizations:

Technology Infrastructure. Our InterChange Server utilizes a combination of
proprietary technologies and industry-standard messaging middleware from IBM.
The CrossWorlds InterChange Server is Java-based and modular allowing us to
support the most widely-accepted operating systems and technology standards. We
have been granted a patent on key elements of our architecture.

e-Business Foundation. Our open platform supports a variety of Internet
standards, including Extensible Markup Language, or XML, RosettaNet, Hypertext
Markup Language, or HTML, Hypertext Transfer Protocol, or HTTP, File Transfer
Protocol, or ftp, and Electronic Data Interchange, or EDI. The CrossWorlds
InterChange Server:

. provides interfaces for multiple data formats,

. supports communications over multiple protocols and

. allows us to support new and emerging e-business standards. Integrated
security ensures the integrity and confidentiality of exchanges between
trading partners.

Scalability. Our e-business infrastructure is designed to meet the growing
integration needs of organizations with multiple packaged and custom
applications. The CrossWorlds InterChange Server is 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 enable the
overall solution to grow with their needs.

Manageability. Our System Manager tool is used to manage the CrossWorlds
environment. The CrossWorlds System Manager is a visual tool and is 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 single user interface.

Adaptability. Our architecture allows business process modules and connectors
to be implemented independent of each other. This separation enables our
customers to mix and match business process modules and connectors, which makes
the integration solution more adaptable to changing business requirements.

Customers and Markets

We have licensed our software to large global organizations in four
industries: technology, industrial manufacturing, process manufacturing and
telecommunications. Customers in other industries also have licensed our
software to support specific functional integration projects. For our four
targeted industries, we have developed industry 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.

This list shows all of our license customers, excluding nine customers who
are not currently using our software and seven customers who are currently
using our software but do not allow us to use their names publicly:

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

. Applied Materials . Avantel S.A./MCIWorldCom
. Nortel Networks . Axtel
. Royal Philips N.V. . Citykom Munster GmbH
. Siemens . CodeNet
. Sony Corporation . EWE TEL AG

. Excel Communications, Inc.
Industrial Manufacturing . HighwayOne
- ------------------------------------- . KPNQwest

. Orange Plc.
. Andersen Corporation . Orbitel
. Delphi Automotive . U S WEST
. Ingersoll-Rand

. Solar Turbines/Caterpillar Other Industries
. Vorwerk AG -------------------------------------
. Whirlpool Corporation

. Baxter Healthcare, Health Care
Process Manufacturing . diCarta, Inc., Software
- ------------------------------------- . EnBW International GmbH, Utilities

. LodgeNet Entertainment
. The Dow Chemical Company Corporation, Entertainment
. DuPont . Neoforma.com, Inc., Health Care
. Farmland Industries . Premier, Inc., Health Care
. Hercules, Inc. . SourceAlliance.com, Electrical
. Roche Group Supply

A small number of customers accounted for a significant portion of our
revenues during the periods 1997, 1998 and 1999. In 1997, Farmland Industries
accounted for $248,000, Orange Plc. accounted for $220,000 and two former
customers, Hewlett-Packard Company and The Vantive Corporation, acquired by
PeopleSoft, Inc., accounted for $275,000 and $240,000 of our revenue. In 1998,
U S West accounted for $1.1 million, Siemens accounted for $1.0 million and
Hercules, Inc. accounted for $871,000 of our revenue. In 1999, DuPont accounted
for $4.1 million of our revenue.

Customer Case Studies

These case studies are intended to show the uses of CrossWorlds products in
real world applications. These case studies are not intended to be an
endorsement of CrossWorlds or its products.

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.

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 recording 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 including item, master customer, master vendor, master orders,
account status and inventory level. The purpose of this standardization is
to ensure consistent, accurate exchange of information and to facilitate
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 and custom applications to 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 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 CrossWorlds SAP Connector, multiple CrossWorlds
Technical Connectors, the CrossWorlds InterChange Server, the CrossWorlds
Connector Development Kit and multiple pre-built CrossWorlds Business
Process Integration 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 three 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

We will continue to enhance and expand our strategic partnerships with
industry leaders to increase market awareness and acceptance of our e-business
infrastructure solutions. These relationships include a variety of joint
development, cooperative sales and marketing efforts that are more significant
than our efforts with other partners. Our strategic partners include:

IBM. CrossWorlds and IBM have a strategic relationship focused on joint
sales and marketing of a combined product offering. Our agreement with IBM
expires on June 3, 2001, and is automatically renewed for an additional one
year term unless terminated by either party. We and IBM have established a
joint design council to identify areas of potential cooperation such as
joint product development and technology transfer. We have agreed to
incorporate technology from IBM as part of our infrastructure. We plan to
expand our relationship to include a sales, marketing and implementation
partnership with IBM Global Services, IBM's systems integration
organization. No schedule for expanding our relationship has been
established.

SAP. SAP made equity investments in CrossWorlds in 1997 and 1999. We and
SAP have committed resources towards joint development, marketing and
sales. We support SAP's Business Framework architecture and are 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. An executive from SAP sits on our technical advisory board.

Strategic Investors

We have received equity investments of at least $1 million from a variety of
leading companies in the technology industry besides SAP. Some of these
investors also provide marketing and sales assistance. 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 IMI is a provider of order management
Corp., 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.

Systems Integrators/Consulting Firms

Systems integrators and consulting firms provide sales, marketing and product
development support. Partnerships with systems integrator and consulting firms
help shorten the sales cycle for prospective customers and enable access to
executives at potential prospects. These partnerships may also include joint
product development efforts. 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.

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 industries.

Ernst & Young Ernst & Young and CrossWorlds have a
joint sales, implementation, marketing
and development partnership focused on
selected industries, including
manufacturing and telecommunications.

PricewaterhouseCoopers PricewaterhouseCoopers and CrossWorlds
have a joint sales, implementation and
marketing alliance focused on
providing e-business integration
solutions for selected industries.

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.

Application Partners

We have established business relationships with a number of enterprise
application software providers. These relationships typically include technical
cooperation, joint marketing, cooperative development 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.

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.

Sales

We sell our software primarily through our direct sales organization. As of
March 31, 2000 our direct sales force consisted of 30 sales professionals
located in offices in North America and Europe. We have domestic offices
located in California, Colorado, Connecticut, Illinois, Maryland, Michigan,
Minnesota, New Jersey, North Carolina and 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 18 pre-sales representatives located in the corporate and field offices. The
field sales force is complemented by six telebusiness staff based in our U. S.
headquarters and two telebusiness and 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. Our
typical customer is a Fortune 1000 company in the technology, industrial
manufacturing, process manufacturing or telecommunications industry. The
initial sale cycle varies significantly from customer to customer. To date, it
has ranged from one 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. Our
marketing programs are focused on creating awareness and

generating interest in our solution to increase sales and are targeted at
information technology managers, chief information officers, chief financial
officers and other senior executives within global Fortune 1000 companies. Our
marketing plan includes these elements:

Brand Awareness and Public Relations. We believe that our brand identity has
improved our sales effectiveness by providing access to executives at target
accounts and contributed to our ability to attract partners. To build brand
awareness, we engage in a 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. We participate in 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. With our application, technology and systems integrators
partners, we have planned and executed 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 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 to promote successful
implementation and customer satisfaction. This multi-tiered approach includes
on-line support through 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. A toll-free phone number also 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 measure the satisfaction level of each customer annually using a customer
satisfaction research firm to 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 customer 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 range of training courses in the installation, configuration,
customization and administration of our products. Typically, these courses are
attended by the relevant members of a customer's information technology team.
We also train third-party implementation personnel on the installation,
customization and configuration of our products. Training is available at our
training facility in Burlingame, California and at various locations around the
world through a third-party training provider. Customers and implementation
partners can arrange for dedicated classes to be provided at their own
facilities.

Research and Development

We have made substantial investments in research and development. When we
think it makes sense, we license technology from leading third-party providers
and engage in cooperative development with systems integrator partners to
reduce our own research and development expenditures. Through March 31, 2000,
we have invested approximately $34.6 million in research and development.

We believe that high levels of research and development spending continue to
be vital to our success because of:

. 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 functionality in each of our product lines and

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

We focus our research and development efforts 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. We are also engaged in the development of advanced
technologies and the evaluation of emerging third-party products that can be
utilized in future releases of our products.

On March 31, 2000, there were 80 employees in our research and development
organization. Approximately half of these employees are dedicated to developing
collaboration modules and connectivity solutions. The rest of these employees
are focused on infrastructure development, quality assurance, documentation and
technical support.

We have a technical advisory board. The board is made up of senior
executives from Compaq, McKinsey & Company, Ernst & Young and SAP. The board
provides feedback on existing product plans and guidance for future research
and development activities.

Intellectual Property and Other Proprietary Rights and Limited Protection of
These Rights

Legal Protections

We rely on patent, copyright, trademark and trade secret laws and
restrictions on disclosure to protect our intellectual property rights. We have
been granted one patent relating to our architecture. We have four pending U.S.
patent applications relating to the architecture of our products. These
applications may not be approved. Patents we may be issued may not protect our
intellectual property and may be challenged by third parties. Other people may
independently develop similar or competing technology or design around any
patents that may be issued to us. We have three pending U.S. and international
trademark applications.

Confidentiality and License Agreements

We enter into confidentiality or license agreements with our employees,
consultants and corporate partners to protect our proprietary information. We
also control access to and distribution of our software, documentation and
other proprietary information. We provide our products to end-users primarily
under non-exclusive license agreements that impose restrictions on customers'
use of the software.

Limited Protection of Our Rights

Despite our efforts to protect our proprietary rights, existing laws afford
only limited protection. People may try to copy or reverse engineer aspects of
our products or to obtain and use information that we believe

is proprietary. We may not be able to protect our proprietary rights against
unauthorized copying or use. That kind of misuse of our proprietary rights
could hurt our business. It is hard to monitor unauthorized use of our
products, and the steps we have taken to prevent misappropriation of our
technology may not work, particularly in foreign countries where the laws may
not protect our proprietary rights as fully as in the United States.

Claims

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. We attempt to avoid
infringing known proprietary rights of third parties in our product development
efforts. Nevertheless, 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. 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 and

. require us to enter into royalty or license agreements which are not
advantageous to us.

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 product functionalities 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.

Internal Information Technology Departments

To date, the majority of the competition we have faced has been 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. 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.

Systems Integrators

A second source of competition results from systems integrators and other
information technology service providers that customers engage 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.

Integration Software Providers

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. Some competitors' solutions are centered on
messaging and data transport technologies, including BEA, Microsoft
Corporation, and TIBCO. Other competitors' solutions are focused on e-business
and integration tools. These competitors include 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 we do.
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 we could.

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. It is possible that
new competitors or alliances among competitors may emerge and rapidly acquire
significant market share. Potential competition could emerge from companies
such as Hewlett-Packard, IBM, Microsoft and Oracle. Increased competition is
likely to result in price reductions, reduced gross margins and loss of market
share.

Employees

As of March 31, 2000, we had a total of 235 employees, 207 were based in
North America, and 28 were based in Europe, principally in the United Kingdom
and Germany. Of the 235 employees, 77 were engaged in sales and marketing, 85
were in product development and customer support, 43 were in implementation
services and 30 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 headquarters 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 California,
Colorado, Connecticut, Illinois, Maryland, Michigan, Minnesota, New Jersey,
North Carolina; and 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 May 4, 2000 are:

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

Alfred J. Amoroso....... 50 Chief Executive Officer, President and Director
Katrina A. Garnett...... 38 Founder and Chairman of the Board of Directors
Mark Bishof............. 40 Senior Vice President, Global Services
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, Global Sales and Marketing
James G. Rowley......... 34 Senior Vice President, Engineering
Terence J. Garnett...... 43 Director
Frederick W. Gluck...... 64 Director
Andrew K. Ludwick....... 54 Director
Albert A. Pimentel...... 45 Director
Colin F. Raymond........ 29 Director

Mr Gluck and Mr. Ludwick are members of the compensation committee. Mr.
Ludwick, Mr. Pimentel, and Mr. Raymond are members of the 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. Before joining 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. Before joining 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 March 1996, and has served as
chairman of CrossWorlds since October 1999 and a director since March 1996. Ms.
Garnett served as president and chief executive officer from March 1996 until
October 1999. Before 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 a M.B.A. from Webster/IMEDE.

Mark C. Bishof has served as senior vice president, global services for
CrossWorlds since March 2000. Before joining CrossWorlds, Mr. Bishof held
various positions at Deloitte Consulting including partner, communications
industry practice, and senior manager from December 1993 to February 2000. From
February 1988 to December 1993, Mr. Bishof served as an associate at Booz Allen
& Hamilton, Inc. Mr. Bishof holds a B.S. degree in computer science from the
University of Maryland.

Prashant Gupta has served as chief technology officer at CrossWorlds since
April 1996. Before 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. Mr. Gupta is also 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. Before 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, global sales and
marketing for CrossWorlds since May 2000. In May 2000, Mr. Matin assumed
responsibility for business development. Mr. Matin served as senior vice
president, global sales for CrossWorlds from January until May 2000. Before
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. Before 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 a M.B.A. from New York University.

Terence J. Garnett has served as a director of CrossWorlds since March 1996.
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 a 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 several private companies.

Andrew K. Ludwick has served as a director of CrossWorlds since June 1997.
From 1995 to 1997, Mr. Ludwick served as chief executive officer of Bay
Networks, a networking company. Mr. Ludwick co-founded SynOptics
Communications, a networking company, in 1985 and served as chief executive
officer from 1985 to 1995. Mr. Ludwick also serves as a director of several
private companies.

Albert A. 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. Before
that, 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 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

Directors are not compensated for their services as directors except for
reimbursement for reasonable travel expenses relating to attendance at board
meetings and the grant of stock options. As of the offering, directors who are
employees of CrossWorlds are eligible to participate in CrossWorlds' 1997 stock
plan and 1999 executive stock plan. Directors who are not employees of
CrossWorlds will be eligible to participate in CrossWorlds' 2000 director stock
option plan. Outside directors have received option grants as listed in this
table.

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 these options vest over three years from the date of grant.

Board Committees

In January 1999, the board established the audit committee. The audit
committee reviews CrossWorlds' annual audit and meets with CrossWorlds'
independent auditors to review CrossWorlds' internal controls and financial
management practices.

In January 1999, the board established the compensation committee. The
compensation committee recommends compensation for executive officers to the
board, and administers CrossWorlds' stock plans.

Executive Compensation

This table provides information concerning compensation for services provided
to CrossWorlds during the year ended December 31, 1999. Information is provided
for everyone who served as our chief executive officer during the year, for
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 for one other person who was not an executive officer at year end, Kevin
Fitzgerald.

The amounts in the all other annual compensation column are insurance
premiums paid by CrossWorlds, with the exception of $40,271 paid to Alfred J.
Amoroso for moving expenses.

Mr. Amoroso joined CrossWorlds in October 1999. Mr. Kent joined CrossWorlds
in March 1999. Mr. Fitzgerald resigned as senior vice president, sales in
October 1999. Ms. Garnett resigned as chief executive officer in October 1999.
Mr. Foster resigned as senior vice president, marketing and business
development in May 2000.

Summary Compensation Table

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

Alfred J. Amoroso
President and Chief
Executive Officer........ 1999 $115,530 $ -- 2,125,192 $40,346
Barton S. Foster
Senior Vice President,
Marketing and Business
Development.............. 1999 175,000 76,112 216,666 357
Prashant Gupta
Chief Technology Officer.. 1999 175,000 106,112 333,332 2,304
Mark R. Kent
Senior Vice President and
Chief Financial Officer.. 1999 136,719 36,509 399,999 351
James G. Rowley
Senior Vice President,
Engineering.............. 1999 164,583 84,798 204,999 319
Kevin Fitzgerald
Former Senior Vice
President, Sales......... 1999 149,965 248,606 166,666 1,338
Katrina A. Garnett
Chairman.................. 1999 175,000 106,112 -- 360

Option Grants

This table provides summary information on stock options granted to the
officers in the table below during the year ended December 31, 1999.

The percentage of total options granted to employees is based on an aggregate
of 6,968,975 shares granted by CrossWorlds under the 1997 stock plan and the
1999 executive stock plan during the year ended December 31, 1999. Potential
realizable values are net of exercise price, but before taxes for exercise. The
5% and 10% assumed annual rates of compounded stock price appreciation are set
by the Securities and Exchange Commission. The actual stock price appreciation
over the 10-year term is almost certainly not going to be at the assumed 5% and
10% levels or at any other defined level. No value will be realized from the
option grants unless the market price of the common stock appreciates.

Option Grants in Last Fiscal Year

Individual Grants
-----------------------------------------
Potential Realizable
Value at Assumed
% of Total Annual Rates of
Number of Options Stock Price
Shares Granted to Appreciation For
Underlying Employees Exercise Option Term
Options in Fiscal Price Expiration ----------------------
Name Granted(#) Year ($/Sh) Date 5%($) 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...... -- -- -- -- -- --

Option Exercises and Holdings

This table provides summary information concerning the shares of common stock
represented by outstanding stock options held by each of these officers as of
December 31, 1999.

The values of unexercised in-the-money options are based on a 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.

Fiscal Year-End Option Values

Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at FY-End (#) at FY-End ($)
------------------------- -------------------------
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.......... -- -- -- --

Stock Plans

1997 Stock Plan.

Adoption and Initial Reserve. Our board of directors originally adopted and
our stockholders originally approved our 1997 stock plan in January 1997. As of
March 31, 2000, we had reserved a total of 4,992,637 shares for issuance under
the 1997 plan. As of March 31, 2000, options to purchase 919,530 shares of
common stock had been exercised, options to purchase a total of 3,596,485
shares at a weighted average exercise price of $5.40 per share were outstanding
and 506,113 shares remained available for future option grants. The 1997 plan
will terminate in 2007 if not terminated earlier by our board of directors.

Reserved Shares Following this Offering. We amended the 1997 plan 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

. a lesser number of shares as our board determines.

We will submit this amendment to the 1997 plan to our stockholders for
approval before the completion of this offering.

Purposes of the 1997 Plan. 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.

Eligible Persons and Types of Options. The 1997 plan provides for granting to
employees, including officers and directors, incentive stock options within the
meaning of Section 422 of the Internal Revenue Code of 1986. The 1997 plan also
provides for granting to employees and consultants, including nonemployee
directors, nonstatutory stock options and stock purchase rights. If an option
holder would have

the right in any calendar year to exercise one or more incentive stock options
for shares having a total fair market value in excess of $100,000, any of these
excess options shall be treated as nonstatutory stock options.

Administration. The board of directors or a committee of the board, each
known as the administrator, may administer the 1997 plan. The compensation
committee currently administers the plan. 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 and

. the term, vesting and exercisability of the award.

An individual employee may not receive awards for more than 1,000,000 shares
under the 1997 plan in any fiscal year.

Exercise Price. 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 a person who owns stock representing more than 10% of the
total combined voting power of all classes of 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.

Before 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. However, 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.

Other Option Terms. 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 holder may not transfer an option other than by will or the laws of
descent or distribution and only the option holder may exercise the option
during the lifetime of the option holder. However, the administrator may in its
discretion provide for the limited transferability of nonstatutory stock
options granted under the 1997 plan under specified 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 from then on.

Stock purchased under stock purchase rights granted under the 1997 plan is
generally subject to a repurchase right at the purchaser's original purchase
price. CrossWorlds may exercise this repurchase right upon termination of the
purchaser's employment or consulting relationship with us. This repurchase
right lapses according to the terms of the stock purchase right determined by
the administrator at the time of grant.

Change of Control. If there is a sale of all or substantially all of the
assets of CrossWorlds, or a merger of CrossWorlds with another corporation,
then the successor corporation may assume each option and stock purchase right
or substitute an equivalent award. If the successor corporation refuses to
assume or substitute

for an outstanding award, each award shall become fully vested and exercisable
before the effective date of the transaction.

If the successor corporation assumes or substitutes outstanding awards, and
an option holder's employment with CrossWorlds is involuntarily terminated for
reasons other than cause, as defined below, within one year following a merger
or sale of assets, the option holder will receive limited accelerated vesting.
The accelerated vesting is limited as described in the 1997 plan. The option
holder's outstanding awards shall become immediately vested and 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 if there is a stock split, stock dividend or
other similar change in capital structure.

Cause shall mean:

. gross negligence or willful misconduct in the performance of an
employee's duties to CrossWorlds,

. repeated unexplained or unjustified absence,

. a material and willful violation of any federal or state law,

. refusal or failure to act in a manner consistent with any specific
direction or order of, or contractual obligation with, CrossWorlds,

. commission of any act of fraud concerning CrossWorlds or

. conviction of or plea of no contest to a felony or a crime involving
moral turpitude causing material harm to the standing and reputation of
CrossWorlds.

Amendment and Termination. The administrator has the authority to amend or
terminate the 1997 plan as long as this 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.

Adoption and Initial Reserve. The board of directors adopted the 2000
directors' stock option plan in January 2000 and we will submit the directors'
stock option plan to our stockholders for approval before completion of this
offering. We have reserved a total of 300,000 shares of common stock 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.

Eligible Persons and Administration. 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, the board of directors will administer the plan when necessary. When
conflicts of interest arise, it is expected that they will be addressed by
abstention of any interested director from both deliberations and voting on
matters in which that director has a personal interest.

Option Terms. 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 person 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 the annual stockholders meeting date, the
director 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. The directors'
plan does specify the number of shares that may be included in any grant and
the method of making a grant.

Non-Transferability of Options. No option granted under the directors' plan
is transferable by the option holder other than by will or the laws of descent
or distribution or under a qualified domestic relations order, and each option
is exercisable, during the lifetime of the option holder, only by that option
holder.

Exercise Price and Other Option Terms. The directors' plan provides that each
option shall vest at the rate of 1/12 of the total number of shares subject to
the option per month. If a nonemployee director ceases to serve as a director
for reasons other than death or disability, the director may, but only within
90 days after the date the director ceases to be a director of CrossWorlds,
exercise options granted under the directors' plan. If the director does not
exercise the option that the director was entitled to exercise within the 90
day period, the 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.

Outstanding options will adjust if there is a stock split, stock dividend or
other similar change in capital structure.

Change of Control. If we sell all or substantially all of our assets or merge
with another company or conduct another similar transaction, the successor
corporation will assume the options or substitute equivalent options. If the
acquiror does not assume or substitute the options, the options will terminate
upon completion of the acquisition if the options were not previously
exercised.

Amendment and Termination. The board of directors may amend or terminate the
directors' plan. However, no action may adversely affect any outstanding option
and we must obtain stockholder approval for any amendment when required by
applicable law. If not terminated earlier, the directors' plan will have a term
of ten years.

2000 Employee Stock Purchase Plan.

Adoption and Reserved Shares. The board of directors adopted our 2000
employee stock purchase plan in January 2000 and we will submit the 2000
employee stock purchase plan to our stockholders for approval before completion
of this offering. We have reserved a total of 750,000 shares of common stock
for issuance under the purchase plan, none of which has 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

. a 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.

Offering Periods. The purchase plan, which is intended to qualify under
Section 423 of the Code, will be implemented in a series of overlapping
offering periods of approximately 24 months' duration. New offering periods,
other than the first offering period, will begin 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 begin on the date of this offering and end on April 30, 2002. The
initial purchase period is expected to end on October 31, 2000.

Administration. The board of directors or a committee appointed by the board
will administer the purchase plan. Employees of CrossWorlds, or of any
majority-owned subsidiary designated by the board, who work at least 20 hours a
week for a minimum of five months per year are eligible to participate in the
purchase plan.

Plan Terms. 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 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. An employee
cannot be granted an option under the purchase plan if the option would permit
an employee's rights to purchase stock under the purchase plan to grow at a
rate that exceeds $25,000 of the fair market value of the stock for each year
in which an option is outstanding. No employee may purchase more than 1,500
shares of common stock under the purchase plan in any one purchase period.

In a merger of CrossWorlds with another corporation or a sale of
substantially all of CrossWorlds' assets, the purchase plan provides that the
successor corporation must assume or substitute an equivalent right for each
right to purchase stock under the purchase plan. 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 before to the
transaction if the successor corporation refuses to assume each purchase right
or to substitute an equivalent right. Outstanding options will adjust if there
is 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 the action does not adversely affect any outstanding rights to purchase
stock under the plan. However, our board of directors may amend or terminate
the purchase plan or an offering period even if it would adversely affect
outstanding options to avoid our incurring adverse accounting charges.

1996 Stock Plan.

Adoption and Initial Reserve. Our board of directors originally adopted and
our stockholders originally approved our 1996 stock plan in March 1996. The
1996 stock plan provides for the grant of incentive stock options to employees
and nonstatutory stock options to employees and consultants. As of March 31,
2000, options to purchase a total of 27,987 shares at a weighted average
exercise price of $0.15 per share were outstanding. The board of directors has
determined that no future grants will be made under the 1996 plan.

Option Terms. The terms of the options under the 1996 plan are generally the
same as those that may be issued under the 1997 plan, except:

. only options may be granted out of the 1996 plan and

. 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 a merger, reorganization or similar transaction involving CrossWorlds, the
successor corporation shall assume each outstanding option or shall substitute
an equivalent option, 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 15 days following notice provided to the option
holder. Outstanding options will be adjusted for stock splits, stock dividends
or other similar changes 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 option holder's status as an employee of
CrossWorlds, or within 12 months after the option holder's termination by death
or disability. Options granted under the 1996 plan will remain outstanding in
compliance with their terms.

1999 Executive Stock Plan.

Adoption and Initial Reserve. Our board of directors adopted the 1999
executive stock plan and our stockholders approved the 1999 executive stock
plan in October 1999. We have reserved a total of 4,000,000 shares of common
stock for issuance under the 1999 plan. As of March 31, 2000, no options have
been exercised, options to purchase a total of 3,803,525 shares at a weighted
average exercise price of $7.78 per share were outstanding and 196,475 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.

Other Terms. 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:

. 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 and

. 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.

If we sell all or substantially all of our assets or merge with or into
another corporation, then the successor corporation may assume each option and
stock purchase right or substitute an equivalent option or stock purchase
right. 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 15 days from the date the option holder
received notice and will terminate following the 15 day 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 Delaware law, CrossWorlds has included in its certificate of
incorporation a provision to eliminate the personal liability of its officers
and directors for money damages for breach or alleged breach of their fiduciary
duties as officers or directors, subject to specified exceptions. CrossWorlds'
bylaws provide that CrossWorlds is required to indemnify its officers and
directors under circumstances in which indemnification would otherwise be
discretionary. CrossWorlds is required to advance expenses to its officers and
directors as they incur them in proceedings in which they may be indemnified.

CrossWorlds has entered into indemnification agreements with its officers and
directors containing provisions that are broader than the specific
indemnification provisions provided by Delaware law. The indemnification
agreements require CrossWorlds to:

. indemnify its officers and directors against liabilities that may arise
because 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 for which they could be indemnified and

. to obtain directors' and officers' insurance if available on reasonable
terms.

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 indemnification. CrossWorlds believes that its charter provisions and
indemnification agreements are necessary to attract and retain qualified
persons as directors and officers.

RELATED PARTY TRANSACTIONS

Since January 1997, we have issued and sold shares of our capital stock
equalling:

. 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,

. a total of 2,883,326 shares of series E preferred stock at a price of
$6.00 per share in January, March and April 1999 and

. a total of 3,671,071 shares of series F preferred stock at a price of
$6.81 per share in October 1999.

This table summarizes the shares of capital stock purchased by executive
officers, directors and five-percent stockholders and their affiliates in these
transactions.

Shares held by affiliated persons and entities have been added together for the
purposes of this chart. Shares of series E preferred stock were issued in
exchange for convertible promissory notes issued by CrossWorlds in December
1998.

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

Katrina A. Garnett(1).............. 333,333 133,333 775,000 734,224(2)
Andrew K. Ludwick.................. 166,666 33,333 41,666 --
Frederick W. Gluck................. -- 16,666 16,666 44,052
Albert A. Pimentel(3).............. -- 6,666 -- 3,670
Prashant Gupta..................... 8,333 -- -- --

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

Entities affiliated with Soros
Private Equity Partners(4)........ -- -- -- 1,468,429

- --------
(1) Includes shares held by Katrina A. Garnett and Terence J. Garnett in a
family trust.
(2) Includes 100,000 shares sold to Alfred J. Amoroso, CrossWorlds' president
and chief executive officer.
(3) 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 for of his pecuniary interest in these entities.
(4) 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. These warrants
were issued in consideration of a commitment to provide funding to CrossWorlds
if this offering is not completed of up to $10,000,000, if necessary, on
mutually agreed terms and conditions. The 199,996 warrants were issued in the
amounts listed in this table.

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

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

Change of Control Agreements

On January 27, 2000, CrossWorlds' board of directors approved a change of
control agreement with CrossWorlds' executive officers. Under the terms of the
agreement, 25% of each officer's remaining unvested options or shares of
restricted stock shall vest upon a change of control of CrossWorlds.

When options or restricted shares are assumed by a successor corporation,
officers will receive the following accelerated vesting and severance payments:

. if the officer is involuntarily terminated within one year of the change
of control, vesting of her shares may occur, under the terms of the
change of control agreement. The vesting is subject to the restrictions
described in the change of control agreement or applicable stock option
plan;

. outstanding awards under the 1996 and 1997 stock plans or the 1999
executive stock plan shall become immediately vested and exercisable.
The amount exercisable shall be equal to 12 months of further vesting of
each award at the rate specified in the applicable stock option or stock
purchase agreement;

. if involuntarily terminated under the terms of the change of control
agreement within one year of the change of control, the officer may be
entitled to six months of regular monthly salary plus target bonus, and
six months of consolidated omnibus budget reconciliation act payments.

Agreements with Employees

Arthur R. Matin Employment Agreement -- Basic Compensation

On January 1, 2000, CrossWorlds and Arthur R. Matin entered into an
employment agreement which provides that 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. This payment
was subsequently deferred and was paid on April 28, 2000. Mr. Matin will also
be eligible to earn a target bonus of up to $225,000.

Arthur R. Matin Employment Agreement -- Options

Under the terms of the employment agreement, Mr. Matin was granted options to
purchase 400,000 shares of CrossWorlds' common stock, 50,000 of which vested
immediately when Mr. Matin began working for us and 350,000 of which vest in
equal monthly installments over 48 months from the date of Mr. Matin's
employment. If Mr. Matin's employment is terminated by CrossWorlds without a
determination by CrossWorlds' board of directors that Mr. Matin has engaged in:

. willful misconduct which damages CrossWorlds;

. misappropriation of CrossWorlds' assets; or

. has been convicted of, or entered a plea of guilty or no contest to a
felony; or

if he resigns within 60 days of:

. any reduction in his base salary or target bonus;

. any material reduction in his benefits;

. a change in his position with CrossWorlds or a successor company which
materially reduces his duties or level of responsibility; or

. any requirement, without his consent, that he relocate his place of
employment by more than 35 miles from his then current office;

then the number of shares that would have vested over the next 12 months, shall
vest immediately.

Arthur R. Matin Employment Agreement -- Severance Benefits

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 medical
insurance payments for him and his eligible dependents, if he is terminated or
if he resigns under the conditions listed above.

Arthur R. Matin Employment Agreement -- Change of Control Benefits

Following a change in control of CrossWorlds, all of Mr. Matin's options vest
immediately. If Mr. Matin is terminated or if he resigns under the conditions
listed above 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 medical insurance payments for him and his
eligible dependents.

Mark R. Kent -- Change of Control Benefits

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 vest upon a change of control of
CrossWorlds.

Alfred J. Amoroso Employment Agreement -- Basic Compensation

On October 5, 1999, CrossWorlds and Alfred J. Amoroso entered into an
employment agreement under 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. Of this amount, $218,000 has been deferred.

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. Mr. Amoroso will be eligible to receive an
annual bonus equal to at least 50% of his base salary beginning in 2001.

CrossWorlds will also provide Mr. Amoroso with relocation expenses and
temporary living costs:

. temporary living costs are currently anticipated to total $200,000 to
$300,000, and

. a moving assistance loan of $1,500,000.

The loan is a non-recourse secured promissory note. The principal and interest
will be forgiven in equal monthly installments over a period of 48 months,
beginning the date of his employment and continuing for the term of his
employment. CrossWorlds will also make periodic bonus payments to Mr. Amoroso.
These bonus payments, after taxes, are intended to pay for Mr. Amoroso's tax
payments and interest on the loan, relocation expenses and temporary living
costs. If Mr. Amoroso is terminated, or if he resigns under the conditions
listed below, CrossWorlds will forgive an additional 12 months of loan and
accumulated interest payments.

Alfred J. Amoroso Employment Agreement -- Options

Under the terms of his 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 months. Mr. Amoroso was granted
an additional option to purchase 796,947 shares of CrossWorlds' common stock
which vest monthly in equal installments over 48 months. Upon the effectiveness
of this offering, the vesting of these shares shall accelerate and CrossWorlds'
repurchase right will lapse.

Alfred J. Amoroso Employment Agreement -- Severance Benefits

If Mr. Amoroso's employment is terminated, or if he resigns under the
conditions listed below, 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 a determination by CrossWorlds' board of
directors that Mr. Amoroso has engaged in:

. willful misconduct which damages CrossWorlds;

. misappropriation of CrossWorlds' assets; or

. has been convicted of, or entered a plea of guilty or no contest to, a
felony; or

If he resigns within sixty days of:

. any reduction in his base salary or target bonus;

. any material reduction in his benefits;

. a change in his position with CrossWorlds or a successor company which
materially reduces his duties or level of responsibility; or

. any requirement, without his consent, that he relocate his place of
employment by more than 35 miles from his then current office;

then Mr. Amoroso shall vest in that number of shares that would have vested
over the next 12 months from the date of termination. If Mr. Amoroso's
employment with CrossWorlds is terminated, or if he resigns under the
conditions listed above, then CrossWorlds shall pay Mr. Amoroso a lump sum
severance equal to the sum of:

. twelve months of his base salary plus

. his annual target bonus, together with one year of medical insurance
premium payments for him and his eligible dependents.

CrossWorlds will also forgive Mr. Amoroso's repayment of the moving assistance
loan for twelve months. Finally, if there is 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.

Mark C. Bishof--Basic Compensation

On February 18, 2000, CrossWorlds and Mark C. Bishof entered into an offer
letter agreement which provides that Mr. Bishof would become senior vice
president of global services. This offer letter agreement established Mr.
Bishof's base salary at $22,916.67 per month and provides that Mr. Bishof would
also be eligible to earn a target bonus for fiscal 2000 of up to $137,500.

Mark C. Bishof--Options

Under the terms of the offer letter agreement, Mr. Bishof was granted options
to purchase 250,000 shares of common stock, 31,250 of which vest in six months
and 218,750 of which vest in equal monthly installments over 48 months from the
date of Mr. Bishof's employment.

Mark C. Bishof--Severance Benefits

Mr. Bishof is entitled to a cash payment of $206,250 if we terminate his
employment before March 6, 2001.

Mark Bishof Loan

In March 2000, CrossWorlds approved a loan of $50,000 to CrossWorlds' senior
vice president, global services, Mark Bishof, which CrossWorlds will forgive at
the rate of 1/24th per month over 24 months based on his continued employment
with us. CrossWorlds amended its loan agreement with Mr. Bishof to provide that
Mr. Bishof's loan is forgiven upon a change of control of CrossWorlds.

James G. Rowley Loan

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 24 months based on his continued
employment with us. CrossWorlds amended its loan agreement with Mr. Rowley to
provide that Mr. Rowley's loan is forgiven upon a change of control of
CrossWorlds.

Barton S. Foster Loan

In November 1999, CrossWorlds loaned $150,000 to CrossWorlds' senior vice
president, marketing and business development, Barton S. Foster. In exchange,
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 24 months based on his continued employment with
us. CrossWorlds amended its loan agreement with Mr. Foster to provide that Mr.
Foster's loan is forgiven upon a change of control of CrossWorlds. In January
2000, CrossWorlds approved the release of the real property securing
Mr. Foster's loan. In May 2000, CrossWorlds and Mr. Foster amended the loan
terms as part of our memorandum of understanding with Mr. Foster.

Barton S. Foster Memorandum of Understanding

In May 2000, we entered into a memorandum of understanding with Mr. Foster
that provided:

. Mr. Foster resigned as an officer in May 2000,

. Mr. Foster will consult for CrossWorlds from May to August 2000 for up to
20 hours per week at a rate of $21,875 per month and from September to
November 2000 for up to 10 hours per week at a rate of $10,938 per month,

. Mr. Foster's options will continue to vest monthly at the current rate
until August 2, 2000 and

. we will continue to forgive the loan to Mr. Foster at a monthly rate of
$6,250 until November 2, 2000 and Mr. Foster will pay the outstanding
balance of the loan on December 31, 2000.

Prashant Gupta Loan

In March 2000, CrossWorlds approved a loan of $100,000 to CrossWorlds' chief
technology officer, Prashant Gupta, which CrossWorlds will forgive at the rate
of 1/24th per month over 24 months based on his continued employment with us.
CrossWorlds amended its loan agreement with Mr. Gupta to provide that Mr.
Gupta's loan is forgiven upon a change of control of CrossWorlds.

Scott Martin Severance Agreement

In June 1999, CrossWorlds entered into a severance agreement with former
officer Scott Martin. Under the terms of the severance agreement, Mr. Martin
received $66,000 and four months of health insurance premiums, valued at
$3,114.28.

Stuart Thompto Severance Agreement

In May 1999, CrossWorlds entered into a severance agreement with former
officer Stuart Thompto. Under the terms of the severance agreement, Mr. Thompto
received $66,000 and four months of health premiums, valued at $3,375.32.

Agreements with Directors

In December 1998, CrossWorlds entered into a convertible note purchase
agreement with Katrina A. Garnett, Andrew K. Ludwick and Frederick W. Gluck.
Under this agreement we issued convertible promissory notes bearing interest at
8% each year, the principal amount of which was convertible into shares of
series E preferred stock.

Under the agreement, 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 March 1996, 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

This table presents information about the beneficial ownership of our common
stock as of March 31, 2000. The table also contains information about
beneficial ownership, 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. Specifically, the table reflects beneficial ownership
information about:

. each of our directors,

. our chief executive officer,

. the other most highly compensated executive officers and Kevin
Fitzgerald,

. all directors and executive officers of CrossWorlds as a group and

. each person who is known by us to own beneficially more than 5% of
CrossWorlds' common stock.

Except as otherwise noted, the executive officers, directors and stockholders
identified in the table can be reached at the principal offices of CrossWorlds.
Mr. Foster resigned as senior vice president, marketing and business
development in May 2000.

This table assumes no exercise of the underwriters' over-allotment option.
Except under applicable community property laws or as indicated in the
footnotes to this table, each stockholder in the table has sole voting and
investment power over all shares of common stock identified in the table as
beneficially owned by that stockholder.

Beneficial ownership is determined under the rules of the Securities and
Exchange Commission, based on factors including voting and investment power
over shares. Shares of common stock subject to options that are currently
exercisable or exercisable within 60 days of March 31, 2000 are considered to
be outstanding and to be beneficially owned by the person holding those options
for the purpose of computing the percentage ownership of that person. These
shares are not treated as outstanding for the purpose of computing the
percentage ownership of any other person.

Percent
Beneficially
Owned
Shares -----------------
Beneficially Before After
Name and Address Owned Offering Offering
- ---------------- ------------ -------- --------

Entities affiliated with Soros Private Equity
Partners...................................... 1,478,345 7.38% 5.96%
c/o Soros Fund Management LLC
ATTN: Michael C. Neus, Esq.
888 Seventh Avenue
New York, NY 10106
Alfred J. Amoroso.............................. 2,241,720 11.20 8.32
Barton S. Foster............................... 159,723 .80 .64
Prashant Gupta................................. 367,416 1.83 1.47
Mark R. Kent................................... 174,307 .87 .70
James G. Rowley................................ 241,540 1.21 .97
Terence J. Garnett............................. 6,069,478 30.31 24.46
Frederick W. Gluck(1).......................... 142,346 .71 .57
Andrew K. Ludwick(2)........................... 435,205 2.17 1.75
Albert A. Pimentel............................. 147,656 .74 .60
Colin F. Raymond............................... 1,478,345 7.38 5.96
Katrina A. Garnett............................. 7,402,810 36.97 29.84
Kevin Fitzgerald............................... -- -- --
All directors and executive officers of
CrossWorlds as a group, 13 persons............ 13,441,068 60.47 47.39

- --------
(1) Includes 8,264 shares issuable upon exercise of a warrant issued to Mr.
Gluck on February 2, 2000.
(2) Includes 82,644 shares issuable upon exercise of a warrant issued to Mr.
Ludwick on February 2, 2000.

The common stock held by Ms. Garnett includes:

. 6,069,478 shares held by a family trust and

. 1,333,332 shares held directly by Ms. Garnett.

The common stock held by Ms. Garnett excludes 333,332 shares held in trust for
the benefit of Mr. and Ms. Garnett's children. Ms. Garnett does not possess
voting or dispositive power over those shares.

The common stock held by Mr. Garnett includes 6,069,478 shares held by a
family trust. The common stock held by Mr. Garnett excludes:

. 1,333,332 shares of common stock held directly by Ms. Garnett and

. 333,332 shares held in trust for the benefit of Mr. and Ms. Garnett's
children.

Mr. Garnett does not possess voting or dispositive power over those shares.

The stock held by the entities affiliated with Soros Private Equity Partners
includes:

. 1,321,586 shares held by Quantum Industrial Partners, LDC,

. 146,843 shares held by SFM Domestic Investments LLC.,

. 8,925 shares issuable upon exercise of a warrant issued to Quantum
Industrial Partners, LDC and

. 991 shares issuable upon exercise of a warrant issued to SFM Domestic
Investments LLC.

Mr. Raymond disclaims beneficial ownership of these shares except for his
pecuniary interest in Quantum Industrial Partners, LDC and SFM Domestic
Investments LLC.

PRIVATE PLACEMENT

CrossWorlds has entered into a common stock stock purchase agreement with The
Dow Chemical Company. The Dow Chemical Company will buy shares of common stock
equal to $2,000,000 divided by the initial public offering price less the
underwriting discount. CrossWorlds also entered into a stock purchase agreement
with Delphi Automotive. Delphi Automotive will buy shares of common stock equal
to $2,000,000 divided by the initial public offering price less the
underwriting discount. CrossWorlds has also entered into a stock purchase
agreement with Electronic Data Systems Corporation. Under the terms of the
Electronic Data Systems stock purchase agreement CrossWorlds has agreed to sell
shares of common stock to Electronic Data Systems in an amount equal to the
lower of:

. two percent of the outstanding capital stock of CrossWorlds after this
offering, or

. the number of shares of common stock equal to $10,000,000 divided by the
initial public offering minus the underwriting discount.

At an assumed initial public offering price of $15.00, we will sell 143,369
shares of common stock to The Dow Chemical Company, 143,369 shares of common
stock to Delphi Automotive and 508,356 shares of common stock to Electronic
Data Systems Corporation at a per share price of $13.95. The private placement
of a total of 795,094 shares of our common stock to The Dow Chemical Company,
Delphi Automotive and Electronic Data Systems Corporation would occur at the
same time as this offering.

DESCRIPTION OF CAPITAL STOCK

Upon the completion of this offering, CrossWorlds will be authorized to issue
150,000,000 shares of common 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.

Common Stock

As of March 31, 2000, there were 20,022,672 shares of common stock
outstanding, adjusted to reflect the conversion of all outstanding shares of
preferred stock which are held of record by 364 stockholders. This calculation
excludes the exercise of any outstanding options or warrants into common stock.

Options to purchase an aggregate of 7,427,997 shares of common stock were
also outstanding as of March 31, 2000. Assuming no exercise of the
underwriters' overallotment option and no exercise of outstanding options under
CrossWorlds' stock plans, there will be 24,817,766 shares of stock outstanding,
after giving effect to the sale of the shares offered under the prospectus and
the shares sold in a private placement that will close at the same time as this
offering.

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 dividends in proportion to their
ownership as may be declared by the board of directors out of funds legally
available for that purpose. In a liquidation, dissolution or winding up of
CrossWorlds, the holders of common stock are entitled to share in proportion to
their ownership 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.

Warrants

As of March 31, 2000, there were warrants outstanding to purchase an
aggregate of 444,255 shares of common stock. Generally, each warrant contains
provisions for adjustment of the exercise price and of the aggregate number of
shares issuable upon the exercise of the warrant for stock dividends, stock
splits, reorganizations, reclassifications and consolidations.

Registration Rights

Assuming the conversion of all outstanding preferred stock after this
offering, and including warrants to purchase 159,999 shares of common stock,
the holders of 18,042,902 shares of common stock are entitled to rights to
register their 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 the limitations in the agreement, the holders of at least 30% of
the registrable securities, or Quantum Industrial Partners LDC or SFM Domestic
Investments LLC may require, on two occasions, that CrossWorlds use its best
efforts to register the securities for public resale.

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 the
registration, subject to the ability of the underwriters to limit the number of
shares included in the offering. The holders of registrable securities may also
require, on no more than two occasions in a twelve-month period, that
CrossWorlds register their shares for resale on Form S-3 so long as the value
of the

securities to be registered 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 Charter and Bylaw Provisions

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 coercive takeover
practices and inadequate takeover bids and to encourage persons seeking to
acquire control of CrossWorlds to negotiate with us first. CrossWorlds believes
that the benefits of this increased protection outweigh the disadvantages
because negotiation of these 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.
This prohibition does not apply to a business combination or a transaction
which is approved in advance. Generally, a business combination with an
interested stockholder would include 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:

. requires shareholders to take actions at meetings rather than by written
consent,

. provides that directors are elected by the vote of the shareholders and

. limits minority stockholders' ability to elect their nominees to the
board.

Our bylaws:

. provide that special meetings of stockholders can be called only by the
board of directors, by the chairman of the board of directors or by the
president,

. establish rules for stockholder submission of candidates for election to
the board of directors and

. establish rules for business to be raised at stockholder meetings
including notice procedures for director nominations.

The business permitted to be conducted at any special meeting of stockholders
is also limited by Delaware Law to the business described 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

Sales in the Public Market Could Hurt the Market Price of CrossWorlds' Stock

Before 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, only a limited number
of shares will be available for sale shortly after this offering because of
contractual and legal restrictions on resale, as described below. Consequently,
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.

What Shares are Outstanding and What Shares are Freely Tradeable

Upon completion of the offering, we will have 24,817,766 shares of common
stock outstanding. This assumes no exercise of the underwriters' over allotment
option, and no exercise of outstanding options or warrants to purchase common
stock after March 31, 2000. The 4,000,000 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.

What Shares are Restricted and Not Freely Tradeable

The remaining 20,817,766 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 of the Securities
Act, which are summarized below. Sales of the restricted securities in the
public market, or the availability of these shares for sale, could adversely
affect the market price of the common stock.

Effects of the 180-day Lockup Agreement on Sales of Stock

Stockholders of CrossWorlds holding an aggregate of 20,817,766 shares of
common stock are subject to lock-up agreements. These agreements generally
provide that, without the prior written consent of Chase Securities Inc. or
CrossWorlds, stockholders will not transfer or dispose of, directly or
indirectly, any shares of our common stock or any securities convertible into
our shares. This restriction will be applicable for a period of 180 days after
the effective date of this registration statement. As a result of these
contractual restrictions, shares subject to lock-up agreements will not be
saleable until these agreements expire or are waived by the designated
underwriters' representative, despite possible earlier eligibility for sale
under the provisions of Rules 144, 144(k) and 701. Taking into account the
lock-up agreements, and assuming Chase Securities Inc. or CrossWorlds does not
release stockholders from these agreements, these shares will be eligible for
sale in the public market:

. beginning on the effective date of this prospectus, the shares sold in
the offering and approximately 159,999 shares issuable on the exercise
of warrants will be immediately available for sale in the public market;

. between 60 and 120 days after the effective date, approximately 6,334
more shares issuable on the exercise of warrants will be eligible for
sale under federal securities laws;

. beginning 180 days after the effective date, approximately 20,022,672
more shares will be eligible for sale under federal securities laws, of
which all but 10,236,149 shares are held by affiliates;

. between 180 and 365 days after the effective date, approximately 99,172
more shares will be eligible for sale under federal securities laws and

. beginning one year after the effective date, approximately 795,094 more
shares will be eligible for sale under federal securities laws.

Effects of Rule 144 on Sales of Restricted Shares

Under Rule 144, a person who has beneficially owned restricted securities for
at least one year generally is entitled to sell, within any three-month period,
a number of shares that does not exceed the greater of:

. one percent of the number of shares of common stock then outstanding,
which will equal approximately 248,178 shares immediately after the
offering; or

. 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 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 considered 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 these shares without complying with the manner of
sale, public information, volume limitation or notice provisions of Rule 144.

Effects of Rule 701 on Sales of Restricted Shares

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 under 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 these shares in reliance
on Rule 144 without having to comply with the holding period, public
information, volume limitation or notice provisions of Rule 144.

Registration of Shares Issued Under CrossWorlds' Employee Benefits Plans

CrossWorlds intends to file registration statements under the Securities Act
as promptly as possible after the effective date to register shares to be
issued under CrossWorlds' employee benefit plans. As a result, any options
exercised under the 1997 stock plan or any other benefit plan after the
effectiveness of these registration statements 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.

Outstanding Options at March 31, 2000

As of March 31, 2000, there were outstanding options for the purchase of
7,427,997 shares, of which 4,318,911 options were exercisable. No shares have
been issued to date under our purchase plan or directors plan.

UNDERWRITING

Purchasers of Our Common Stock

The underwriters, Chase Securities Inc., Dain Rauscher Incorporated, and
Thomas Weisel Partners LLC have each agreed with us, subject to the terms and
conditions of the underwriting agreement, to purchase our common stock in the
amount listed here:

Number
of
Underwriter Shares
----------- ------

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

Conditions to the Underwriters' Obligations

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.

Pricing of the Stock

The underwriters propose to offer the shares of common stock directly to the
public at the public offering price on the cover page of this prospectus and to
dealers at that price less a concession not in excess of $ per share. The
underwriters may allow and the dealers may reallow a concession not in excess
of $ per share to other dealers. After the public offering of the shares,
the underwriters may change the offering price, concession and reallowance to
dealers.

The Underwriters' Option to Purchase More Shares

We have granted to the underwriters an option, exercisable during the 30-day
period after the date of this prospectus, to purchase up to 600,000 additional
shares of common stock at the same price per share as we will receive for the
4,000,000 shares that the underwriters have agreed to purchase. If the
underwriters exercise this option, each underwriter will have a commitment to
purchase approximately the same percentage of additional shares that the number
of shares of common stock to be purchased by it shown in the table listing the
underwriters represents as a percentage of the 4,000,000 shares offered by this
prospectus. We will be obligated to sell shares to the underwriters to the
extent the option is exercised. The underwriters may exercise this option only
to cover over-allotments of common stock offered in this prospectus.

Underwriting Discounts and Commissions

This table shows the per share and total underwriting discounts and
commissions we will pay to the underwriters:

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

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

Other Conditions to the Underwriters' Obligations

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.

Stockholder Lockup Agreements

Stockholders, including all executive officers and directors, who own in the
aggregate 20,022,672 shares of common stock have agreed that they will not,
without the prior written consent of Chase Securities Inc. or CrossWorlds, for
a period of 180 days after the date of this prospectus offer, sell, contract to
sell or transfer any:

. shares of common stock,

. options or warrants to purchase any shares of common stock or

. any securities convertible into or exchangeable for shares of common
stock.

Company Lockup Agreement

We have agreed that we will not, without the prior written consent of Chase
Securities Inc., offer, sell or dispose of any shares of common stock or
securities exercisable for or convertible into shares of common stock until the
date 180 days following the date of this prospectus. However, we may issue
shares upon the exercise of options granted before the date of this prospectus,
and may grant additional options under our stock option plans, provided that,
without the prior written consent of Chase Securities Inc., these additional
options shall not be exercisable during the 180-day period.

Factors in Pricing Our Stock in the Offering

Before 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.
Factors to be considered in the negotiation include:

. 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 and

. the present state of our development.

Market Stabilization Activities

Persons participating in this offering may over-allot or engage in
transactions which stabilize or maintain the market price of the common stock
at levels above those which might otherwise prevail in the open market. These
persons may enter stabilizing bids or engage in syndicate covering
transactions. A stabilizing bid is a bid for or the purchase of common stock
for the purpose of fixing or maintaining the price of the common stock. A
syndicate covering transaction involves purchases in the open market after the
offering by underwriters who have sold more shares than they have committed to
purchase. These transactions may occur on the Nasdaq National Market or in the
over-the-counter market. These transactions, if commenced, may be discontinued
at any time.

Persons participating in this offering may also engage in passive market
making transactions in our common stock on the Nasdaq National Market in
compliance with Rule 103 of Regulation M under the Securities Exchange Act of
1934. In passive market making transactions, market makers in the common stock
may make bids for or purchases of the common stock until the time, if any, at
which a stabilizing bid is made. During the business day before the pricing of
the offering before the beginning of offers or sales of our common stock,
passive market makers must comply with applicable volume and price limitations
and must be identified.

Thomas Weisel Partners LLC

Thomas Weisel Partners LLC, one of the representatives of the underwriters,
was organized and registered as a broker-dealer in December 1998. Since
December 1998 and as of May 1, 2000, Thomas Weisel Partners has been named as a
lead or co-manager on 166 filed public offerings of equity securities, of which
113 have been completed, and has acted as a syndicate member in an additional
92 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, with the exception of its contractual relationship with us
under the underwriting agreement entered into for this offering.

Offering Expenses

We estimate that the total expenses of this offering, excluding underwriting
discounts and commissions, will be approximately $1,200,000.

Directed Shares Program and Rights to Purchase Shares in the Offering

At our request, the underwriters have reserved for sale, at the initial
public offering price, up to:

. 200,000 shares for persons that are affiliated with companies with whom
we have a business relationship, such as executives of companies that
market, sell or promote our products and

. up to approximately 135,000 additional shares for five current
stockholders under their pre-existing contractual rights to purchase
shares in this offering. The shares sold by exercise of the contractual
rights will be subject to a 180-day lock-up agreement. The sales of
these shares will only be made under this prospectus. The stockholders
who hold these pre-existing contractual rights are ATGF II, Litton
Master Trust, James Stableford, Emeric McDonald and Anthony Ciulla. The
number of shares of our common stock available for sale to the public
will be reduced if these individuals and entities purchase these
reserved shares. Any reserved shares that are not purchased by these
persons will be offered by the underwriters to the public on the same
basis as the other shares in this offering.

LEGAL MATTERS

The validity of the common stock offered in this offering will be passed upon
for us by Venture Law Group, A Professional Corporation, Menlo Park,
California. Other legal matters will be passed upon for the underwriters by
Wilson Sonsini Goodrich & Rosati, Professional Corporation. As of December 31,
1999, an 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 in
this prospectus and in the registration statement in reliance upon the report
of KPMG LLP, independent auditors, appearing elsewhere in the prospectus, 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 on Form S-1 under the Securities Act covering the common stock
offered in this offering. This prospectus constitutes a part of the
registration statement but does not contain all of the information in the
registration statement, which contains several exhibits as permitted by the
rules and regulations of the commission. For further information about us and
our common stock, you should refer to the registration statement.

The registration statement, including the exhibits and the financial
statement schedule, 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 Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of
all or any part of the registration statement may be obtained from the SEC's
offices upon payment of fees to the commission. The 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, and March
31, 2000 (unaudited)..................................................... F-3
Consolidated Statements of Operations for the three years ended December
31, 1999, and the three months ended March 31, 1999 and 2000
(unaudited).............................................................. F-4
Consolidated Statements of Stockholders' Equity (Deficit) for the three
years ended December 31, 1999, and the three months ended March 31, 2000
(unaudited) ............................................................. F-5
Consolidated Statements of Cash Flows for the three years ended December
31, 1999, and the three months ended March 31, 1999 and 2000
(unaudited).............................................................. 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, March 31, 2000
-------------------------- ----------------------------
1998 1999 Actual Pro forma
------------ ------------ ------------- -------------
(unaudited)

ASSETS
Current assets:
Cash and cash
equivalents.......... $ 5,415,154 $ 12,506,119 $ 8,722,451 $ 8,722,451
Accounts receivable,
net of allowance of
$306,130, $296,675
and $296,675 as of
December 31, 1998 and
1999 and March 31,
2000................. 5,198,351 11,688,430 13,189,573 13,189,573
Prepaids and other
current assets....... 820,115 1,019,036 2,699,928 2,699,928
------------ ------------ ------------- -------------
Total current assets.. 11,433,620 25,213,585 24,611,952 24,611,952
Property and equipment,
net.................... 4,156,515 3,846,379 3,638,225 3,638,225
Deposits and other
assets................. 166,610 116,610 427,026 427,026
------------ ------------ ------------- -------------
Total assets.......... $ 15,756,745 $ 29,176,574 $ 28,677,203 $ 28,677,203
============ ============ ============= =============
LIABILITIES AND
STOCKHOLDERS' EQUITY
(DEFICIT)
Current liabilities:
Accounts payable...... $ 862,408 $ 796,798 $ 2,043,668 $ 2,043,668
Accrued payroll and
related expenses..... 1,166,372 2,597,501 3,186,490 3,186,490
Accrued commissions... 1,966,503 2,741,629 2,903,892 2,903,892
Accrued royalties..... -- 1,438,929 698,000 698,000
Other accrued
liabilities.......... 1,268,104 2,563,065 3,870,004 3,870,004
Current portion of
capital lease
obligations.......... -- 347,216 450,776 450,776
Current portion of
long-term debt....... 4,262,552 2,622,482 2,669,816 2,669,816
Deferred revenue...... 6,555,892 13,157,747 17,616,399 17,616,399
------------ ------------ ------------- -------------
Total current
liabilities.......... 16,081,831 26,265,367 33,439,045 33,439,045
Other long-term
liabilities............ 91,090 123,913 117,871 117,871
Capital lease
obligations, less
current portion........ -- 576,711 681,675 681,675
Long-term debt, less
current portion........ 6,254,166 2,936,118 2,136,264 2,136,264
------------ ------------ ------------- -------------
Total liabilities..... 22,427,087 29,902,109 36,374,855 36,374,855
------------ ------------ ------------- -------------
Commitments
Stockholders' equity
(deficit):
Convertible preferred
stock, $0.01 par
value; actual--
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 and
March 31, 2000; pro
forma--none
authorized; none
issued or outstanding
..................... 95,716 161,260 161,260 --
Common stock, $0.001
par value; actual--
45,000,000 shares
authorized; 2,810,464
and 3,153,934 shares
issued and
outstanding as of
December 31, 1998 and
1999 and 3,480,044
issued and
outstanding as of
March 31, 2000; pro
forma--150,000,000
shares authorized;
20,022,672 shares
issued and
outstanding ......... 2,810 3,154 3,480 20,023
Additional paid-in
capital.............. 53,929,214 96,757,116 102,312,137 102,456,854
Deferred stock-based
compensation......... (3,777,293) (2,540,474) (4,209,989) (4,209,989)
Accumulated deficit... (56,920,789) (95,106,591) (105,964,540) (105,964,540)
------------ ------------ ------------- -------------
Total stockholders'
equity (deficit)..... (6,670,342) (725,535) (7,697,652) (7,697,652)
------------ ------------ ------------- -------------
Total liabilities and
stockholders' equity
(deficit)............ $ 15,756,745 $ 29,176,574 $ 28,677,203 $ 28,677,203
============ ============ ============= =============

See accompanying notes to consolidated financial statements.

F-3

CROSSWORLDS SOFTWARE, INC.
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

Three Months Ended March
Year Ended December 31, 31,
---------------------------------------- -------------------------
1997 1998 1999 1999 2000
------------ ------------ ------------ ----------- ------------
(unaudited)

Revenue:
Software license...... $ 748,336 $ 3,972,741 $ 8,193,907 $ 1,616,934 $ 3,182,507
Service, maintenance
and other............ 360,019 3,733,694 10,899,886 2,019,443 4,515,272
------------ ------------ ------------ ----------- ------------
Total revenue......... 1,108,355 7,706,435 19,093,793 3,636,377 7,697,779
------------ ------------ ------------ ----------- ------------
Cost of revenue:
Software license and
royalties............ 36,503 437,813 1,599,047 128,166 121,363
Service, maintenance
and other, excludes
stock-based
compensation of
$415,790 and $253,334
for the years ended
December 31, 1998 and
1999, and $34,561 and
$85,868 for the three
months ended March
31, 1999 and 2000.... 1,859,536 5,392,589 10,127,418 1,779,018 4,527,430
------------ ------------ ------------ ----------- ------------
Total cost of
revenue.............. 1,896,039 5,830,402 11,726,465 1,907,184 4,648,793
------------ ------------ ------------ ----------- ------------
Gross profit (loss).. (787,684) 1,876,033 7,367,328 1,729,193 3,048,986
------------ ------------ ------------ ----------- ------------
Operating expenses:
Research and
development, excludes
stock-based
compensation of
$1,622,857 and
$89,175 for the years
ended December 31,
1998 and 1999, and
$79,626 and $179,318
for the three months
ended March 31, 1999
and 2000............. 4,080,461 11,747,877 14,242,556 3,123,546 3,775,186
Sales and marketing,
excludes stock-based
compensation of
$2,051,890 and
$897,216 for the
years ended December
31, 1998 and 1999,
and $68,380 and
$379,583 for the
three months ended
March 31, 1999 and
2000................. 6,954,034 23,141,104 21,791,524 4,647,477 6,387,935
General and
administrative,
excludes stock-based
compensation of
$683,390 and $221,927
for the years ended
December 31, 1998 and
1999, and $(42,188)
and $63,212 for the
three months ended
March 31, 1999 and
2000................. 2,296,426 4,065,794 6,144,879 788,521 2,652,863
Amortization of
deferred stock-based
compensation......... -- 4,773,927 1,461,652 140,379 707,981
------------ ------------ ------------ ----------- ------------
Total operating
expenses............. 13,330,921 43,728,702 43,640,611 8,699,923 13,523,965
------------ ------------ ------------ ----------- ------------
Operating loss....... (14,118,605) (41,852,669) (36,273,283) (6,970,730) (10,474,979)
Other income (expense),
net.................... 166,138 478,584 (1,912,519) (291,382) (382,970)
------------ ------------ ------------ ----------- ------------
Net loss............. $(13,952,467) $(41,374,085) $(38,185,802) $(7,262,112) $(10,857,949)
============ ============ ============ =========== ============
Net loss per share:
Basic and diluted..... $ (11.88) $ (19.99) $ (13.40) $ (3.11) $ (3.41)
============ ============ ============ =========== ============
Weighted average
shares used in
computation (in
thousands)........... 1,175 2,069 2,850 2,332 3,181
============ ============ ============ =========== ============
Pro forma net loss per
share (unaudited):
Basic and diluted..... $ (1.70) $ (3.55) $ (2.38) $ (0.55) $ (0.55)
============ ============ ============ =========== ============
Weighted average
shares used in
computation (in
thousands)........... 8,201 11,641 16,062 13,151 19,723
============ ============ ============ =========== ============

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........ -- -- 437,351 438 641,991 -- -- -- 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 3,153,934 $3,154 $ 96,757,116 $ -- $(2,540,474) $ (95,106,591) $ (725,535)
Exercise of
common stock
warrants
(unaudited).... -- -- 99,172 99 1,090,794 -- -- -- 1,090,893
Exercise of
options
(unaudited).... -- -- 226,938 227 680,357 -- -- -- 680,584
Deferred stock-
based
compensation
related to
option grants
(unaudited).... -- -- -- -- 2,377,496 -- (2,377,496) -- --
Amortization of
deferred stock-
based
compensation
(unaudited).... -- -- -- -- -- -- 707,981 -- 707,981
Issuance of
common stock
warrants for
financing
commitment
(unaudited).... -- -- -- -- 1,406,374 -- -- -- 1,406,374
Net loss
(unaudited).... -- -- -- -- -- -- -- (10,857,949) (10,857,949)
---------- -------- --------- ------ ------------ -------- ----------- ------------- ------------
Balance as of
March 31, 2000
(unaudited).... 16,126,003 $161,260 3,480,044 $3,480 $102,312,137 $ -- $(4,209,989) $(105,964,540) $ (7,697,652)
========== ======== ========= ====== ============ ======== =========== ============= ============

See accompanying notes to consolidated financial statements.

F-5

CROSSWORLDS SOFTWARE, INC.
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Cash flows from operating activities:
Net loss............................ $(13,952,467) $(41,374,085) $(38,185,802) $(7,262,112) $(10,857,949)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Depreciation and amortization...... 361,390 1,403,938 2,389,305 522,184 1,052,290
Amortization of deferred stock-
based compensation................ -- 4,773,927 1,461,652 140,379 707,981
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) 741,171 (1,501,143)
Prepaids and other current
assets........................... (334,548) (417,572) (198,921) (235,796) (530,222)
Accounts payable.................. 1,842,219 (1,045,161) (65,610) 38,717 1,246,870
Accrued payroll and related
expenses......................... 713,165 367,630 1,431,129 90,646 588,989
Accrued commissions............... -- 1,966,503 775,126 (265,710) 162,263
Other accrued liabilities......... 367,066 837,773 2,733,890 (355,484) 566,010
Deferred revenue.................. 788,413 5,767,479 6,601,855 373,076 4,458,652
Other long-term liabilities....... 39,439 51,651 32,823 (2,687) (6,042)
Other assets...................... -- (120,000) 50,000 -- (310,416)
------------ ------------ ------------ ----------- ------------
Net cash used in operating
activities.......................... (11,429,181) (32,079,068) (28,708,153) (6,215,616) (4,422,717)
------------ ------------ ------------ ----------- ------------
Cash flows from investing activities:
Purchases of property and
equipment.......................... (1,784,420) (3,572,632) (834,517) (291,857) (245,361)
------------ ------------ ------------ ----------- ------------
Net cash used in investing
activities.......................... (1,784,420) (3,572,632) (834,517) (291,857) (245,361)
------------ ------------ ------------ ----------- ------------
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 5,000,000 --
Proceeds from revolving working
capital facility................... -- 3,479,219 -- -- --
Repayments of equipment facilities.. -- -- (783,333) (195,833) (195,833)
Repayments of subordinated debt..... -- -- (516,291) -- (691,234)
Repayments of working capital
facility........................... -- (283,334) (3,479,219) -- --
Proceeds from exercise of stock
options and warrants............... 105,625 456,259 642,429 144,623 1,771,477
Proceeds from issuance of preferred
stock.............................. 35,402,615 6,544,683 35,804,673 10,266,742 --
Repurchase of restricted stock...... -- (18,323) (34,594) (17,578) --
------------ ------------ ------------ ----------- ------------
Net cash provided by financing
activities.......................... 36,681,960 16,325,617 36,633,665 15,197,954 884,410
------------ ------------ ------------ ----------- ------------
Net increase (decrease) in cash and
cash equivalents.................... 23,468,359 (19,326,083) 7,090,965 8,690,481 (3,783,668)
Cash and cash equivalents at
beginning of year................... 1,272,878 24,741,237 5,415,154 5,415,154 12,506,119
------------ ------------ ------------ ----------- ------------
Cash and cash equivalents at end of
year................................ $ 24,741,237 $ 5,415,154 $ 12,506,119 $14,105,635 $ 8,722,451
============ ============ ============ =========== ============
Supplemental disclosures of cash flow
information:
Cash paid during the period for
interest............................ $ 55,372 $ 208,259 $ 995,393 $ 264,815 $ 228,536
============ ============ ============ =========== ============
Noncash investing and financing
activities:
Return of restricted stock in
satisfaction of note receivable.... $ 14,063 $ -- $ -- $ -- $ --
Issuance of preferred stock for
conversion convertible notes....... -- -- 5,000,000 5,000,000 --
Issuance of preferred stock warrants
in connection with long-term debt.. -- -- 500,000 500,000 --
Issuance of preferred stock warrants
in connection with services........ -- -- 756,449 -- --
Issuance of common stock warrants
for financing commitment........... -- -- -- -- 1,406,374
Equipment acquired through equipment
lease facility..................... -- -- 1,077,985 -- 301,404

See accompanying notes to consolidated financial statements.

F-6

CROSSWORLDS SOFTWARE, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information as of and for the three months ended March 31, 1999 and 2000 is
unaudited)

(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% of total revenue for 1997, 77% of total revenue
for 1998, 86% of total revenue for 1999, and 67% of total revenue for the three
months ended March 31, 2000. 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)

(Information as of and for the three months ended March 31, 1999 and 2000 is
unaudited)

(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. Progress toward completion is generally measured by achieving certain
standard and objectively verifiable milestones present in each project. These
milestones typically require customer acceptance of a deliverable. 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,

F-8

CROSSWORLDS SOFTWARE, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(Information as of and for the three months ended March 31, 1999 and 2000 is
unaudited)

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. In certain circumstances where the Company is
unable to estimate the amount of effort required to customize or implement the
software license, revenue is recognized using the completed contract method. To
date, no amounts have been recognized under the completed contract method.
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. When the Company enters into software arrangements with resellers, the
Company does not recognize revenue until the reseller demonstrates it has
entered into an arrangement with an end user that satisfies the Company's
revenue recognition criteria. When our services are essential to the
implementation of the reseller's software, the software license revenue for the
arrangement is recognized using the percentage-of-completion method. The
Company recognizes revenue in accordance with the American Institute of
Certified Public Accountants' (AICPA) Statement of Position (SOP) 97-2,
Software Revenue Recognition.

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) Accounts receivable

The Company bills for software licenses and maintenance fees at the inception
of the contract. These arrangements typically allow the Company to bill amounts
in excess of revenue recognized. Amounts billed in excess of revenue recognized
are recorded as deferred revenue. Consulting and service fees are billed
monthly based on time and expenses incurred. Service revenue recognized in
excess of amounts billed was $393,731 at December 31, 1999 and $862,280 at
March 31, 2000. The Company's contracts typically do not contain retainage
provisions and all amounts due under the contracts are anticipated to be
collected within 12 months. At December 31, 1999 and March 31, 2000, there are
no accounts receivable that are subject to contract claims or uncertainties.

(l) 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.

The Company uses the fair value method to account for stock options and other
equity instruments issued to nonemployees.

(m) 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

F-9

CROSSWORLDS SOFTWARE, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(Information as of and for the three months ended March 31, 1999 and 2000 is
unaudited)

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.

(n) Comprehensive Loss

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

(o) 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:

Three Months Ended
Year Ended December 31, March 31,
------------------------------- ---------------------
1997 1998 1999 1999 2000
--------- ---------- ---------- ---------- ----------
(unaudited)

Stock options and
warrants............... 491,730 1,007,325 1,256,454 976,701 3,584,117
Common stock subject to
repurchase............. 1,321,104 681,312 155,245 544,404 84,036
Convertible preferred
stock.................. 7,026,361 9,571,667 13,210,599 10,818,838 16,542,628
--------- ---------- ---------- ---------- ----------
8,839,195 11,260,304 14,622,298 12,339,943 20,210,781
========= ========== ========== ========== ==========

(p) 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.

The following table presents information about the Company's geographical
sales:

Three Months
Year Ended December 31, Ended March 31,
--------------------------------- ---------------------
1997 1998 1999 1999 2000
---------- ---------- ----------- ---------- ----------
(unaudited)

United States........... $ 887,944 $5,951,397 $16,360,434 $3,110,724 $5,128,782
Europe.................. 220,411 1,755,038 2,733,359 525,653 2,568,997
---------- ---------- ----------- ---------- ----------
$1,108,355 $7,706,435 $19,093,793 $3,636,377 $7,697,779
========== ========== =========== ========== ==========

F-10

CROSSWORLDS SOFTWARE, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(Information as of and for the three months ended March 31, 1999 and 2000 is
unaudited)

(q) 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.

(r) Advertising Costs

The Company expenses advertising costs as incurred. Advertising expense was
approximately $394,000, $2,004,000, $46,000, $18,000 and $5,000 for the years
ended December 31, 1997, 1998 and 1999 and the three months ended March 31,
1999 and 2000.

(s) Initial Public Offering, Private Placement, Unaudited Pro Forma Balance
Sheet and Net Loss Per Share

The Board of Directors of the Company authorized the filing of a registration
statement with the Securities and Exchange Commission (SEC) that would permit
the Company to sell shares of the Company's common stock in connection with a
proposed initial public offering (IPO). The Company has also entered into
agreements to sell common shares in a private placement concurrent with the
IPO. If the IPO is consummated under the terms presently anticipated, all
outstanding shares of the Company's convertible preferred stock will
automatically convert to common stock on a one-for-one basis, subject to
certain antidilution provisions, upon the closing of the IPO. The pro forma
balance sheet information reflects the conversion of all of the convertible
preferred stock as if it had occurred on March 31, 2000.

Pro forma net loss per share for the years ended December 31, 1997, 1998 and
1999 and the three months ended March 31, 1999 and 2000 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 IPO as if the 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.

F-11

CROSSWORLDS SOFTWARE, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(Information as of and for the three months ended March 31, 1999 and 2000 is
unaudited)

(2) Property and Equipment

Property and equipment consisted of the following:

December 31,
------------------------ March 31,
1998 1999 2000
----------- ----------- -----------
(unaudited)

Computer equipment and software....... $ 4,672,705 $ 6,476,877 $6,500,273
Furniture and fixtures................ 689,778 767,615 797,044
Leasehold improvements................ 569,118 599,611 677,265
----------- ----------- ----------
5,931,601 7,844,103 7,974,582
Accumulated depreciation.............. (1,775,086) (3,997,724) (4,336,357)
----------- ----------- ----------
$ 4,156,515 $ 3,846,379 $3,638,225
=========== =========== ==========

Equipment under the capital lease aggregated $1,132,726 as of December 31,
1999 and $1,446,890 as of March 31, 2000. Accumulated amortization on the
assets under the capital lease aggregated $179,565 as of December 31, 1999 and
$288,317 as of March 31, 2000.

(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.

F-12

CROSSWORLDS SOFTWARE, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(Information as of and for the three months ended March 31, 1999 and 2000 is
unaudited)

During the year ended December 31, 1998 and 1999 and the three months ended
March 31, 2000 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 and as of March 31,
2000 (in order of subordination):

December 31,
---------------------- March 31,
1998 1999 2000
----------- ---------- -----------
(unaudited)

$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 and 9.75% as of March 31,
2000)..................................... $ 204,166 $ 87,500 $ 58,333
$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
and 9.00% as of March 31, 2000)........... 1,833,333 1,166,667 1,000,000
$10,000,000 working capital facility with a
bank which expired 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 3,747,747
$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 4,806,080
Less, current portion...................... 4,262,552 2,622,482 2,669,816
----------- ---------- ----------
Long term debt............................. $ 6,254,166 $2,936,118 $2,136,264
=========== ========== ==========

The aggregate future payments of long-term debt are as follows as of December
31, 1999:

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-13

CROSSWORLDS SOFTWARE, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(Information as of and for the three months ended March 31, 1999 and 2000 is
unaudited)

restrict certain acquisitions, mergers, consolidations, or similar
transactions. In 1999, the Company issued warrants to purchase 6,334 shares of
common stock 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 and Security Agreement, the Company
issued a warrant 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 warrant is
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 warrant 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 warrant 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 and for the three
months ended March 31, 2000 was $41,667.

(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 1998 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-14

CROSSWORLDS SOFTWARE, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(Information as of and for the three months ended March 31, 1999 and 2000 is
unaudited)

Rent expense for the years ended December 31, 1997, 1998 and 1999 and the
three months ended March 31, 1999 and 2000 was approximately $619,000,
$1,536,000, $2,000,000, $557,000 and $493,000 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 $2.0 million and $2.8 million, respectively due
through June 2000 and June 2001, respectively.

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.

During the first quarter of 2000, the Company renegotiated its agreement
associated with the minimum royalty payments of $2.8 million due by June 2001
and as a result, the Company has no further minimum royalty payments associated
with this agreement.

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 March 31, 2000.

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

The President and Chief Executive Officer elected to defer $218,000 of his
sign-on bonus and the Senior Vice President, Global Sales and Marketing elected
to defer all of his sign-on bonus payment beyond March 31, 2000. As a result,
these amounts remain as liabilities on the Company's balance sheet as of
March 31, 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.

F-15

CROSSWORLDS SOFTWARE, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(Information as of and for the three months ended March 31, 1999 and 2000 is
unaudited)

(b) Convertible Preferred Stock

In 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.

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 and March 31, 2000:

Shares
---------------------------------
Issued and As if
Series Designated outstanding converted
------ ---------- ----------- ----------

A....................................... 3,333,333 3,333,333 3,333,333
B....................................... 2,070,822 2,070,822 2,070,822
C....................................... 2,137,500 2,104,144 2,104,144
D....................................... 2,066,667 2,063,307 2,479,932
E....................................... 3,333,333 2,883,326 2,883,326
F....................................... 3,671,072 3,671,071 3,671,071
---------- ----------
16,126,003 16,542,628
========== ==========

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 2,471,130 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

F-16

CROSSWORLDS SOFTWARE, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(Information as of and for the three months ended March 31, 1999 and 2000 is
unaudited)

repurchase totaled approximately 1,321,104, 681,312, 155,245 and 84,036 as of
December 31, 1997, 1998 and 1999 and as of March 31, 2000, respectively.

(d) Common Stock Reserved

The Company has reserved 33,449,793 shares of common stock for issuance under
its stock option plan, for warrants, and upon the conversion of outstanding
convertible preferred stock.

(e) Stock Option Plan

The Company is authorized to issue up to 9,973,193 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 issued to employees. 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)

F-17

CROSSWORLDS SOFTWARE, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(Information as of and for the three months ended March 31, 1999 and 2000 is
unaudited)

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.

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
Authorized (unaudited).......... 500,000 -- --
Granted (unaudited)............. (1,038,832) 1,038,832 11.10
Exercised (unaudited)........... -- (226,938) 2.99
Canceled (unaudited)............ 177,333 (177,333) 6.24
---------- ----------
Balances as of March 31, 2000
(unaudited).................... 702,588 7,427,997 $6.60
========== ==========

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
March 31, 2000 (unaudited)..................... 4,318,911 7.16

The weighted-average fair value of options granted in fiscal 1997, 1998, 1999
and for the three months ended March 31, 2000 was $.15, $.51, $1.03 and $2.34,
respectively.

F-18

CROSSWORLDS SOFTWARE, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(Information as of and for the three months ended March 31, 1999 and 2000 is
unaudited)

As of March 31, 2000, 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
--------------- -------------- ---------------- ----------------

$ 0.15-1.50 200,600 7.20 83,558
1.80 48,403 7.69 21,268
2.25 8,958 7.81 2,357
3.00 601,035 8.57 286,159
5.25 678,907 8.96 160,063
5.40 128,967 9.07 28,002
6.60 4,722,295 9.51 2,849,504
9.00 556,832 9.79 406,000
11.00 75,000 9.96 75,000
14.00 407,000 9.96 407,000
--------- ---------
7,427,997 4,318,911
========= =========

(f) Warrants

In October 1999, the Company issued 177,098 warrants to acquire common stock
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.

In February 2000, the Company issued 199,996 warrants to acquire common stock
at $11.00 a share, to certain of its Board members in consideration of their
commitment to provide funding of up to $10,000,000, if necessary, through the
earlier of December 31, 2000 or the Company's initial public offering. The
warrants are immediately exercisable and expire in five years from the date of
issuance. The warrants had a fair value of $1,406,374 on the date of grant
using the Black-Scholes pricing model with the following assumptions: 60%
volatility, zero dividends, a risk-free rate of 5.5% and a contractual life of
five years. The amount was recorded as a current asset which will be amortized
over the eleven month funding period. If the Company's proposed IPO is
completed prior to the end of the funding commitment period, any unamortized
asset will be expensed at that time.

(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 12,550,300
Other................................. 16,000 121,000 430,800
----------- ------------ ------------
Total............................... $ -- $ -- $ --
=========== ============ ============

F-19

CROSSWORLDS SOFTWARE, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(Information as of and for the three months ended March 31, 1999 and 2000 is
unaudited)

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....................... 184,000 547,000
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................. 22,989,000 39,749,000
Valuation allowance............................... (22,989,000) (39,749,000)
------------ ------------
Total deferred tax assets........................... $ -- $ --
============ ============

The net change in the total valuation allowance for the period ended December
31, 1999 was a net increase of $16,760,000.

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.

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-20

[INSIDE BACK COVER]

Graphic depicting CrossWorlds e-business integration architecture. The graphic
is circular. At the center of the circle, are three hexagonal cylinders
labeled as CrossWorlds Integration Modules. The three hexagons sit on top of a
central disk labeled CrossWorlds InterChange Server.

The central disk is connected to a smaller disk by a dotted line. The smaller
disk is labeled CrossWorlds System Manager. Another dotted line connects one of
the hexagons to two smaller disks. The two smaller disks are labeled CrossWorlds
Process Designer/CrossWorlds Relationship Designer.

Coming out of the upper right of the central disk are four pipes. The uppermost
pipe is labeled CrossWorlds Connectors. The lowest pipe is connected to two
small disks by a dotted line. The two small disks are labeled CrossWorlds Map
Designer/CrossWorlds Connectment Development Kit.

The five smaller disks are labeled Infrastructure Tools.

At the end of the four pipes are four blocks labeled Enterprise Applications.
The four blocks are labeled individually as follows: Enterprise Resource
Planning, Customer Relationship Management, Supply Chain Management, and
Custom/Applications.

Coming out of the upper left of the central disk are four more pipes. The four
pipes intersect a cloud labeled Internet. On the other side of the internet
cloud the four pipes end in four blocks. The four blocks are labeled e-Business.
The four boxes are labeled individually as follows: Supplier Applications,
e-Sales/e-Procurement Applications, Customer Applications, and Outsourced
Applications.

Below the graphic are four paragraphs describing the features of the
CrossWorlds architecture.

The first paragraph text is: Realtime Process Automation: CrossWorlds'
Designer tools allow enterprises to create and deploy business process
integration logic that ties together multiple trading partners' and enterprise
applications.

The second paragraph text: Application integration: CrossWorlds' Connectors
integrate leading enterprise and e-business applications. CrossWorlds'
Connector Development Kit extends connectivity to custom applications.

The third paragraph text is: Scalable Integrations Architecture: CrossWorlds'
Interchange Server provides a comprehensive set of integration technologies
that meet the growing requirements of global organizations.

The fourth paragraph text is: e-Business Standards Support: CrossWorlds' open
platform implements a variety of Internet Standards and provides a flexible
environment that supports emerging e-business requirements.

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

4,000,000 Shares

[LOGO OF CROSSWORLDS SOFTWARE, INC. APPEARS HERE]

Common Stock

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

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

Chase H&Q

Dain Rauscher Wessels

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 in any jurisdiction outside the
United States. 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 of this offering and the distribution of
this prospectus applicable to that jurisdiction.

Until , 2000, all dealers that participate in 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 relating to unsold
allotments or subscriptions.

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

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

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13. Other Expenses of Issuance and Distribution

The following table presents the costs and expenses, other than underwriting
discounts and commissions, payable by CrossWorlds for 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........................................... $ 19,431
NASD filing fee................................................ 7,860
Nasdaq National Market listing fee............................. 90,000
Printing and engraving expenses................................ 200,000
Legal fees and expenses........................................ 400,000
Accounting fees and expenses................................... 400,000
Blue Sky qualification fees and expenses....................... 5,000
Transfer Agent and Registrar fees.............................. 25,000
Miscellaneous fees and expenses................................ 52,709
---------
Total........................................................ 1,200,000

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
specified 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 hereto, also provides for
cross-indemnification among CrossWorlds and the underwriters relating to
several 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 March 1996, CrossWorlds has issued 7,427,997 options to purchase
common stock of CrossWorlds with a weighted average price of $6.60 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 $6.00 per
share to Bay Park Plaza Associates LP for a rental agreement. On January
27, 1999, CrossWorlds issued warrants to purchase a total of 126,666 shares
of its series E

II-1

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 a bank
loan. 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 executive search services. 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 determined 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,
issuances described in Item 2 were determined to be exempt from registration
under the Securities Act in reliance upon Rule 701 of under the Securities
Act. The recipients of securities in each of these transactions represented
their intentions to acquire the securities for investment only and not with a
view to or for sale with any distribution thereof and appropriate legends were
affixed to the share certificates and warrants issued in these 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* Form of Proposed Amended and Restated Certificate of Incorporation of
CrossWorlds.
3.2* Form of Proposed Amended and Restated Bylaws of CrossWorlds.
4.1* Specimen Stock Certificate.
4.2* Warrant dated January 7, 1999 issued by CrossWorlds to Comdisco, Inc.
4.3* Warrant dated August 9, 1999 issued by CrossWorlds to Silicon Valley
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 private
investors.
4.6* Warrant dated January 7, 1999 issued by CrossWorlds to Comdisco, Inc.
5.1* Opinion of Venture Law Group regarding the legality of the common stock
being registered.
10.1* Fifth Amended and Restated Investor Rights Agreement dated October 1,
1999 among CrossWorlds and investors.
10.2* Form of Indemnification Agreement between CrossWorlds and each of its
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, with addendum dated January 27, 2000 between
CrossWorlds and Barton S. Foster.
10.12* Form of Change of Control Agreement to be entered into between
CrossWorlds and each of its executive officers.
10.13 IBM/OEM Distribution Agreement dated July 11, 1997, with exhibits,
including IBM/OEM Program Agreement dated June 3, 1999, Amendment 01 to
OEM Distribution Agreement dated February 9, 2000 and Amendment Number
Two to OEM Distribution Agreement dated March 21, 2000.
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.
10.16 Loan and Security Agreement dated December 10, 1996 between Silicon
Valley Bank and CrossWorlds.
10.17* First Amendment to Loan and Security Agreement dated September 29, 1997
between Silicon Valley Bank and CrossWorlds.
10.18* Second Amendment to Loan and Security Agreements dated October 28, 1998
between Silicon Valley Bank and CrossWorlds.
10.19* Loan Modification Agreement dated September 21, 1999 between Silicon
Valley Bank and CrossWorlds.
10.20* Loan Modification Agreement dated October 18, 1999 between Silicon
Valley Bank and CrossWorlds.
10.21* Loan Modification Agreement dated October 22, 1999 between Silicon
Valley Bank and CrossWorlds.
10.22* Loan Modification Agreement dated January 26, 2000 between Silicon
Valley Bank and CrossWorlds.
10.23* Contractual rights agreement among CrossWorlds and five investors dated
March 26, 1999.
10.24* Proposed form of Stock Purchase Agreement between CrossWorlds and
Electronic Data Systems Corporation.
10.25* Proposed form of Stock Purchase Agreement between CrossWorlds and The
Dow Chemical Company.
10.26* Proposed form of Stock Purchase Agreement between CrossWorlds and
Delphi Automotive.

II-3

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

10.27* Proposed form of Supplemental Letter from CrossWorlds to Electronic
Data Systems Corporation related to Exhibit 10.24.
10.28* Proposed form of Supplemental Letter from CrossWorlds to The Dow
Chemical Company related to Exhibit 10.25.
10.29* Proposed form of Supplemental Letter from CrossWorlds to Delphi
Automotive related to Exhibit 10.26.
10.30* Offer letter dated February 14, 2000 with Mark C. Bishof.
10.31* Memorandum of Understanding between Barton S. Foster and CrossWorlds
Software, Inc. dated May 4, 2000.
10.32 Severance Agreement between Scott Martin and CrossWorlds Software, Inc.
dated June 25, 1999.
10.33 Severance Agreement between Stuart Thompto and CrossWorlds Software,
Inc. dated May 27, 1999.
21.1* List of Subsidiaries.
23.1 Consent of KPMG LLP.
23.2* Consent of Venture Law Group (contained in Exhibit 5.1).
23.3* Consent of Neoforma.com Inc.
23.4* Consent of Delphi Automotive
23.5* Consent of U S WEST
24.1* Power of Attorney (see page II-5).
27.1* Financial Data Schedule.

- --------
* Previously filed.

+ Confidential treatment requested as to portions of this exhibit. Omitted
material has been separately filed with the Securities and Exchange
Commission.

(b) Financial Statement Schedules

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

Item 17. Undertakings

The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreements certificates in the
denominations and registered in the 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
indemnification is against public policy as expressed in the Act, and is, as a
result, unenforceable. If a claim for indemnification against these
liabilities, other than the payment by the registrant of expenses incurred or
paid by a director, officer, or controlling person of the registrant in the
successful defense of any action, suit or proceeding, is asserted by a
director, officer or controlling person for 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 this 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 considered 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 considered to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time shall be
considered 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 Amendment to Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the city of
Burlingame, State of California on May 23, 2000.

CROSSWORLDS SOFTWARE, INC.

By: /s/ Mark R. Kent
----------------------------------
Mark R. Kent
Chief Financial Officer
(Principal Financial and
Accounting Officer)

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

Signature Title
Date

* President, Chief May 23, 2000
- ----------------------------------- Executive Officer and
Alfred J. Amoroso Director (Principal
Executive Officer)

/s/ Mark R. Kent Chief Financial Officer May 23, 2000
- ----------------------------------- (Principal Financial and
Mark R. Kent Accounting Officer)

* Chairman of the May 23, 2000
- ----------------------------------- Board
Katrina A. Garnett

* Director May 23, 2000
- -----------------------------------
Terence J. Garnett

* Director May 23, 2000
- -----------------------------------
Frederick W. Gluck

* Director May 23, 2000
- -----------------------------------
Andrew K. Ludwick

* Director May 23, 2000
- -----------------------------------
Albert A. Pimentel

* Director May 23, 2000
- -----------------------------------
Colin F. Raymond

/s/ Mark R. Kent
*By: ___________________________________
Mark R. Kent, attorney-in-fact

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 of
of Period Expenses Deductions 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....... -- -- -- --

- --------
(1) Accounts written off.

S-1

EXHIBIT INDEX

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

10.28* Proposed form of Supplemental Letter from CrossWorlds to The Dow
Chemical Company related to Exhibit 10.25.
10.29* Proposed form of Supplemental Letter from CrossWorlds to Delphi
Automotive related to Exhibit 10.26.
10.30* Offer letter dated February 14, 2000 with Mark C. Bishof.
10.31* Memorandum of Understanding between Barton S. Foster and CrossWorlds
Software, Inc. dated May 4, 2000.
10.32 Severance Agreement between Scott Martin and CrossWorlds Software, Inc.
dated June 25, 1999.
10.33 Severance Agreement between Stuart Thompto and CrossWorlds Software,
Inc. dated May 27, 1999.
21.1* List of Subsidiaries.
23.1 Consent of KPMG LLP.
23.2* Consent of Venture Law Group (contained in Exhibit 5.1).
23.3* Consent of Neoforma.com Inc.
23.4* Consent of Delphi Automotive.
23.5* Consent of U S WEST.
24.1* Power of Attorney (see page II-5).
27.1* Financial Data Schedule.

- --------
* Previously filed.

+ Confidential treatment requested as to portions of this exhibit. Omitted
material has been separately filed with the Securities and Exchange
Commission.