<PAGE>
As filed with the Securities and Exchange Commission on April 10, 2000
Registration No. 333-96055
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
---------------
AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
Under
The Securities Act of 1933
---------------
CROSSWORLDS SOFTWARE, INC.
(Exact Name of Registrant as Specified in Its Charter)
---------------
<TABLE>
<S> <C> <C>
Delaware 7372 94-3240149
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
</TABLE>
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)
---------------
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)
---------------
Copies to:
<TABLE>
<S> <C>
Jon E. Gavenman Neil Wolff
C. Howard Korrell John Y. Sasaki
Venture Law Group Jon P. Layman
A Professional Corporation Wilson Sonsini Goodrich & Rosati
2800 Sand Hill Road Professional Corporation
Menlo Park, CA 94025 650 Page Mill Road
(650) 854-4488 Palo Alto, CA 94304
(650) 493-9300
</TABLE>
---------------
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this Registration
Statement.
---------------
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 (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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<TABLE>
<CAPTION>
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)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $0.001....... 4,600,000 $16.00 $73,600,000 $19,431
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</TABLE>
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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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- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+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 APRIL 10, 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.
-----------
<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Initial public offering price................................ $ $
Underwriting discounts and commission........................ $ $
Proceeds, before expenses, to CrossWorlds.................... $ $
</TABLE>
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 7.
-----------
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
<PAGE>
[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.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 4
Risk Factors............................................................. 7
You Should Not Rely on Forward-Looking Statements Because They Are
Inherently Uncertain.................................................... 14
Use of Proceeds.......................................................... 14
Dividend Policy.......................................................... 14
Capitalization........................................................... 15
Dilution................................................................. 17
Selected Consolidated Financial Data..................................... 19
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 20
Business................................................................. 30
Management............................................................... 49
Related Party Transactions............................................... 60
Principal Stockholders................................................... 65
Description of Capital Stock............................................. 67
Shares Eligible for Future Sale.......................................... 69
Underwriting............................................................. 71
Legal Matters............................................................ 74
Experts.................................................................. 74
Additional Information Available to You.................................. 74
Index to Consolidated Financial Statements............................... F-1
</TABLE>
----------------
Dealer Prospectus Delivery Obligation
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.
3
<PAGE>
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 1) the underwriters
have not exercised their option to purchase additional shares, 2) all shares of
preferred stock have been automatically converted into shares of common stock
and 3) the sale of 788,438 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.
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
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 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: 1) business process support, 2) architectural flexibility and
3) 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 48 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.
4
<PAGE>
The Offering
<TABLE>
<S> <C>
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...................... 788,438 shares
Common stock outstanding after
this offering................. 24,485,001 shares
Use of proceeds................ Working capital and general corporate purposes.
Proposed Nasdaq National Market
symbol........................ CWLD
</TABLE>
The number of shares of common stock to be outstanding after this offering is
based on the number of shares outstanding as of December 31, 1999, and
excludes:
. 6,793,436 shares of common stock issuable upon exercise of stock options
outstanding on December 31, 1999 at a weighted average exercise price of
$5.78 per share;
. 1,064,087 shares of common stock reserved for future issuance under our
stock option plan and executive stock plan; and
. 343,431 shares of common stock issuable upon exercise of warrants
outstanding on December 31, 1999 at a weighted average exercise price of
$6.32 per share.
Our board of directors, after December 31, 1999, 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.
The share reserves listed above replace any stock option reserves existing
immediately before the date of completion of the offering, which totalled
1,064,087 shares on December 31, 1999.
Additionally, after December 31, 1999, our board approved the issuance of
warrants to purchase 199,996 shares of common stock at a weighted average
exercise price of $11.00 per share.
5
<PAGE>
Summary Consolidated Financial Information
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------
1997 1998 1999
-------- -------- --------
(in thousands,
except per share data)
<S> <C> <C> <C>
Consolidated Statement of Operations Data:
Revenue........................................ $ 1,108 $ 7,706 $ 19,094
Operating loss................................. (14,118) (41,853) (36,274)
Net loss....................................... (13,952) (41,374) (38,186)
Pro forma basic and diluted net loss per
share......................................... $ (1.70) $ (3.55) $ (2.38)
Weighted average shares used in pro forma per
share computation............................. 8,201 11,641 16,062
</TABLE>
Revenue Recognition
<TABLE>
<CAPTION>
Revenue Type Method of Recognition
------------ ---------------------
<C> <S>
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.
</TABLE>
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.
<TABLE>
<CAPTION>
December 31, 1999
--------------------
Actual As Adjusted
------- -----------
(in thousands)
<S> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents............................... $12,506 $78,105
Working capital (deficit)............................... (1,052) 64,547
Total assets............................................ 29,177 94,776
Deferred revenue........................................ 13,158 13,158
Long-term debt and capital lease obligations, less
current portion........................................ 3,513 3,513
Total stockholders' equity (deficit).................... (726) 64,873
</TABLE>
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 December 31, 1999 is presented on
an actual basis and on an as adjusted basis to reflect: 1) the sale of 788,438
shares of common stock in a private placement that will close at the same time
as this offering and 2) the sale of 4,000,000 shares of common stock offered at
an assumed initial public offering price of $15.00 per share after deducting
the estimated underwriting discount and the estimated offering expenses.
6
<PAGE>
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: 1) internal information technology
departments of potential customers, 2) systems integrators that develop
customized solutions and 3) 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. 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. These additional expenses contribute to our losses and
require that we increase our revenue to achieve profitability. 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. At December 31, 1999, we had an accumulated deficit of approximately
$95.1 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.
7
<PAGE>
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. We may fail to achieve continued progress on
anticipated implementation schedules. Our customers may delay, suspend or
terminate their implementation efforts. If either of the above happens, 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 48 customers. 22 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 and approximately 90% of our revenue
in 1999. 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.
8
<PAGE>
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 upon these firms to: 1) recommend our products during the
evaluation stage of the purchasing process, 2) to refer prospective customers
to us and 3) 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: 1) price reductions, 2) reduced gross margins and 3) loss of market
share; any one of which 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.
9
<PAGE>
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: 1) the market for e-business
infrastructure software is still emerging, 2) market acceptance of our products
has not yet been achieved, 3) the sales cycles for our products are lengthy and
4) 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. 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.
We have grown from 111 employees as of December 31, 1997 to 202 employees as
of December 31, 1999. As of December 31, 1999, we have also opened 14 sales
offices and established five foreign subsidiaries. Three of our eight executive
officers, specifically: 1) our president and chief executive officer, 2) senior
vice president global services and 3) senior vice president worldwide sales,
joined us within the last 6 months. Thus, they have limited prior experience
working together, and may not be effective working together.
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.
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: 1) 20% of total 1997
revenue, 2) 28% of total 1998 revenue and 3) 22% of total 1999 revenue.
10
<PAGE>
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;
11
<PAGE>
. 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: 1) patents, 2)
copyrights, 3) trademarks, 4) trade secret laws and 5) 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.
12
<PAGE>
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 46.51% 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 $12.35 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 four hundred eighty five 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 24,485,001 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. The remaining 84%, or 20,485,001
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.
<TABLE>
<CAPTION>
Number of shares/%
of total
outstanding Date of availability for resale into public market
------------------ -----------------------------------------------------------
<C> <S>
19,696,563 / 80% 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.
788,438 / 3% Between 180 and 365 days after the date of this prospectus
due to the requirements of the federal securities laws.
</TABLE>
13
<PAGE>
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 788,438 shares of common stock that will close at the same time as this
offering will be approximately $65.6 million. We estimate net proceeds of $74.0
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 and
deduct 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.
14
<PAGE>
CAPITALIZATION
This table presents our long-term debt and capitalization as of December 31,
1999:
. on an actual basis;
. on a pro forma as adjusted basis to reflect: 1) the conversion of all
outstanding shares of convertible preferred stock into 16,542,628 shares
of common stock upon the closing of this offering, 2) 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 and 3) our sale of 788,438
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 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.
<TABLE>
<CAPTION>
December 31, 1999
---------------------
Pro Forma
Actual As Adjusted
-------- -----------
(in thousands)
<S> <C> <C>
Cash and cash equivalents................................ $ 12,506 $78,105
======== =======
Long-term debt and capital lease obligations, less
current portion......................................... 3,513 3,513
-------- -------
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,
3,153,935 shares issued and outstanding; pro forma as
adjusted--150,000,000 shares authorized; 24,485,001
shares issued and outstanding, pro forma as adjusted
...................................................... 3 24
Additional paid-in capital............................. 96,757 162,496
Deferred stock-based compensation...................... (2,540) (2,540)
Accumulated deficit.................................... (95,107) (95,107)
-------- -------
Total stockholders' equity (deficit)................. (726) 64,873
-------- -------
Total capitalization............................... $ 2,787 $68,386
======== =======
</TABLE>
Additional Share Information
The outstanding share information in the table above is as of December 31,
1999 and excludes:
. 6,793,436 shares of common stock issuable upon the exercise of
outstanding options at a weighted average exercise price of $5.78 per
share;
. 343,431 shares of common stock issuable upon the exercise of outstanding
warrants at a weighted average exercise price of $6.32 per share; and
. 423,612 shares reserved for future issuance under our 1997 stock option
plan and 640,475 shares reserved for future issuance under our 1999
executive stock plan.
Share Reserves
Our board of directors, after December 31, 1999, 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.
15
<PAGE>
. 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 1,064,087
shares on December 31, 1999.
Warrants
After December 31, 1999, our board approved the issuance of warrants to
purchase 199,996 shares of common stock at a weighted average exercise price of
$11.00 per share.
16
<PAGE>
DILUTION
As of December 31, 1999, our pro forma net tangible book deficit was
approximately $(726,000) or $(0.04) 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 788,438 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 December 31,
1999 would have been approximately $64.9 million or $2.65 per share of common
stock. This represents an immediate increase in net tangible book value of
$2.69 per share to existing stockholders and an immediate dilution of $12.35
per share to new investors. This table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.............. $15.00
Pro forma net tangible book deficit per share as of
December 31, 1999......................................... $(0.04)
Increase per share attributable to new investors........... 2.69
------
Pro forma net tangible book value after the private placement
and the offering............................................ 2.65
------
Dilution per share to new investors.......................... $12.35
======
</TABLE>
Comparative Investment Information
This following table summarizes on a pro forma basis, as of December 31,
1999, 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.
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average
------------------ -------------------- Price
Number Percent Amount Percent Per Share
---------- ------- ------------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders...... 19,696,563 80.4% $88,145,000 55.4% $ 4.48
New investors.............. 4,788,438 19.6% 70,999,000 44.6% 14.83
---------- ----- ------------ -----
Totals................... 24,485,001 100.0% $159,144,000 100.0%
========== ===== ============ =====
</TABLE>
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 December 31, 1999 and excludes:
. 6,793,436 shares of common stock issuable upon the exercise of
outstanding options at a weighted average exercise price of $5.78 per
share;
. 343,431 shares of common stock issuable upon the exercise of outstanding
warrants at a weighted average exercise price of $6.32 per share; and
. 423,612 shares reserved for future issuance under our 1997 stock option
plan and 640,475 shares reserved for future issuance under our 1999
executive stock plan.
17
<PAGE>
Share Reserves
Our board of directors, after December 31, 1999, 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 1,064,087
shares on December 31, 1999.
Additionally, after December 31, 1999, our board approved the issuance of
warrants to purchase 199,996 shares of common stock at a weighted average
exercise price of $11.00 per share.
The issuance of common stock for outstanding options and warrants or options
issued in the future will result in further dilution to new investors.
18
<PAGE>
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.
The consolidated statements of operations data for the years ended December
31, 1997, 1998 and 1999, and the selected consolidated balance sheet data at
December 31, 1998 and 1999 presented below are derived from consolidated
financial statements that have been audited by KPMG LLP, independent auditors,
which are included elsewhere in this prospectus.
The selected historical consolidated financial data for the period from March
8, 1996, inception, to December 31, 1996 and as of December 31, 1996 and 1997
have been derived from audited financial statements. The audited financial
statements include, in the opinion of management, all adjustments, consisting
only of normal recurring adjustments, considered necessary for a fair
presentation of financial position and results of operations for that period
and as of that date. The historical results presented below are not necessarily
indicative of the results to be expected for any future fiscal period.
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.
<TABLE>
<CAPTION>
Period From
March 8, 1996
(Inception) Year Ended December 31,
to December ----------------------------
31, 1996 1997 1998 1999
------------- -------- -------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Consolidated Statements of
Operations:
Revenue:
Software license................ $ -- $ 748 $ 3,973 $ 8,194
Service, maintenance and other
............................... -- 360 3,733 10,900
------- -------- -------- --------
Total revenue................... -- 1,108 7,706 19,094
Cost of revenue:
Software license and royalties.. -- 36 438 1,599
Service, maintenance and other,
excludes stock-based
compensation of $415,790 and
$253,334 for 1998 and 1999..... -- 1,860 5,392 10,127
------- -------- -------- --------
Total cost of revenue........... -- 1,896 5,830 11,726
------- -------- -------- --------
Gross profit (loss)........... -- (788) 1,876 7,368
------- -------- -------- --------
Operating expenses:
Research and development,
excludes stock-based
compensation of $1,622,857 and
$89,175 for 1998 and 1999...... 757 4,080 11,748 14,243
Sales and marketing, excludes
stock-based compensation at
$2,051,890 and $897,216 for
1998 and 1999.................. 375 6,954 23,141 21,792
General and administrative,
excludes stock-based
compensation at $683,390 and
$221,927 for 1998 and 1999..... 503 2,296 4,066 6,145
Amortization of deferred stock-
based compensation............. -- -- 4,774 1,462
------- -------- -------- --------
Total operating expenses........ 1,635 13,330 43,729 43,642
------- -------- -------- --------
Operating loss................ (1,635) (14,118) (41,853) (36,274)
Other income (expense), net....... 41 166 479 (1,912)
------- -------- -------- --------
Net loss...................... $(1,594) $(13,952) $(41,374) $(38,186)
======= ======== ======== ========
Net loss per share:
Basic and diluted............... $ (2.83) $ (11.88) $ (19.99) $ (13.40)
======= ======== ======== ========
Weighted average shares used in
computation.................... 564 1,175 2,069 2,850
======= ======== ======== ========
Pro forma net loss per share(1):
Basic and diluted............... $ (0.31) $ (1.70) $ (3.55) $ (2.38)
======= ======== ======== ========
Weighted average shares used in
computation.................... 5,162 8,201 11,641 16,062
======= ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
December 31,
-------------------------------
1996 1997 1998 1999
------ ------- ------- -------
(in thousands)
<S> <C> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents................... $1,273 $24,741 $ 5,415 $12,506
Working capital (deficit)................... 1,074 21,938 (4,648) (1,052)
Total assets................................ 1,606 28,085 15,757 29,177
Long term debt and capital lease
obligations, less current portion.......... -- 986 6,254 3,513
Stockholders' equity (deficit).............. 1,391 22,947 (6,670) (726)
</TABLE>
19
<PAGE>
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 202 as of
December 31, 1999. Because our expenditures have been much higher than our
revenue, we have incurred net losses in each fiscal quarter since March 1996.
At December 31, 1999, we had an accumulated deficit of $95.1 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 (SOP) 97-2,
Software Revenue Recognition.
20
<PAGE>
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 December 31,
1999 generally resulted from sales made during the first two quarters of fiscal
1999. We expect the future revenue mix to be more reflective of our current
period sales mix, which has been weighted more heavily towards software
licenses than previous quarters. 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, 28% of total 1998 revenue and 22% of total 1999 revenue. The
percentage decrease during the year ended December 31, 1999 was due to
significant revenue contribution from five U.S.-based customers, collectively
accounting for greater than 48% 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 102 days as of December 31, 1999. 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 and 1999, 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 December 31, 1999, $2.5 million in deferred stock-based compensation
remained on our balance sheet which will be amortized to the consolidated
statements of operations through the first quarter of 2002.
21
<PAGE>
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.
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------
1997 1998 1999
-------- ------- ------
<S> <C> <C> <C>
Revenue:
Software license............................... 67.5 % 51.6 % 42.9 %
Service, maintenance and other................. 32.5 48.4 57.1
-------- ------- ------
Total revenue.................................. 100.0 100.0 100.0
Cost of revenue:
Software license and royalties................. 3.2 5.7 8.4
Service, maintenance and other................. 167.9 70.0 53.0
-------- ------- ------
Total cost of revenue.......................... 171.1 75.7 61.4
-------- ------- ------
Gross margin................................. (71.1) 24.3 38.6
Operating expenses:
Research and development....................... 368.2 152.4 74.6
Sales and marketing............................ 627.6 300.3 114.1
General and administrative..................... 207.2 52.8 32.2
Amortization of deferred stock-based
compensation.................................. -- 62.0 7.7
-------- ------- ------
Total operating expenses....................... 1,203.0 567.5 228.6
-------- ------- ------
Operating loss............................... (1,274.1) (543.2) (190.0)
Other income (expense), net...................... 15.0 6.2 (10.0)
-------- ------- ------
Net loss..................................... (1,259.1)% (537.0)% (200.0)%
======== ======= ======
</TABLE>
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 licenses sold
and a larger average transaction size. Total licenses sold increased from six
in 1997 to 26 in 1998 to 41 in 1999. License revenue 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 licenses sold and the increased average transaction size
and a larger installed license base. The value of service, maintenance and
other transactions increased from an average of $60,000 in 1997 to $144,000 in
1998 to $266,000 in 1999.
22
<PAGE>
Cost of software license revenue and royalties. Cost of software license
revenue and royalties revenue increased from $36,000 to $438,000 to
$1.6 million in 1997, 1998 and 1999, representing approximately 3%, 6% and 8%
of total revenue. The increase in absolute dollar amount was due to increases
in software license and royalties revenue which increased the related royalty
costs. The increase from 1997 to 1998 in cost of software license and royalties
revenue as a percentage of total revenue related to an increase in royalty fees
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.
23
<PAGE>
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.
24
<PAGE>
Eight Quarters Ended December 31, 1999
The first table below shows CrossWorlds' consolidated statement of operations
data for each of the eight quarters ended December 31, 1999. 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.
<TABLE>
<CAPTION>
Quarter Ended
-------------------------------------------------------------------------------
Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31, June 30, Sept. 30, Dec. 31,
1998 1998 1998 1998 1999 1999 1999 1999
-------- -------- --------- -------- -------- -------- --------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Consolidated Statement
of Operations Data:
Revenue:
Software licenses..... $ 977 $ 1,155 $ 545 $ 1,296 $ 1,617 $ 1,811 $ 2,270 $ 2,496
Service, maintenance
and other............. 990 818 964 961 2,019 2,353 3,012 3,516
------- -------- -------- -------- ------- ------- ------- --------
Total revenue......... 1,967 1,973 1,509 2,257 3,636 4,164 5,282 6,012
Cost of revenue:
Software license and
royalties............. 70 24 73 271 128 311 562 598
Service, maintenance
and other(1).......... 1,159 948 1,598 1,687 1,779 2,420 2,698 3,230
------- -------- -------- -------- ------- ------- ------- --------
Total cost of
revenue.............. 1,229 972 1,671 1,958 1,907 2,731 3,260 3,828
------- -------- -------- -------- ------- ------- ------- --------
Gross profit
(loss)............. 738 1,001 (162) 299 1,729 1,433 2,022 2,184
------- -------- -------- -------- ------- ------- ------- --------
Operating expenses:
Research and
development(2)....... 2,152 3,224 2,973 3,399 3,124 3,561 3,790 3,768
Sales and
marketing(3)......... 3,545 6,234 6,173 7,189 4,647 5,103 5,439 6,603
General and
administrative(4).... 833 1,213 763 1,257 789 1,223 1,399 2,734
Amortization of
deferred stock-based
compensation.......... 659 940 1,587 1,588 140 782 823 (283)
------- -------- -------- -------- ------- ------- ------- --------
Total operating
expenses............. 7,189 11,611 11,496 13,433 8,700 10,669 11,451 12,822
------- -------- -------- -------- ------- ------- ------- --------
Operating loss...... (6,451) (10,610) (11,658) (13,134) (6,971) (9,236) (9,429) (10,638)
Other income (expense),
net.................... 299 192 10 (22) (291) (197) (369) (1,055)
------- -------- -------- -------- ------- ------- ------- --------
Net loss............ $(6,152) $(10,418) $(11,648) $(13,156) $(7,262) $(9,433) $(9,798) $(11,693)
======= ======== ======== ======== ======= ======= ======= ========
</TABLE>
- --------
(1) Excludes stock-based compensation at $36,438, $92,805, $146,155, $140,392,
$34,561, $141,946, $65,250 and $11,577 for each of the quarters ended
December 31, 1999.
(2) Excludes stock-based compensation of $314,279, $450,250, $464,989,
$393,339, $79,626, $(156,565), $122,940 and $43,174 for each of the
quarters ended December 31, 1999.
(3) Excludes stock-based compensation of $238,605, $337,800, $782,540,
$692,945, $69,165, $636,199, $321,389 and $(129,537) for each of the
quarters ended December 31, 1999.
(4) Excludes stock-based compensation of $38,240, $59,099, $224,633, $361,428,
$(42,188), $166,340, $71,060 and $26,715 for each of the quarters ended
December 31, 1999.
25
<PAGE>
<TABLE>
<CAPTION>
Quarter Ended
--------------------------------------------------------------------------------
Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31, June 30, Sept. 30, Dec. 31,
1998 1998 1998 1998 1999 1999 1999 1999
-------- -------- --------- -------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
As a Percentage of
Revenue:
Revenue:
Software license...... 49.7 % 58.5 % 36.1 % 57.4 % 44.5 % 43.5 % 43.0 % 41.5 %
Service, maintenance
and other............. 50.3 41.5 63.9 42.6 55.5 56.5 57.0 58.5
------ ------ ------ ------ ------ ------ ------ ------
Total revenue......... 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Cost of revenue:
Software license and
royalties............. 3.6 1.2 4.8 12.1 3.5 7.5 10.6 9.9
Service, maintenance
and other............. 58.9 48.0 105.9 74.7 48.9 58.1 51.1 53.7
------ ------ ------ ------ ------ ------ ------ ------
Total cost of reve-
nue.................. 62.5 49.2 110.7 86.8 52.4 65.6 61.7 63.6
------ ------ ------ ------ ------ ------ ------ ------
Gross margin......... 37.5 50.8 (10.7) 13.2 47.6 34.4 38.3 36.4
------ ------ ------ ------ ------ ------ ------ ------
Operating expenses:
Research and develop-
ment................. 109.4 163.4 197.0 150.6 85.9 85.5 71.7 62.7
Sales and marketing... 180.2 316.0 409.0 318.5 127.8 122.6 103.0 109.8
General and adminis-
trative.............. 42.3 61.5 50.6 55.7 21.7 29.4 26.5 45.5
Amortization of
deferred stock-based
compensation.......... 33.5 47.6 105.2 70.4 3.9 18.8 15.6 (4.7)
------ ------ ------ ------ ------ ------ ------ ------
Total operating ex-
penses............... 365.4 588.5 761.8 595.2 239.3 256.3 216.8 213.3
------ ------ ------ ------ ------ ------ ------ ------
Operating loss....... (327.9) (537.7) (772.5) (582.0) (191.7) (221.9) (178.5) (176.9)
Other income (expense),
net.................... 15.2 9.7 0.7 (1.0) (8.0) (4.7) (7.0) (17.5)
------ ------ ------ ------ ------ ------ ------ ------
Net loss............. (312.7)% (528.0)% (771.8)% (583.0)% (199.7)% (226.6)% (185.5)% (194.4)%
====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
Overall trends. The trends discussed previously in the annual comparisons of
operating results from 1997 through 1999, generally apply to the comparison of
results of operations for our eight most recent quarters ended December 31,
1999.
Revenue mix. Our software license and service revenue mix fluctuated
significantly at various times during the last eight 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 seven quarters ended
December 31, 1999 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, which resulted in a lower percentage of software
license revenue 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.
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. We expect this percentage to
decrease in the future as a result of our replacing the licensed technology
with our own internally developed product during the fourth quarter of 1999. In
anticipation of increased customer demand which did not materialize until later
periods, we expanded our professional services
26
<PAGE>
organization during the quarter ended September 30, 1998, resulting in
increased services costs as a percentage of total revenue during that quarter.
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 1) increased advertising, 2)
increased personnel costs and 3) 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: 1) our reorganization, 2) the reduction in the size of
our marketing organization, 3) our election not to pursue advertising campaigns
similar to those we pursued in 1998, 4) a reduction in our travel expenses and
5) 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 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.
27
<PAGE>
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 December 31, 1999
through private sales of preferred equity securities, totaling $85.7 million
and commercial bank loans and equipment leases. As of December 31, 1999, we had
$12.5 million in cash and cash equivalents.
Sources and uses of cash. Our operating activities resulted in net cash
outflows of $11.4 million, $32.0 million and $28.8 million in 1997, 1998 and
1999. The sources of cash were: 1) increases in accumulated liabilities, 2)
increases in accrued compensation and related expenses, and 3) increases in
deferred revenue in 1997, 1998 and 1999. Uses of cash in operating activities
were due to net operating losses and increases in accounts receivable for 1997,
1998 and 1999.
Investing. Investing activities used cash of $1.8 million in 1997, $3.7
million in 1998 and $785,000 in 1999 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; and
. $36.6 million in 1999, from the issuance of preferred stock and the
issuance of a subordinated loan.
Credit facilities. As of December 31, 1999, our principal commitments
consisted of:
. obligations to Silicon Valley Bank under:
. a revolving line of credit,
. 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 December 31, 1999, we had $6.5 million in outstanding borrowings which
are payable through 2002. Our revolving line of credit provides for borrowing
of up to $10.0 million based on 60% of eligible accounts receivable. Borrowings
under this line of credit accrue interest that is payable monthly at 0.10%
above prime rate. As of December 31, 1999, we had no borrowings against this
line of credit. Borrowings are secured by 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 December 31, 1999, 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.
28
<PAGE>
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 such a
transaction.
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 SOP 98-9, Software Revenue Recognition, with Respect
to Certain Arrangements. SOP 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 SOP 97-2. We adopted SOP 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.
29
<PAGE>
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 the above 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:
(a) enterprise resource planning applications from vendors including SAP
and Oracle,
(b) customer relationship management applications from vendors including
Siebel and Clarify,
(c) supply chain management applications from vendors including i2
Technologies, Manugistics Group, Inc. and Numetrix, a J.D. Edwards
Company,
(d) e-business applications from vendors including SAP, Ariba, Inc. and
BroadVision, Inc., and
(e) industry-specific applications from vendors including Portal and
MetaSolv;
30
<PAGE>
. 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.
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<PAGE>
. 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 the above 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
32
<PAGE>
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
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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.
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<PAGE>
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 table below provides a summary
view of our product offerings.
e-Business Infrastructure Products
<TABLE>
<CAPTION>
Product Description
-------------------------------------- --------------------------------------
<C> <S>
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
</TABLE>
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.
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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
In addition to creating their own business process integration modules with
our tools, our customers 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
<TABLE>
<CAPTION>
Module Description
------------------------------- ---------------------------------------------
<C> <S>
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
</TABLE>
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<PAGE>
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
<TABLE>
<CAPTION>
Module Description
------------------------------- --------------------------------------------
<C> <S>
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
</TABLE>
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
<TABLE>
<CAPTION>
Module Description
------------------------------- --------------------------------------------
<C> <S>
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
</TABLE>
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.
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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.
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<PAGE>
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.
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<PAGE>
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 eight customers who
are not currently using our software and five customers who are currently using
our software but do not allow us to use their names publicly:
<TABLE>
<CAPTION>
Technology Telecommunications
- ------------------------------------- -------------------------------------
<S> <C>
. 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
</TABLE>
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 accounted for $275,000 and $240,000 of our revenue. In 1998, US 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.
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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.
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<PAGE>
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. 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.
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:
<TABLE>
<CAPTION>
Strategic Investor Description of Investor
-------------------------------------- --------------------------------------
<C> <S>
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.
</TABLE>
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<PAGE>
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:
<TABLE>
<CAPTION>
Systems Integrator Partner Description of Relationship
-------------------------------------- --------------------------------------
<C> <S>
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.
</TABLE>
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.
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<PAGE>
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:
<TABLE>
<CAPTION>
Application Partner Description of Partner
-------------------------------------- --------------------------------------
<C> <S>
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.
</TABLE>
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
December 31, 1999 our direct sales force consisted of 24 sales professionals
located in offices in North America and Europe. We have domestic offices
located in California, Illinois, Maryland, Massachusetts, Michigan, Minnesota,
New Jersey, New York, 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 15 pre-sales representatives located in the corporate and field offices. The
field sales force is complemented by four 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 two to nine months.
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<PAGE>
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
45
<PAGE>
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 December 31,
1999, we have invested approximately $30.8 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 December 31, 1999, there were 75 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.
46
<PAGE>
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.
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<PAGE>
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.
In addition, current and potential competitors have established or may
establish cooperative relationships among themselves or with third parties to
increase the ability of their products to address customer needs. 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 December 31, 1999, we had a total of 202 employees, 178 were based in
North America, and 24 were based in Europe, principally in the United Kingdom
and Germany. Of the 202 employees, 65 were engaged in sales and marketing, 75
were in product development and customer support, 40 were in implementation
services and 22 were in finance, administration and operations. None of our
employees is represented by a labor union. We have not experienced any work
stoppages and consider our relations with our employees to be good.
Facilities
Our 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, Massachusetts, Michigan, New Jersey,
New York, 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.
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MANAGEMENT
Executive Officers and Directors
The executive officers and directors of CrossWorlds as of February 2, 2000
are:
<TABLE>
<CAPTION>
Name Age Position(s)
- ---- --- -----------
<S> <C> <C>
Alfred J. Amoroso....... 49 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
Barton S. Foster ....... 35 Senior Vice President, Marketing and Business Development
Prashant Gupta.......... 39 Chief Technical Officer and Senior Vice President
Mark R. Kent............ 40 Chief Financial Officer and Senior Vice President Finance
Arthur R. Matin......... 43 Senior Vice President, Worldwide Sales
James G. Rowley......... 34 Senior Vice President, Engineering
Terence J. Garnett...... 42 Director
Frederick W. Gluck...... 64 Director
Andrew K. Ludwick....... 54 Director
Albert A. Pimentel...... 44 Director
Colin F. Raymond........ 29 Director
</TABLE>
- ---------------------
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.
Barton S. Foster has served as senior vice president, marketing and business
development for CrossWorlds since November 1998, and served as vice president,
corporate marketing from June 1998 to November 1998. Before CrossWorlds, Mr.
Foster held management positions at Connect, Inc., an electronic commerce
software company, where he served as executive vice president, sales and
marketing and vice president, Marketing and Business Development, from March
1996 to June 1998. From November 1993 to
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<PAGE>
March 1996, Mr. Foster held various management positions at Oracle Corporation,
including vice president, applications and industry marketing, and senior
director, applications and industry marketing. Mr. Foster holds a B.A. degree
from Stanford University and a M.B.A. degree from Harvard University Graduate
School of Business Administration.
Prashant Gupta has served as chief technology officer at CrossWorlds since
April 1996. 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, worldwide sales and
consulting for CrossWorlds since January 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.
50
<PAGE>
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 the following option grants:
<TABLE>
<CAPTION>
Exercise No. of
Name Date of Grant Price Shares
---- ------------- -------- ------
<S> <C> <C> <C>
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
</TABLE>
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.
51
<PAGE>
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 column entitled all other annual compensation are
insurance premiums paid by CrossWorlds, with the exception of $40,271 paid to
Alfred J. Amoroso for moving expenses.
Mr. Amoroso joined CrossWorlds in October 1999. Mr. Kent joined CrossWorlds
in March 1999. Mr. Fitzgerald resigned as senior vice president, sales in
October 1999. Ms. Garnett resigned as chief executive officer in October 1999.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation
Awards
------------
Annual
Compensation
----------------- Securities
Salary Bonus Underlying All Other Annual
Name and Principal Position Year ($) ($) Options (#) Compensation ($)
- --------------------------- ---- -------- -------- ------------ ----------------
<S> <C> <C> <C> <C> <C>
Alfred J. Amoroso
President and Chief
Executive Officer........ 1999 $115,530 $ -- 2,125,192 $40,346
Barton S. Foster
Senior Vice President,
Marketing................ 1999 175,000 76,112 216,666 357
Prashant Gupta
Chief Technology Officer.. 1999 175,000 106,112 333,332 2,304
Mark R. Kent
Senior Vice President and
Chief Financial Officer.. 1999 136,719 36,509 399,999 351
James G. Rowley
Senior Vice President,
Engineering.............. 1999 164,583 84,798 204,999 319
Kevin Fitzgerald
Former Senior Vice
President, Sales......... 1999 149,965 248,606 166,666 1,338
Katrina A. Garnett
Chairman.................. 1999 175,000 106,112 -- 360
</TABLE>
52
<PAGE>
Option Grants
This table provides summary information on stock options granted to the
officers in the table below during the year ended December 31, 1999.
The percentage of total options granted to employees is based on an aggregate
of 6,968,975 shares granted by CrossWorlds under the 1997 stock plan and the
1999 executive stock plan during the year ended December 31, 1999. Potential
realizable values are net of exercise price, but before taxes for exercise. The
5% and 10% assumed annual rates of compounded stock price appreciation are set
by the Securities and Exchange Commission. The actual stock price appreciation
over the 10-year term is almost certainly not going to be at the assumed 5% and
10% levels or at any other defined level. No value will be realized from the
option grants unless the market price of the common stock appreciates.
Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Individual Grants
-----------------------------------------
Potential Realizable
Value at Assumed
% of Total Annual Rates of
Number of Options Stock Price
Shares Granted to Appreciation For
Underlying Employees Exercise Option Term
Options in Fiscal Price Expiration ----------------------
Name Granted(#) Year ($/Sh) Date 5%($) 10%($)
- ---- ---------- ---------- -------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
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...... -- -- -- -- -- --
</TABLE>
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<PAGE>
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 $9.00 per share as of December 31, 1999, as determined by the board of
directors, minus the exercise price, multiplied by the number of shares
underlying the option.
Fiscal Year-End Option Values
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at FY-End (#) at FY-End ($)
------------------------- -------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
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.......... -- -- -- --
</TABLE>
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
December 31, 1999, we had reserved a total of 4,992,638 shares for issuance
under the 1997 plan. As of December 31, 1999, options to purchase 753,425
shares of common stock had been exercised, options to purchase a total of
3,845,091 shares at a weighted average exercise price of $5.26 per share were
outstanding and 423,612 shares remained available for future option grants. The
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
54
<PAGE>
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: 1) the number of shares subject to the award; 2) the exercise or
purchase price; 3) the term, vesting and exercisability of the award; 4) and
other conditions to which the award is subject. 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,
55
<PAGE>
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 accordance with any specific direction or
order of, or contractual obligation with, CrossWorlds;
. commission of any act of fraud with respect to 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 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
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<PAGE>
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 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%
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<PAGE>
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 December 31,
1999, 980,555 shares were reserved for issuance under the 1996 plan, but the
board of directors has determined that no future grants will be made under the
1996 plan.
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 for the following:
. 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 fifteen 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 twelve 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 total of 3,500,000 shares
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<PAGE>
of common stock for issuance under the 1999 plan. As of December 31, 1999,
2,859,525 options were issued and outstanding or committed for issuance and
640,475 shares remained available for future option or stock purchase right
grants. We do not intend to grant any additional options or stock purchase
rights under the 1999 plan after the date of this offering. Unless terminated
earlier, the 1999 plan will terminate in October 2009.
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 for the following:
. 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 fifteen days from the date the option holder
received notice and will terminate following the fifteen 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.
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<PAGE>
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.
<TABLE>
<CAPTION>
Series C Series D Series E Series F
Entities Affiliated with Preferred Preferred Preferred Preferred
Directors Stock Stock Stock Stock
- ------------------------ --------- --------- --------- ---------
<S> <C> <C> <C> <C>
Katrina A. Garnett(1)... 333,333 133,333 775,000(2) 734,224(3)
Andrew K. Ludwick....... 166,666 33,333 41,666(2) --
Frederick W. Gluck...... -- 16,666 16,666(2) 44,052
Albert A. Pimentel(4)... -- 6,666 -- 3,670
Prashant Gupta.......... 8,333 -- -- --
<CAPTION>
Other 5% Stockholders
- ---------------------
<S> <C> <C> <C> <C>
Entities affiliated with Soros Private Equity
Partners(5).......................................... 1,468,429
</TABLE>
- --------
(1) Includes shares held by Katrina A. Garnett and Terence J. Garnett in a
family trust.
(2) Shares were issued in exchange for convertible promissory notes issued by
CrossWorlds in December 1998.
(3) Includes 100,000 shares sold to Alfred J. Amoroso, CrossWorlds' president
and chief executive officer.
(4) 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.
(5) 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 their 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 warrants were issued in
the following amounts in the following quarter.
<TABLE>
<CAPTION>
Name Warrants
---- --------
<S> <C>
. Alfred J. Amoroso............................................. 16,528
. Frederick W. Gluck............................................ 8,264
. Andrew K. Ludwick............................................. 82,644
. Albert A. Pimentel............................................ 82,644
. Entities affiliates with Soros Private Equity Partners........ 9,916
</TABLE>
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.
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<PAGE>
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 twelve 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. 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 forty-eight 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 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 the number of shares that would have vested over the next twelve 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.
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<PAGE>
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.
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;
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<PAGE>
. 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 (a) twelve months of his base salary plus (b) 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.
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.
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.
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.
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.
Other Officer Severance Agreements
CrossWorlds and two terminated executive officers entered into severance
agreements under which each officer received $66,000 and four and one half
months of health insurance premiums.
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
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<PAGE>
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.
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<PAGE>
PRINCIPAL STOCKHOLDERS
This table presents information about the beneficial ownership of our common
stock as of December 31, 1999. The table also contains information regarding
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 regarding:
. 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.
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 December 31, 1999 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.
<TABLE>
<CAPTION>
Percent
Beneficially
Owned
Shares -----------------
Beneficially Before After
Name and Address Owned Offering Offering
- ---------------- ------------ -------- --------
<S> <C> <C> <C>
Entities affiliated with Soros Private Equity
Partners(1)................................... 1,478,345 7.50% 6.04%
c/o Soros Fund Management LLC
ATTN: Michael C. Neus, Esq.
888 Seventh Avenue
New York, NY 10106
Alfred J. Amoroso(2)........................... 2,241,720 11.37 8.42
Barton S. Foster............................... 149,307 0.76 0.61
Prashant Gupta................................. 382,638 1.94 1.55
Mark R. Kent................................... 148,265 0.75 0.60
James G. Rowley................................ 232,331 1.18 0.94
Terence J. Garnett(3).......................... 6,069,478 30.81 24.79
Frederick W. Gluck(4).......................... 142,346 0.72 0.58
Andrew K. Ludwick(5)........................... 406,039 2.05 1.65
Albert A. Pimentel(6).......................... 147,657 0.75 0.60
Colin F. Raymond(1)............................ 1,478,345 7.50 6.04
Katrina A. Garnett(3).......................... 7,402,810 37.58 30.23
Kevin Fitzgerald............................... -- -- --
All directors and executive officers of
CrossWorlds as a group, 13 persons............ 13,131,458 66.67 47.19
</TABLE>
- --------
(1) 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.
(2) Includes 16,528 shares issuable upon exercise of a warrant issued to Mr.
Amoroso on February 2, 2000.
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<PAGE>
(3) The common stock held by both Mr. Garnett and Ms. Garnett includes
6,069,478 shares held by a family trust. The 1,333,332 shares of common
stock held directly by Ms. Garnett is included in her shares beneficially
owned and is excluded from Mr. Garnett's shares beneficially owned. The
common stock held by Mr. Garnett and Ms. Garnett does not include 333,332
shares held in trust for the benefit of Mr. and Ms. Garnett's children. Mr.
and Ms. Garnett do not possess voting or dispositive power over those
shares.
(4) Includes 8,264 shares issuable upon exercise of a warrant issued to Mr.
Gluck on February 2, 2000.
(5) Includes 82,644 shares issuable upon exercise of a warrant issued to Mr.
Ludwick on February 2, 2000.
(6) Includes 82,644 shares issuable upon exercise of a warrant issued to Mr.
Pimentel on February 2, 2000.
PRIVATE PLACEMENT
CrossWorlds has entered into a stock purchase agreement with The Dow Chemical
Company in which CrossWorlds agreed to sell shares of common stock equal to
$2,000,000 divided by the initial public offering price less the underwriting
discount, for a per share price equal to the initial public offering price less
the underwriting discount. CrossWorlds also entered into a stock purchase
agreement with Delphi Automotive in which CrossWorlds agreed to sell shares of
common stock equal to $2,000,000 divided by the initial public offering price
less the underwriting discount, for a per share price equal to the initial
public offering price less the underwriting discount. In addition, CrossWorlds
entered into a stock purchase agreement with Electronic Data Systems
Corporation in which CrossWorlds agreed to sell shares of common stock 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 501,700 shares of common stock to Electronic
Data Systems Corporation at a per share price of 13.95. The private placement
of a total of 788,438 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.
66
<PAGE>
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 December 31, 1999, there were 19,696,563 shares of common stock
outstanding, adjusted to reflect the conversion of all outstanding shares of
preferred stock. This calculation excludes the exercise of any outstanding
options or warrants into common stock, which are held of record by 332
stockholders.
Options to purchase an aggregate of 6,793,436 shares of common stock were
also outstanding as of December 31, 1999. Assuming no exercise of the
underwriters' overallotment option and no exercise of outstanding options under
CrossWorlds' stock plans, there will be 24,485,001 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 December 31, 1999, there were warrants outstanding to purchase an
aggregate of 343,431 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.
Additionally, after December 31, 1999, our board approved the issuance of
warrants to purchase 199,996 shares of common stock at a weighted average
exercise price of $11.00 per share. Generally, each warrant contains provisions
for the adjustment of the exercise price and 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 337,097 shares of common stock,
the holders of 18,220,000 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
67
<PAGE>
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 forces shareholders to take actions at
meetings rather than by written consent. The certificate of incorporation also
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.
Moreover, the business permitted to be conducted at any special meeting of
stockholders is limited by Delaware Law to the business described in the notice
of the meeting. Our bylaws also 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. The rules include advance notice
procedures for director nominations. 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.
68
<PAGE>
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 24,485,001 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 December 31, 1999. 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 affiliates is defined in Rule 144
under the Securities Act.
What Shares are Restricted and Not Freely Tradeable
The remaining 20,485,001 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 20,485,001 shares of
common stock are subject to lock-up agreements. These agreements generally
provide that, without the prior written consent of Chase Securities Inc.,
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. 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, only the shares sold
in the offering will be immediately available for sale in the public
market;
. beginning 180 days after the effective date, approximately 19,696,563
shares will be eligible for sale under federal securities laws, of which
all but 10,111,168 shares are held by affiliates; and
. beginning one year after the effective date, approximately 788,438
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 244,850 shares immediately after the
offering; or
69
<PAGE>
. 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 Rules 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 December 31, 1999
As of December 31, 1999, there were outstanding options for the purchase of
6,793,436 shares, of which 3,310,545 options were exercisable. No shares have
been issued to date under our purchase plan or directors plan.
70
<PAGE>
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:
<TABLE>
<CAPTION>
Number
of
Name Shares
---- ------
<S> <C>
Chase Securities Inc................................................
Dain Rauscher Incorporated..........................................
Thomas Weisel Partners LLC..........................................
----
Total...............................................................
====
</TABLE>
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 above table
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:
<TABLE>
<CAPTION>
Total
-------------------
Without With
Over- Over-
allotment allotment
--------- ---------
<S> <C> <C>
Per share.............................................. $ $
Total.................................................. $ $
</TABLE>
71
<PAGE>
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 19,696,563 shares of common stock have agreed that they will not,
without the prior written consent of Chase Securities Inc., 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 is a bid for or the purchase of stock on behalf
of the underwriters to reduce a short position incurred by the underwriters in
connection with this offering; a short position results when an underwriter
sells more shares than it has committed to purchase. These transactions may
occur on the Nasdaq National Market, in the over-the-counter market. These
transactions, if commenced, may be discontinued at any time.
Underwriters and selling group members, if any, who are qualified market
makers on the Nasdaq National Market may engage in passive market making
transactions in our common stock on the Nasdaq National Market in compliance
with Rule 103 of Regulation M under the Securities Exchange Act of 1934. During
the business day before the pricing of the offering before the beginning of
offers or sales of our
72
<PAGE>
common stock, passive market makers must comply with applicable volume and
price limitations and must be identified. In general, a passive market maker
must display its bid at a price not in excess of the highest independent bid of
that security; if all independent bids are lowered below the passive market
maker's bid, however, the bid must then be lowered when purchase limits are
exceeded.
Thomas Weisel Partners LLC
Thomas Weisel Partners LLC, one of the representatives of the underwriters,
was organized and registered as a broker-dealer in December 1998. Since
December 1998, Thomas Weisel Partners has been named as a lead or co-manager on
110 filed public offerings of equity securities, of which 79 have been
completed, and has acted as a syndicate member in an additional 54 public
offerings of equity securities. Thomas Weisel Partners does not have any
material relationship with us or any of our officers, directors or other
controlling persons, 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 (1) 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 (2) 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.
73
<PAGE>
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. 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.
74
<PAGE>
CROSSWORLDS SOFTWARE, INC.
AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report............................................. F-2
Consolidated Balance Sheets as of December 31, 1998 and 1999............. F-3
Consolidated Statements of Operations for the three years ended December
31, 1999................................................................ F-4
Consolidated Statements of Stockholders' Equity (Deficit) for the three
years ended December 31, 1999........................................... F-5
Consolidated Statements of Cash Flows for the three years ended December
31, 1999................................................................ F-6
Notes to Consolidated Financial Statements............................... F-7
</TABLE>
F-1
<PAGE>
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
<PAGE>
CROSSWORLDS SOFTWARE, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
----------------------------------------
1999
--------------------------
1998 Actual Pro Forma
------------ ------------ ------------
ASSETS (unaudited)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents.......... $ 5,415,154 $ 12,506,119 $ 12,506,119
Accounts receivable, net of
allowance of $306,130 and $296,675
as of December 31, 1998 and 1999,
respectively...................... 5,198,351 11,688,430 11,688,430
Prepaids and other current assets.. 820,115 1,019,036 1,019,036
------------ ------------ ------------
Total current assets............... 11,433,620 25,213,585 25,213,585
Property and equipment, net.......... 4,156,515 3,846,379 3,846,379
Deposits and other assets............ 166,610 116,610 116,610
------------ ------------ ------------
Total assets....................... $ 15,756,745 $ 29,176,574 $ 29,176,574
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
Current liabilities:
Accounts payable................... $ 862,408 $ 796,798 $ 796,798
Accrued payroll and related
expenses.......................... 1,166,372 2,597,501 2,597,501
Accrued commissions................ 1,966,503 2,741,629 2,741,629
Accrued royalties.................. -- 1,438,929 1,438,929
Other accrued liabilities.......... 1,268,104 2,563,065 2,563,065
Current portion of capital lease
obligations....................... -- 347,216 347,216
Current portion of long-term debt.. 4,262,552 2,622,482 2,622,482
Deferred revenue................... 6,555,892 13,157,747 13,157,747
------------ ------------ ------------
Total current liabilities.......... 16,081,831 26,265,367 26,265,367
Other long-term liabilities.......... 91,090 123,913 123,913
Capital lease obligations, less
current portion..................... -- 576,711 576,711
Long-term debt, less current
portion............................. 6,254,166 2,936,118 2,936,118
------------ ------------ ------------
Total liabilities.................. 22,427,087 29,902,109 29,902,109
------------ ------------ ------------
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; pro forma--none authorized;
none issued or outstanding ....... 95,716 161,260 --
Common stock, $0.001 par value;
actual--45,000,000 shares
authorized; 2,810,464 and
3,153,935 shares issued and
outstanding; pro forma--
150,000,000 shares authorized;
19,696,563 shares issued and
outstanding ...................... 2,810 3,154 19,697
Additional paid-in capital......... 53,929,214 96,757,116 96,901,833
Deferred stock-based compensation.. (3,777,293) (2,540,474) (2,540,474)
Accumulated deficit................ (56,920,789) (95,106,591) (95,106,591)
------------ ------------ ------------
Total stockholders' equity
(deficit)......................... (6,670,342) (725,535) (725,535)
------------ ------------ ------------
Total liabilities and stockholders'
equity (deficit).................. $ 15,756,745 $ 29,176,574 $ 29,176,574
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
CROSSWORLDS SOFTWARE, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
Revenue:
Software license................... $ 748,336 $ 3,972,741 $ 8,193,907
Service, maintenance and other..... 360,019 3,733,694 10,899,886
------------ ------------ ------------
Total revenue...................... 1,108,355 7,706,435 19,093,793
------------ ------------ ------------
Cost of revenue:
Software license and royalties..... 36,503 437,813 1,599,047
Service, maintenance and other,
excludes stock-based compensation
of $415,790 and $253,334 for 1998
and 1999, respectively............ 1,859,536 5,392,589 10,127,418
------------ ------------ ------------
Total cost of revenue.............. 1,896,039 5,830,402 11,726,465
------------ ------------ ------------
Gross profit (loss).............. (787,684) 1,876,033 7,367,328
------------ ------------ ------------
Operating expenses:
Research and development, excludes
stock-based compensation of
$1,622,857 and $89,175 for 1998
and 1999, respectively............ 4,080,461 11,747,877 14,242,556
Sales and marketing, excludes
stock-based compensation of
$2,051,890 and $897,216 for 1998
and 1999, respectively............ 6,954,034 23,141,104 21,791,524
General and administrative,
excludes stock-based compensation
of $683,390 and $221,927 for 1998
and 1999, respectively............ 2,296,426 4,065,794 6,144,879
Amortization of deferred stock-
based compensation................ -- 4,773,927 1,461,652
------------ ------------ ------------
Total operating expenses........... 13,330,921 43,728,702 43,640,611
------------ ------------ ------------
Operating loss................... (14,118,605) (41,852,669) (36,273,283)
Other income (expense), net.......... 166,138 478,584 (1,912,519)
------------ ------------ ------------
Net loss......................... $(13,952,467) $(41,374,085) $(38,185,802)
============ ============ ============
Net loss per share:
Basic and diluted.................. $ (11.88) $ (19.99) $ (13.40)
============ ============ ============
Weighted average shares used in
computation (in thousands)........ 1,175 2,069 2,850
============ ============ ============
Pro forma net loss per share
(unaudited):
Basic and diluted.................. $ (1.70) $ (3.55) $ (2.38)
============ ============ ============
Weighted average shares used in
computation (in thousands)........ 8,201 11,641 16,062
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
CROSSWORLDS SOFTWARE, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
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)
---------- -------- --------- ------ ----------- ----------- ------------ ------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance as of
December 31,
1996........... 5,404,155 $ 54,041 2,240,000 $2,240 $ 2,944,380 $(15,000) $ -- $ (1,594,237) $ 1,391,424
Issuance of
Series C
preferred
stock, net..... 2,104,144 21,041 -- -- 12,560,302 -- -- -- 12,581,343
Issuance of
Series D
preferred
stock, net..... 1,601,307 16,013 -- -- 22,805,259 -- -- -- 22,821,272
Exercise of
options and
restricted
stock purchase
agreements..... -- -- 406,250 406 104,282 937 -- -- 105,625
Repurchase of
restricted
stock.......... -- -- (93,750) (94) (13,969) 14,063 -- -- --
Net loss........ -- -- -- -- -- -- (13,952,467) (13,952,467)
---------- -------- --------- ------ ----------- -------- ----------- ------------- ------------
Balance as of
December 31,
1997........... 9,109,606 91,095 2,552,500 2,552 38,400,254 -- -- (15,546,704) 22,947,197
Issuance of
Series D
preferred
stock, net..... 462,000 4,621 -- -- 6,540,062 -- -- -- 6,544,683
Exercise of
options and
restricted
stock purchase
agreements..... -- -- 446,297 446 455,813 -- -- -- 456,259
Repurchase of
restricted
stock.......... -- -- (188,333) (188) (18,135) -- -- -- (18,323)
Deferred stock-
based
compensation
related to
option grants.. -- -- -- -- 8,551,220 -- (8,551,220) -- --
Amortization of
deferred stock-
based
compensation... -- -- -- -- -- -- 4,773,927 -- 4,773,927
Net loss........ -- -- -- -- -- -- -- (41,374,085) (41,374,085)
---------- -------- --------- ------ ----------- -------- ----------- ------------- ------------
Balance as of
December 31,
1998........... 9,571,606 95,716 2,810,464 2,810 53,929,214 -- (3,777,293) (56,920,789) (6,670,342)
Issuance of
Series E
preferred
stock, net..... 2,883,326 28,833 -- -- 17,221,535 -- -- -- 17,250,368
Issuance of
Series F
preferred
stock, net..... 3,671,071 36,711 -- -- 23,517,594 -- -- -- 23,554,305
Issuance of
preferred stock
warrants....... -- -- -- -- 1,256,449 -- -- -- 1,256,449
Exercise of
options........ -- -- 437,352 438 641,991 -- -- -- 642,429
Repurchase of
restricted
stock.......... -- -- (93,881) (94) (34,500) -- -- -- (34,594)
Deferred stock-
based
compensation
related to
option grants.. -- -- -- -- 224,833 -- (224,833) -- --
Amortization of
deferred stock-
based
compensation... -- -- -- -- -- -- 1,461,652 -- 1,461,652
Net loss........ -- -- -- -- -- -- -- (38,185,802) (38,185,802)
---------- -------- --------- ------ ----------- -------- ----------- ------------- ------------
Balance as of
December 31,
1999........... 16,126,003 $161,260 3,153,935 $3,154 $96,757,116 $ ---- $(2,540,474) $ (95,106,591) $ (725,535)
========== ======== ========= ====== =========== ======== =========== ============= ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
CROSSWORLDS SOFTWARE, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss............................... $(13,952,467) $(41,374,085) $(38,185,802)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization........ 361,390 1,403,938 2,389,305
Amortization of deferred stock-based
compensation........................ -- 4,773,927 1,461,652
Issuance of warrants for services.... -- -- 756,449
Software licenses exchanged for
property and equipment and prepaid
assets.............................. (346,658) -- --
Changes in operating assets and
liabilities:
Accounts receivable................. (907,200) (4,291,151) (6,490,079)
Prepaids and other current assets... (334,548) (417,572) (198,921)
Accounts payable.................... 1,842,219 (1,045,161) (65,610)
Accrued payroll and related
expenses........................... 713,165 367,630 1,431,129
Accrued commissions................. -- 1,966,503 775,126
Other accrued liabilities........... 367,066 837,773 2,733,890
Deferred revenue.................... 788,413 5,767,479 6,601,855
Other long-term liabilities......... 39,439 51,651 32,823
------------ ------------ ------------
Net cash used in operating activities... (11,429,181) (31,959,068) (28,758,183)
------------ ------------ ------------
Cash flows from investing activities:
Purchases of property and equipment.... (1,784,420) (3,572,632) (834,517)
Other assets........................... -- (120,000) 50,000
------------ ------------ ------------
Net cash used in investing activities... (1,784,420) (3,692,632) (784,517)
------------ ------------ ------------
Cash flows from financing activities:
Proceeds from convertible subordinated
notes payable to stockholder.......... -- 5,000,000 --
Proceeds from equipment facilities..... 1,173,720 1,147,113 --
Proceeds from subordinated debt........ -- -- 5,000,000
Proceeds from revolving working capital
facility.............................. -- 3,479,219 --
Repayments of equipment facilities..... -- -- (783,333)
Repayments of subordinated debt........ -- -- (516,291)
Repayments of working capital
facility.............................. -- (283,334) (3,479,219)
Proceeds from exercise of stock
options............................... 105,625 456,259 642,429
Proceeds from issuance of preferred
stock................................. 35,402,615 6,544,683 35,804,673
Repurchase of restricted stock......... -- (18,323) (34,594)
------------ ------------ ------------
Net cash provided by financing
activities............................. 36,681,960 16,325,617 36,633,665
------------ ------------ ------------
Net increase (decrease) in cash and cash
equivalents............................ 23,468,359 (19,326,083) 7,090,965
Cash and cash equivalents at beginning
of year................................ 1,272,878 24,741,237 5,415,154
------------ ------------ ------------
Cash and cash equivalents at end of
year................................... $ 24,741,237 $ 5,415,154 $ 12,506,119
============ ============ ============
Supplemental disclosures of cash flow
information:
Cash paid during the period for
interest.............................. $ 55,372 $ 208,259 $ 995,393
============ ============ ============
Noncash investing and financial
activities:
Return of restricted stock in
satisfaction of note receivable....... $ 14,063 $ -- $ --
Issuance of preferred stock for
conversion convertible notes.......... -- -- 5,000,000
Issuance of preferred stock warrants in
connection with long-term debt........ -- -- 500,000
Issuance of preferred stock warrants in
connection with services.............. -- -- 756,449
Equipment acquired through equipment
lease facility........................ -- -- 1,077,985
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
CROSSWORLDS SOFTWARE, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Organization and Significant Accounting Policies
(a) Description of Business
CrossWorlds Software, Inc. (the Company) develops, produces, markets and
implements e-business infrastructure software. The Company is headquartered in
Burlingame, California and operates foreign subsidiaries in Germany, the United
Kingdom and France. The majority of the Company's revenues are derived from
domestic sales which were 80%, 77% and 86% for 1997, 1998 and 1999 of total
revenues, respectively. Substantially all of the Company's sales are made in
U.S. dollars.
(b) Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries. All intercompany balances and
transactions have been eliminated in consolidation.
(c) Foreign Currency
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
<PAGE>
CROSSWORLDS SOFTWARE, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(g) Concentrations of Credit Risk and Major Customers
The Company's cash and cash equivalents are principally on deposit in a
short-term asset management account at a large bank. Accounts receivable
potentially subject the Company to concentrations of credit risk. The Company's
customer base is comprised primarily of large companies. The Company generally
does not require collateral for accounts receivable. When required, the Company
maintains allowances for credit losses, and to date such losses have been
within management's expectations. Information regarding sales to major
customers follows (items with an * indicate percentage was less than 10%):
<TABLE>
<CAPTION>
Percentage of
Percentage of Accounts
Total Revenue Receivable at
---------------- December 31,
Customer 1997 1998 1999 1999
-------- ---- ---- ---- -------------
<S> <C> <C> <C> <C>
A............................................... 22% * * *
B............................................... 20% * * *
C............................................... 25% * * *
D............................................... 22% * * *
E............................................... * 14% * *
F............................................... * 13% * *
G............................................... * 11% * *
H............................................... * * 21% *
I............................................... * * * 44%
</TABLE>
(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, 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
F-8
<PAGE>
CROSSWORLDS SOFTWARE, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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. 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, 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 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.
F-9
<PAGE>
CROSSWORLDS SOFTWARE, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(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:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Stock options and warrants.................. 1,676,039 2,117,220 7,136,867
Common stock subject to repurchase.......... 1,321,104 681,312 155,245
Convertible preferred stock................. 9,109,606 9,571,606 16,538,664
---------- ---------- ----------
12,106,749 12,370,138 23,830,776
========== ========== ==========
</TABLE>
(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 (in thousands):
<TABLE>
<CAPTION>
1997 1998 1999
---------- ---------- -----------
<S> <C> <C> <C>
United States............................ $ 887,944 $5,951,397 $16,360,434
Europe................................... 220,411 1,755,038 2,733,359
---------- ---------- -----------
$1,108,355 $7,706,435 $19,093,793
========== ========== ===========
</TABLE>
(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
F-10
<PAGE>
CROSSWORLDS SOFTWARE, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 and $46,000 for the years ended December 31,
1997, 1998 and 1999, respectively.
(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 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 December 31, 1999.
Pro forma net loss per share for the years ended December 31, 1997, 1998 and
1999, is computed using the weighted average number of common shares
outstanding, including the pro forma effects of the automatic conversion of the
Company's convertible preferred stock into shares of the Company's common stock
effective upon the closing of the Company's 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.
(2) Property and Equipment
Property and equipment as of December 31, 1998 and 1999 consisted of the
following:
<TABLE>
<CAPTION>
1998 1999
----------- -----------
<S> <C> <C>
Computer equipment and software................. $ 4,672,705 $ 6,476,877
Furniture and fixtures.......................... 689,778 767,615
Leasehold improvements.......................... 569,118 599,611
----------- -----------
5,931,601 7,844,103
Accumulated depreciation........................ (1,775,086) (3,997,724)
----------- -----------
$ 4,156,515 $ 3,846,379
=========== ===========
</TABLE>
Equipment under the capital lease aggregated $1,132,726 as of December 31,
1999. Accumulated amortization on the assets under the capital lease aggregated
$179,565 as of December 31, 1999.
(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-11
<PAGE>
CROSSWORLDS SOFTWARE, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
During the year ended December 31, 1998 and 1999 the Company had available
two Equipment Facilities Agreements (the Equipment Facilities) which provided
for $350,000 and $2,000,000 and a $10,000,000 working capital facilities with a
bank. In January 1999, the Company had entered into a $5,000,000 credit
facility as a Subordinated Loan and Security Agreement (the Subordinated Loan
Agreement). The following amounts of debt are outstanding as of December 31,
1998 and 1999 (in order of subordination):
<TABLE>
<CAPTION>
December 31,
----------------------
1998 1999
----------- ----------
<S> <C> <C>
$350,000 equipment facility with bank, payable in 36
equal monthly installments of principal plus interest
at the bank's prime rate plus 0.75% per annum (8.50%
and 9.25% as of December 31, 1998 and 1999
respectively).......................................... $ 204,166 $ 87,500
$2,000,000 equipment facility with bank, payable in 36
equal monthly installments of principal plus interest
at the bank's prime rate per annum (7.75% and 8.50% as
of December 31, 1998 and 1999 respectively)............ 1,833,333 1,166,667
$10,000,000 working capital facility with a bank
expiring in April 2000, payable in 36 equal monthly
installments of principal plus interest at the bank's
prime rate plus 0.10% per annum (7.85% as of December
31, 1998).............................................. 3,479,219 --
$5,000,000 Subordinated Loan and Security Agreement with
a lender. Note bearing interest at 12% per annum, with
interest payments beginning from April 1, 1999 through
September, 1999 followed by 30 equal monthly payments
of principal plus interest through March, 2002......... -- 4,304,433
$5,000,000 Promissory Note Agreement with stockholders,
bearing interest at 8% per annum, which was converted
into Series E convertible preferred stock in January
1999................................................... 5,000,000 --
----------- ----------
Total................................................... 10,516,718 5,558,600
Less, current portion................................... 4,262,552 2,622,482
----------- ----------
Long term debt.......................................... $ 6,254,166 $2,936,118
=========== ==========
</TABLE>
The aggregate future payments of long-term debt are as follows:
<TABLE>
<S> <C>
2000.............................................................. $2,622,482
2001.............................................................. 2,460,351
2002.............................................................. 475,767
----------
$5,558,600
==========
</TABLE>
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 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 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
F-12
<PAGE>
CROSSWORLDS SOFTWARE, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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.
(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:
<TABLE>
<CAPTION>
Year ending Capital Operating
December 31, leases leases
------------ ---------- -----------
<S> <C> <C>
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
==========
</TABLE>
Rent expense for the years ended December 31, 1997, 1998 and 1999 was
approximately $619,000, $1,536,000 and $2,000,000, respectively.
(b) Royalty Commitments
During 1999, the Company entered into royalty agreements with two third party
vendors for certain licensed technology. The agreements include minimum royalty
payments of approximately $2.8 million and $2.0 million, respectively due
through June 2001 and June 2000, respectively.
The Company expects to earn out its remaining minimum royalty obligations
associated with the technology with minimum royalty payments of approximately
$2.8 million due by June 2001 and has recognized the associated cost of license
commensurate with usage.
F-13
<PAGE>
CROSSWORLDS SOFTWARE, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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.
(c) Employment Agreements
In October 1999, the Company entered into an employment agreement with its
President and Chief Executive Officer. The agreement provided for a sign-on
bonus of $400,000 to be paid by March 1, 2000. The sign-on bonus was accrued
and charged to general expense in the fourth quarter of 1999. In addition, the
individual is eligible for a pro rata target bonus of $250,000 based on the
number of weeks of actual employment in 1999 and a full annual target bonus of
$250,000 for the year 2000. In addition, the Company will provide the
individual a moving assistance loan of $1.5 million pursuant to a secured
nonrecourse promissory note, which will be forgiven in equal monthly
installments over a period of 48 months as long as the individual remains
employed by the Company. No amounts have been borrowed through December 31,
1999.
In January 2000, the Company entered into an employment agreement with its
Senior Vice President of Worldwide Sales. The agreement provides for a sign-on
bonus of $300,000 to be paid by March 1, 2000.
(5) Stockholders' Equity
(a) Reverse Stock Split
On October 1, 1999, the Company's Board of Directors authorized a 1 for 3
reverse stock split. The accompanying consolidated financial statements and
related notes have been retroactively restated to give effect to the reverse
stock split.
(b) Convertible Preferred Stock
In 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:
<TABLE>
<CAPTION>
Shares
----------------------
Issued and
Series Designated outstanding
------ ---------- -----------
<S> <C> <C>
A.................................................. 3,333,333 3,333,333
B.................................................. 2,070,822 2,070,822
C.................................................. 2,137,500 2,104,144
D.................................................. 2,066,667 2,063,307
E.................................................. 3,333,333 2,883,326
F.................................................. 3,671,072 3,671,071
----------
16,126,003
==========
</TABLE>
F-14
<PAGE>
CROSSWORLDS SOFTWARE, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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.
(c) Common Stock
The Company has issued 2,417,798 shares of common stock to founders and
employees under restricted stock purchase agreements. Pursuant to the
agreements, the Company has the right to repurchase the unvested common stock
at its original purchase price in the event of voluntary or involuntary
termination of the stockholder for any reason. The repurchase rights expire
through the year 2001. Shares subject to repurchase totaled approximately
1,321,104, 681,312 and 155,245 as of December 31, 1997, 1998 and 1999 ,
respectively.
(d) Common Stock Reserved
The Company has reserved 36,443,583 shares of common stock for issuance under
its stock option plan, for warrants, and upon the conversion of outstanding
convertible preferred stock.
(e) Stock Option Plan
The Company is authorized to issue up to 9,473,193 shares in connection with
its 1996, 1997 and 1999 stock option plans (the Plans) to directors, employees,
and consultants. The Plans provide for the issuance of stock purchase rights,
incentive stock options, or nonstatutory stock options.
Stock purchase rights are subject to a restricted stock purchase agreement
whereby the Company has the right to repurchase the stock at the original issue
price upon the voluntary or involuntary termination of the purchaser's
employment with the Company. The repurchase rights will lapse at a rate
determined by the stock plan administrator, but at a minimum rate of 20% per
year.
Under the 1997 plan, the exercise price for incentive stock options is at
least 100% of the stock's fair market value on the date of grant for employees
owning less than 10% of the voting power of all classes of stock, and at least
110% of the fair market value on the date of grant for employees owning more
than 10% of the voting power of all classes of stock. For nonstatutory stock
options, the exercise price is also at least
F-15
<PAGE>
CROSSWORLDS SOFTWARE, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
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)
</TABLE>
The fair value of each option was estimated on the date of grant using the
minimum value method with the following weighted-average assumptions: no
dividend yield; risk-free interest rate of 6.2%, 5.0% and 4.7% for fiscal 1997,
1998 and 1999 respectively; and expected life of four years for all periods.
F-16
<PAGE>
CROSSWORLDS SOFTWARE, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
A summary of the status of the Company's options for the years ended December
31, 1997, 1998 and 1999 are as follows:
<TABLE>
<CAPTION>
Options Outstanding
----------------------------
Shares available Number Weighted-average
for grant of shares exercise price
---------------- ---------- ----------------
<S> <C> <C> <C>
Balances as of December 31,
1996........................... 525,008 581,661 $0.14
Authorized...................... 1,612,083 -- --
Granted......................... (1,386,624) 1,386,624 0.78
Exercised....................... -- (312,914) 0.15
Canceled........................ 12,665 (12,665) 0.99
---------- ----------
Balances as of December 31,
1997........................... 763,132 1,642,706 0.69
Authorized...................... 861,111 -- --
Granted......................... (1,381,005) 1,381,005 2.93
Exercised....................... -- (426,467) 0.96
Returned to Plans............... 6,875 -- 0.96
Canceled........................ 513,357 (513,357) 1.12
---------- ----------
Balances as of December 31,
1998........................... 763,470 2,083,887 2.00
Authorized...................... 5,386,665
Granted......................... (7,022,308) 7,022,308 6.08
Exercised....................... -- (436,394) 1.46
Returned to Plans............... 59,895 -- --
Canceled........................ 1,876,365 (1,876,365) 3.72
---------- ----------
Balances as of December 31,
1999........................... 1,064,087 6,793,436 $5.78
========== ==========
Options exercisable at:
December 31, 1997.............................. 773,148 $0.12
December 31, 1998.............................. 448,497 1.48
December 31, 1999.............................. 3,310,545 5.89
</TABLE>
The weighted-average fair value of options granted in fiscal 1997, 1998 and
1999 was $.15, $.51 and $1.03, respectively.
As of December 31, 1999, the range of exercise prices and weighted-average
remaining contractual life of outstanding options were as follows:
<TABLE>
<CAPTION>
Weighted-average
remaining
Number of contractual life Number of shares
Exercise prices options shares (years) exercisable
--------------- -------------- ---------------- ----------------
<S> <C> <C> <C>
$ 0.15 56,840 6.92 25,278
0.45 27,189 7.29 12,121
0.75 172,689 7.64 84,462
1.50 19,583 7.83 9,065
1.80 53,736 7.94 22,658
2.25 9,791 8.05 2,272
3.00 703,992 8.83 347,119
5.25 698,589 9.20 135,152
5.40 137,596 9.32 23,157
6.60 4,913,431 9.75 2,649,261
--------- ---------
6,793,436 3,310,545
========= =========
</TABLE>
F-17
<PAGE>
CROSSWORLDS SOFTWARE, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(f) Warrants
In October 1999, the Company issued 177,098 warrants, at $6.60 a share, to an
executive search firm for the recruitment of its Chief Executive Officer. The
warrants are immediately exercisable up to seven years from the date of
issuance. The warrants had a fair value of $750,000 on the date of the grant
using the Black-Scholes pricing model with the following assumptions: 60%
volatility, zero dividends, a risk-free rate of 5.21% and a contractual life of
7 years. The amount was recorded as operating expense during 1999.
(6) Income Taxes
The Company has incurred significant losses since inception and has not
incurred any income tax expense to date. The 1999 income tax differed from the
amounts computed by applying the U.S. federal income tax rate of 34% to pretax
income as a result of the following:
<TABLE>
<CAPTION>
1997 1998 1999
----------- ------------ ------------
<S> <C> <C> <C>
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............................... $ -- $ -- $ --
=========== ============ ============
</TABLE>
The tax effects of temporary differences that give rise to significant portions
of the Company's deferred tax assets and liabilities are presented below.
<TABLE>
<CAPTION>
1998 1999
------------ ------------
<S> <C> <C>
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........................... $ -- $ --
============ ============
</TABLE>
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
F-18
<PAGE>
CROSSWORLDS SOFTWARE, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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-19
<PAGE>
[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.
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
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 or possession or distribution of
this prospectus in any such jurisdiction. Persons who come into possession of
this prospectus in jurisdictions outside the United States are required to
inform themselves about and to observe any restrictions of this offering and
the distribution of this prospectus applicable to that jurisdiction.
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.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
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.
<TABLE>
<CAPTION>
Amount
to be Paid
----------
<S> <C>
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
</TABLE>
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 6,793,436 options to purchase
common stock of CrossWorlds with a weighted average price of $5.78 to a
number of employees and directors of and consultants to CrossWorlds.
3. On June 26, 1998, CrossWorlds issued warrants to purchase 33,333
shares of its series C preferred stock with an exercise price of $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
<PAGE>
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
<PAGE>
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
<TABLE>
<CAPTION>
Number Description
------ -----------
<C> <S>
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.
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 and Amendment
01 to OEM Distribution Agreement dated February 9, 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.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Number Description
------ -----------
<C> <S>
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.
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 US WEST
24.1* Power of Attorney (see page II-5).
27.1* Financial Data Schedule.
</TABLE>
- --------
* Previously filed.
+ Confidential treatment requested.
(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
<PAGE>
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 April 10, 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:
<TABLE>
<S> <C> <C>
Signature Title
Date
* President, Chief April 10, 2000
- ----------------------------------- Executive Officer and
Alfred J. Amoroso Director (Principal
Executive Officer)
/s/ Mark R. Kent Chief Financial Officer April 10, 2000
- ----------------------------------- (Principal Financial and
Mark R. Kent Accounting Officer)
* Chairman of the April 10, 2000
- ----------------------------------- Board
Katrina A. Garnett
* Director April 10, 2000
- -----------------------------------
Terence J. Garnett
* Director April 10, 2000
- -----------------------------------
Frederick W. Gluck
* Director April 10, 2000
- -----------------------------------
Andrew K. Ludwick
* Director April 10, 2000
- -----------------------------------
Albert A. Pimentel
* Director April 10, 2000
- -----------------------------------
Colin F. Raymond
/s/ Mark R. Kent
*By: ___________________________________
Mark R. Kent, attorney-in-fact
</TABLE>
II-5
<PAGE>
SCHEDULE II
CROSSWORLDS SOFTWARE, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
Balance Charged Balance
at to Costs at End
Beginning and of
of Period Expenses Deductions Period
--------- -------- ---------- --------
<S> <C> <C> <C> <C>
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....... -- -- -- --
</TABLE>
- --------
(1) Accounts written off.
S-1
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Number Description
------ -----------
<C> <S>
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.
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 and Amendment
01 to OEM Distribution Agreement dated February 9, 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.
10.27 Proposed form of Supplemental Letter from CrossWorlds to Electronic
Data Systems Corporation related to Exhibit 10.24.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Number Description
------ -----------
<C> <S>
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.
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 US WEST.
24.1* Power of Attorney (see page II-5).
27.1* Financial Data Schedule.
</TABLE>
- --------
* Previously filed.
+ Confidential treatment requested.
<PAGE>
EXHIBIT 1.1
CROSSWORLDS SOFTWARE, INC.
4,000,000 Shares/1/
Common Stock
UNDERWRITING AGREEMENT
----------------------
_____ __, 2000
CHASE SECURITIES INC.
DAIN RAUSCHER WESSELS,
a division of Dain Rauscher Incorporated
THOMAS WEISEL PARTNERS LLC
c/o Chase Securities Inc.
One Bush Street
San Francisco, CA 94104
Ladies and Gentlemen:
CrossWorlds Software, Inc. a Delaware corporation (herein called the
Company), proposes to issue and sell 4,000,000 shares of its authorized but
unissued Common Stock, $0.001 par value (herein called the Common Stock) (said
4,000,000 shares of Common Stock being herein called the Underwritten Stock).
The Company proposes to grant to the Underwriters (as hereinafter defined) an
option to purchase up to 600,000 additional shares of Common Stock (herein
called the Option Stock and with the Underwritten Stock herein collectively
called the Stock). The Common Stock is more fully described in the Registration
Statement and the Prospectus hereinafter mentioned.
The Company hereby confirms the agreements made with respect to the
purchase of the Stock by the several underwriters, for whom you are acting,
named in Schedule I hereto (herein collectively called the Underwriters, which
term shall also include any underwriter purchasing Stock pursuant to Section
3(b) hereof). You represent and warrant that you have been authorized by each
of the other Underwriters to enter into this Agreement on its behalf and to act
for it in the manner herein provided.
1. Registration Statement. The Company has filed with the Securities and
Exchange Commission (herein called the Commission) a registration statement on
Form S-1 (No. 333-96055), including the related preliminary prospectus, for the
registration under the Securities Act of 1933, as amended (herein called the
Securities Act) of the Stock. Copies of such registration statement and of each
amendment thereto, if any, including the related preliminary prospectus (meeting
the requirements of Rule 430A of the rules and regulations of the Commission)
heretofore filed by the Company with the Commission have been delivered to you.
The term Registration Statement as used in this agreement shall mean such
registration statement, including all exhibits and financial statements, all
information omitted therefrom in reliance upon Rule 430A and contained in the
Prospectus referred to below, in the form in which it became effective, and any
registration statement filed pursuant to Rule 462(b) of the rules and
regulations of the Commission with respect to the Stock (herein called a Rule
462(b) registration statement), and, in the event of any amendment thereto after
the effective date of such registration statement (herein called the Effective
Date), shall also mean (from and after the effectiveness of such amendment) such
registration statement as so amended (including any Rule 462(b) registration
statement). The term Prospectus as used in this Agreement shall mean the
prospectus relating to the Stock first filed with the Commission pursuant to
Rule 424(b) and Rule 430A (or if no such filing is required, as included in the
Registration Statement) and, in the event of any supplement or amendment to such
prospectus after
- --------------------
/1/ Plus an option to purchase from the Company up to 600,000 additional shares
to cover over-allotments.
-1-
<PAGE>
the Effective Date, shall also mean (from and after the filing with the
Commission of such supplement or the effectiveness of such amendment) such
prospectus as so supplemented or amended. The term Preliminary Prospectus as
used in this Agreement shall mean each preliminary prospectus included in such
registration statement prior to the time it becomes effective.
The Registration Statement has been declared effective under the Securities
Act, and no post-effective amendment to the Registration Statement has been
filed as of the date of this Agreement. The Company has caused to be delivered
to you copies of each Preliminary Prospectus and has consented to the use of
such copies for the purposes permitted by the Securities Act.
2. Representations and Warranties of the Company.
(a) The Company hereby represents and warrants as follows:
(i) Each of the Company and its subsidiaries has been duly
incorporated and is validly existing as a corporation in good standing under the
laws of the jurisdiction of its incorporation, has full corporate power and
authority to own or lease its properties and conduct its business as described
in the Registration Statement and the Prospectus and as being conducted, and is
duly qualified as a foreign corporation and in good standing in all
jurisdictions in which the character of the property owned or leased or the
nature of the business transacted by it makes qualification necessary (except
where the failure to be so qualified would not have a material adverse effect on
the business, properties, financial condition or results of operations of the
Company and its subsidiaries, taken as a whole).
(ii) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus, there has not been any
materially adverse change in the business, properties, financial condition or
results of operations of the Company and its subsidiaries, taken as a whole,
whether or not arising from transactions in the ordinary course of business,
other than as set forth in the Registration Statement and the Prospectus, and
since such dates, except in the ordinary course of business, neither the Company
nor any of its subsidiaries has entered into any material transaction not
referred to in the Registration Statement and the Prospectus.
(iii) The Registration Statement and the Prospectus comply,
and on the Closing Date (as hereinafter defined) and any later date on which
Option Stock is to be purchased, the Prospectus will comply, in all material
respects, with the provisions of the Securities Act and the Securities Exchange
Act of 1934, as amended (herein called the Exchange Act) and the rules and
regulations of the Commission thereunder; on the Effective Date, the
Registration Statement did not contain any untrue statement of a material fact
and did not omit to state any material fact required to be stated therein or
necessary in order to make the statements therein not misleading; and, on the
Effective Date the Prospectus did not and, on the Closing Date and any later
date on which Option Stock is to be purchased, will not contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading; provided, however, that none of the
representations and warranties in this subparagraph (iii) shall apply to
statements in, or omissions from, the Registration Statement or the Prospectus
made in reliance upon and in conformity with information herein or otherwise
furnished in writing to the Company by or on behalf of the Underwriters for use
in the Registration Statement or the Prospectus.
(iv) The Stock, when issued and sold to the Underwriters as
provided herein, will be duly and validly issued, fully paid and nonassessable
and conforms to the description thereof in the Prospectus. No further approval
or authority of the stockholders or the Board of Directors of the Company will
be required for the issuance and sale of the Stock as contemplated herein.
(v) Prior to the Closing Date the Stock to be issued and
sold by the Company will be authorized for quotation on the Nasdaq National
Market, upon official notice of issuance.
(vi) Except as set forth in the Registration Statement and
Prospectus, (i) each of the Company and its subsidiaries has good and marketable
title to all properties and assets described in the Registration Statement and
the Prospectus as owned by it, free and clear of any pledge, lien, security
interest, encumbrance, claim or equitable interest, other than such as would not
have a material adverse effect on the business, properties, financial condition
or results of operations of the Company and its subsidiaries, taken as a
-2-
<PAGE>
whole, (ii) to the Company's knowledge, the agreements to which the Company or
any of its subsidiaries is a party described in the Registration Statement and
the Prospectus are valid agreements, enforceable by the Company and its
subsidiaries (as applicable), except as the enforcement thereof may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to or affecting creditors' rights generally or by general
equitable principles and, to the best of the Company's knowledge, the other
contracting party or parties thereto are not in material breach or material
default under any of such agreements, and (iii) to the Company's knowledge, each
of the Company and its subsidiaries has valid and enforceable leases for all
properties described in the Registration Statement and the Prospectus as leased
by it, except as the enforcement thereof may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting creditors' rights generally or by general equitable
principles. Except as set forth in the Registration Statement and the
Prospectus, the Company owns or leases all such properties as are necessary to
its operations as now conducted and as described in the Registration Statement
and the Prospectus.
(vii) The authorized capital stock of the Company conforms
to the description thereof contained in the Prospectus; proper corporate
proceedings have been taken validly to authorize such authorized capital stock;
all of the shares of such capital stock outstanding prior to the issuance of the
Stock have been duly and validly issued and are fully paid and nonassessable;
all outstanding shares of capital stock and options and other rights to acquire
capital stock have been issued in compliance with the registration and
qualification provisions of all applicable securities laws and were not issued
in violation of any preemptive rights, rights of first refusal or other similar
rights; and no preemptive right, co-sale right, registration right, right of
first refusal or other similar right of stockholders exists with respect to any
of the Stock or the issuance and sale thereof other than those that have been
expressly waived with respect to the transactions contemplated by this Agreement
prior to the date hereof and those that will automatically expire upon and/or
will not apply to the consummation of the transactions contemplated on or before
the Closing Date.
(viii) All issued and outstanding shares of capital stock of
the subsidiaries of the Company have been duly authorized and validly issued and
are fully paid and nonassessable, are owned directly by the Company, have been
issued in compliance with all applicable securities laws, were not issued in
violation of or subject to any preemptive rights or other rights to subscribe
for or purchase shares and are owned by the Company free and clear of any lien,
encumbrance, equity, security interest or claim.
(ix) Except as disclosed or contemplated in the Prospectus
and the financial statements of the Company, and the related notes thereto,
included in the Prospectus, neither the Company nor its subsidiaries have
outstanding any options to purchase, or any preemptive rights or other rights to
subscribe for or to purchase, any securities or obligations convertible into, or
any contracts or commitments to issue or sell, shares of its capital stock or
any such options, rights, convertible securities or obligations. The description
of the Company's stock option, stock bonus and other stock plans or
arrangements, and the options or other rights granted and exercised thereunder,
set forth in the Prospectus accurately and fairly presents the information
required by the Securities Act and the applicable rules and regulations
thereunder to be shown with respect to such plans, arrangements, options and
rights.
(x) The Company and its subsidiaries own or possess all
material licenses or other rights to use all patents, patent rights, inventions,
trade secrets, copyrights, trademarks, service marks, trade names, technology
and know-how ("Intellectual Property") currently employed or proposed to be
employed by them in connection with their business as described in the
Prospectus. The Company is not obligated to pay a royalty, grant a license, or
provide other material consideration, and has not granted any exclusive license,
to any third party in connection with its Intellectual Property other than as
disclosed in the Prospectus. Except as disclosed in the Prospectus, neither the
Company nor its subsidiaries has received any notice of infringement or conflict
with (and neither the Company nor its subsidiaries knows of any infringement or
conflict with) asserted rights of others with respect to any Intellectual
Property that could result in any material adverse effect upon the Company and
its subsidiary, taken as a whole. To the Company's knowledge, Intellectual
Property of the Company and its subsidiaries referred to in the Prospectus do
not infringe or conflict with the rights of any third party which could have a
material adverse effect on the Company and its subsidiaries, taken as a whole.
(xi) No consent, approval, authorization or order of any
court or governmental agency or body is required for the consummation of the
transactions contemplated herein, except such as have been obtained under the
Securities Act and such as may be required under state securities or blue sky
laws in connection with the purchase and distribution of the Stock by the
Underwriters.
-3-
<PAGE>
(xii) The Company owns no capital stock or other equity or
ownership or proprietary interest in any corporation, partnership, association,
trust or other entity other than those listed on Schedule 2.
(xiii) All outstanding shares of Common Stock, and all
securities convertible into or exercisable or exchangeable for Common Stock, are
subject to valid, binding and enforceable agreements (herein called the "Lock-up
Agreements") that restrict the holders thereof from selling, transferring or
otherwise disposing of any of such shares of Common Stock, or any such
securities convertible into or exercisable or exchangeable for Common Stock, for
a period of 180 days after the Effective Date without the prior written consent
of Chase Securities Inc.
(xiv) Except as to defaults which individually or in the
aggregate would not have a material adverse effect on the business, financial
condition or results of operations of the Company and its subsidiaries, taken as
a whole, neither the Company nor its subsidiary is in violation of any provision
of its respective charter or bylaws or other organizational documents, or is in
breach of or default with respect to any material provision of any material
agreement, judgment, decree, order, mortgage, deed of trust, lease, franchise,
license, indenture, permit or other instrument to which it is a party or by
which it or any of its properties are bound; and, to the Company's knowledge,
there does not exist any state of facts which constitutes an event of default on
the part of the Company or its subsidiaries as defined in such documents or
which, with notice or lapse of time or both, would constitute such an event of
default.
(xv) There are no franchises, contracts, leases, or
documents which are of a character required to be described in the Registration
Statement or the Prospectus or to be filed as exhibits to the Registration
Statement, which are not described and filed as required; the franchises,
contracts, leases and documents so described in the Prospectus are in full force
and effect on the date hereof; and neither the Company nor its subsidiaries, nor
to the Company's knowledge, any other party is in material breach of or default
under any of such franchises, contracts, leases and documents.
(xvi) The Company has full legal right, power and authority
to enter into this Agreement and perform the transactions contemplated hereby.
This Agreement has been duly authorized, executed and delivered by the Company
and is a valid and binding agreement on the part of the Company, enforceable in
accordance with its terms, except as rights to indemnification hereunder may be
limited by applicable law and except as the enforcement hereof may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws relating to or affecting creditors' rights generally or by general
equitable principles. The execution and delivery by the Company of, and the
performance by the Company of its obligations pursuant to, this Agreement, and
the issue and sale by the Company of the shares of Stock pursuant to this
Agreement will not conflict with, or result in a violation of, the respective
charter or bylaws of the Company or any of its subsidiaries or result in any
breach of, or constitute an event of default under, any agreement or instrument
to which the Company or any of its subsidiaries is a party or violate any
applicable law, regulation, order, writ, injunction or decree of any
jurisdiction, court or governmental instrumentality;
(xvii) There is not any pending or, to the Company's
knowledge, threatened any action, suit, claim or proceeding against the Company,
its subsidiary or any of their respective officers or any of their respective
properties, assets or rights before any court, government or governmental agency
or body, domestic or foreign, having jurisdiction over the Company or its
subsidiaries or over their respective officers or properties or otherwise which
(i) might result in any material adverse effect on the business, properties,
financial condition or results of operations of the Company and its
subsidiaries, taken as a whole, or might materially and adversely affect their
properties, assets or rights, (ii) might prevent consummation of the
transactions contemplated hereby or (iii) is required to be disclosed in the
Registration Statement or the Prospectus and is not so disclosed.
(xviii) KPMG LLP, are independent public accountants with
respect to the Company within the meaning of the Securities Act and the
applicable rules and regulations thereunder; the audited consolidated financial
statements of the Company, together with the related schedules and notes, and
the unaudited consolidated financial information, forming part of the
Registration Statement and the Prospectus, fairly present the financial position
and the results of operations of the Company and its subsidiaries at the
respective dates and for the respective periods to which they apply; and all
audited consolidated financial statements of the Company, together with the
related schedules and notes, and the unaudited consolidated financial
information, filed with the
-4-
<PAGE>
Commission as part of the Registration Statement, have been prepared in
accordance with generally accepted accounting principles consistently applied
throughout the periods involved except as may be otherwise stated therein. The
selected and summary financial and statistical data included in the Registration
Statement present fairly the information shown therein and have been compiled on
a basis consistent with the audited financial statements presented therein.
(xix) The Company and its subsidiaries have timely filed all
necessary federal, state and foreign income and franchise tax returns or have
properly requested extensions thereof and have paid all taxes shown thereon as
due, and there is no tax deficiency that has been or, to the Company's
knowledge, might be asserted against the Company or its subsidiaries that might
have a material adverse effect on the business, properties, financial condition
or results of operations of the Company and its subsidiaries, taken as a whole;
and the Company has made adequate charges, accruals and reserves for all periods
as to which tax liabilities of the Company and its subsidiaries have not been
finally determined.
(xx) The Company and its subsidiaries maintain insurance
with insurers of recognized financial responsibility of the types and in the
amounts generally deemed adequate for their respective businesses and consistent
with insurance coverage maintained by similar companies in similar businesses,
including, but not limited to, insurance covering real and personal property
owned or leased by the Company or any of its subsidiaries against theft, damage,
destruction, acts of vandalism and all other risks customarily insured against,
all of which insurance is in full force and effect; and neither the Company nor
its subsidiaries has any reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not be expected to result in a material adverse
effect on the business, properties, financial condition or results of operations
of the Company and its subsidiaries, taken as a whole.
(xxi) To the Company's knowledge, no labor disturbance by the
employees of the Company or its subsidiary exists or is imminent; and the
Company is not aware of any existing or imminent labor disturbance by the
employees of any of its principal suppliers, subcontractors, licensors or
customers that might be expected to result in a material adverse effect on the
business properties, financial condition or results of operations of the Company
and its subsidiaries, taken as a whole. No collective bargaining agreement
exists with any of the Company's employees and, to the Company's knowledge, no
such agreement is imminent.
(xxii) The Company has not distributed and will not distribute
prior to the later of (i) the Closing Date, or any date on which Option Stock is
to be purchased, as the case may be, and (ii) completion of the distribution of
the Stock, any offering material in connection with the offering and sale of the
Stock other than any Preliminary Prospectuses, the Prospectus, the Registration
Statement and other materials, if any, permitted by the Securities Act.
(xxiii) Neither the Company nor its subsidiaries have at any
time during the last four (4) years (i) made any unlawful contribution to any
candidate for foreign office or failed to disclose fully any contribution in
violation of law, or (ii) made any payment to any federal or state governmental
officer or official, or other person charged with similar public or quasi-public
duties, other than payments required or permitted by the laws of the United
States or any jurisdiction thereof.
(xxiv) The Company has not taken and will not take, directly
or indirectly, any action designed to or that might reasonably be expected to
cause or result in stabilization or manipulation of the price of the Common
Stock to facilitate the sale or resale of the Stock.
(xxv) (i) Each of the Company and its subsidiaries are in
compliance with all rules, laws and regulations relating to the use, treatment,
storage and disposal of toxic substances and protection of health or the
environment (herein called "Environmental Laws") which are applicable to its
business, (ii) neither the Company nor its subsidiaries has received notice from
any governmental authority or third party of an asserted claim under
Environmental Laws, which claim is required to be disclosed in the Registration
Statement and the Prospectus and is not so disclosed, (iii) to the Company's
knowledge, neither the Company nor its subsidiaries will be required to make
future material capital expenditures to comply with existing Environmental Laws,
and (iv) neither the Company nor its subsidiaries has received any written
notice from any governmental authority that would cause the Company to believe
that the property owned, leased or occupied by the Company or its subsidiaries
has been designated as a Superfund site pursuant to the Comprehensive Response,
Compensation, and
-5-
<PAGE>
Liability Act of 1980, as amended (42 U.S.C. (S) 9601, et seq.), or otherwise
-- ---
designated as a contaminated site under applicable state or local law.
(xxvi) The Company and its subsidiaries maintain a system of
internal accounting controls sufficient to provide reasonable assurances that
(i) transactions are executed in accordance with management's general or
specific authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain accountability for assets, (iii) access to
assets is permitted only in accordance with management's general or specific
authorization, and (iv) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(xxvii) There are no outstanding loans, advances (except normal
advances for business expenses in the ordinary course of business) or guarantees
of indebtedness by the Company to or for the benefit of any of the officers or
directors of the Company or any of the members of the families of any of them,
except as disclosed in the Registration Statement and the Prospectus.
(xxviii) The Company has complied with all provisions of Section
517.075, Florida Statutes relating to doing business with the Government of Cuba
or with any person or affiliate located in Cuba.
(xxix) The Company has not been advised, and has no reason to
believe, that either it or any of its subsidiaries is not conducting business in
compliance with all applicable laws, rules and regulations of the jurisdictions
in which it is conducting business, including, without limitation, all
applicable local, state and federal environmental laws and regulations; except
where failure to be so in compliance would not have a material adverse effect on
the business, properties, financial condition or results of operations of the
Company and its subsidiaries, taken as a whole.
(xxx) Subsequent to the respective dates as of which
information is given in the Prospectus: (i) there has been no material adverse
change, or any development that could reasonably be expected to result in a
material adverse change, in the condition, financial or otherwise, or in the
earnings, business, operations or prospects, whether or not arising from
transactions in the ordinary course of business, of the Company and its
subsidiaries, taken as a whole; (ii) except as described in the Prospectus, the
Company and its subsidiaries, taken as a whole, have not incurred any material
liability or obligation, indirect, direct or contingent, not in the ordinary
course of business nor entered into any material transaction or agreement not in
the ordinary course of business; and (iii) there has been no dividend or
distribution of any kind declared, paid or made by the Company or, except for
dividends paid to the Company or other subsidiaries, any of its subsidiaries on
any class of capital stock or repurchase or redemption by the Company or any of
its subsidiaries of any class of capital stock.
(xxxi) No subsidiary of the Company is currently prohibited,
directly or indirectly, from paying any dividends to the Company, from making
any other distribution on such subsidiary's capital stock, from repaying to the
Company any loans or advances to such subsidiary from the Company or from
transferring any of such subsidiary's property or assets to the Company or any
other subsidiary of the Company, except as described in or contemplated by the
Prospectus.
(xxxii) There are no issues related to the Company's, or any of
its subsidiaries', preparedness for the Year 2000 that (i) are of a character
required to be described or referred to in the Registration Statement or
Prospectus by the Securities Act which have not been accurately described in the
Registration Statement or Prospectus or (ii) might reasonably be expected to
result in any material adverse effect on the Company and its subsidiaries, taken
as a whole.
(xxxiii) The Company and its subsidiaries and any "employee
benefit plan" (as defined under the Employee Retirement Income Security Act of
1974, as amended, and the regulations and published interpretations thereunder
(collectively, "ERISA")) established or maintained by the Company, its
subsidiaries or their "ERISA Affiliates" (as defined below) are in compliance in
all material respects with ERISA. "ERISA Affiliate" means, with respect to the
Company or a subsidiary, any member of any group of organizations described in
Sections 414(b),(c),(m) or (o) of the Internal Revenue Code of 1986, as amended,
and the regulations and published interpretations thereunder (the "Code") of
which the Company or such subsidiary is a member. No "reportable event" (as
defined under ERISA) has occurred or is reasonably expected to occur with
respect to any "employee benefit plan" established or maintained by the Company,
its subsidiaries or any of their ERISA
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<PAGE>
Affiliates. No "employee benefit plan" established or maintained by the Company,
its subsidiaries or any of their ERISA Affiliates, if such "employee benefit
plan" were terminated, would have any "amount of unfounded benefit liabilities"
(as defined under ERISA). Neither the Company, its subsidiaries nor any of their
ERISA Affiliates has incurred or reasonably expects to incur any liability under
(i) Title IV of ERISA with respect to termination of, or withdrawal from, any
"employee benefit plan" or (ii) Sections 412, 4971, 4975 or 4980B of the Code.
Each "employee benefit plan" established or maintained by the Company, its
subsidiaries or any of their ERISA Affiliates that is intended to be qualified
under Section 401(a) of the Code is so qualified and nothing has occurred,
whether by action or failure to act, which would cause the loss of such
qualification.
[May need additional representations and warranties based on due diligence.]
3. Purchase of the Stock by the Underwriters.
(a) On the basis of the representations and warranties and subject to
the terms and conditions herein set forth, the Company agrees to issue and sell
4,000,000 shares of the Underwritten Stock to the several Underwriters and each
of the Underwriters agrees to purchase from the Company the respective aggregate
number of shares of Underwritten Stock set forth opposite its name in Schedule
I. The price at which such shares of Underwritten Stock shall be sold by the
Company and purchased by the several Underwriters shall be $___ per share. In
making this Agreement, each Underwriter is contracting severally and not
jointly; except as provided in paragraphs (b) and (c) of this Section 3, the
agreement of each Underwriter is to purchase only the respective number of
shares of the Underwritten Stock specified in Schedule I.
(b) If for any reason one or more of the Underwriters shall fail or
refuse (otherwise than for a reason sufficient to justify the termination of
this Agreement under the provisions of Section 8 or 9 hereof) to purchase and
pay for the number of shares of the Stock agreed to be purchased by such
Underwriter or Underwriters, the Company shall immediately give notice thereof
to you, and the non-defaulting Underwriters shall have the right within 24 hours
after the receipt by you of such notice to purchase, or procure one or more
other Underwriters to purchase, in such proportions as may be agreed upon
between you and such purchasing Underwriter or Underwriters and upon the terms
herein set forth, all or any part of the shares of the Stock which such
defaulting Underwriter or Underwriters agreed to purchase. If the non-defaulting
Underwriters fail so to make such arrangements with respect to all such shares
and portion, the number of shares of the Stock which each non-defaulting
Underwriter is otherwise obligated to purchase under this Agreement shall be
automatically increased on a pro rata basis to absorb the remaining shares and
portion which the defaulting Underwriter or Underwriters agreed to purchase;
provided, however, that the non-defaulting Underwriters shall not be obligated
to purchase the shares and portion which the defaulting Underwriter or
Underwriters agreed to purchase if the aggregate number of such shares of the
Stock exceeds 10% of the total number of shares of the Stock which all
Underwriters agreed to purchase hereunder. If the total number of shares of the
Stock which the defaulting Underwriter or Underwriters agreed to purchase shall
not be purchased or absorbed in accordance with the two preceding sentences, the
Company shall have the right, within 24 hours next succeeding the 24-hour period
above referred to, to make arrangements with other underwriters or purchasers
satisfactory to you for purchase of such shares and portion on the terms herein
set forth. In any such case, either you or the Company shall have the right to
postpone the Closing Date determined as provided in Section 5 hereof for not
more than seven business days after the date originally fixed as the Closing
Date pursuant to said Section 5 in order that any necessary changes in the
Registration Statement, the Prospectus or any other documents or arrangements
may be made. If neither the non-defaulting Underwriters nor the Company shall
make arrangements within the 24-hour periods stated above for the purchase of
all the shares of the Stock which the defaulting Underwriter or Underwriters
agreed to purchase hereunder, this Agreement shall be terminated without further
act or deed and without any liability on the part of the Company to any non-
defaulting Underwriter and without any liability on the part of any non-
defaulting Underwriter to the Company. Nothing in this paragraph (b), and no
action taken hereunder, shall relieve any defaulting Underwriter from liability
in respect of any default of such Underwriter under this Agreement.
(c) On the basis of the representations, warranties and covenants
herein contained, and subject to the terms and conditions herein set forth, the
Company grants an option to the several Underwriters to purchase, severally and
not jointly, up to 600,000 shares in the aggregate of the Option Stock from the
Company at the same price per share as the Underwriters shall pay for the
Underwritten Stock. Said option may be exercised only to cover over-allotments
in the sale of the Underwritten Stock by the Underwriters and may be exercised
in whole or in part at any time (but not more than once) on or before the
thirtieth day after the date of this Agreement upon written or telegraphic
notice by you to the Company setting forth the aggregate number of shares of the
Option Stock as to which the several Underwriters are exercising the option.
Delivery of certificates for the shares of Option Stock, and payment therefor,
shall be made as provided in Section 5 hereof. The number of shares of the
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<PAGE>
Option Stock to be purchased by each Underwriter shall be the same percentage of
the total number of shares of the Option Stock to be purchased by the several
Underwriters as such Underwriter is purchasing of the Underwritten Stock, as
adjusted by you in such manner as you deem advisable to avoid fractional shares.
4. Offering by Underwriters.
(a) The terms of the initial public offering by the Underwriters of
the Stock to be purchased by them shall be as set forth in the Prospectus. The
Underwriters may from time to time change the public offering price after the
closing of the initial public offering and increase or decrease the concessions
and discounts to dealers as they may determine.
(b) The information set forth in the last paragraph on the front
cover page and under "Underwriting" in the Registration Statement, any
Preliminary Prospectus and the Prospectus relating to the Stock filed by the
Company (insofar as such information relates to the Underwriters) constitutes
the only information furnished by the Underwriters to the Company for inclusion
in the Registration Statement, any Preliminary Prospectus, and the Prospectus,
and you on behalf of the respective Underwriters represent and warrant to the
Company that the statements made therein are correct.
5. Delivery of and Payment for the Stock.
(a) Delivery of certificates for the shares of the Underwritten Stock
and the Option Stock (if the option granted by Section 3(c) hereof shall have
been exercised not later than 7:00 A.M., San Francisco time, on the date two
business days preceding the Closing Date), and payment therefor, shall be made
at the office of Venture Law Group, a Professional Corporation, at 7:00 a.m.,
San Francisco time, on the [fourth]/2/ business day after the date of this
Agreement, or at such time on such other day, not later than seven full business
days after such [fourth] business day, as shall be agreed upon in writing by the
Company and you. The date and hour of such delivery and payment (which may be
postponed as provided in Section 3(b) hereof) are herein called the Closing
Date.
(b) If the option granted by Section 3(c) hereof shall be exercised
after 7:00 a.m., San Francisco time, on the date two business days preceding the
Closing Date, delivery of certificates for the shares of Option Stock, and
payment therefor, shall be made at the office of Venture Law Group, a
Professional Corporation, at 7:00 a.m., San Francisco time, on the third
business day after the exercise of such option.
(c) Payment for the Stock purchased from the Company shall be made to
the Company or its order by one or more certified or official bank check or
checks in same day funds or, if you so elect, by wire transfer of immediately
available funds to an account specified in writing by the Company. Such payment
shall be made upon delivery of certificates for the Stock to you for the
respective accounts of the several Underwriters against receipt therefor signed
by you. Certificates for the Stock to be delivered to you shall be registered in
such name or names and shall be in such denominations as you may request at
least one business day before the Closing Date, in the case of Underwritten
Stock, and at least one business day prior to the purchase thereof, in the case
of the Option Stock. Such certificates will be made available to the
Underwriters for inspection, checking and packaging at the offices of Lewco
Securities Corporation, 2 Broadway, New York, New York 10004 on the business day
prior to the Closing Date or, in the case of the Option Stock, by 3:00 p.m., New
York time, on the business day preceding the date of purchase. If you so elect,
delivery of the Stock may be made through full fast transfer to the accounts at
The Depository Trust Company designated by you.
It is understood that you, individually and not on behalf of the
Underwriters, may (but shall not be obligated to) make payment to the Company
for shares to be purchased by any Underwriter whose check shall not have been
received by you on the Closing Date or any later date on which Option Stock is
purchased for the account of such Underwriter. Any such payment by you shall
not relieve such Underwriter from any of its obligations hereunder.
- ---------------------
/2/ This assumes that the transaction will be priced after the close of market
and that T+4 will apply to the transaction. If the pricing took place before or
during market hours (which will generally not be the case), the closing would be
three business days after pricing.
-8-
<PAGE>
6. Further Agreements of the Company. The Company covenants and agrees as
follows:
(a) The Company will (i) prepare and timely file with the Commission
under Rule 424(b) a Prospectus containing information previously omitted at the
time of effectiveness of the Registration Statement in reliance on Rule 430A and
(ii) not file any amendment to the Registration Statement or supplement to the
Prospectus of which you shall not previously have been advised and furnished
with a copy or to which you shall have reasonably objected in writing or which
is not in compliance with the Securities Act or the rules and regulations of the
Commission.
(b) The Company will promptly notify each Underwriter in the event of
(i) the request by the Commission for amendment of the Registration Statement or
for supplement to the Prospectus or for any additional information, (ii) the
issuance by the Commission of any stop order suspending the effectiveness of the
Registration Statement, (iii) the institution or notice of intended institution
of any action or proceeding for that purpose, (iv) the receipt by the Company of
any notification with respect to the suspension of the qualification of the
Stock for sale in any jurisdiction, or (v) the receipt by it of notice of the
initiation or threatening of any proceeding for such purpose. The Company will
make every reasonable effort to prevent the issuance of such a stop order and,
if such an order shall at any time be issued, to obtain the withdrawal thereof
at the earliest possible moment.
(c) The Company will (i) on or before the Closing Date, deliver to
you a signed copy of the Registration Statement as originally filed and of each
amendment thereto filed prior to the time the Registration Statement becomes
effective and, promptly upon the filing thereof, a signed copy of each post-
effective amendment, if any, to the Registration Statement (together with, in
each case, all exhibits thereto unless previously furnished to you) and will
also deliver to you, for distribution to the Underwriters, a sufficient number
of additional conformed copies of each of the foregoing (but without exhibits)
so that one copy of each may be distributed to each Underwriter, (ii) as
promptly as possible deliver to you and send to the several Underwriters, at
such office or offices as you may designate, as many copies of the Prospectus as
you may reasonably request, and (iii) thereafter from time to time during the
period in which a prospectus is required by law to be delivered by an
Underwriter or dealer, likewise send to the Underwriters as many additional
copies of the Prospectus and as many copies of any supplement to the Prospectus
and of any amended prospectus, filed by the Company with the Commission, as you
may reasonably request for the purposes contemplated by the Securities Act.
(d) If at any time during the period in which a prospectus is
required by law to be delivered by an Underwriter or dealer any event relating
to or affecting the Company, or of which the Company shall be advised in writing
by you, shall occur as a result of which it is necessary, in the opinion of
counsel for the Company or of counsel for the Underwriters, to supplement or
amend the Prospectus in order to make the Prospectus not misleading in the light
of the circumstances existing at the time it is delivered to a purchaser of the
Stock, the Company will forthwith prepare and file with the Commission a
supplement to the Prospectus or an amended prospectus so that the Prospectus as
so supplemented or amended will not contain any untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances existing at the time such
Prospectus is delivered to such purchaser, not misleading. If, after the initial
public offering of the Stock by the Underwriters and during such period, the
Underwriters shall propose to vary the terms of offering thereof by reason of
changes in general market conditions or otherwise, you will advise the Company
in writing of the proposed variation, and, if in the opinion either of counsel
for the Company or of counsel for the Underwriters such proposed variation
requires that the Prospectus be supplemented or amended, the Company will
forthwith prepare and file with the Commission a supplement to the Prospectus or
an amended prospectus setting forth such variation. The Company authorizes the
Underwriters and all dealers to whom any of the Stock may be sold by the several
Underwriters to use the Prospectus, as from time to time amended or
supplemented, in connection with the sale of the Stock in accordance with the
applicable provisions of the Securities Act and the applicable rules and
regulations thereunder for such period.
(e) Prior to the filing thereof with the Commission, the Company will
submit to you, for your information, a copy of any post-effective amendment to
the Registration Statement and any supplement to the Prospectus or any amended
prospectus proposed to be filed.
(f) The Company will cooperate, when and as requested by you, in the
qualification of the Stock for offer and sale under the securities or blue sky
laws of such jurisdictions as you may designate and, during
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<PAGE>
the period in which a prospectus is required by law to be delivered by an
Underwriter or dealer, in keeping such qualifications in good standing under
said securities or blue sky laws; provided, however, that the Company shall not
be obligated to file any general consent to service of process or to qualify as
a foreign corporation in any jurisdiction in which it is not so qualified. The
Company will, from time to time, prepare and file such statements, reports, and
other documents as are or may be required to continue such qualifications in
effect for so long a period as you may reasonably request for distribution of
the Stock.
(g) During a period of five years commencing with the date hereof,
the Company will furnish to you, and to each Underwriter who may so request in
writing, copies of all periodic and special reports furnished to stockholders of
the Company and of all information, documents and reports filed with the
Commission.
(h) Not later than the 45th day following the end of the fiscal
quarter first occurring after the first anniversary of the Effective Date, the
Company will make generally available to its security holders an earnings
statement in accordance with Section 11(a) of the Securities Act and Rule 158
thereunder.
(i) The Company agrees to pay all costs and expenses incident to the
performance of its obligations under this Agreement, including all costs and
expenses incident to (i) the preparation, printing and filing with the
Commission and the National Association of Securities Dealers, Inc. of the
Registration Statement, any Preliminary Prospectus and the Prospectus, (ii) the
furnishing to the Underwriters of copies of any Preliminary Prospectus and of
the several documents required by paragraph (c) of this Section 6 to be so
furnished, (iii) the printing of this Agreement and related documents delivered
to the Underwriters, (iv) the preparation, printing and filing of all
supplements and amendments to the Prospectus referred to in paragraph (d) of
this Section 6, (v) the furnishing to you and the Underwriters of the reports
and information referred to in paragraph (g) of this Section 6 and (vi) the
printing and issuance of stock certificates, including the transfer agent's
fees.
(j) The Company agrees to reimburse you, for the account of the
several Underwriters, for blue sky fees and related disbursements (including
counsel fees and disbursements and cost of printing memoranda for the
Underwriters) paid by or for the account of the Underwriters or their counsel in
qualifying the Stock under state securities or blue sky laws and in the review
of the offering by the NASD.
(k) The Company hereby agrees that, without the prior written consent
of Chase Securities Inc. on behalf of the Underwriters, the Company will not,
for a period of 180 days following the commencement of the public offering of
the Stock by the Underwriters, directly or indirectly, (i) sell, offer, contract
to sell, make any short sale, pledge, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase or otherwise transfer or dispose of any shares of Common Stock or any
securities convertible into or exchangeable or exercisable for or any rights to
purchase or acquire Common Stock or (ii) enter into any swap or other agreement
that transfers, in whole or in part, any of the economic consequences or
ownership of Common Stock, whether any such transaction described in clause (i)
or (ii) above is to be settled by delivery of Common Stock or such other
securities, in cash or otherwise. The foregoing sentence shall not apply to (A)
the Stock to be sold to the Underwriters pursuant to this Agreement, (B) shares
of Common Stock issued by the Company upon the exercise of 6,793,436 options
granted under the stock option plans of the Company (the "Option Plans") or upon
the exercise of 343,431 warrants which are outstanding as of the date hereof,
all as described in the Preliminary Prospectus, and (C) options to purchase
Common Stock granted under the Option Plans.
(l) If at any time during the [25]-day period after the Registration
Statement becomes effective any rumor, publication or event relating to or
affecting the Company shall occur as a result of which in your opinion the
market price for the Stock has been or is likely to be materially affected
(regardless of whether such rumor, publication or event necessitates a
supplement to or amendment of the Prospectus), the Company will, after written
notice from you advising the Company to the effect set forth above, forthwith
prepare, consult with you concerning the substance of, and disseminate a press
release or other public statement, reasonably satisfactory to you, responding to
or commenting on such rumor, publication or event.
(m) The Company is familiar with the Investment Company Act of 1940,
as amended, and has in the past conducted its affairs, and will in the future
conduct its affairs, in such a manner to ensure that the Company was not and
will not be an "investment company" or a company "controlled" by an "investment
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<PAGE>
company" within the meaning of the Investment Company Act of 1940, as amended,
and the rules and regulations thereunder.
7. Indemnification and Contribution.
(a) The Company agrees to indemnify and hold harmless each
Underwriter and each person (including each partner or officer thereof) who
controls any Underwriter within the meaning of Section 15 of the Securities Act
from and against any and all losses, claims, damages or liabilities, joint or
several, to which such indemnified parties or any of them may become subject
under the Securities Act, the Exchange Act, or the common law or otherwise, and
the Company agrees to reimburse each such Underwriter and controlling person for
any legal or other expenses (including, except as otherwise hereinafter
provided, reasonable fees and disbursements of counsel) incurred by the
respective indemnified parties in connection with defending against any such
losses, claims, damages or liabilities or in connection with any investigation
or inquiry of, or other proceeding which may be brought against, the respective
indemnified parties, in each case arising out of or based upon (i) any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement (including the Prospectus as part thereof and any Rule
462(b) registration statement) or any post-effective amendment thereto
(including any Rule 462(b) registration statement), or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or (ii) any untrue
statement or alleged untrue statement of a material fact contained in any
Preliminary Prospectus or the Prospectus (as amended or as supplemented if the
Company shall have filed with the Commission any amendment thereof or supplement
thereto) or the omission or alleged omission to state therein a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided, however,
that (1) the indemnity agreements of the Company contained in this paragraph (a)
shall not apply to any such losses, claims, damages, liabilities or expenses if
such statement or omission was made in reliance upon and in conformity with
information furnished as herein stated or otherwise furnished in writing to the
Company by or on behalf of any Underwriter for use in any Preliminary Prospectus
or the Registration Statement or the Prospectus or any such amendment thereof or
supplement thereto and (2) the indemnity agreement contained in this paragraph
(a) with respect to any Preliminary Prospectus shall not inure to the benefit of
any Underwriter from whom the person asserting any such losses, claims, damages,
liabilities or expenses purchased the Stock which is the subject thereof (or to
the benefit of any person controlling such Underwriter) if at or prior to the
written confirmation of the sale of such Stock a copy of the Prospectus (or the
Prospectus as amended or supplemented) was not sent or delivered to such person
and the untrue statement or omission of a material fact contained in such
Preliminary Prospectus was corrected in the Prospectus (or the Prospectus as
amended or supplemented) unless the failure is the result of noncompliance by
the Company with paragraph (c) of Section 6 hereof. The indemnity agreements of
the Company contained in this paragraph (a) and the representations and
warranties of the Company contained in Section 2 hereof shall remain operative
and in full force and effect regardless of any investigation made by or on
behalf of any indemnified party and shall survive the delivery of and payment
for the Stock.
(b) Each Underwriter severally agrees to indemnify and hold harmless
the Company, each of its officers who signs the Registration Statement on his
own behalf or pursuant to a power of attorney, each of its directors, each other
Underwriter and each person (including each partner or officer thereof) who
controls the Company or any such other Underwriter within the meaning of Section
15 of the Securities Act, from and against any and all losses, claims, damages
or liabilities, joint or several, to which such indemnified parties or any of
them may become subject under the Securities Act, the Exchange Act or the common
law or otherwise and to reimburse each of them for any legal or other expenses
(including, except as otherwise hereinafter provided, reasonable fees and
disbursements of counsel) incurred by the respective indemnified parties in
connection with defending against any such losses, claims, damages or
liabilities or in connection with any investigation or inquiry of, or other
proceeding which may be brought against, the respective indemnified parties, in
each case arising out of or based upon (i) any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement
(including the Prospectus as part thereof and any Rule 462(b) registration
statement) or any post-effective amendment thereto (including any Rule 462(b)
registration statement) or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading or (ii) any untrue statement or alleged untrue statement
of a material fact contained in the Prospectus (as amended or as supplemented if
the Company shall have filed with the Commission any amendment thereof or
supplement thereto) or the omission or alleged omission to state therein a
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading, if such statement
or omission was made in reliance upon and in conformity with information
furnished as herein stated or otherwise
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<PAGE>
furnished in writing to the Company by or on behalf of such indemnifying
Underwriter for use in the Registration Statement or the Prospectus or any such
amendment thereof or supplement thereto. The indemnity agreement of each
Underwriter contained in this paragraph (b) shall remain operative and in full
force and effect regardless of any investigation made by or on behalf of any
indemnified party and shall survive the delivery of and payment for the Stock.
(c) Each party indemnified under the provision of paragraphs (a) and
(b) of this Section 7 agrees that, upon the service of a summons or other
initial legal process upon it in any action or suit instituted against it or
upon its receipt of written notification of the commencement of any
investigation or inquiry of, or proceeding against, it in respect of which
indemnity may be sought on account of any indemnity agreement contained in such
paragraphs, it will promptly give written notice (herein called the Notice) of
such service or notification to the party or parties from whom indemnification
may be sought hereunder. No indemnification provided for in such paragraphs
shall be available to any party who shall fail so to give the Notice if the
party to whom such Notice was not given was unaware of the action, suit,
investigation, inquiry or proceeding to which the Notice would have related and
was prejudiced by the failure to give the Notice, but the omission so to notify
such indemnifying party or parties of any such service or notification shall not
relieve such indemnifying party or parties from any liability which it or they
may have to the indemnified party for contribution or otherwise than on account
of such indemnity agreement. Any indemnifying party shall be entitled at its own
expense to participate in the defense of any action, suit or proceeding against,
or investigation or inquiry of, an indemnified party. Any indemnifying party
shall be entitled, if it so elects within a reasonable time after receipt of the
Notice by giving written notice (herein called the Notice of Defense) to the
indemnified party, to assume (alone or in conjunction with any other
indemnifying party or parties) the entire defense of such action, suit,
investigation, inquiry or proceeding, in which event such defense shall be
conducted, at the expense of the indemnifying party or parties, by counsel
chosen by such indemnifying party or parties and reasonably satisfactory to the
indemnified party or parties; provided, however, that (i) if the indemnified
party or parties reasonably determine that there may be a conflict between the
positions of the indemnifying party or parties and of the indemnified party or
parties in conducting the defense of such action, suit, investigation, inquiry
or proceeding or that there may be legal defenses available to such indemnified
party or parties different from or in addition to those available to the
indemnifying party or parties, then counsel for the indemnified party or parties
shall be entitled to conduct the defense to the extent reasonably determined by
such counsel to be necessary to protect the interests of the indemnified party
or parties and (ii) in any event, the indemnified party or parties shall be
entitled to have counsel chosen by such indemnified party or parties participate
in, but not conduct, the defense. If, within a reasonable time after receipt of
the Notice, an indemnifying party gives a Notice of Defense and the counsel
chosen by the indemnifying party or parties is reasonably satisfactory to the
indemnified party or parties, the indemnifying party or parties will not be
liable under paragraphs (a) through (c) of this Section 7 for any legal or other
expenses subsequently incurred by the indemnified party or parties in connection
with the defense of the action, suit, investigation, inquiry or proceeding,
except that (A) the indemnifying party or parties shall bear the legal and other
expenses incurred in connection with the conduct of the defense as referred to
in clause (i) of the proviso to the preceding sentence and (B) the indemnifying
party or parties shall bear such other expenses as it or they have authorized to
be incurred by the indemnified party or parties. If, within a reasonable time
after receipt of the Notice, no Notice of Defense has been given, the
indemnifying party or parties shall be responsible for any legal or other
expenses incurred by the indemnified party or parties in connection with the
defense of the action, suit, investigation, inquiry or proceeding.
(d) If the indemnification provided for in this Section 7 is
unavailable or insufficient to hold harmless an indemnified party under
paragraph (a) or (b) of this Section 7, then each indemnifying party, in lieu of
indemnifying such indemnified party, shall contribute to the amount paid or
payable by such indemnified party as a result of the losses, claims, damages or
liabilities referred to in paragraph (a) or (b) of this Section 7 (i) in such
proportion as is appropriate to reflect the relative benefits received by each
indemnifying party from the offering of the Stock or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of each indemnifying party in
connection with the statements or omissions that resulted in such losses,
claims, damages or liabilities, or actions in respect thereof, as well as any
other relevant equitable considerations. The relative benefits received by the
Company and the Underwriters shall be deemed to be in the same respective
proportions as the total net proceeds from the offering of the Stock received by
the Company and the total underwriting discount received by the Underwriters, as
set forth in the table on the cover page of the Prospectus, bear to the
aggregate public offering price of the Stock. Relative fault shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission
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<PAGE>
to state a material fact relates to information supplied by each indemnifying
party and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such untrue statement or omission.
The parties agree that it would not be just and equitable if contributions
pursuant to this paragraph (d) were to be determined by pro rata allocation
(even if the Underwriters were treated as one entity for such purpose) or by any
other method of allocation which does not take into account the equitable
considerations referred to in the first sentence of this paragraph (d). The
amount paid by an indemnified party as a result of the losses, claims, damages
or liabilities, or actions in respect thereof, referred to in the first sentence
of this paragraph (d) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigation,
preparing to defend or defending against any action or claim which is the
subject of this paragraph (d). Notwithstanding the provisions of this paragraph
(d), no Underwriter shall be required to contribute any amount in excess of the
underwriting discount applicable to the Stock purchased by such Underwriter. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. The Underwriters'
obligations in this paragraph (d) to contribute are several in proportion to
their respective underwriting obligations and not joint.
Each party entitled to contribution agrees that upon the service of a
summons or other initial legal process upon it in any action instituted against
it in respect of which contribution may be sought, it will promptly give written
notice of such service to the party or parties from whom contribution may be
sought, but the omission so to notify such party or parties of any such service
shall not relieve the party from whom contribution may be sought from any
obligation it may have hereunder or otherwise (except as specifically provided
in paragraph (c) of this Section 7).
(e) The Company will not, without the prior written consent of each
Underwriter, settle or compromise or consent to the entry of any judgment in any
pending or threatened claim, action, suit or proceeding in respect of which
indemnification may be sought hereunder (whether or not such Underwriter or any
person who controls such Underwriter within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act is a party to such claim,
action, suit or proceeding) unless such settlement, compromise or consent
includes an unconditional release of such Underwriter and each such controlling
person from all liability arising out of such claim, action, suit or proceeding.
8. Termination. This Agreement may be terminated by you at any time
prior to the Closing Date by giving written notice to the Company if after the
date of this Agreement trading in the Common Stock shall have been suspended, or
if there shall have occurred (i) the engagement in hostilities or an escalation
of major hostilities by the United States or the declaration of war or a
national emergency by the United States on or after the date hereof, (ii) any
outbreak of hostilities or other national or international calamity or crisis or
change in economic or political conditions if the effect of such outbreak,
calamity, crisis or change in economic or political conditions in the financial
markets of the United States would, in the Underwriters' reasonable judgment,
make the offering or delivery of the Stock impracticable, (iii) suspension of
trading in securities generally or a material adverse decline in value of
securities generally on the New York Stock Exchange, the American Stock
Exchange, The Nasdaq Stock Market, or limitations on prices (other than
limitations on hours or numbers of days of trading) for securities on either
such exchange or system, (iv) the enactment, publication, decree or other
promulgation of any federal or state statute, regulation, rule or order of, or
commencement of any proceeding or investigation by, any court, legislative body,
agency or other governmental authority which in the Underwriters' reasonable
opinion materially and adversely affects or will materially or adversely affect
the business or operations of the Company, (v) declaration of a banking
moratorium by either federal or New York State authorities or (vi) the taking of
any action by any federal, state or local government or agency in respect of its
monetary or fiscal affairs which in the Underwriters' reasonable opinion has a
material adverse effect on the securities markets in the United States. If this
Agreement shall be terminated pursuant to this Section 8, there shall be no
liability of the Company to the Underwriters and no liability of the
Underwriters to the Company; provided, however, that in the event of any such
termination the Company agrees to indemnify and hold harmless the Underwriters
from all costs or expenses incident to the performance of the obligations of the
Company under this Agreement, including all costs and expenses referred to in
paragraphs (i) and (j) of Section 6 hereof.
9. Conditions of Underwriters' Obligations. The obligations of the
several Underwriters to purchase and pay for the Stock shall be subject to the
performance by the Company of all its obligations to be
-13-
<PAGE>
performed hereunder at or prior to the Closing Date or any later date on which
Option Stock is to be purchased, as the case may be, and to the following
further conditions:
(a) The Registration Statement shall have become effective; and no
stop order suspending the effectiveness thereof shall have been issued and no
proceedings therefor shall be pending or threatened by the Commission.
(b) The legality and sufficiency of the sale of the Stock hereunder
and the validity and form of the certificates representing the Stock, all
corporate proceedings and other legal matters incident to the foregoing, and the
form of the Registration Statement and of the Prospectus (except as to the
financial statements contained therein), shall have been approved at or prior to
the Closing Date by Wilson Sonsini Goodrich & Rosati, counsel for the
Underwriters.
(c) You shall have received from Venture Law Group, counsel for the
Company, and from __________, patent counsel for the Company, opinions,
addressed to the Underwriters and dated the Closing Date, covering the matters
set forth in Annex A and Annex B hereto, respectively, and if Option Stock is
purchased at any date after the Closing Date, additional opinions from each such
counsel, addressed to the Underwriters and dated such later date, confirming
that the statements expressed as of the Closing Date in such opinions remain
valid as of such later date.
(d) You shall be satisfied that (i) as of the Effective Date, the
statements made in the Registration Statement and the Prospectus were true and
correct and neither the Registration Statement nor the Prospectus omitted to
state any material fact required to be stated therein or necessary in order to
make the statements therein, respectively, not misleading, (ii) since the
Effective Date, no event has occurred which should have been set forth in a
supplement or amendment to the Prospectus which has not been set forth in such a
supplement or amendment, (iii) since the respective dates as of which
information is given in the Registration Statement in the form in which it
originally became effective and the Prospectus contained therein, there has not
been any material adverse change or any development involving a prospective
material adverse change in or affecting the business, properties, financial
condition or results of operations of the Company and its subsidiaries, taken as
a whole, whether or not arising from transactions in the ordinary course of
business, and, since such dates, except in the ordinary course of business,
neither the Company nor any of its subsidiaries has entered into any material
transaction not referred to in the Registration Statement in the form in which
it originally became effective and the Prospectus contained therein, (iv)
neither the Company nor any of its subsidiaries has any material contingent
obligations which are not disclosed in the Registration Statement and the
Prospectus, (v) there are not any pending or known threatened legal proceedings
to which the Company or any of its subsidiaries is a party or of which property
of the Company or any of its subsidiaries is the subject which are material and
which are not disclosed in the Registration Statement and the Prospectus, (vi)
there are not any franchises, contracts, leases or other documents which are
required to be filed as exhibits to the Registration Statement which have not
been filed as required, (vii) the representations and warranties of the Company
herein are true and correct in all material respects as of the Closing Date or
any later date on which Option Stock is to be purchased, as the case may be, and
(viii) there has not been any material change in the market for securities in
general or in political, financial or economic conditions from those reasonably
foreseeable as to render it impracticable in your reasonable judgment to make a
public offering of the Stock, or a material adverse change in market levels for
securities in general (or those of companies in particular) or financial or
economic conditions which render it inadvisable to proceed.
(e) You shall have received on the Closing Date and on any later date
on which Option Stock is purchased a certificate, dated the Closing Date or such
later date, as the case may be, and signed by the President and the Chief
Financial Officer of the Company, stating that the respective signers of said
certificate have carefully examined the Registration Statement in the form in
which it originally became effective and the Prospectus contained therein and
any supplements or amendments thereto, and that the statements included in
clauses (i) through (vii) of paragraph (d) of this Section 9 are true and
correct.
(f) You shall have received from KPMG LLP a letter or letters,
addressed to the Underwriters and dated the Closing Date and any later date on
which Option Stock is purchased, confirming that they are independent public
accountants with respect to the Company within the meaning of the Securities Act
and the applicable published rules and regulations thereunder and based upon the
procedures described in their letter delivered to you concurrently with the
execution of this Agreement (herein called the Original Letter), but carried out
to a date not more than three business days prior to the Closing Date or such
later date on which Option Stock
-14-
<PAGE>
is purchased (i) confirming, to the extent true, that the statements and
conclusions set forth in the Original Letter are accurate as of the Closing Date
or such later date, as the case may be, and (ii) setting forth any revisions and
additions to the statements and conclusions set forth in the Original Letter
which are necessary to reflect any changes in the facts described in the
Original Letter since the date of the Original Letter or to reflect the
availability of more recent financial statements, data or information. The
letters shall not disclose any change, or any development involving a
prospective change, in or affecting the business or properties of the Company or
any of its subsidiaries which, in your sole judgment, makes it impractical or
inadvisable to proceed with the public offering of the Stock or the purchase of
the Option Stock as contemplated by the Prospectus.
(g) You shall have received from KPMG LLP a letter stating that their
review of the Company's system of internal accounting controls, to the extent
they deemed necessary in establishing the scope of their examination of the
Company's financial statements as at December 31, 1999, did not disclose any
weakness in internal controls that they considered to be material weaknesses.
(h) You shall have been furnished evidence in usual written or
telegraphic form from the appropriate authorities of the several jurisdictions,
or other evidence satisfactory to you, of the qualification referred to in
paragraph (f) of Section 6 hereof.
(i) Prior to the Closing Date, the Stock to be issued and sold by the
Company shall have been duly authorized for quotation on the Nasdaq National
Market upon official notice of issuance.
(j) On or prior to the Closing Date, you shall have received from all
directors, officers, and beneficial holders of the outstanding Common Stock
agreements, in form reasonably satisfactory to Chase Securities Inc., stating
that without the prior written consent of Chase Securities Inc. on behalf of the
Underwriters, such person or entity will not, for a period of 180 days following
the commencement of the public offering of the Stock by the Underwriters,
directly or indirectly, (i) sell, offer, contract to sell, make any short sale,
pledge, sell any option or contract to purchase, purchase any option or contract
to sell, grant any option, right or warrant to purchase or otherwise transfer or
dispose of any shares of Common Stock or any securities convertible into or
exchangeable or exercisable for or any rights to purchase or acquire Common
Stock or (ii) enter into any swap or other agreement that transfers, in whole or
in part, any of the economic consequences or ownership of Common Stock, whether
any such transaction described in clause (i) or (ii) above is to be settled by
delivery of Common Stock or such other securities, in cash or otherwise.
All the agreements, opinions, certificates and letters mentioned above or
elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if Wilson Sonsini Goodrich & Rosati, counsel for the
Underwriters, shall be satisfied that they comply in form and scope.
In case any of the conditions specified in this Section 9 shall not be
fulfilled, this Agreement may be terminated by you by giving notice to the
Company. Any such termination shall be without liability of the Company to the
Underwriters and without liability of the Underwriters to the Company; provided,
however, that (i) in the event of such termination, the Company agrees to
indemnify and hold harmless the Underwriters from all costs or expenses incident
to the performance of the obligations of the Company under this Agreement,
including all costs and expenses referred to in paragraphs (i) and (j) of
Section 6 hereof, and (ii) if this Agreement is terminated by you because of any
refusal, inability or failure on the part of the Company to perform any
agreement herein, to fulfill any of the conditions herein, or to comply with any
provision hereof other than by reason of a default by any of the Underwriters,
the Company will reimburse the Underwriters severally upon demand for all out-
of-pocket expenses (including reasonable fees and disbursements of counsel) that
shall have been incurred by them in connection with the transactions
contemplated hereby.
10. Conditions of the Obligation of the Company. The obligation of the
Company to deliver the Stock shall be subject to the conditions that (a) the
Registration Statement shall have become effective and (b) no stop order
suspending the effectiveness thereof shall be in effect and no proceedings
therefor shall be pending or threatened by the Commission.
In case either of the conditions specified in this Section 10 shall not be
fulfilled, this Agreement may be terminated by the Company by giving notice to
you. Any such termination shall be without liability of the Company to the
Underwriters and without liability of the Underwriters to the Company; provided,
however, that in the event of any such termination the Company agrees to
indemnify and hold harmless the Underwriters from all
-15-
<PAGE>
costs or expenses incident to the performance of the obligations of the Company
under this Agreement, including all costs and expenses referred to in paragraphs
(i) and (j) of Section 6 hereof.
11. Reimbursement of Certain Expenses. In addition to its other
obligations under Section 7 of this Agreement, the Company hereby agrees to
reimburse on a quarterly basis the Underwriters for all reasonable legal and
other expenses incurred in connection with investigating or defending any claim,
action, investigation, inquiry or other proceeding arising out of or based upon
any statement or omission, or any alleged statement or omission, described in
paragraph (a) of Section 7 of this Agreement, notwithstanding the absence of a
judicial determination as to the propriety and enforceability of the obligations
under this Section 11 and the possibility that such payments might later be held
to be improper; provided, however, that (i) to the extent any such payment is
-------- -------
ultimately held to be improper, the persons receiving such payments shall
promptly refund them and (ii) such persons shall provide to the Company, upon
request, reasonable assurances of their ability to effect any refund, when and
if due.
12. Persons Entitled to Benefit of Agreement. This Agreement shall inure
to the benefit of the Company and the several Underwriters and, with respect to
the provisions of Section 7 hereof, the several parties (in addition to the
Company and the several Underwriters) indemnified under the provisions of said
Section 7, and their respective personal representatives, successors and
assigns. Nothing in this Agreement is intended or shall be construed to give to
any other person, firm or corporation any legal or equitable remedy or claim
under or in respect of this Agreement or any provision herein contained. The
term "successors and assigns" as herein used shall not include any purchaser, as
such purchaser, of any of the Stock from any of the several Underwriters.
13. Notices. Except as otherwise provided herein, all communications
hereunder shall be in writing or by telegraph and, if to the Underwriters, shall
be mailed, telegraphed or delivered to Chase Securities Inc., One Bush Street,
San Francisco, California 94104; and if to the Company, shall be mailed,
telegraphed or delivered to it at its office, 577 Airport Boulevard, Suite 800,
Burlingame, California 94010, Attention: Chief Financial Officer. All notices
given by telegraph shall be promptly confirmed by letter.
14. Miscellaneous. The reimbursement, indemnification and contribution
agreements contained in this Agreement and the representations, warranties and
covenants in this Agreement shall remain in full force and effect regardless of
(a) any termination of this Agreement, (b) any investigation made by or on
behalf of any Underwriter or controlling person thereof, or by or on behalf of
the Company or their respective directors or officers, and (c) delivery and
payment for the Stock under this Agreement; provided, however, that if this
-------- -------
Agreement is terminated prior to the Closing Date, the provisions of paragraph
(k) of Section 6 hereof shall be of no further force or effect.
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
This Agreement shall be governed by, and construed in accordance with, the
laws of the State of California.
Please sign and return to the Company the enclosed duplicates of this
letter, whereupon this letter will become a binding agreement between the
Company and the several Underwriters in accordance with its terms.
Very truly yours,
CROSSWORLDS SOFTWARE, INC.
By __________________________
[Name]
[Title]
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<PAGE>
The foregoing Agreement is hereby confirmed
and accepted as of the date first above written.
CHASE SECURITIES INC.
DAIN RAUSCHER WESSELS,
a division of Dain Rauscher Incorporated
THOMAS WEISEL PARTNERS LLC
By Chase Securities Inc.
By __________________________
Managing Director
Acting on behalf of the several Underwriters,
including themselves, named in Schedule I hereto.
-17-
<PAGE>
SCHEDULE I
UNDERWRITERS
<TABLE>
<CAPTION>
Underwriters Number of Shares to be Purchased
- ------------ --------------------------------
<S> <C>
Chase Securities Inc....................
Dain Rauscher Wessels...................
Thomas Weisel Partners LLC..............
----------------
Total...............................
================
</TABLE>
-18-
<PAGE>
SCHEDULE 2
SUBSIDIARIES
-19-
<PAGE>
ANNEX A
Matters to be Covered in the Opinion of Venture Law Group
Counsel for the Company
(i) each of the Company and its U.K. and Germany subsidiaries
(the "Subsidiaries") has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation, is duly qualified as a foreign corporation and in good standing
in each state of the United States of America in which its ownership or leasing
of property requires such qualification (except where the failure to be so
qualified would not have a material adverse effect on the business, properties,
financial condition or results of operations of the Company and its
subsidiaries, taken as a whole), and has full corporate power and authority to
own or lease its properties and conduct its business as described in the
Registration Statement; all the issued and outstanding capital stock of each of
the Subsidiaries of the Company has been duly authorized and validly issued and
is fully paid and nonassessable, and is owned by the Company free and clear of
all liens, encumbrances and security interests, and to the counsel's knowledge,
no options, warrants or other rights to purchase, agreements or other
obligations to issue or other rights to convert any obligations into shares of
capital stock or ownership interests in such Subsidiaries are outstanding;
(ii) the authorized capital stock of the Company consists of
-----
shares of Preferred Stock and shares of Common Stock, $ par value;
------ -----
proper corporate proceedings have been taken validly to authorize such
authorized capital stock; all of the shares of Stock, when issued and delivered
to and paid for by the Underwriters as provided in the Underwriting Agreement,
will have been duly and validly issued and be fully paid and nonassessable; and
no preemptive rights of, or rights of refusal in favor of, stockholders exist
with respect to the Stock, or the issue and sale thereof, pursuant to the
Certificate of Incorporation or Bylaws of the Company and, to the knowledge of
such counsel, there are no contractual preemptive rights that have not been
waived, rights of first refusal or rights of co-sale which exist with respect to
the issue and sale of the Stock;
(iii) the Registration Statement has become effective under the
Securities Act and, to such counsel's knowledge, no stop order suspending the
effectiveness of the Registration Statement or suspending or preventing the use
of the Prospectus is in effect and no proceedings for that purpose have been
instituted or are pending or contemplated by the Commission;
(iv) the Registration Statement and the Prospectus (except as to
the financial statements and schedules and other financial data contained
therein, as to which such counsel need express no opinion) comply as to form in
all material respects with the requirements of the Securities Act, the Exchange
Act and with the rules and regulations of the Commission thereunder;
(v) such counsel have no reason to believe that the Registration
Statement (except as to the financial statements and schedules and other
financial data contained therein, as to which such counsel need not express any
opinion or belief) at the Effective Date contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein not misleading, or that the
Prospectus (except as to the financial statements and schedules and other
financial data contained or incorporated by reference therein, as to which such
counsel need not express any opinion or belief) as of its date or at the Closing
Date (or any later date on which Option Stock is purchased), contained or
contains any untrue statement of a material fact or omitted or omits to state a
material fact necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading;
(vi) the information required to be set forth in the Registration
Statement in answer to Items 9, 10 (insofar as it relates to such counsel) and
11(c) of Form S-1 is to such counsel's knowledge accurately and adequately set
forth therein in all material respects or no response is required with respect
to such Items, and, to such counsel's knowledge, the description of the
Company's stock option plans and the options granted and which may be granted
thereunder in the Prospectus accurately and fairly presents the information
required to be shown with respect to said plans and options to the extent
required by the Securities Act and the rules and regulations of the Commission
thereunder;
(vii) such counsel do not know of any franchises, contracts,
leases, documents or legal proceedings, pending or threatened, which in the
opinion of such counsel are of a character required to be described in the
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<PAGE>
Registration Statement or the Prospectus or to be filed as exhibits to the
Registration Statement, which are not described and filed as required;
(viii) the Underwriting Agreement has been duly authorized, executed
and delivered by the Company;
(ix) the issue and sale by the Company of the shares of Stock sold
by the Company as contemplated by the Underwriting Agreement will not conflict
with, or result in a breach of, the Certificate of Incorporation or Bylaws of
the Company or any of the Subsidiaries or any agreement or instrument known to
such counsel to which the Company or any of the Subsidiaries is a party or any
applicable law or regulation, or so far as is known to such counsel, any order,
writ, injunction or decree, of any jurisdiction, court or governmental
instrumentality;
(x) all holders of securities of the Company having rights to the
registration of shares of Common Stock, or other securities, because of the
filing of the Registration Statement by the Company have waived such rights or
such rights have expired by reason of lapse of time following notification of
the Company's intent to file the Registration Statement;
(xi) no consent, approval, authorization or order of any court or
governmental agency or body is required for the consummation of the transactions
contemplated in the Underwriting Agreement, except such as have been obtained
under the Securities Act and such as may be required under state securities or
blue sky laws in connection with the purchase and distribution of the Stock by
the Underwriters.
____________________________________
Counsel rendering the foregoing opinion may rely as to questions of law not
involving the laws of the United States or of the State of California, upon
opinions of local counsel satisfactory in form and scope to counsel for the
Underwriters. Copies of any opinions so relied upon shall be delivered to the
Representatives and to counsel for the Underwriters and the foregoing opinion
shall also state that counsel knows of no reason the Underwriters are not
entitled to rely upon the opinions of such local counsel.
-21-
<PAGE>
ANNEX B
Matters to be Covered in the Opinion of
----------
Patent Counsel for the Company
Such counsel are familiar with the technology used by the Company in its
business and the manner of its use thereof and have read the Registration
Statement and the Prospectus, including particularly the portions of the
Registration Statement and the Prospectus referring to patents, trade secrets,
trademarks, service marks or other proprietary information or materials and:
(i) such counsel have no reason to believe that the Registration
Statement or the Prospectus (A) contains any untrue statement of a material
fact with respect to patents, trade secrets, trademarks, service marks or
other proprietary information or materials owned or used by the Company, or
the manner of its use thereof, or any allegation on the part of any person
that the Company is infringing any patent rights, trade secrets,
trademarks, service marks or other proprietary information or materials of
any such person or (B) omits to state any material fact relating to
patents, trade secrets, trademarks, service marks or other proprietary
information or materials owned or used by the Company, or the manner of its
use thereof, or any allegation of which such counsel have knowledge, that
is required to be stated in the Registration Statement or the Prospectus or
is necessary to make the statements therein not misleading;
(ii) to such counsel's knowledge, there are no legal or governmental
proceedings pending relating to patent rights, trade secrets, trademarks,
service marks or other proprietary information or materials of the Company,
and to the best of such counsel's knowledge no such proceedings are
threatened or contemplated by governmental authorities or others;
(iii) such counsel do not know of any contracts or other documents,
relating to the Company's patents, trade secrets, trademarks, service marks
or other proprietary information or materials, of a character required to
be filed as an exhibit to the Registration Statement or required to be
described in the Registration Statement or the Prospectus that are not
filed or described as required;
(iv) to such counsel's knowledge, the Company is not infringing or
otherwise violating any patents, trade secrets, trademarks, service marks
or other proprietary information or materials, of others, and to such
counsel's knowledge there are no infringements by others of any of the
Company's patents, trade secrets, trademarks, service marks or other
proprietary information or materials which in the judgment of such counsel
could affect materially the use thereof by the Company; and
(v) to such counsel's knowledge, the Company owns or possesses
sufficient licenses or other rights to use all patents, trade secrets,
trademarks, service marks or other proprietary information or materials
necessary to conduct the business now being or proposed to be conducted by
the Company as described in the Prospectus.
-22-
<PAGE>
EXHIBIT 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
CROSSWORLDS SOFTWARE, INC.
The undersigned, Alfred J. Amoroso and Stacey Giamalis, hereby certify
that:
1. They are the duly elected and acting President and Secretary,
respectively, of CrossWorlds Software, Inc., a Delaware corporation.
2. The Certificate of Incorporation of this corporation was
originally filed with the Secretary of State of Delaware on March 8, 1996 under
the name of CrossRoads Software, Inc.
3. The Certificate of Incorporation of this corporation shall be
amended and restated to read in full as follows:
"ARTICLE I
The name of this corporation is CrossWorlds Software, Inc. (the
"CORPORATION").
ARTICLE II
The address of the Corporation's registered office in the State of
Delaware is 1209 Orange Street, Wilmington, County of New Castle. The name of
its registered agent at such address is The Corporation Trust Company.
ARTICLE III
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Delaware.
ARTICLE IV
The Corporation is authorized to issue one class of stock to be
designated "Common Stock." The total number of shares which the Corporation is
authorized to issue is One Hundred Fifty Million (150,000,000) shares, each with
a par value of $0.001 per share.
ARTICLE V
The number of directors of the Corporation shall be fixed from time to
time by a bylaw or amendment thereof duly adopted by the Board of Directors;
provided that the Corporation shall not increase the size of the Corporation's
Board of Directors to more than nine (9) without first obtaining the affirmative
vote of a majority of the voting power of all of the then-outstanding shares of
the voting stock of the Corporation entitled to vote.
<PAGE>
ARTICLE VI
All directors shall be elected at each annual meeting of stockholders
to hold office until the next annual meeting. Each director shall serve until
his or her successor is duly elected and qualified or until his or her death,
resignation, or removal. No decrease in the number of directors constituting
the Board of Directors shall shorten the term of any incumbent director.
Any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal, or other causes shall be filled by
either (i) the affirmative vote of the holders of a majority of the voting power
of the then-outstanding shares of voting stock of the corporation entitled to
vote generally in the election of directors (the "Voting Stock") voting together
as a single class; or (ii) by the affirmative vote of a majority of the
remaining directors then in office, even though less than a quorum of the Board
of Directors. Newly created directorships resulting from any increase in the
number of directors shall, unless the Board of Directors determines by
resolution that any such newly created directorship shall be filled by the
stockholders, be filled only by the affirmative vote of the directors then in
office, even though less than a quorum of the Board of Directors, or by a sole
remaining director. Any director elected in accordance with the preceding
sentence shall hold office for the remainder of the full term of the class of
directors in which the new directorship was created or the vacancy occurred and
until such director's successor shall have been elected and qualified. Any
director, or the entire Board of Directors, may be removed from office, with or
without cause, by the holders of a majority of the Voting Stock.
ARTICLE VII
In the election of directors, each holder of shares of any class or
series of capital stock of the Corporation shall be entitled to one vote for
each share held. No stockholder will be permitted to cumulate votes at any
election of directors.
ARTICLE VIII
No action shall be taken by the stockholders of the Corporation other
than at an annual or special meeting of the stockholders, upon due notice and in
accordance with the provisions of the Bylaws of the Corporation (the "Bylaws"),
and no action shall be taken by the stockholders by written consent.
ARTICLE IX
The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this Certificate of Incorporation, in the manner now
or hereafter prescribed by statute, and all rights conferred upon stockholders
herein are granted subject to this reservation.
ARTICLE X
(A) The Bylaws may be altered or amended or new Bylaws adopted by the
affirmative vote of a majority of the voting power of all of the then-
outstanding shares of the voting stock of the Corporation entitled to vote. The
Board of Directors of the Corporation is expressly
-2-
<PAGE>
authorized to adopt, amend or repeal Bylaws, other than Sections 2.3, 2.4, 2.5
of the Bylaws, and the Board of Directors of the Corporation is expressly
authorized to adopt, amend or repeal Section 3.2 of the Bylaws to the extent it
can do so in accordance with Article V hereof.
(B) The directors of the Corporation need not be elected by written
ballot unless the Bylaws so provide.
(C) Advance notice of stockholder nominations for the election of
directors or of business to be brought by the stockholders before any meeting of
the stockholders of the corporation shall be given in the manner provided in the
Bylaws.
ARTICLE XI
Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of the Corporation may be kept
(subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the bylaws of the Corporation.
ARTICLE XII
The Corporation shall have perpetual existence.
ARTICLE XIII
(A) To the fullest extent permitted by the General Corporation Law of
Delaware, as the same may be amended from time to time, a director of the
Corporation shall not be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director.
If the General Corporation Law of Delaware is hereafter amended to authorize,
with or without the approval of a corporation's stockholders, further reductions
in the liability of a corporation's directors for breach of fiduciary duty, then
a director of the Corporation shall not be liable for any such breach to the
fullest extent permitted by the General Corporation Law of Delaware, as so
amended.
(B) Any repeal or modification of the foregoing provisions of this
Article XIII shall not adversely affect any right or protection of a director of
the Corporation with respect to any acts or omissions of such director occurring
prior to such repeal or modification.
ARTICLE XIV
(A) To the fullest extent permitted by applicable law, the Corporation
is also authorized to provide indemnification of (and advancement of expenses
to) such agents (and any other persons to which Delaware law permits the
Corporation to provide indemnification) through Bylaw provisions, agreements
with such agents or other persons, vote of stockholders or disinterested
directors or otherwise, in excess of the indemnification and advancement
otherwise permitted by Section 145 of the General Corporation Law of Delaware,
subject only to limits created by applicable Delaware law (statutory or non-
statutory), with respect to actions for breach of duty to a corporation, its
stockholders, and others.
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<PAGE>
(B) Any repeal or modification of any of the foregoing provisions of
this Article XIV shall not adversely affect any right or protection of a
director, officer, agent or other person existing at the time of, or increase
the liability of any director of the Corporation with respect to any acts or
omissions of such director, officer or agent occurring prior to such repeal or
modification."
* * *
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<PAGE>
The foregoing Amended and Restated Certificate of Incorporation has
been duly adopted by this Corporation's Board of Directors and stockholders in
accordance with the applicable provisions of Section 228, 242 and 245 of the
General Corporation Law of the State of Delaware.
Executed at ____________, California, on the ____ day of ___________,
2000.
_________________________________
Alfred J. Amoroso, President
_________________________________
Stacey Giamalis, Secretary
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<PAGE>
EXHIBIT 3.2
BYLAWS
OF
CROSSWORLDS SOFTWARE, INC.
(a Delaware public corporation)
(AS AMENDED AND RESTATED ON __________ __, 2000)
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<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I - CORPORATE OFFICES....................................................... 1
1.1 REGISTERED OFFICE....................................................... 1
1.2 OTHER OFFICES........................................................... 1
ARTICLE II - MEETINGS OF STOCKHOLDERS............................................... 1
2.1 PLACE OF MEETINGS....................................................... 1
2.2 ANNUAL MEETING.......................................................... 1
2.3 SPECIAL MEETING......................................................... 2
2.4 NOTICE OF STOCKHOLDER'S MEETINGS; AFFIDAVIT OF NOTICE................... 2
2.5 ADVANCE NOTICE OF STOCKHOLDER NOMINEES AND OTHER STOCKHOLDER PROPOSALS.. 2
2.6 QUORUM.................................................................. 3
2.7 ADJOURNED MEETING; NOTICE............................................... 3
2.8 CONDUCT OF BUSINESS..................................................... 3
2.9 VOTING.................................................................. 3
2.10 WAIVER OF NOTICE........................................................ 4
2.11 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING.............................. 4
2.12 PROXIES................................................................. 4
ARTICLE III - DIRECTORS............................................................. 4
3.1 POWERS.................................................................. 4
3.2 NUMBER OF DIRECTORS..................................................... 5
3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS................. 5
3.4 RESIGNATION AND VACANCIES............................................... 5
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE................................ 6
3.6 REGULAR MEETINGS........................................................ 6
3.7 SPECIAL MEETINGS; NOTICE................................................ 6
3.8 QUORUM.................................................................. 6
3.9 WAIVER OF NOTICE........................................................ 6
3.10 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING....................... 7
3.11 FEES AND COMPENSATION OF DIRECTORS...................................... 7
3.12 APPROVAL OF LOANS TO OFFICERS........................................... 7
3.13 REMOVAL OF DIRECTORS.................................................... 7
ARTICLE IV - COMMITTEES............................................................. 7
4.1 COMMITTEES OF DIRECTORS................................................. 7
4.2 COMMITTEE MINUTES....................................................... 8
4.3 MEETINGS AND ACTION OF COMMITTEES....................................... 8
ARTICLE V - OFFICERS................................................................ 8
5.1 OFFICERS................................................................ 8
5.2 APPOINTMENT OF OFFICERS................................................. 8
5.3 SUBORDINATE OFFICERS.................................................... 9
5.4 REMOVAL AND RESIGNATION OF OFFICERS..................................... 9
5.5 VACANCIES IN OFFICES.................................................... 9
5.6 CHIEF EXECUTIVE OFFICER................................................. 9
5.7 PRESIDENT............................................................... 9
5.8 VICE PRESIDENTS......................................................... 9
</TABLE>
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<TABLE>
<S> <C>
5.9 SECRETARY............................................................... 10
5.10 CHIEF FINANCIAL OFFICER................................................. 10
5.11 REPRESENTATION OF SHARES OF OTHER CORPORATIONS.......................... 10
5.12 AUTHORITY AND DUTIES OF OFFICERS........................................ 10
ARTICLE VI - INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES, AND OTHER AGENTS.... 10
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS............................... 10
6.2 INDEMNIFICATION OF OTHERS............................................... 11
6.3 PAYMENT OF EXPENSES IN ADVANCE.......................................... 11
6.4 INDEMNITY NOT EXCLUSIVE................................................. 11
6.5 INSURANCE............................................................... 11
6.6 CONFLICTS............................................................... 11
ARTICLE VII - RECORDS AND REPORTS................................................... 12
7.1 MAINTENANCE AND INSPECTION OF RECORDS................................... 12
7.2 INSPECTION BY DIRECTORS................................................. 12
7.3 ANNUAL STATEMENT TO STOCKHOLDERS........................................ 12
ARTICLE VIII - GENERAL MATTERS...................................................... 12
8.1 CHECKS.................................................................. 12
8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS........................ 13
8.3 STOCK CERTIFICATES; PARTLY PAID SHARES.................................. 13
8.4 SPECIAL DESIGNATION ON CERTIFICATES..................................... 13
8.5 LOST CERTIFICATES....................................................... 13
8.6 CONSTRUCTION; DEFINITIONS............................................... 14
8.7 DIVIDENDS............................................................... 14
8.8 FISCAL YEAR............................................................. 14
8.9 SEAL.................................................................... 14
8.10 TRANSFER OF STOCK....................................................... 14
8.11 STOCK TRANSFER AGREEMENTS............................................... 14
8.12 REGISTERED STOCKHOLDERS................................................. 14
ARTICLE IX.......................................................................... 15
</TABLE>
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BYLAWS
OF
CROSSWORLDS SOFTWARE, INC.
ARTICLE I
CORPORATE OFFICES
-----------------
1.1 REGISTERED OFFICE.
-----------------
The address of the Corporation's registered office in the State of
Delaware is 1209 Orange Street, Wilmington, County of New Castle. The name of
its registered agent at such address is The Corporation Trust Company.
1.2 OTHER OFFICES.
-------------
The Board of Directors may at any time establish other offices at any
place or places where the Corporation is qualified to do business.
ARTICLE II
MEETINGS OF STOCKHOLDERS
------------------------
2.1 PLACE OF MEETINGS.
-----------------
Meetings of stockholders shall be held at any place, within or outside
the State of Delaware, designated by the Board of Directors. In the absence of
any such designation, stockholders' meetings shall be held at the registered
office of the Corporation.
2.2 ANNUAL MEETING.
--------------
(a) The annual meeting of stockholders shall be held each year on a
date and at a time designated by resolution of the Board of Directors. At the
meeting, directors shall be elected and any other proper business may be
transacted.
(b) Nominations of persons for election to the Board of Directors of
the Corporation and the proposal of business to be transacted by the
stockholders may be made at an annual meeting of stockholders (i) pursuant to
the Corporation's notice with respect to such meeting, (ii) by or at the
direction of the Board of Directors or (iii) by any stockholder of the
Corporation who was a stockholder of record at the time of giving of the notice
provided for in this Section 2.2, who is entitled to vote at the meeting and who
has complied with the notice procedures set forth in this Section 2.2.
(c) For nominations or other business to be properly brought before an
annual meeting by a stockholder pursuant to clause (iii) of paragraph (b) of
this Section 2.2, the stockholder must have given timely notice thereof in
writing to the secretary of the Corporation, as provided in Section 2.5, and
such business must be a proper matter for stockholder action under the General
Corporation Law of Delaware.
(d) Only such business shall be conducted at an annual meeting of
stockholders as shall have been brought before the meeting in accordance with
the procedures set forth in these Bylaws. The chairman of the meeting shall
determine whether a nomination or any business proposed to be transacted by the
stockholders has been properly brought
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<PAGE>
before the meeting and, if any proposed nomination or business has not been
properly brought before the meeting, the chairman shall declare that such
proposed business or nomination shall not be presented for stockholder action at
the meeting.
(e) For purposes of this Section 2.2, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or a comparable national news service.
(f) Nothing in this Section 2.2 shall be deemed to affect any rights
of stockholders to request inclusion of proposals in the Corporation's proxy
statement pursuant to Rule 14a-8 under the Exchange Act.
2.3 SPECIAL MEETING.
---------------
(a) A special meeting of the stockholders may be called at any time by
the Board of Directors, or by the chairman of the board, or by the president.
(b) Nominations of persons for election to the Board of Directors may
be made at a special meeting of stockholders at which directors are to be
elected pursuant to such notice of meeting (i) by or at the direction of the
Board of Directors or (ii) by any stockholder of the Corporation who is a
stockholder of record at the time of giving of notice provided for in Section
2.5, who shall be entitled to vote at the meeting and who complies with the
notice procedures set forth in Section 2.5.
2.4 NOTICE OF STOCKHOLDER'S MEETINGS; AFFIDAVIT OF NOTICE.
-----------------------------------------------------
All notices of meetings of stockholders shall be in writing and shall
be sent or otherwise given in accordance with this Section 2.4 of these Bylaws
not less than 10 nor more than 60 days before the date of the meeting to each
stockholder entitled to vote at such meeting (or such longer or shorter time as
is required by Section 2.5 of these Bylaws, if applicable). The notice shall
specify the place, date, and hour of the meeting, and, in the case of a special
meeting, the purpose or purposes for which the meeting is called. Written
notice of any meeting of stockholders, if mailed, is given when deposited in the
United States mail, postage prepaid, directed to the stockholder at his address
as it appears on the records of the Corporation. An affidavit of the secretary
or an assistant secretary or of the transfer agent of the Corporation that the
notice has been given shall, in the absence of fraud, be prima facie evidence of
the facts stated therein.
2.5 ADVANCE NOTICE OF STOCKHOLDER NOMINEES AND OTHER STOCKHOLDER
------------------------------------------------------------
PROPOSALS.
- ---------
Only persons who are nominated in accordance with the procedures set
forth in this Section 2.5 shall be eligible for election as directors.
Nominations of persons for election to the Board of Directors of the Corporation
may be made at a meeting of stockholders by or at the direction of the Board of
Directors or by any stockholder of the Corporation entitled to vote for the
election of directors at the meeting who complies with the notice procedures set
forth in this Section 2.5. Such nominations, other than those made by or at the
direction of the Board of Directors, shall be made pursuant to timely notice in
writing to the secretary of the Corporation. Stockholders may bring other
business before the annual meeting, provided that timely notice is provided to
the secretary of the Corporation in accordance with this section, and provided
further than such business is a proper matter for stockholder action under the
General Corporation Law of Delaware. To be timely, a stockholder's notice shall
be delivered to or mailed and received at the principal executive offices of the
Corporation not less than 90 days nor more than 120 days prior to the
anniversary date of the prior year's meeting; provided, however, that in the
event that (i) the date of the annual meeting is more than 30 days prior to or
more than 60 days after such anniversary date, and (ii) less than 60 days notice
or prior public disclosure of the date of the meeting is given or made to
stockholders, then notice by the stockholder to be timely must be so received
not later than the close of business on the 10/th/ day following the day on
which such notice of the date of the meeting was mailed or such public
disclosure was made.
Such stockholder's notice shall set forth (a) as to each person whom
the stockholder proposes to nominate for election or re-election as a director,
(i) the name, age, business address and residence address of such
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<PAGE>
person, (ii) the principal occupation or employment of such person, (iii) the
class and number of shares of the Corporation which are beneficially owned by
such person and (iv) any other information relating to such person that is
required to be disclosed in solicitations of proxies for election of directors,
or is otherwise required, in each case pursuant to Regulation 14A under the
Securities Exchange Act of 1934 (including, without limitation, such person's
written consent to being named in the proxy statement as a nominee and to
serving as a director if elected); (b) as to any other business that the
stockholder proposes to bring before the meeting, a brief description of such
business, the reasons for conducting such business at the meeting and any
material interest in such business of such stockholder and the beneficial owner,
if any, on whose behalf the proposal is made; and (c) as to the stockholder
giving the notice and the beneficial owner, if any, on whose behalf the proposal
is made (i) the name and address of the stockholder, as they appear on the
Corporation's books, and of such beneficial owner and (ii) the class and number
of shares of the Corporation which are owned of record by such stockholder and
beneficially by such beneficial owner.
At the request of the Board of Directors any person nominated by the
Board of Directors for election as a director shall furnish to the secretary of
the Corporation that information required to be set forth in a stockholder's
notice of nomination which pertains to the nominee. No person shall be eligible
for election as a director of the Corporation unless nominated in accordance
with the procedures set forth in this Section 2.5. The chairman of the meeting
shall, if the facts warrant, determine and declare to the meeting that a
nomination was not made in accordance with the procedures prescribed by the
Bylaws, and if he or she should so determine, he or she shall so declare to the
meeting and the defective nomination shall be disregarded.
2.6 QUORUM.
------
The holders of a majority of the stock issued and outstanding and
entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum at all meetings of the stockholders for the transaction of
business except as otherwise provided by statute or by the Certificate of
Incorporation. If, however, such quorum is not present or represented at any
meeting of the stockholders, then either (a) the chairman of the meeting or (b)
the stockholders entitled to vote thereat, present in person or represented by
proxy, shall have power to adjourn the meeting from time to time, without notice
other than announcement at the meeting, until a quorum is present or
represented. At such adjourned meeting at which a quorum is present or
represented, any business may be transacted that might have been transacted at
the meeting as originally noticed.
2.7 ADJOURNED MEETING; NOTICE.
-------------------------
When a meeting is adjourned to another time or place, unless these
Bylaws otherwise require, notice need not be given of the adjourned meeting if
the time and place thereof are announced at the meeting at which the adjournment
is taken. At the adjourned meeting the Corporation may transact any business
that might have been transacted at the original meeting. If the adjournment is
for more than 30 days, or if after the adjournment a new record date is fixed
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote at the meeting.
2.8 CONDUCT OF BUSINESS.
-------------------
The chairman of any meeting of stockholders shall determine the order
of business and the procedure at the meeting, including the manner of voting and
the conduct of business.
2.9 VOTING.
------
(a) The stockholders entitled to vote at any meeting of stockholders
shall be determined in accordance with the provisions of Section 2.11 of these
Bylaws, subject to the provisions of Sections 217 and 218 of the General
Corporation Law of Delaware (relating to voting rights of fiduciaries, pledgors
and joint owners of stock and to voting trusts and other voting agreements).
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<PAGE>
(b) Except as may be otherwise provided in the Certificate of
Incorporation, each stockholder shall be entitled to one vote for each share of
capital stock held by such stockholder.
2.10 WAIVER OF NOTICE.
----------------
Whenever notice is required to be given under any provision of the
General Corporation Law of Delaware or of the Certificate of Incorporation or
these Bylaws, a written waiver thereof, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the stockholders need be specified in any written waiver of notice unless so
required by the Certificate of Incorporation or these Bylaws.
2.11 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING.
------------------------------------------
In order that the Corporation may determine the stockholders entitled
to notice of or to vote at any meeting of stockholders or any adjournment
thereof or entitled to receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock or for the purpose of any other lawful
action, the Board of Directors may fix, in advance, a record date, which shall
not be more than 60 nor less than 10 days before the date of such meeting, nor
more than 60 days prior to any other action. If the Board of Directors does not
so fix a record date:
(a) The record date for determining stockholders entitled to notice of
or to vote at a meeting of stockholders shall be at the close of business on the
day next preceding the day on which notice is given, or, if notice is waived, at
the close of business on the day next preceding the day on which the meeting is
held.
(b) The record date for determining stockholders for any other purpose
shall be at the close of business on the day on which the Board of Directors
adopts the resolution relating thereto.
A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
2.12 PROXIES.
-------
Each stockholder entitled to vote at a meeting of stockholders may
authorize another person or persons to act for such stockholder by a written
proxy, signed by the stockholder and filed with the secretary of the
Corporation, but no such proxy shall be voted or acted upon after three years
from its date, unless the proxy provides for a longer period. A proxy shall be
deemed signed if the stockholder's name is placed on the proxy (whether by
manual signature, typewriting, telegraphic transmission or otherwise) by the
stockholder or the stockholder's attorney-in-fact. The revocability of a proxy
that states on its face that it is irrevocable shall be governed by the
provisions of Section 212(e) of the General Corporation Law of Delaware.
ARTICLE III
DIRECTORS
---------
3.1 POWERS.
------
Subject to the provisions of the General Corporation Law of Delaware
and any limitations in the Certificate of Incorporation or these Bylaws relating
to action required to be approved by the stockholders or by the outstanding
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<PAGE>
shares, the business and affairs of the Corporation shall be managed and all
corporate powers shall be exercised by or under the direction of the Board of
Directors.
3.2 NUMBER OF DIRECTORS.
-------------------
The number of directors constituting the entire Board of Directors
shall be seven (7). Thereafter, this number may be changed by a resolution of
the Board of Directors or of the stockholders, subject to Section 3.4 of these
Bylaws and the Certificate of Incorporation. No reduction of the authorized
number of directors shall have the effect of removing any director before such
director's term of office expires.
3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS.
-------------------------------------------------------
Except as provided in Section 3.4 of these Bylaws, directors shall be
elected at each annual meeting of stockholders to hold office until the next
annual meeting. Directors need not be stockholders unless so required by the
Certificate of Incorporation or these Bylaws, wherein other qualifications for
directors may be prescribed. Each director, including a director elected to
fill a vacancy, shall hold office until his or her successor is elected and
qualified or until his or her earlier resignation or removal.
3.4 RESIGNATION AND VACANCIES.
-------------------------
Any director may resign at any time upon written notice to the
attention of the secretary of the Corporation. When one or more directors so
resigns and the resignation is effective at a future date, a majority of the
directors then in office, including those who have so resigned, shall have power
to fill such vacancy or vacancies, the vote thereon to take effect when such
resignation or resignations shall become effective, and each director so chosen
shall hold office as provided in this section in the filling of other vacancies.
A vacancy created by the removal of a director by the vote of the stockholders
or by court order may be filled only by the affirmative vote of a majority of
the shares represented and voting at a duly held meeting at which a quorum is
present (which shares voting affirmatively also constitute a majority of the
quorum). Each director so elected shall hold office until the next annual
meeting of the stockholders and until a successor has been elected and
qualified.
Unless otherwise provided in the Certificate of Incorporation or
these Bylaws:
(a) Vacancies and newly created directorships resulting from any
increase in the authorized number of directors elected by all of the
stockholders having the right to vote as a single class may be filled by a
majority of the directors then in office, although less than a quorum, or by a
sole remaining director.
(b) Whenever the holders of any class or classes of stock or series
thereof are entitled to elect one or more directors by the provisions of the
Certificate of Incorporation, vacancies and newly created directorships of such
class or classes or series may be filled by a majority of the directors elected
by such class or classes or series thereof then in office, or by a sole
remaining director so elected.
If at any time, by reason of death or resignation or other cause, the
Corporation should have no directors in office, then any officer or any
stockholder or an executor, administrator, trustee or guardian of a stockholder,
or other fiduciary entrusted with like responsibility for the person or estate
of a stockholder, may call a special meeting of stockholders in accordance with
the provisions of the Certificate of Incorporation or these Bylaws, or may apply
to the Court of Chancery for a decree summarily ordering an election as provided
in Section 211 of the General Corporation Law of Delaware.
If, at the time of filling any vacancy or any newly created
directorship, the directors then in office constitute less than a majority of
the whole Board of Directors (as constituted immediately prior to any such
increase), then the Court of Chancery may, upon application of any stockholder
or stockholders holding at least 10% of the total number of the shares at the
time outstanding having the right to vote for such directors, summarily order an
election to be held to fill any such vacancies or newly created directorships,
or to replace the directors chosen by
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the directors then in office as aforesaid, which election shall be governed by
the provisions of Section 211 of the General Corporation Law of Delaware as far
as applicable.
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE.
----------------------------------------
The Board of Directors of the Corporation may hold meetings, both
regular and special, either within or outside the State of Delaware. Unless
otherwise restricted by the Certificate of Incorporation or these Bylaws,
members of the Board of Directors, or any committee designated by the Board of
Directors, may participate in a meeting of the Board of Directors, or any
committee, by means of conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other,
and such participation in a meeting shall constitute presence in person at the
meeting.
3.6 REGULAR MEETINGS.
----------------
Regular meetings of the Board of Directors may be held without notice
at such time and at such place as shall from time to time be determined by the
Board of Directors.
3.7 SPECIAL MEETINGS; NOTICE.
------------------------
Special meetings of the Board of Directors for any purpose or purposes
may be called at any time by the chairman of the board, the president, any vice
president, the secretary or any two directors.
Notice of the time and place of special meetings shall be delivered
personally, by facsimile or by telephone to each director or sent by first-class
mail or telegram, charges prepaid, addressed to each director at that director's
address as it is shown on the records of the Corporation. If the notice is
mailed, it shall be deposited in the United States mail at least four days
before the time of the holding of the meeting. If the notice is delivered
personally, by facsimile or by telephone or telegram, it shall be delivered
personally, by facsimile or by telephone or to the telegraph company at least 48
hours before the time of the holding of the meeting. Any oral notice given
personally, by facsimile or by telephone may be communicated either to the
director or to a person at the office of the director who the person giving the
notice has reason to believe will promptly communicate it to the director. The
notice need not specify the purpose or the place of the meeting, if the meeting
is to be held at the principal executive office of the Corporation. It shall
not be necessary that the same method of giving notice be employed in respect of
all directors.
3.8 QUORUM.
------
At all meetings of the Board of Directors, a majority of the
authorized number of directors shall constitute a quorum for the transaction of
business and the act of a majority of the directors present at any meeting at
which there is a quorum shall be the act of the Board of Directors, except as
may be otherwise specifically provided by statute or by the Certificate of
Incorporation. If a quorum is not present at any meeting of the Board of
Directors, then the directors present thereat may adjourn the meeting from time
to time, without notice other than announcement at the meeting, until a quorum
is present.
A meeting at which a quorum is initially present may continue to
transact business notwithstanding the withdrawal of directors, if any action
taken is approved by at least a majority of the required quorum for that
meeting.
3.9 WAIVER OF NOTICE.
----------------
Whenever notice is required to be given under any provision of the
General Corporation Law of Delaware or of the Certificate of Incorporation or
these Bylaws, a written waiver thereof, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business
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because the meeting is not lawfully called or convened. Neither the business to
be transacted at, nor the purpose of, any regular or special meeting of the
directors, or members of a committee of directors, need be specified in any
written waiver of notice unless so required by the Certificate of Incorporation
or these Bylaws.
3.10 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING.
-------------------------------------------------
Unless otherwise restricted by the Certificate of Incorporation or
these Bylaws, any action required or permitted to be taken at any meeting of the
Board of Directors, or of any committee thereof, may be taken without a meeting
if all members of the Board of Directors or committee, as the case may be,
consent thereto in writing and the writing or writings are filed with the
minutes of proceedings of the Board of Directors or committee. Written consents
representing actions taken by the board or committee may be executed by telex,
telecopy or other facsimile transmission, and such facsimile shall be valid and
binding to the same extent as if it were an original.
3.11 FEES AND COMPENSATION OF DIRECTORS.
----------------------------------
Unless otherwise restricted by the Certificate of Incorporation or
these Bylaws, the Board of Directors shall have the authority to fix the
compensation of directors. No such compensation shall preclude any director
from serving the Corporation in any other capacity and receiving compensation
therefor.
3.12 APPROVAL OF LOANS TO OFFICERS.
-----------------------------
The Corporation may lend money to, or guarantee any obligation of, or
otherwise assist any officer or other employee of the Corporation or of its
subsidiary, including any officer or employee who is a director of the
Corporation or its subsidiary, whenever, in the judgment of the directors, such
loan, guaranty or assistance may reasonably be expected to benefit the
Corporation. The loan, guaranty or other assistance may be with or without
interest and may be unsecured, or secured in such manner as the Board of
Directors shall approve, including, without limitation, a pledge of shares of
stock of the Corporation. Nothing in this Section 3.2 contained shall be deemed
to deny, limit or restrict the powers of guaranty or warranty of the Corporation
at common law or under any statute.
3.13 REMOVAL OF DIRECTORS.
--------------------
Unless otherwise restricted by statute, by the Certificate of
Incorporation or by these Bylaws, any director or the entire Board of Directors
may be removed, with or without cause, by the holders of a majority of the
shares then entitled to vote at an election of directors; provided, however,
that if the stockholders of the Corporation are entitled to cumulative voting,
if less than the entire Board of Directors is to be removed, no director may be
removed without cause if the votes cast against his removal would be sufficient
to elect him if then cumulatively voted at an election of the entire Board of
Directors.
No reduction of the authorized number of directors shall have the
effect of removing any director prior to the expiration of such director's term
of office.
ARTICLE IV
COMMITTEES
----------
4.1 COMMITTEES OF DIRECTORS.
-----------------------
The Board of Directors may, by resolution passed by a majority of the
whole Board of Directors, designate one or more committees, with each committee
to consist of one or more of the directors of the Corporation. The Board of
Directors may designate one or more directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
the committee. In the absence or disqualification of a member of a committee,
the member or members thereof present at any meeting and not disqualified from
voting, whether or
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not such member or members constitute a quorum, may unanimously appoint another
member of the Board of Directors to act at the meeting in the place of any such
absent or disqualified member. Any such committee, to the extent provided in the
resolution of the Board of Directors or in the Bylaws of the Corporation, shall
have and may exercise all the powers and authority of the Board of Directors in
the management of the business and affairs of the Corporation, and may authorize
the seal of the Corporation to be affixed to all papers that may require it; but
no such committee shall have the power or authority to (a) amend the Certificate
of Incorporation (except that a committee may, to the extent authorized in the
resolution or resolutions providing for the issuance of shares of stock adopted
by the Board of Directors as provided in Section 151(a) of the General
Corporation Law of Delaware, fix the designations and any of the preferences or
rights of such shares relating to dividends, redemption, dissolution, any
distribution of assets of the Corporation or the conversion into, or the
exchange of such shares for, shares of any other class or classes or any other
series of the same or any other class or classes of stock of the Corporation or
fix the number of shares of any series of stock or authorize the increase or
decrease of the shares of any series), (b) adopt an agreement of merger or
consolidation under Sections 251 or 252 of the General Corporation Law of
Delaware, (c) recommend to the stockholders the sale, lease or exchange of all
or substantially all of the Corporation's property and assets, (d) recommend to
the stockholders a dissolution of the Corporation or a revocation of a
dissolution, or (e) amend the Bylaws of the Corporation; and, unless the board
resolution establishing the committee, the Bylaws or the Certificate of
Incorporation expressly so provide, no such committee shall have the power or
authority to declare a dividend, to authorize the issuance of stock, or to adopt
a certificate of ownership and merger pursuant to Section 253 of the General
Corporation Law of Delaware.
4.2 COMMITTEE MINUTES.
-----------------
Each committee shall keep regular minutes of its meetings and report
the same to the Board of Directors when required.
4.3 MEETINGS AND ACTION OF COMMITTEES.
---------------------------------
Meetings and actions of committees shall be governed by, and held and
taken in accordance with, the provisions of Section 3.5 (place of meetings and
meetings by telephone), Section 3.6 (regular meetings), Section 3.7 (special
meetings and notice), Section 3.8 (quorum), Section 3.9 (waiver of notice), and
Section 3.10 (action without a meeting) of these Bylaws, with such changes in
the context of such provisions as are necessary to substitute the committee and
its members for the Board of Directors and its members; provided, however, that
the time of regular meetings of committees may be determined either by
resolution of the Board of Directors or by resolution of the committee, that
special meetings of committees may also be called by resolution of the Board of
Directors and that notice of special meetings of committees shall also be given
to all alternate members, who shall have the right to attend all meetings of the
committee. The Board of Directors may adopt rules for the government of any
committee not inconsistent with the provisions of these Bylaws.
ARTICLE V
OFFICERS
--------
5.1 OFFICERS.
--------
The officers of the Corporation shall be a chief executive officer, a
president, a secretary, and a chief financial officer. The Corporation may also
have, at the discretion of the Board of Directors, one or more vice presidents,
one or more assistant secretaries, one or more assistant treasurers, and any
such other officers as may be appointed in accordance with the provisions of
Section 5.3 of these Bylaws. Any number of offices may be held by the same
person.
5.2 APPOINTMENT OF OFFICERS.
-----------------------
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The officers of the Corporation, except such officers as may be
appointed in accordance with the provisions of Sections 5.3 or 5.5 of these
Bylaws, shall be appointed by the Board of Directors, subject to the rights, if
any, of an officer under any contract of employment.
5.3 SUBORDINATE OFFICERS.
--------------------
The Board of Directors may appoint, or empower the chief executive
officer or the president to appoint, such other officers and agents as the
business of the Corporation may require, each of whom shall hold office for such
period, have such authority, and perform such duties as are provided in these
Bylaws or as the Board of Directors may from time to time determine.
5.4 REMOVAL AND RESIGNATION OF OFFICERS.
-----------------------------------
Subject to the rights, if any, of an officer under any contract of
employment, any officer may be removed, either with or without cause, by an
affirmative vote of the majority of the Board of Directors at any regular or
special meeting of the Board of Directors or, except in the case of an officer
chosen by the Board of Directors, by any officer upon whom such power of removal
may be conferred by the Board of Directors.
Any officer may resign at any time by giving written notice to the
attention of the secretary of the Corporation. Any resignation shall take
effect at the date of the receipt of that notice or at any later time specified
in that notice; and, unless otherwise specified in that notice, the acceptance
of the resignation shall not be necessary to make it effective. Any resignation
is without prejudice to the rights, if any, of the Corporation under any
contract to which the officer is a party.
5.5 VACANCIES IN OFFICES.
--------------------
Any vacancy occurring in any office of the Corporation shall be filled
by the Board of Directors.
5.6 CHIEF EXECUTIVE OFFICER.
-----------------------
Subject to such supervisory powers, if any, as may be given by the
Board of Directors to the chairman of the board, if any, the chief executive
officer of the Corporation shall, subject to the control of the Board of
Directors, have general supervision, direction, and control of the business and
the officers of the Corporation. He or she shall preside at all meetings of the
stockholders and, in the absence or nonexistence of a chairman of the board, at
all meetings of the Board of Directors and shall have the general powers and
duties of management usually vested in the office of chief executive officer of
a corporation and shall have such other powers and duties as may be prescribed
by the Board of Directors or these Bylaws.
5.7 PRESIDENT.
---------
Subject to such supervisory powers, if any, as may be given by the
Board of Directors to the chairman of the board (if any) or the chief executive
officer, the president shall have general supervision, direction, and control of
the business and other officers of the Corporation. He or she shall have the
general powers and duties of management usually vested in the office of
president of a corporation and such other powers and duties as may be prescribed
by the Board of Directors or these Bylaws.
5.8 VICE PRESIDENTS.
---------------
In the absence or disability of the chief executive officer and
president, the vice presidents, if any, in order of their rank as fixed by the
Board of Directors or, if not ranked, a vice president designated by the Board
of Directors, shall perform all the duties of the president and when so acting
shall have all the powers of, and be subject to all the restrictions upon, the
president. The vice presidents shall have such other powers and perform such
other duties as from time to time may be prescribed for them respectively by the
Board of Directors, these Bylaws, the president or the chairman of the board.
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5.9 SECRETARY.
---------
The secretary shall keep or cause to be kept, at the principal
executive office of the Corporation or such other place as the Board of
Directors may direct, a book of minutes of all meetings and actions of
directors, committees of directors, and stockholders. The minutes shall show
the time and place of each meeting, the names of those present at directors'
meetings or committee meetings, the number of shares present or represented at
stockholders' meetings, and the proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal
executive office of the Corporation or at the office of the Corporation's
transfer agent or registrar, as determined by resolution of the Board Of
Directors, a share register, or a duplicate share register, showing the names of
all stockholders and their addresses, the number and classes of shares held by
each, the number and date of certificates evidencing such shares, and the number
and date of cancellation of every certificate surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all meetings
of the stockholders and of the Board of Directors required to be given by law or
by these Bylaws. He or she shall keep the seal of the Corporation, if one be
adopted, in safe custody and shall have such other powers and perform such other
duties as may be prescribed by the Board of Directors or by these Bylaws.
5.10 CHIEF FINANCIAL OFFICER.
-----------------------
The chief financial officer shall keep and maintain, or cause to be
kept and maintained, adequate and correct books and records of accounts of the
properties and business transactions of the Corporation, including accounts of
its assets, liabilities, receipts, disbursements, gains, losses, capital
retained earnings, and shares. The books of account shall at all reasonable
times be open to inspection by any director.
The chief financial officer shall deposit all moneys and other
valuables in the name and to the credit of the Corporation with such
depositories as may be designated by the Board of Directors. He or she shall
disburse the funds of the Corporation as may be ordered by the Board of
Directors, shall render to the president, the chief executive officer, or the
directors, upon request, an account of all his or her transactions as chief
financial officer and of the financial condition of the Corporation, and shall
have other powers and perform such other duties as may be prescribed by the
Board of Directors or the Bylaws.
5.11 REPRESENTATION OF SHARES OF OTHER CORPORATIONS.
----------------------------------------------
The chairman of the board, the chief executive officer, the president,
any vice president, the chief financial officer, the secretary or assistant
secretary of this Corporation, or any other person authorized by the Board of
Directors or the chief executive officer or the president or a vice president,
is authorized to vote, represent, and exercise on behalf of this Corporation all
rights incident to any and all shares of any other corporation or corporations
standing in the name of this Corporation. The authority granted herein may be
exercised either by such person directly or by any other person authorized to do
so by proxy or power of attorney duly executed by the person having such
authority.
5.12 AUTHORITY AND DUTIES OF OFFICERS.
--------------------------------
In addition to the foregoing authority and duties, all officers of the
Corporation shall respectively have such authority and perform such duties in
the management of the business of the Corporation as may be designated from time
to time by the Board of Directors or the stockholders.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES, AND OTHER AGENTS
-------------------------------------------------------------------
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS.
-----------------------------------------
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The Corporation shall, to the maximum extent and in the manner
permitted by the General Corporation Law of Delaware, indemnify each of its
directors and officers against expenses (including attorneys' fees), judgments,
fines, settlements and other amounts actually and reasonably incurred in
connection with any proceeding, arising by reason of the fact that such person
is or was an agent of the Corporation. For purposes of this Section 6.1, a
"director" or "officer" of the Corporation includes any person (a) who is or was
a director or officer of the Corporation, (b) who is or was serving at the
request of the Corporation as a director or officer of another corporation,
partnership, joint venture, trust or other enterprise, or (c) who was a director
or officer of a Corporation which was a predecessor corporation of the
Corporation or of another enterprise at the request of such predecessor
corporation.
6.2 INDEMNIFICATION OF OTHERS.
-------------------------
The Corporation shall have the power, to the maximum extent and in the
manner permitted by the General Corporation Law of Delaware, to indemnify each
of its employees and agents (other than directors and officers) against expenses
(including attorneys' fees), judgments, fines, settlements and other amounts
actually and reasonably incurred in connection with any proceeding, arising by
reason of the fact that such person is or was an agent of the Corporation. For
purposes of this Section 6.2, an "employee" or "agent" of the Corporation (other
than a director or officer) includes any person (a) who is or was an employee or
agent of the Corporation, (b) who is or was serving at the request of the
Corporation as an employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, or (c) who was an employee or agent of a
corporation which was a predecessor corporation of the Corporation or of another
enterprise at the request of such predecessor corporation.
6.3 PAYMENT OF EXPENSES IN ADVANCE.
------------------------------
Expenses incurred in defending any action or proceeding for which
indemnification is required pursuant to Section 6.1 or for which indemnification
is permitted pursuant to Section 6.2 following authorization thereof by the
Board of Directors shall be paid by the Corporation in advance of the final
disposition of such action or proceeding upon receipt of an undertaking by or on
behalf of the indemnified party to repay such amount if it shall ultimately be
determined that the indemnified party is not entitled to be indemnified as
authorized in this Article VI.
6.4 INDEMNITY NOT EXCLUSIVE.
-----------------------
The indemnification provided by this Article VI shall not be deemed
exclusive of any other rights to which those seeking indemnification may been
titled under any Bylaw, agreement, vote of shareholders or disinterested
directors or otherwise, both as to action in an official capacity and as to
action in another capacity while holding such office, to the extent that such
additional rights to indemnification are authorized in the Certificate of
Incorporation.
6.5 INSURANCE.
---------
The Corporation may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of the Corporation,
or is or was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against him or her and incurred
by him or her in any such capacity, or arising out of his or her status as such,
whether or not the Corporation would have the power to indemnify him or her
against such liability under the provisions of the General Corporation Law of
Delaware.
6.6 CONFLICTS.
---------
No indemnification or advance shall be made under this Article VI,
except where such indemnification or advance is mandated by law or the order,
judgment or decree of any court of competent jurisdiction, in any circumstance
where it appears:
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(a) That it would be inconsistent with a provision of the Certificate
of Incorporation, these Bylaws, a resolution of the stockholders or an agreement
in effect at the time of the accrual of the alleged cause of the action asserted
in the proceeding in which the expenses were incurred or other amounts were
paid, which prohibits or otherwise limits indemnification; or
(b) That it would be inconsistent with any condition expressly
imposed by a court in approving a settlement.
ARTICLE VII
RECORDS AND REPORTS
-------------------
7.1 MAINTENANCE AND INSPECTION OF RECORDS.
-------------------------------------
The Corporation shall, either at its principal executive offices or at
such place or places as designated by the Board of Directors, keep a record of
its stockholders listing their names and addresses and the number and class of
shares held by each stockholder, a copy of these Bylaws as amended to date,
accounting books, and other records.
Any stockholder of record, in person or by attorney or other agent,
shall, upon written demand under oath stating the purpose thereof, have the
right during the usual hours for business to inspect for any proper purpose the
Corporation's stock ledger, a list of its stockholders, and its other books and
records and to make copies or extracts therefrom. A proper purpose shall mean a
purpose reasonably related to such person's interest as a stockholder. In every
instance where an attorney or other agent is the person who seeks the right to
inspection, the demand under oath shall be accompanied by a power of attorney or
such other writing that authorizes the attorney or other agent to so act on
behalf of the stockholder. The demand under oath shall be directed to the
Corporation at its registered office in Delaware or at its principal place of
business.
7.2 INSPECTION BY DIRECTORS.
-----------------------
Any director shall have the right to examine the Corporation's
stockledger, a list of its stockholders, and its other books and records for a
purpose reasonably related to his or her position as a director. The Court of
Chancery is hereby vested with the exclusive jurisdiction to determine whether a
director is entitled to the inspection sought. The Court may summarily order
the Corporation to permit the director to inspect any and all books and records,
the stock ledger, and the stock list and to make copies or extracts therefrom.
The Court may, in its discretion, prescribe any limitations or conditions with
reference to the inspection, or award such other and further relief as the Court
may deem just and proper.
7.3 ANNUAL STATEMENT TO STOCKHOLDERS.
--------------------------------
The Board of Directors shall present at each annual meeting, and at
any special meeting of the stockholders when called for by vote of the
stockholders, a full and clear statement of the business and condition of the
Corporation.
ARTICLE VIII
GENERAL MATTERS
---------------
8.1 CHECKS.
------
From time to time, the Board of Directors shall determine by
resolution which person or persons may sign or endorse all checks, drafts, other
orders for payment of money, notes or other evidences of indebtedness that are
issued in the name of or payable to the Corporation, and only the persons so
authorized shall sign or endorse those instruments.
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8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS.
------------------------------------------------
The Board of Directors, except as otherwise provided in these Bylaws,
may authorize any officer or officers, or agent or agents, to enter into any
contract or execute any instrument in the name of and on behalf of the
Corporation; such authority may be general or confined to specific instances.
Unless so authorized or ratified by the Board of Directors or within the agency
power of an officer, no officer, agent or employee shall have any power or
authority to bind the Corporation by any contract or engagement or to pledge its
credit or to render it liable for any purpose or for any amount.
8.3 STOCK CERTIFICATES; PARTLY PAID SHARES.
--------------------------------------
The shares of the Corporation shall be represented by certificates,
provided that the Board of Directors of the Corporation may provide by
resolution or resolutions that some or all of any or all classes or series of
its stock shall be uncertificated shares. Any such resolution shall not apply
to shares represented by a certificate until such certificate is surrendered to
the Corporation. Notwithstanding the adoption of such a resolution by the Board
of Directors, every holder of stock represented by certificates and upon request
every holder of uncertificated shares shall be entitled to have a certificate
signed by, or in the name of the Corporation by the chairman or vice-chairman of
the Board of Directors, or the chief executive officer or the president or vice-
president, and by the chief financial officer or an assistant treasurer, or the
secretary or an assistant secretary of the Corporation representing the number
of shares registered in certificate form. Any or all of the signatures on the
certificate may be a facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate has ceased to be such officer, transfer agent or registrar before
such certificate is issued, it may be issued by the Corporation with the same
effect as if he or she were such officer, transfer agent or registrar at the
date of issue.
The Corporation may issue the whole or any part of its shares as
partly paid and subject to call for the remainder of the consideration to be
paid therefor. Upon the face or back of each stock certificate issued to
represent any such partly paid shares, upon the books and records of the
Corporation in the case of uncertificated partly paid shares, the total amount
of the consideration to be paid therefor and the amount paid thereon shall be
stated. Upon the declaration of any dividend on fully paid shares, the
Corporation shall declare a dividend upon partly paid shares of the same class,
but only upon the basis of the percentage of the consideration actually paid
thereon.
8.4 SPECIAL DESIGNATION ON CERTIFICATES.
-----------------------------------
If the Corporation is authorized to issue more than one class of stock
or more than one series of any class, then the powers, the designations, the
preferences, and the relative, participating, optional or other special rights
of each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate that the Corporation shall
issue to represent such class or series of stock; provided, however, that,
except as otherwise provided in Section 202 of the General Corporation Law of
Delaware, in lieu of the foregoing requirements there may be set forth on the
face or back of the certificate that the Corporation shall issue to represent
such class or series of stock a statement that the Corporation will furnish
without charge to each stockholder who so requests the powers, the designations,
the preferences, and the relative, participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights.
8.5 LOST CERTIFICATES.
-----------------
Except as provided in this Section 8.5, no new certificates for shares
shall be issued to replace a previously issued certificate unless the latter is
surrendered to the Corporation and canceled at the same time. The Corporation
may issue a new certificate of stock or uncertificated shares in the place of
any certificate previously issued by it, alleged to have been lost, stolen or
destroyed, and the Corporation may require the owner of the lost, stolen or
destroyed certificate, or the owner's legal representative, to give the
Corporation a bond sufficient to
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indemnify it against any claim that may be made against it on account of the
alleged loss, theft or destruction of any such certificate or the issuance of
such new certificate or uncertificated shares.
8.6 CONSTRUCTION; DEFINITIONS.
-------------------------
Unless the context requires otherwise, the general provisions, rules
of construction, and definitions in the Delaware General Corporation Law shall
govern the construction of these Bylaws. Without limiting the generality of
this provision, the singular number includes the plural, the plural number
includes the singular, and the term "person" includes both a corporation and a
natural person.
8.7 DIVIDENDS.
---------
The directors of the Corporation, subject to any restrictions
contained in (a) the General Corporation Law of Delaware or (b) the Certificate
of Incorporation, may declare and pay dividends upon the shares of its capital
stock. Dividends may be paid in cash, in property, or in shares of the
Corporation's capital stock.
The directors of the Corporation may set apart out of any of the funds
of the Corporation available for dividends a reserve or reserves for any proper
purpose and may abolish any such reserve. Such purposes shall include but not
be limited to equalizing dividends, repairing or maintaining any property of the
Corporation, and meeting contingencies.
8.8 FISCAL YEAR.
-----------
The fiscal year of the Corporation shall be fixed by resolution of the
Board of Directors and may be changed by the Board of Directors.
8.9 SEAL.
----
The Corporation may adopt a corporate seal, which may be altered at
pleasure, and may use the same by causing it or a facsimile thereof, to be
impressed or affixed or in any other manner reproduced.
8.10 TRANSFER OF STOCK.
-----------------
Upon surrender to the Corporation or the transfer agent of the
Corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignation or authority to transfer, it shall be the
duty of the Corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate, and record the transaction in its books.
8.11 STOCK TRANSFER AGREEMENTS.
-------------------------
The Corporation shall have power to enter into and perform any
agreement with any number of stockholders of any one or more classes of stock of
the Corporation to restrict the transfer of shares of stock of the Corporation
of any one or more classes owned by such stockholders in any manner not
prohibited by the General Corporation Law of Delaware.
8.12 REGISTERED STOCKHOLDERS.
-----------------------
The Corporation shall be entitled to recognize the exclusive right of
a person registered on its books as the owner of shares to receive dividends and
to vote as such owner, shall be entitled to hold liable for calls and
assessments the person registered on its books as the owner of shares, and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of another person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
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ARTICLE IX
AMENDMENTS
----------
The Bylaws of the Corporation may be adopted, amended or repealed by a
majority of the stockholders entitled to vote; provided, however, that the
-----------------
Corporation may, in its Certificate of Incorporation, confer the power to adopt,
amend or repeal Bylaws upon the directors. Notwithstanding the foregoing
sentence, Sections 2.3, 2.4, 2.5 herein, and this Article IX, may be amended or
repealed only by the affirmative vote of a majority of the voting power of all
of the then-outstanding shares of the voting stock of the Corporation entitled
to vote, and Section 3.2 herein may only be amended or repealed by the Board to
the extent allowed by the Certificate of Incorporation. The fact that the power
to adopt, amend or repeal the bylaws has been so conferred upon the directors
shall not divest the stockholders of such power, nor limit their power to adopt,
amend or repeal Bylaws.
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<PAGE>
EXHIBIT 4.2
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AS
AMENDED, OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED, OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
RELATED THERETO OR AN OPINION OF COUNSEL (WHICH MAY BE COMPANY COUNSEL)
REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES
LAWS.
WARRANT AGREEMENT
To Purchase Shares of the Series E Preferred Stock of
CROSSWORLDS SOFTWARE, INC.
Dated as of January 7, 1999 (the "Effective Date")
WHEREAS, CrossWorlds Software, Inc., a Delaware corporation (the "Company")
has entered into a Subordinated Loan and Security Agreement dated as of January
7, 1999, and related Subordinated Promissory Note(s) (collectively, the "Loans")
with Comdisco, Inc., a Delaware corporation (the "Warrantholder"); and
WHEREAS, the Company desires to grant to Warrantholder, in consideration
for such Loans, the right to purchase shares of its Series E Preferred Stock;
NOW, THEREFORE, in consideration of the Warrantholder executing and
delivering such Loans and in consideration of mutual covenants and agreements
contained herein, the Company and Warrantholder agree as follows:
1. GRANT OF THE RIGHT TO PURCHASE PREFERRED STOCK.
----------------------------------------------
The Company hereby grants to the Warrantholder, and the Warrantholder is
entitled, upon the terms and subject to the conditions hereinafter set forth, to
subscribe to and purchase, from the Company, 350,000 fully paid and non-
assessable shares of the Company's Series E Preferred Stock ("Preferred Stock")
at a purchase price of $2.00 per share (the "Exercise Price"). Notwithstanding
the foregoing, in the event the Company the second closing of the Series E
Preferred Stock financing occurs at a valuation lower than that reflected in the
Exercise Price above, the Exercise price shall be adjusted to reflect the lower
number. The number and purchase price of such shares are ~ subject to
adjustment as provided in Section 8 hereof.
2. TERM OF THE WARRANT AGREEMENT.
-----------------------------
Except as otherwise provided for herein, the term of this Warrant Agreement
and the right to purchase Preferred Stock as granted herein shall commence on
the Effective Date and shall be exercisable for a period of (i) seven (7) years
from the date hereof or (ii) three (3) years from the effective date of the
Company's initial public offering, whichever is shorter.
3. EXERCISE OF THE PURCHASE RIGHTS.
-------------------------------
The purchase rights set forth in this Warrant Agreement are exercisable by
the Warrantholder, in whole or in part, at any time, or from time to time after
the issuance and sale of any Series E Preferred Stock by the Company and, prior
to the expiration of the term set forth in Section 2 above, by tendering to the
Company at its principal office a notice of exercise the form attached hereto as
Exhibit I (the "Notice of Exercise"), duly completed and executed. Promptly
upon receipt of the Notice of Exercise and the payment of the purchase price in
accordance with
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<PAGE>
the terms set forth below, and in no event later than twenty-one (21) days
thereafter, the Company shall issue to the Warrantholder a certificate for the
number of shares of Preferred Stock purchased and shall execute the
acknowledgment of exercise in the form attached hereto as Exhibit II (the
"Acknowledgment of Exercise") indicating the number of shares which remain
subject to future purchases, if any.
The Exercise Price may be paid at the Warrantholder's election either (i)
by cash or check, or (ii) by surrender of Warrants ("Net Issuance") as
determined below. If the Warrantholder elects the Net Issuance method, the
Company will issue Preferred Stock in accordance with the following formula:
X = Y(A-B)
-----
A
Where: X = the number of shares of Preferred Stock to be issued to the
Warrantholder.
Y = the number of shares of Preferred Stock requested to be
exercised under this Warrant Agreement.
A = the fair market value of one (1) share of Preferred Stock.
B = the Exercise Price.
For purposes of the above calculation, current fair market value of
Preferred Stock shall mean with respect to each share of Preferred Stock:
(i) if the exercise is in connection with an initial public offering
of the Company's Common Stock, and if the Company's Registration Statement
relating to such public offering has been declared effective by the SEC,
then the fair market value per share shall be the product of (x) the
initial "Price to Public" specified in the final prospectus with respect to
the offering and (y) the number of shares of Common Stock into which each
share of Preferred Stock is convertible at the time of such exercise;
(ii) if this Warrant is exercised after, and not in connection with
the Company's initial public offering, and:
(a) if traded on a securities exchange, the fair market value
shall be deemed to be the product of (x) the average of the closing
prices over a twenty-one (21) day period ending three days before the
day the current fair market value of the securities is being
determined and (y) the number of shares of Common Stock into which
each share of Preferred Stock is convertible at the time of such
exercise; or
(b) if actively traded over-the-counter, the fair market value
shall be deemed to be the product of (x) the average of the closing
bid and asked prices quoted on the NASDAQ system (or similar system)
over the twenty-one (21) day period ending three days before the day
the current fair market value of the securities is being determined
and (y) the number of shares of Common Stock into which each share of
Preferred Stock is convertible at the time of such exercise;
(iii) if at any time the Common Stock is not listed on any securities
exchange or quoted in the NASDAQ System or the over-the-counter market, the
current fair market value of Preferred Stock shall be the product of (x)
the highest price per share which the Company could obtain from a willing
buyer (not a current employee or director) for shares of Common Stock sold
by the Company, from authorized but unissued shares, as determined in good
faith by its Board of Directors and (y) the number of shares of Common
Stock into which each share of Preferred Stock is convertible at the time
of such exercise, unless the Company shall become subject to a merger,
acquisition or other consolidation pursuant to which the
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<PAGE>
Company is not the surviving party, in which case the fair market value of
Preferred Stock shall be deemed to be the value received by the holders of
the Company's Preferred Stock on a common equivalent basis pursuant to such
merger or acquisition.
Upon partial exercise by either cash or Net Issuance, the Company shall
promptly issue an amended Warrant Agreement representing the remaining number of
shares purchasable hereunder. All other terms and conditions of such amended
Warrant Agreement shall be identical to those contained herein, including, but
not limited to the Effective Date hereof.
4. RESERVATION OF SHARES.
---------------------
(a) Authorization and Reservation of Shares. During the term of this
---------------------------------------
Warrant Agreement, the Company will authorize and reserve a sufficient number of
shares of its Preferred Stock to provide for the exercise of the rights to
purchase Preferred Stock as provided for herein.
(b) Registration or Listing. If any shares of Preferred Stock
-----------------------
required to be reserved hereunder require registration with or approval of any
governmental authority under any Federal or State law (other than any
registration under the Securities Act of 1933, as amended ("1933 Act"), as then
in effect, or any similar Federal statute then enforced, or any state securities
law, required by reason of any transfer involved in such conversion), or listing
on any domestic securities exchange, before such shares may be issued upon
conversion, the Company will, at its expense and as reasonably expeditiously as
possible, use its best efforts to cause such shares to be duly registered,
listed or approved for listing on such domestic securities exchange, as the case
may be.
5. NO FRACTIONAL SHARES OR SCRIP.
-----------------------------
No fractional shares or scrip representing fractional shares shall be
issued upon the exercise of the Warrant, but in lieu of such fractional shares
the Company shall make a cash payment therefor upon the basis of the Exercise
Price then in effect.
6. NO RIGHTS AS SHAREHOLDER.
------------------------
This Warrant Agreement does not entitle the Warrantholder to any voting
rights or other rights as a shareholder of the Company prior to the exercise of
the Warrant.
7. WARRANTHOLDER REGISTRY.
----------------------
The Company shall maintain a registry showing the name and address of the
registered holder of this Warrant Agreement.
8. ADJUSTMENT RIGHTS.
-----------------
The purchase price per share and the number of shares of Preferred Stock
purchasable hereunder are subject to adjustment, as follows:
(a) Merger and Sale of Assets. If at any time there shall be a capital
-------------------------
reorganization of the shares of the Company's stock (other than a combination,
reclassification, exchange or subdivision of shares otherwise provided for
herein), or a merger or consolidation of the Company with or into another
corporation whether or not the Company is the surviving corporation, or the sale
of all or substantially all of the Company's properties and assets to any other
person (hereinafter referred to as a "Merger Event"), then, as a part of such
Merger Event, lawful provision shall be made so that the Warrantholder shall
thereafter be entitled to receive, upon exercise of the Warrant, the number of
shares of preferred stock or other securities of the successor corporation
resulting from such Merger Event, equivalent in value to that which would have
been issuable if Warrantholder had exercised this Warrant immediately prior to
the Merger Event. In any such case, appropriate adjustment (as determined in
good faith by the
-3-
<PAGE>
Company's Board of Directors) shall be made in the application of the provisions
of this Warrant Agreement with respect to the rights and interest of the
Warrantholder after the Merger Event to the end that the provisions of this
Warrant Agreement (including adjustments of the Exercise Price and number of
shares of Preferred Stock purchasable) shall be applicable to the greatest
extent possible.
(b) Reclassification of Shares. If the Company at any time shall, by
--------------------------
combination, reclassification, exchange or subdivision of securities or
otherwise, change any of the securities as to which purchase rights under this
Warrant Agreement exist into the same or a different number of securities of any
other class or classes, this Warrant Agreement shall thereafter represent the
right to acquire such number and kind of securities as would have been issuable
as the result of such change with respect to the securities which were subject
to the purchase rights under this Warrant Agreement immediately prior to such
combination, reclassification, exchange, subdivision or other change.
(c) Subdivision or Combination of Shares. If the Company at any time shall
------------------------------------
combine or subdivide its Preferred Stock, the Exercise Price shall be
proportionately decreased in the case of a subdivision, or proportionately
increased in the case of a combination.
(d) Stock Dividends. If the Company at any time shall pay a dividend
---------------
payable in, or make any other distribution (except any distribution specifically
provided for in the foregoing subsections (a) or (b)) of the Company's stock,
then the Exercise Price shall be adjusted, from and after the record date of
such dividend or distribution, to that price determined by multiplying the
Exercise Price in effect immediately prior to such record date by a fraction (i)
the numerator of which shall be the total number of all shares of the Company's
stock outstanding immediately prior to such dividend or distribution, and (ii)
the denominator of which shall be the total number of all shares of the
Company's stock outstanding immediately after such dividend or distribution.
The Warrantholder shall thereafter be entitled to purchase, at the Exercise
Price resulting from such adjustment, the number of shares of Preferred Stock
(calculated to the nearest whole share) obtained by multiplying the Exercise
Price in effect immediately prior to such adjustment by the number of shares of
Preferred Stock issuable upon the exercise hereof immediately prior to such
adjustment and dividing the product thereof by the Exercise Price resulting from
such adjustment.
(e) Right to Purchase Additional Stock. If the Company has not paid any
----------------------------------
Subordinated Promissory Note(s) entered into pursuant to the Loan(s) in its
entirety by the Maturity Date (as defined in the applicable Subordinated
Promissory Note(s)), then for each additional month, or portion thereof,
thereafter that the outstanding principal is not paid, Warrantholder shall have
the right to purchase from the Company, at the Exercise Price (adjusted as set
forth herein), an additional number of shares of Preferred Stock which number
shall be determined by (i) multiplying the outstanding principal amount which
due but unpaid by 1% and (ii) dividing the product thereof by the Exercise
Price.
(f) Antidilution Rights. Additional antidilution rights applicable to the
-------------------
Preferred Stock purchasable hereunder are as set forth in the Company's Amended
and Restated Certificate of incorporation, as amended through the Effective
Date, a true and complete copy of which is attached hereto as Exhibit IV (the
--
"Charter"). The Company shall promptly provide the Warrantholder with any
restatement, amendment, modification or waiver of the Charter. The Company
shall provide Warrantholder with prior written notice of any issuance of its
stock or other equity security that, pursuant to Article IV, Section 3 of the
Charter would require an adjustment to the conversion price of the Series E
Preferred Stock to occur after the Effective Date of this Warrant, which notice
shall include (a) the price at which such stock or security is to be sold, (b)
the number of shares to be issued, and (c) such other information as necessary
for Warrantholder to determine if a dilutive event has occurred.
(g) Notice of Adjustments. If: (i) the Company shall declare any dividend
---------------------
or distribution upon its stock, whether in cash, property, stock or other
securities; (ii) the Company shall offer for subscription prorata to the holders
of any class of its Preferred or other convertible stock any additional shares
of stock of any class or other rights; (iii) there shall be any Merger Event;
(iv) there shall be an initial public offering; or (v) there shall be any
voluntary dissolution, liquidation or winding up of the Company; then, in
connection with each such event, the
-4-
<PAGE>
Company shall send to the Warrantholder (A) at least ten (10) days' prior
written notice of the date on which the books of the Company shall close or a
record shall be taken for such dividend, distribution, subscription rights (and
specifying the date on which the holders of Preferred Stock shall be entitled
thereto) or for determining rights to vote in respect of such Merger Event,
dissolution, liquidation or winding up; (B) in the case of any such Merger
Event, dissolution, liquidation or winding up, at least ten (10) days' prior
written notice of the date when the same shall take place (and specifying the
date on which the holders of Preferred Stock shall be entitled to exchange their
Preferred Stock for securities or other property deliverable upon such Merger
Event, dissolution, liquidation or winding up); and (C) in the case of a public
offering, the Company shall give the Warrantholder at least ten (10) days
written notice prior to the effective date thereof.
Each such written notice shall set forth, in reasonable detail, (i) the
event requiring the adjustment, (ii) the amount of the adjustment, (iii) the
method by which such adjustment was calculated, (v) the Exercise Price, and (v)
the number of shares subject to purchase hereunder after giving effect to such
adjustment, and shall be given by first class mail, postage prepaid, addressed
to the Warrantholder, at the address as shown on the books of the Company.
(h) Timely Notice. Failure to timely provide such notice required by
-------------
subsection (g) above shall entitle Warrantholder to retain the benefit of the
applicable notice Period notwithstanding anything to the contrary contained in
any insufficient notice received by Warrantholder. The notice period shall
begin on the date Warrantholder actually receives a written notice containing
all the information specified above.
9. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY.
--------------------------------------------------------
Except as set forth in the Schedule of Exceptions attached hereto as
Exhibit V, the Company hereby represents and warrants that:
(a) Reservation of Preferred Stock. The Preferred Stock issuable upon
------------------------------
exercise of the Warrantholder's rights will be duly and validly reserved and,
when issued in accordance with the provisions of this Warrant Agreement, will be
validly issued, fully paid and non-assessable, and will be free of any taxes,
liens, charges or encumbrances of any nature whatsoever; provided, however, that
the Preferred Stock issuable pursuant to this Warrant Agreement may be subject
to restrictions on transfer under state and or Federal securities laws. The
Company has made available to the Warrantholder true, correct and complete
copies of its Charter and Bylaws, as amended. The issuance of certificates for
shares of Preferred Stock upon exercise of the Warrant Agreement shall be made
without charge to the Warrantholder for any issuance tax in respect thereof, or
other cost incurred by the Company in connection with such exercise and the
related issuance of shares of Preferred Stock. The Company shall not be
required to pay any tax which may be payable in respect of any transfer involved
and the issuance and delivery of any certificate in a name other than that of
the Warrantholder.
(b) Due Authority. The execution and delivery by the Company of this
-------------
Warrant Agreement and the performance of all obligations of the Company
hereunder, including the issuance to Warrantholder of the right to acquire the
shares of Preferred Stock, have been duly authorized by all necessary corporate
action on the part of the Company, and the Leases and this Warrant Agreement are
not inconsistent with the Company's Charter or Bylaws, do not contravene any law
or governmental rule, regulation or order applicable to it, do not and will not
contravene any provision of, or constitute a default under, any indenture,
mortgage, contract or other instrument to which it is a party or by which it is
bound, and the Leases and this Warrant Agreement constitute legal, valid and
binding agreements of the Company, enforceable in accordance with their
respective terms.
(c) Consents and Approvals. No consent or approval of, giving of notice
----------------------
to, registration with, or taking of any other action in respect of any state,
Federal or other governmental authority or agency is required with respect to
the execution, delivery and performance by the Company of its obligations under
this Warrant Agreement, except for the filing of notices pursuant to Regulation
D under the 1933 Act and any filing required by applicable state securities law,
which filings will be effective by the time required thereby.
-5-
<PAGE>
(d) Issued Securities. All issued and outstanding shares of Common Stock,
-----------------
Preferred Stock or any other securities of the Company have been duly authorized
and validly issued and are fully paid and nonassessable. All outstanding shares
of Common Stock, Preferred Stock and any other securities were issued in full
compliance with all Federal and state securities laws. In addition, as of
December 15, 1998 (assuming filing of the restated Charter):
(i) The authorized capital of the Company consists of (A) 75,000,000
shares of Common Stock, of which 8,196,203 shares are issued and outstanding,
and (B) 38,825,000 shares of preferred stock, of which 10,000,000 shares are
designated as Series A Preferred Stock, all of which are issued and outstanding;
6,212,500 shares are designated as Series B Preferred Stock, all of which are
issued and outstanding; 6,412.500 shares are designated Series C Preferred
Stock, 6,312,500 of which are issued and outstanding; 6,200,000 shares are
designated Series D Preferred Stock, 6,190,000 of which are issued and
outstanding and 10,000,000 shares of Series E Preferred Stock will be
authorized.
(ii) The Company has reserved 12,419,583 shares of Common Stock for
issuance under the Company's 1996 Stock Option Plan and 1997 Stock Plan,
6,660,209 of which are issuable pursuant to outstanding options and 2,628,588 of
which remain available for grant. In addition, the Company previously has
issued a warrant to purchase an aggregate of 100,000 shares of Series C
Preferred Stock. Except for (A) the conversion privileges of the outstanding
Series A Preferred Stock, the outstanding Series B Preferred Stock, the
outstanding Series C Preferred Stock, the outstanding Series D Preferred Stock
and the Series E Preferred Stock to be issued and (B) the options and warrant
described in this Section 9(d)(ii) above, there are no other options. warrants,
conversion privileges or other rights presently outstanding to purchase or
otherwise acquire any authorized but unissued shares of the Company's capital
stock or other securities of the Company.
(iii) Except as set forth in the Fourth Restated Investors Rights
Agreement dated as of January 7, 1999, no shareholder of the Company has
preemptive rights to purchase new issuances of the Company's capital stock.
(e) Insurance. The Company has in full force and effect insurance
---------
policies, with extended coverage, insuring the Company and its property and
business against such losses and risks, and in such amounts, as are customary
for corporations engaged in a similar business and similarly situated and as
otherwise may be required pursuant to the terms of any other contract or
agreement.
(f) Other Commitments to Register Securities. Except as set forth in this
----------------------------------------
Warrant Agreement and in the Fourth Restated Investor Rights Agreement, dated as
of January 7, 1999, among the Company and the investors party thereto, the
Company is not, pursuant to the terms of any other agreement currently in
existence, under any obligation to register under the 1933 Act any of its
presently outstanding securities or any of its securities which may hereafter be
issued.
(g) Exempt Transaction. Subject to the accuracy of the Warrantholder's
------------------
representations in Section 10 hereof, the issuance of the Preferred Stock upon
exercise of this Warrant will constitute a transaction exempt from (i) the
registration requirements of Section 5 of the 1933 Act, in reliance upon Section
4 (2) thereof.
(h) Compliance with Rule 144. At the written request of the Warrantholder,
------------------------
who proposes to sell Preferred Stock issuable upon the exercise of the Warrant
in compliance with Rule 144 promulgated by the Securities and Exchange
Commission, the Company shall furnish to the Warrantholder, within ten days
after receipt of such request, a written statement confirming the Company's
compliance with the filing requirements of the Securities and Exchange
Commission as set forth in such Rule, as such Rule may be amended from time to
time.
10. PRESENTATIONS AND COVENANTS OF THE WARRANTHOLDER.
------------------------------------------------
This Warrant Agreement has been entered into by the Company in reliance
upon the following representations and covenants of the Warrantholder.
-6-
<PAGE>
(a) Investment Purpose. The right to acquire Preferred Stock or the
------------------
Preferred Stock issuable upon exercise of the Warrantholder's rights contained
herein will be acquired for investment and not with a view to the sale or
distribution of any part thereof, and the Warrantholder has no present intention
of selling or engaging in any public distribution of the same except pursuant to
a registration or exemption.
(b) Private Issue. The Warrantholder understands (i) that the Preferred
-------------
Stock issuable upon exercise of this Warrant is not registered under the 1933
Act or qualified under applicable state securities laws on the ground that the
issuance contemplated by this Warrant Agreement will be exempt from the
registration and qualifications requirements thereof, and (ii) that the
Company's reliance on such exemption is predicated on the representations set
forth in this Section 10.
(c) Disposition of Warrantholder's Rights. In no event will the
-------------------------------------
Warrantholder make a disposition of any of its rights to acquire Preferred Stock
or Preferred Stock issuable upon exercise of such rights unless and until it
shall have notified the Company of the proposed disposition, and (ii) if
requested by the Company, it shall have furnished the Company with an opinion of
counsel (which counsel may either be inside or outside counsel to the
Warrantholder) satisfactory to the Company and its counsel to the effect that
(A) appropriate action necessary for compliance with the 1933 Act has been
taken, or (B) an exemption from the registration requirements of the 1933 Act is
available. Notwithstanding the foregoing, the restrictions imposed upon the
transferability of any of its rights to acquire Preferred Stock or Preferred
Stock issuable on the exercise of such rights do not apply to transfers from the
beneficial owner of any of the aforementioned securities to its nominee or from
such nominee to its beneficial owner, and shall terminate as to any particular
share of Preferred Stock when (1) such security shall have been effectively
registered under the 1933 Act and sold by the holder thereof in accordance with
such registration or (2) such security shall have been sold without registration
in compliance with Rule 144 under the 1933 Act, or (3) a letter shall have been
issued to the Warrantholder at its request by the staff of the Securities and
Exchange Commission or a ruling shall have been issued to the Warrantholder at
its request by such Commission stating that no action shall be recommended by
such staff or taken by such Commission, as the case may be, if such security is
transferred without registration under the 1933 Act in accordance with the
conditions set forth in such letter or ruling and such letter or ruling
specifies that no subsequent restrictions on transfer are required. Whenever
the restrictions imposed hereunder shall terminate, as hereinabove provided, the
Warrantholder or holder of a share of Preferred Stock then outstanding as to
which such restrictions have terminated shall be entitled to receive from the
Company, without expense to such holder, one or more new certificates for the
Warrant or for such shares of Preferred Stock not bearing any restrictive
legend.
(d) Financial Risk. The Warrantholder has such knowledge and experience in
--------------
financial and business matters as to be capable of evaluating the merits and
risks of its investment, and has the ability to bear the economic risks of its
investment.
(e) Risk of No Registration. The Warrantholder understands that if the
-----------------------
Company does not register with the Securities and Exchange Commission pursuant
to Section 12 of the 1934 Act (the "1934 Act"), or file reports pursuant to
Section 15(d), of the 1934 Act, or if a registration statement covering the
securities under the 1933 Act is not in effect when it desires to sell (i) the
rights to purchase Preferred Stock pursuant to this Warrant Agreement, or (ii)
the Preferred Stock issuable upon exercise of the right to purchase, it may be
required to hold such securities for an indefinite period. The Warrantholder
also understands that any sale of its rights of the Warrantholder to purchase
Preferred Stock or Preferred Stock which might be made by it in reliance upon
Rule 144 under the 1933 Act may be made only in accordance with the terms and
conditions of that Rule.
(f) Accredited Investor. Warrantholder is an "accredited investor" within
-------------------
the meaning of the Securities and Exchange Rule 501 of Regulation D. as
presently in effect.
11. TRANSFERS.
---------
Subject to the terms and conditions contained in Section 10 hereof, this
Warrant Agreement and all rights hereunder are transferable in whole or in part
by the Warrantholder and any successor transferee, provided, however,
-7-
<PAGE>
prior written notice is provided to the Company and the Warrantholder has
otherwise complied with Section 10(c); provided, further, however, and in no
event shall Warrantholder transfer its rights to any potential competitor of the
Company as determined in good faith by the Company's Board of Directors, in no
event shall the number of transfers of the rights and Interests in all of the
Warrants exceed three (3) transfers. The transfer shall be recorded on the books
of the Company upon receipt by the Company of a notice of transfer in the form
attached hereto as Exhibit III (the "Transfer Notice"), at its principal offices
and the payment to the Company of all transfer taxes and other governmental
charges imposed on such transfer.
12. MISCELLANEOUS.
-------------
(a) Effective Date. The provisions of this Warrant Agreement shall be
--------------
construed and shall be given effect in all respects as if it had been executed
and delivered by the Company on the date hereof. This Warrant Agreement shall
be binding upon any successors or assigns of the Company.
(b) Attorney's Fees. In any litigation, arbitration or court proceeding
---------------
between the Company and the Warrantholder relating hereto, the prevailing party
shall be entitled to reasonable attorneys' fees and expenses and all costs of
proceedings incurred in enforcing this Warrant Agreement.
(c) Governing Law. This Warrant Agreement shall be governed by and
-------------
construed for all purposes under and in accordance with the laws of the State of
Illinois.
(d) Counterparts. This Warrant Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(e) Notices. Any notice required or permitted hereunder shall be given in
-------
writing and shall be deemed effectively given upon personal delivery, facsimile
transmission (provided that the original is sent by personal delivery or mail as
hereinafter set forth) or seven (7) days after deposit in the United States
mail, by registered or certified mall, addressed (i) to the Warrantholder at
6111 North River Road, Rosemont, Illinois 60018, attention: Venture Lease
Administration, cc: Legal Department, attn.: General Counsel, (and/or, if by
facsimile, (847) 518-5465 and (847) 518-5088 and (ii) to the Company at 557
Airport Boulevard, Suite 800, Burlingame, California 94010, attention: Chief
Financial Officer (and/or if by facsimile, (650) 685-5648 or at such other
address as any such party may subsequently designate by written notice to the
other party.
(f) Remedies. In the event of any default hereunder, the non-defaulting
--------
party may proceed to protect and enforce its rights either by suit in equity
and/or by action at law, including but not limited to an action for damages as a
result of any such default, and/or an action for specific performance for any
default where Warrantholder will not have an adequate remedy at law and where
damages will not be readily ascertainable. The Company expressly agrees that it
shall not oppose an application by the Warrantholder or any other person
entitled to the benefit of this Agreement requiring specific performance of any
or all provisions hereof or enjoining the Company from continuing to commit any
such breach of this Agreement.
(g) No Impairment of Rights. The Company will not, by amendment of its
-----------------------
Charter or through any other means, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will at all times in good
faith assist in the carrying out of all such terms and in the taking of all such
actions as may be necessary or appropriate in order to protect the rights of the
Warrantholder against impairment.
(h) Survival. The representations, warranties, covenants and conditions of
--------
the respective parties contained herein or made pursuant to this Warrant
Agreement shall survive the execution and delivery of this Warrant Agreement.
(i) Severability. In the event any one or more of the provisions of this
------------
Warrant Agreement shall for any reason be held invalid, illegal or
unenforceable, the remaining provisions of this Warrant Agreement shall be
unimpaired, and the invalid, illegal or unenforceable provision shall be
replaced by a mutually acceptable valid, legal
-8-
<PAGE>
and enforceable provision, which comes closest to the intention of the parties
underlying the invalid, illegal or unenforceable provision.
(j) Amendments. Any provision of this Warrant Agreement may be amended
----------
only by a written instrument signed by the Company and by the Warrantholder.
(k) Additional Documents. The Company, upon execution of this Warrant
--------------------
Agreement, shall provide the Warrantholder with certified resolutions
authorizing the reservation, issuance and sale of the Warrant Agreement, the
Preferred Stock underlying the Warrant Agreement and any Common Stock issuable
upon conversion thereof. The Company shall also supply such other documents as
the Warrantholder may from time to time reasonably request.
-9-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Warrant Agreement
to be executed by its officers thereunto duly authorized as of the Effective
Date.
Company: CROSSWORLDS SOFTWARE, INC.
By: /s/ K. A. Garnett
________________________________________
Title: President and Chief Executive Officer
_____________________________________
Warrantholder: COMDISCO, INC.
By: /s/ JAMES P. LABE
________________________________________
Title: PRESIDENT, COMDISCO VENTURES DIVISION
_____________________________________
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<PAGE>
EXHIBIT I
NOTICE OF EXERCISE
TO: _____________________________
(1) The undersigned Warrantholder hereby elects to purchase ______shares of the
Series____ Preferred Stock of _______________, pursuant to the terms of the
Warrant Agreement dated the _____ day of ___________________, 19__ (the
Warrant Agreement") between _________________________________ and the
Warrantholder, and tenders herewith payment of the purchase price for such
shares in full, together with all applicable transfer taxes, if any.
(2) In exercising its rights to purchase the Series ____ Preferred Stock of
___________________________, the undersigned hereby confirms and
acknowledges the investment representations and warranties made in Section
10 of the Warrant Agreement.
(3) Please issue a certificate or certificates representing said shares of
Series ____ Preferred Stock in the name of the undersigned or in such other
name as is specified below.
_______________________________________
(Name)
_______________________________________
(Address)
Warrantholder: COMDISCO. INC.
By: ___________________________________
Title: ________________________________
Date: _________________________________
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<PAGE>
EXHIBIT II
ACKNOWLEDGMENT OF EXERCISE
The undersigned ________________________________, hereby acknowledge
receipt of the "Notice of Exercise" from Comdisco, Inc. to purchase shares of
the Series ____ Preferred Stock of _______________, pursuant to the terms of the
Warrant Agreement, and further acknowledges that ______ shares remain subject to
purchase under the terms of the Warrant Agreement
Company:
By: _____________________________________
Title: __________________________________
Date: ___________________________________
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<PAGE>
EXHIBIT III
TRANSFER NOTICE
(To transfer or assign the foregoing Warrant Agreement execute this form and
supply required information. Do not use this form to purchase shares.)
FOR VALUE RECEIVED, the foregoing Warrant Agreement and all rights
evidenced thereby are hereby transferred and assigned to
___________________________________________________________
(Please Print)
whose address is: _________________________________________
___________________________________________________________
Dated: __________________________________
Holder's Signature: _____________________
Holder's Address: _______________________
_________________________________________
Signature Guaranteed: _____________________________________
NOTE: The signature to this Transfer Notice must correspond with the name as it
appears on the face of the Warrant Agreement, without alteration or
enlargement or any change whatever. Officers of corporations and those
acting in a fiduciary or other representative capacity should file proper
evidence of authority to assign the foregoing Warrant Agreement.
-13-
<PAGE>
EXHIBIT 4.4
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT
AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"1933 ACT") OR ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD OR
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER
THE 1933 ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
WARRANT TO PURCHASE 177,098 SHARES
OF THE COMMON STOCK OF
CrossWorlds Software, Inc.
(Void after October 7, 2006)
This certifies that Heidrick & Struggles, Inc. or its assigns (each
individually, the "Holder") for value received, shall be entitled to purchase
from CrossWorlds Software, Inc. a Delaware corporation (the "Company"), having
its principal place of business at 577 Airport Boulevard, Suite 800, Burlingame,
California 94010-2024, a maximum of 177,098 fully paid and nonassessable shares
of the Company's Common Stock ("Common Stock") for cash at a price equal to
$6.60 per share (the "Exercise Price") at any time, or from time to time, up to
and including 5:00 p.m. (local time) on the seventh anniversary from the date of
this Warrant (the "Expiration Date"), upon the surrender to the Company at its
principal place of business (or at such other location as the Company may advise
the Holder in writing) of this Warrant properly endorsed a Form of Subscription
in substantially the form attached hereto duly filled in and signed and, if
applicable, upon payment in cash or by check of the aggregate Exercise Price for
the number of shares for which this Warrant is being exercised determined in
accordance with the provisions hereof. The Exercise Price and the number of
shares of Common Stock purchasable hereunder are subject to adjustment as
provided in Section 3 of this Warrant.
This Warrant is subject to the following terms and conditions:
1. Exercise; Issuance of Certificates; Payment for Shares.
1.1 General. This Warrant is exercisable at the option of the
holder of record hereof at any time or from time, to time, up to the
Expiration Date for all or any part of the shares of Common Stock (but not for
a fraction of a share) which may be purchased hereunder. The Company agrees
that the shares of Common Stock purchased under this Warrant shall be and are
deemed to be issued to the Holder hereof as the record owner of such shares as
of the close of business on the date on which this Warrant shall have been
surrendered, properly endorsed, the completed, executed Form of Subscription
delivered and payment made for such shares. Certificates for the shares of
Common Stock so purchased, together with any other securities or property to
which the Holder is entitled upon such exercise, shall be delivered to the
Holder by the Company at the Company's expense within a reasonable time after
the rights represented by this Warrant have been so exercised, and in any
event, within fifteen (15) days of such exercise. In case of a purchase of
less than all the shares which may be purchased under this Warrant, the
Company shall cancel this Warrant and execute and deliver a new Warrant or
Warrants of like tenor for the balance of the shares purchasable under the
Warrant surrendered upon such purchase to the Holder hereof within a
reasonable time. Each stock certificate so delivered shall
<PAGE>
be in such denominations of Common Stock as may be requested by the Holder
hereof and shall be registered in the name designated by such Holder.
1.2 Net Issue Exercise. Notwithstanding any provisions herein to
the contrary, if the fair market value of one share of the Company's Common
Stock is greater than the Exercise Price (at the date of calculation as set
forth below), in lieu of exercising this Warrant for cash, the Holder may
elect to receive shares equal to the value (as determined below) of this
Warrant (or the portion thereof being canceled) by surrender of this Warrant
at the principal office of the Company together with the properly endorsed
Form of Subscription and notice of such election in which event the Company
shall issue to the Holder a number of shares of Common Stock computed using
the following formula:
X = Y (A-B)
-------
A
Where X = the number of shares of Common Stock to be issued to the Holder
Y = the number of shares of Common Stock
purchasable under the Warrant or, if only
a portion of the Warrant is being
exercised, the portion of the Warrant
being canceled (at the date of such
calculation)
A = the fair market value of one share of the
Company's Common Stock (at the date of
such calculation)
B = Exercise Price (as adjusted to the date
of such calculation).
For purposes of the above calculation, the fair market value of one share of
Common Stock shall be determined by the Company's Board of Directors in good
faith; provided, however, that where there is a public market for the Company's
Common Stock, the fair market value per share shall be the average of the
closing prices of the Company's Common Stock quoted on the Nasdaq National
Market (or similar system) or on any exchange on which the Common Stock is
listed, whichever is applicable, over the five (5) day period ending one (1) day
before the day the current fair market value is being determined.
2. Shares to be Fully Paid; Reservation of Shares. The Company
covenants and agrees that all shares of Common Stock which may be issued upon
the exercise of the rights represented by this Warrant will, upon issuance, be
duly authorized, validly issued, fully paid and nonassessable and free from
all preemptive rights of any shareholder and free of all taxes, liens and
charges with respect to the issue thereof. The Company further covenants and
agrees that, during the period within which the rights represented by this
Warrant may be exercised, the Company will at all times have authorized and
reserved, for the purpose of issue or transfer upon exercise of the
subscription rights evidenced by this Warrant, a sufficient number of shares
of authorized but unissued Common Stock, or other securities and property,
when and as required to provide for the exercise of the rights represented by
this Warrant. The Company will take all such action as may be necessary to
assure that such shares of Common Stock may be issued as
2
<PAGE>
provided herein without violation of any applicable law or regulation, or of any
requirements of any domestic securities exchange upon which the Common Stock may
be listed; provided, however, that the Company shall not be required to effect a
registration under Federal or State securities laws with respect to such
exercise. The Company will not take any action which would result in any
adjustment of the Exercise Price (as set forth in Section 3 hereof) if the total
number of shares of Common Stock issuable after such action upon exercise of all
outstanding warrants, together with all shares of Common Stock then outstanding
and all shares of Common Stock then issuable upon exercise of all options and
upon the conversion of all convertible securities then outstanding, would exceed
the total number of shares of Common Stock then authorized by the Company's
Certificate of Incorporation (the "Company Charter").
3. Adjustment of Exercise Price and Number of Shares. The Exercise
Price and the number of shares purchasable upon the exercise of this Warrant
shall be subject to adjustment from time to time upon the occurrence of
certain events described in this Section 3. Upon each adjustment of the
Exercise Price, the Holder of this Warrant shall thereafter be entitled to
purchase, at the Exercise Price resulting from such adjustment, the number of
shares obtained by multiplying the Exercise Price in effect immediately prior
to such adjustment by the number of shares purchasable pursuant hereto
immediately prior to such adjustment, and dividing the product thereof by the
Exercise Price resulting from such adjustment.
3.1 Subdivision or Combination of Stock. In case the Company
shall at any time subdivide its outstanding shares of Common Stock into a
greater number of shares, the Exercise Price in effect immediately prior to
such subdivision shall be proportionately reduced, and conversely, in case the
outstanding shares of Common Stock of the Company shall be combined into a
smaller number of shares, the Exercise Price in effect immediately prior to
such combination shall be proportionately increased.
3.2 Dividends in Common Stock, Other Stock, Property,
Reclassification. If at any time or from time to time the Holders of Common
Stock (or any shares of stock or other securities at the time receivable upon
the exercise of this Warrant) shall have received or become entitled to
receive, without payment therefor,
(a) Common Stock or any shares of stock or other securities
which are at any time directly or indirectly convertible into or exchangeable
for Common Stock, or any rights or options to subscribe for, purchase or
otherwise acquire any of the foregoing by way of dividend or other
distribution,
(b) any cash paid or payable otherwise than as a cash
dividend, or
(c) Common Stock or additional stock or other securities or
property (including cash) by way of spinoff, split-up, reclassification,
combination of shares or similar corporate rearrangement, (other than shares
of Common Stock issued as a stock split or adjustments in respect of which
shall be covered by the terms of Section 3.1 above), then and in each such
case, the Holder hereof shall, upon the exercise of this Warrant, be entitled
to receive, in addition to the number of shares of Common Stock receivable
thereupon, and without payment of any additional consideration therefor, the
amount of stock and other securities and property (including cash in the cases
referred to in clause (b) above and this clause (c)) which
3
<PAGE>
such Holder would hold on the date of such exercise had he been the holder of
record of such Common Stock as of the date on which holders of Common Stock
received or became entitled to receive such shares or all other
additional stock and other securities and property.
3.3 Reorganization, Reclassification, Consolidation, Merger or
Sale. If any recapitalization, reclassification or reorganization of the
capital stock of the Company, or any consolidation or merger of the Company
with another corporation, or the sale of all or substantially all of its
assets or other transaction shall be effected in such a way that holders of
Common Stock shall be entitled to receive stock, securities, or other assets
or property (an "Organic Change"), then, as a condition of such Organic
Change, lawful and adequate provisions shall be made by the Company whereby
the Holder hereof shall thereafter have the right to purchase and receive (in
lieu of the shares of the Common Stock of the Company immediately theretofore
purchasable and receivable upon the exercise of the rights represented by this
Warrant) such shares of stock, securities or other assets or property as may
be issued or payable with respect to or in exchange for a number of
outstanding shares of such Common Stock equal to the number of shares of such
stock immediately theretofore purchasable and receivable upon the exercise of
the rights represented by this Warrant. In the event of any Organic Change,
appropriate provision shall be made by the Company with respect to the rights
and interests of the Holder of this Warrant to the end that the provisions
hereof (including, without limitation, provisions for adjustments of the
Exercise Price and of the number of shares purchasable and receivable upon the
exercise of this Warrant) shall thereafter be applicable, in relation to any
shares of stock, securities or assets thereafter deliverable upon the exercise
hereof. The Company will not effect any such consolidation, merger or sale
unless, prior to the consummation thereof, the successor corporation (if other
than the Company) resulting from such consolidation or the corporation
purchasing such assets shall assume by written instrument executed and mailed
or delivered to the registered Holder hereof at the last address of such
Holder appearing on the books of the Company, the obligation to deliver to
such Holder such shares of stock, securities or assets as, in accordance with
the foregoing provisions, such Holder may be entitled to purchase.
3.4 Certain Events. If any change in the outstanding Common Stock
of the Company or any other event occurs as to which the other provisions of
this Section 3 are not strictly applicable or if strictly applicable would not
fairly protect the purchase rights of the Holder of the Warrant in accordance
with such provisions, then the Board of Directors of the Company shall make an
adjustment in the number and class of shares available under the Warrant, the
Exercise Price or the application of such provisions, so as to protect such
purchase rights as aforesaid. The adjustment shall be such as will give the
Holder of the Warrant upon exercise for the same aggregate Exercise Price the
total number, class and kind of shares as he would have owned had the Warrant
been exercised prior to the event and had he continued to hold such shares
until after the event requiring adjustment.
4
<PAGE>
3.5 Notices of Change.
(a) Immediately upon any adjustment in the number or class
of shares subject to this Warrant and of the Exercise Price, the Company
shall give written notice thereof to the Holder, setting forth in
reasonable detail and certifying the calculation of such adjustment.
(b) The Company shall give written notice to the Holder at
least 10 business days prior to the date on which the Company closes its books
or takes a record for determining rights to receive any dividends or
distributions.
(c) The Company shall also give written notice to the Holder
at least 15 business days prior to the date on which an Organic Change shall
take place.
4. Issue Tax. The issuance of certificates for shares of Common Stock
upon the exercise of the Warrant shall be made without charge to the Holder of
the Warrant for any issue tax (other than any applicable income taxes) in
respect thereof; provided, however, that the Company shall not be required to
pay any tax which may be payable in respect of any transfer involved in the
issuance and delivery of any certificate in a name other than that of the then
Holder of the Warrant being exercised.
5. Closing of Books. The Company will at no time close its transfer
books against the transfer of any warrant or of any shares of Common Stock
issued or issuable upon the exercise of any warrant in any manner which
interferes with the timely exercise of this Warrant.
6. No Voting or Dividend Rights; Limitation of Liability. Nothing
contained in this Warrant shall be construed as conferring upon the Holder
hereof the right to vote or to consent or to receive notice as a shareholder
of the Company or any other matters or any rights whatsoever as a shareholder
of the Company. No dividends or interest shall be payable or accrued in
respect of this Warrant or the interest represented hereby or the shares
purchasable hereunder until, and only to the extent that, this Warrant shall
have been exercised. No provisions hereof, in the absence of affirmative
action by the holder to purchase shares of Common Stock, and no mere
enumeration herein of the rights or privileges of the holder hereof, shall
give rise to any liability of such Holder for the Exercise Price or as a
shareholder of the Company, whether such liability is asserted by the Company
or by its creditors.
7. Warrants Transferable. Subject to compliance with applicable
federal and state securities laws, and provided the Company receives prior
written notice, this Warrant and all rights hereunder are transferable, in
whole or in part, without charge to the holder hereof (except for transfer
taxes), upon surrender of this Warrant properly endorsed. Each taker and
holder of this Warrant, by taking or holding the same, consents and agrees
that this Warrant, when endorsed in blank, shall be deemed negotiable, and
that the holder hereof, when this Warrant shall have been so endorsed, may be
treated by the Company, at the Company's option, and all other persons dealing
with this Warrant as the absolute owner hereof for any purpose and as the
person entitled to exercise the rights represented by this Warrant, or to the
transfer hereof on the books of the Company any notice to the contrary
notwithstanding; but until such transfer on such books, the Company may treat
the registered owner hereof as the owner for all purposes. Notwithstanding the
foregoing, unless the Company is filing financial information with the SEC
5
<PAGE>
pursuant to the Securities Exchange Act of 1934, the Company shall have the
right to refuse to transfer any portion of this Warrant to any person who
directly competes with the Company.
8. Rights and Obligations Survive Exercise of Warrant. The rights and
obligations of the Company, of the holder of this Warrant and of the holder of
shares of Common Stock issued upon exercise of this Warrant, shall survive the
exercise of this Warrant.
9. Further Representations, Warranties and Covenants of the Company.
(a) Articles and Bylaws. The Company has made available to
Holder true, complete and correct copies of the Company Charter and Bylaws, as
amended, through the date hereof.
(b) Due Authority. The execution and delivery by the Company
of this Warrant and the performance of all obligations of the Company
hereunder, including the issuance to Holder of the right to acquire the shares
of Common Stock, have been duly authorized by all necessary corporate action
on the part of the Company, and the Warrant is not inconsistent with the
Company Charter or Bylaws and constitutes a legal, valid and binding agreement
of the Company, enforceable in accordance with its terms.
(c) Consents and Approvals. No consent or approval of,
giving of notice to, registration with, or taking of any other action in
respect of any state, federal or other governmental authority or agency is
required with respect to the execution, delivery and performance by the
Company of its obligations under this Warrant, except for any filing required
by applicable federal and state securities laws, which filing will be
effective by the time required thereby.
(d) Exempt Transaction. Subject to the accuracy of the
Holders representations in Section 10 hereof, the issuance of the Common Stock
upon exercise of this Warrant will constitute a transaction exempt from (i)
the registration requirements of Section 5 of the Securities Act of 1933, as
amended (the "1933 Act"), in reliance upon Section 4(2) thereof, and (ii) the
qualification requirements of the applicable state securities laws.
(e) Compliance with Rule 144. At the written request of the
Holder, who proposes to sell Common Stock issuable upon the exercise of the
Warrant in compliance with Rule 144 promulgated by the Securities and Exchange
Commission, the Company shall furnish to the Holder, within thirty (30) days
after receipt of such request, a written statement confirming the Company's
compliance with the filing requirements of the Securities and Exchange
Commission as set forth in such Rule, as such Rule may be amended from time to
time.
6
<PAGE>
10. Representations and Covenants of the Holder.
This Warrant has been entered into by the Company in reliance upon the
following representations and covenants of the Holder:
(a) Investment Purpose. The Warrant or the Common Stock
issuable upon exercise of the Warrant will be acquired for investment and not
with a view to the sale or distribution of any part thereof, and the Holder
has no present intention of selling or engaging in any public distribution of
the same except pursuant to a registration or exemption.
(b) Private Issue. The Holder understands (i) that the
Warrant and the Common Stock issuable upon exercise of this Warrant is not
registered under the 1933 Act or qualified under applicable state securities
laws on the ground that the issuance contemplated by this Warrant will be
exempt from the registration and qualifications requirements thereof, and (ii)
that the Company's reliance on such exemption is predicated on the
representations set forth in this Section 10.
(c) Disposition of Holders Rights. In no event will the
Holder make a disposition of the Warrant or the Common Stock issuable upon
exercise of the Warrant unless and until (i) it shall have notified the
Company of the proposed disposition, and (ii) if requested by the Company, it
shall have furnished the Company with an opinion of counsel (which counsel may
either be inside or outside counsel to the Holder) satisfactory to the Company
and its counsel to the effect that (A) appropriate action necessary for
compliance with the 1933 Act has been taken, or (B) an exemption from the
registration requirements of the 1933 Act is available. Notwithstanding the
foregoing, the restrictions imposed upon the transferability of any of its
rights to acquire Common Stock or Common Stock issuable on the exercise of
such rights do not apply to transfers from the beneficial owner of any of the
aforementioned securities to its nominee or from such nominee to its
beneficial owner, and shall terminate as to any particular share of Common
Stock when (1) such security shall have been effectively registered under the
1933 Act and sold by the holder thereof in accordance with such registration
or (2) such security shall have been sold without registration in compliance
with Rule 144 under the 1933 Act, or (3) a letter shall have been issued to
the Holder at its request by the staff of the Securities and Exchange
Commission or a ruling shall have been issued to the Holder at its request by
such Commission stating that no action shall be recommended by such staff or
taken by such Commission, as the case may be, if such security is transferred
without registration under the 1933 Act in accordance with the conditions set
forth in such letter or ruling and such letter or ruling specifies that no
subsequent restrictions on transfer are required. Whenever the restrictions
imposed hereunder shall terminate, as hereinabove provided, the Holder or
holder of a share of Common Stock then outstanding as to which such
restrictions have terminated shall be entitled to receive from the Company,
without expense to such holder, one or more new certificates for the Warrant
or for such shares of Common Stock not bearing any restrictive legend.
(d) Financial Risk. The Holder has such knowledge and
experience in financial and business matters as to be capable of evaluating
the merits and risks of its investment, and has the ability to bear the
economic risks of its investment.
7
<PAGE>
(e) Risk of No Registration. The Holder understands that if
the Company does not register with the Securities and Exchange Commission
pursuant to Section 12 of the 1933 Act, or file reports pursuant to Section
15(d), of the Securities Exchange Act of 1934 (the "1934 Act"), or if a
registration statement covering the securities under the 1933 Act is not in
effect when it desires to sell (i) the Warrant, or (ii) the Common Stock
issuable upon exercise of the Warrant, it may be required to hold such
securities for an indefinite period. The Holder also understands that any sale
of the Warrant or the Common Stock issuable upon exercise of the Warrant which
might be made by it in reliance upon Rule 144 under the 1933 Act may be made
only in accordance with the terms and conditions of that Rule.
(f) Accredited Investor. Holder is an "accredited investor"
within the meaning of Rule 501 of Regulation D under the 1933 Act, as
presently in effect.
11. Modification and Waiver. This Warrant and any provision hereof may
be changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of the same is sought.
12. Notices. Any notice, request or other document required or
permitted to be given or delivered to the holder hereof or the Company shall
be delivered or shall be sent by certified mail, postage prepaid, to each such
holder at its address as shown on the books of the Company or to the Company
at the address indicated therefor in the first paragraph of this Warrant or
such other address as either may from time to time provide to the other.
13. Binding Effect on Successors. This Warrant shall be binding upon
any corporation succeeding the Company by merger, consolidation or acquisition
of all or substantially all of the Company's assets. All of the obligations of
the Company relating to the Common Stock issuable upon the exercise of this
Warrant shall survive the exercise and termination of this Warrant. All of the
covenants and agreements of the Company shall inure to the benefit of the
successors and assigns of the holder hereof.
14. Market Standoff Agreement. In connection with the initial public
offering of the Company's securities and upon request of the Company or the
underwriters managing such offering of the Company's securities, the Holder
agrees not to sell, make any short sale of, loan, grant any option for the
purchase of, or otherwise dispose of any securities of the Company (other than
those included in the registration) without the prior written consent of the
Company or such underwriters, as the case may be, for such period of time (not
to exceed 180 days) from the effective date of such registration as may be
requested by the Company or such managing underwriters and to execute an
agreement reflecting the foregoing as may be requested by the underwriters at
the time of the Company's initial public offering; provided that all then-
current officers and directors of the Company are similarly restricted. In
order to enforce the foregoing covenant, the Company may impose stop-transfer
instructions with respect to the securities of the Holder. The Holder agrees
that prior to the Company's initial public offering it will not transfer
securities of the Company unless each transferee agrees in writing to be bound
by all of the provisions of this Section 14.
8
<PAGE>
15. Descriptive Headings and Governing Law. The description headings
of the several sections and paragraphs of this Warrant are inserted for
convenience only and do not constitute a part of this Warrant. This Warrant
shall be construed and enforced in accordance with, and the rights of the
parties shall be governed by, the laws of California.
16. Lost Warrants. The Company represents and warrants to the Holder
hereof that upon receipt of evidence reasonably satisfactory to the Company of
the loss, theft, destruction, or mutilation of this Warrant and, in the case
of any such loss, theft or destruction, upon receipt of an indemnity
reasonably satisfactory to the Company, or in the case of any such mutilation
upon surrender and cancellation of such Warrant, the Company, at its expense,
will make and deliver a new Warrant, of like tenor, in lieu of the lost,
stolen, destroyed or mutilated Warrant.
17. Fractional Shares. No fractional shares shall be issued upon
exercise of this Warrant. The Company shall, in lieu of issuing any fractional
share, pay the holder entitled to such fraction a sum in cash equal to such
fraction multiplied by the then effective Exercise Price.
9
<PAGE>
In Witness Whereof, the Company has caused this Warrant to be duly executed
by its officers, thereunto duly authorized this 11th day of October, 1999.
---- -------
CrossWorlds Software, Inc.
a Delaware corporation
By: /s/ Stacey A. Giamalis
-----------------------
Title: General Counsel and Secretary
------------------------------
Accepted and Agreed:
Heidrick & Struggles, Inc.
By: /s/ Richard D. Nelson
_______________________________
Title: Secretary
______________________________
<PAGE>
EXHIBIT A
SUBSCRIPTION FORM
Date: _________________, _______
CrossWorlds Software, Inc.
577 Airport Boulevard
Suite 800
Burlingame, CA 94010-2024
Attn: President
Ladies and Gentlemen:
[_] The undersigned hereby elects to exercise the warrant issued to it by
CrossWorlds Software, Inc. (the "Company") and dated ___________ _____,
____ -___ (the "Warrant") and to purchase thereunder
__________________________________ shares of the Common Stock of the
Company (the "Shares") at a purchase price of
___________________________________________ Dollars ($__________) per Share
or an aggregate purchase price of __________________________________
Dollars ($__________) (the "Exercise Price").
[_] The undersigned hereby elects to convert _______________________ percent
(____%) of the value of the Warrant pursuant to the provisions of Section
1.2 of the Warrant.
Pursuant to the terms of the Warrant the undersigned has delivered the
Exercise Price herewith in full in cash or by certified check or wire transfer.
The undersigned confirms its continuing agreement to be bound to the market
standoff provisions of Section 14 of the Warrant as to the securities of the
Company held from time to time by the undersigned.
Very truly yours,
____________________________________
By:
_________________________________
Title:
______________________________
<PAGE>
EXHIBIT 10.8
EMPLOYMENT AGREEMENT
This AGREEMENT is entered into as of October 5, 1999, by and between
Alfred J. Amoroso (the "Executive") and CrossWorlds Software, Inc., a Delaware
corporation (the "Company").
1. Duties and Scope of Employment.
------------------------------
(a) Position. For the term of his employment under this
--------
Agreement ("Employment"), the Company agrees to employ the Executive in the
position of President and Chief Executive Officer. The Executive shall report to
the Company's Board of Directors. At the next meeting of the Board of Directors,
the Executive will be nominated to serve as a Director, and if so elected, the
Executive shall serve in such capacity without additional compensation.
(b) Obligations to the Company. During the term of his
--------------------------
Employment, the Executive shall devote his full business efforts and time to the
Company; provided, however, that after the first year of Employment with the
Company this shall not preclude the Executive from serving as a member of the
board of directors of up to three other companies to the extent such other
companies do not compete with the Company and to the extent such service does
not materially impact the ability of the Executive to fulfill his obligations to
the Company. During the first year of Employment, the Executive may serve as a
member of the board of directors of other companies only with the written
consent of the Board of Directors of the Company. The Executive shall comply
with the Company's policies and rules, as they may be in effect from time to
time during the term of his Employment.
(c) No Conflicting Obligations. The Executive represents and
--------------------------
warrants to the Company that he is under no obligations or commitments, whether
contractual or otherwise, that are inconsistent with his obligations under this
Agreement. The Executive represents and warrants that he will not use or
disclose, in connection with his employment by the Company, any trade secrets or
other proprietary information or intellectual property in which the Executive or
any other person has any right, title or interest and that his employment by the
Company as contemplated by this Agreement will not infringe or violate the
rights of any other person or entity. The Executive represents and warrants to
the Company that he has returned all property and confidential information
belonging to any prior employers.
(d) Commencement Date. The Executive shall commence full-
-----------------
time Employment on October __, 1999.
2. Cash and Incentive Compensation.
-------------------------------
(a) Salary. The Company shall pay the Executive as
------
compensation for his services a base salary at the rate of not less than
$41,666.66 per month, payable in accordance
<PAGE>
with the Company's standard payroll schedule. (The compensation specified in
this Subsection (a), together with any increases in such compensation that the
Company may grant from time to time, is referred to in this Agreement as "Base
Salary.")
(b) Sign-on Bonus. The Executive shall be paid a sign-on
-------------
bonus of $400,000, less all applicable deductions, that will be earned when
Executive commences Employment. This bonus will be paid on or before March 1,
2000.
(c) Target Bonus. The Executive will be paid a pro rata
------------
target bonus for the period ending December 31, 1999 based on the number of
weeks of actual employment in 1999 and a full annual target bonus of $250,000;
this bonus will be paid on or before March 1, 2000. Executive will be paid a
bonus of $250,000 for calendar year 2000; this payment will be made on or before
February 15, 2001. Beginning with the year 2001 and for each year thereafter
during the Employment Period, the Executive will be eligible to earn an annual
bonus (the "Bonus") equal to at least fifty percent (50%) of his Base Salary
based on his achievement of objective or subjective criteria established by the
Company's Board after consultation with Executive. Unless otherwise provided in
this paragraph (c), any bonus payable hereunder shall be payable annually in
accordance with the Company's normal practices and policies.
(d) Stock Options.
-------------
(i) Option Grant. Subject to the approval of the
------------
Company's Board of Directors, the Company shall grant the Executive a stock
option to purchase 1,328,245 shares of the Company's common stock, which after
including the stock option grant described in Subsection (ii) below, represents
8% of the Company's outstanding fully diluted common stock immediately following
such stock grant (including common shares and assumed conversion into common
stock of all series of preferred shares, warrants, options and shares available
for option grants and giving effect to the Company's Series F Preferred stock
financing and related one for three reverse stock split). Such option shall be
granted as soon as reasonably practicable after the date Executive's Employment
commences. The per share exercise price of the option will be equal to the per
share fair market value of the common stock on the date of grant, as determined
by the Board of Directors. The term of such option shall be 10 years, subject to
earlier expiration in the event of the termination of the Executive's
Employment. Such option shall be immediately exercisable, if Executive elects to
do so, but the purchased shares shall be subject to repurchase by the Company at
the exercise price in the event that the Executive's Employment terminates
before he vests in the shares. The Executive shall vest, and the Company's
repurchase right if applicable shall lapse in the option shares in equal monthly
installments over forty-eight (48) months from the date Executive's Employment
commences.
(ii) Option Grant. Subject to the approval of the
------------
Company's Board of Directors, the Company shall grant the Executive a stock
option to purchase 796,947 shares of the Company's common stock, which after
including the stock option grant described in Subsection (i) above, represents
8% of the Company's outstanding fully diluted common stock immediately following
such stock grant (including common shares and assumed conversion into common
stock of all series of preferred shares, warrants, options and shares available
for option grants and giving effect to the Company's Series F Preferred stock
financing and related one for
2
<PAGE>
three reverse stock split). Such option shall be granted as soon as reasonably
practicable after the date Executive's Employment commences. The per share
exercise price of the option will be equal to the per share fair market value of
the common stock on the date of grant, as determined by the Board of Directors.
The term of such option shall be 10 years, subject to earlier expiration in the
event of the termination of the Executive's Employment. Such option shall be
immediately exercisable, if Executive elects to do so, but the purchased shares
shall be subject to repurchase by the Company at the exercise price in the event
that the Executive's Employment terminates before he vests in the shares. The
Executive shall vest in the option shares, and the Company's repurchase right if
applicable shall lapse, in equal monthly installments over forty-eight (48)
months from the date Executive's Employment commences; however, the vesting
shall accelerate and the Company's repurchase right, if applicable, will lapse
immediately upon the effective date of an initial public offering of the
Company's stock.
(iii) Exercise of Options. The option grants made
-------------------
pursuant to subsections (i) and (ii) above shall be subject to the Company's
standard form of stock option agreements, copies of each of which are attached
hereto as exhibits and must be executed as a condition of the grant and
exercise. Executive shall have the right to exercise his options while he
remains employed by the Company by delivering a full recourse promissory note
secured by a pledge of the shares purchased thereunder. If required under the
laws of the Company's state of incorporation, Executive shall pay cash for the
par value of the exercised option shares. Interest on the promissory note shall
accrue at the minimum applicable federal rate under the Internal Revenue Code to
avoid imputed income. The principal balance and interest shall be due in full on
the earlier of the fourth anniversary of Executive's hire date or 90 days after
the termination of Executive's Employment. The note shall be subject to such
other terms and conditions as may be agreed to by the Company and Executive. The
credit extended to Executive hereunder shall equal the aggregate option price
payable for the purchased shares.
(iv) Registration of Shares. The Company will take all
----------------------
reasonable steps at its sole cost and expense to register Executive's stock
following an initial public offering so that Executive can sell any vested
shares of stock if he so chooses following the expiration of any applicable
lock-up period. Nothing herein will be interpreted as requiring the Company to
breach any rights regarding the registration of securities under the Securities
Act of 1933.
(v) Effect of Termination of Employment. If during the
-----------------------------------
first year of Executive's Employment, the Company terminates Executive's
Employment "Without Cause" or Executive resigns for "Good Reason," then fifty
percent (50%) of the shares subject to Executive's outstanding options will
become vested and, if applicable, the Company's repurchase rights as to such
shares will lapse. Following the first year of Executive's Employment, if the
Company terminates Executive's Employment "Without Cause," or Executive resigns
for "Good Reason," then Executive shall receive additional vesting of all of his
outstanding options and, if applicable, the Company's repurchase rights as to
such shares will lapse, as if he had provided an additional twelve (12) months
of service from the date employment terminates.
(vi) Effect of Change of Control. In the event of a
---------------------------
Change of Control during the period of Executive's employment, then each of
Executive's outstanding
3
<PAGE>
options will become fully vested and, if applicable, the Company's repurchase
rights will lapse as to all shares subject to all options.
(vii) Definitions.
-----------
(a) "Change of Control." For all purposes under
-------------------
this Agreement, "Change of Control" shall mean (i) a merger or consolidation in
which securities possessing at least fifty percent (50%) of the total combined
voting power of the Corporation's outstanding securities are transferred to a
person or persons different from the persons holding those securities
immediately prior to such transaction, or (ii) the sale, transfer or other
disposition of all or substantially all of the Corporation's assets in complete
liquidation or dissolution of the Corporation.
(b) "Good Reason." For all purposes under this
--------------
Agreement, "Good Reason" for Executive's resignation will exist if he resigns
within sixty days of any of the following: (i) any reduction in his base salary
or target bonus; (ii) any material reduction in his benefits; (iii) a change in
his position with the Company or a successor company which materially reduces
his duties or level of responsibility; or (iv) any requirement that he relocate
his place of employment by more than thirty-five (35) miles from his then
current office, provided such reduction, change or relocation is effected by the
Company without his written consent. A resignation by Executive under any other
circumstances or for any other reasons will be a resignation "Without Good
Reason."
(c) Termination for "Cause." For all purposes
------------------------
under this Agreement, a termination for "Cause" shall mean a good faith
determination by the Company's Board of Directors that Executive's Employment be
terminated for any of the following reasons: (i) willful misconduct which
materially damages the Company; (ii) misappropriation of the assets of the
Company; or (iii) conviction of, or a plea of "guilty" or "no contest" to, a
felony under the laws of the United States or any state thereof. A termination
of Executive's Employment in any other circumstances or for any other reasons
will be a termination "Without Cause."
3. Vacation and Executive Benefits. During the term of his
-------------------------------
Employment, the Executive shall be eligible for paid vacation in accordance with
the Company's standard policy for similarly situated employees, as it may be
amended from time to time. During the term of his Employment, the Executive
shall be eligible to participate in any employee benefit plans maintained by the
Company for similarly situated employees, subject in each case to the generally
applicable terms and conditions of the plan in question and to the
determinations of any person or committee administering such plan.
4. Business Expenses. During the term of his Employment, the
-----------------
Executive shall be authorized to incur necessary and reasonable travel,
entertainment and other business expenses in connection with his duties
hereunder. The Company shall reimburse the Executive for such expenses upon
presentation of an itemized account and appropriate supporting documentation,
all in accordance with the Company's generally applicable policies.
4
<PAGE>
5. Real Estate Assistance. The Company will provide the Executive
----------------------
with a moving assistance loan (the "Loan") of $1,500,000 to assist the Executive
in moving into a home similar to that in which he presently resides. This Loan
will be provided within a reasonable time after Executive commences employment.
In order to receive this Loan, Executive will be required to execute a non-
recourse promissory note (the "Note") secured by Executive's real estate or
other collateral acceptable to the Company. The Note will bear interest at the
minimum applicable federal rate under the Internal Revenue Code to avoid the
imputation of income. The principal amount of the Loan and accrued interest are
due and payable on the earlier of (i) nine months after the date Executive's
Employment terminates, or (ii) the date when Executive's home is sold. However,
the principal amount of the Loan and accrued interest will be forgiven in equal
monthly installments on the last day of each month from the date of employment
for a period of forty-eight (48) months, provided the Executive remains employed
through each such date. The Company will make periodic bonus payments to
Executive which, following the deduction of all applicable taxes, will allow
Executive to make all tax payments on the loan and forgiven interest. If prior
to the fourth anniversary of the date Executive commences Employment the Company
terminates Executive's Employment "Without Cause" or Executive resigns for "Good
Reason," then on the termination date the Company shall forgive Executive's
monthly installment payments of the loan and accrued interest for twelve (12)
additional months as if Executive had been employed by the Company for those
twelve additional months.
6. Relocation and Temporary Living Expenses.
----------------------------------------
(a) Relocation Assistance. The Company will provide the
---------------------
Executive with full relocation assistance including payment of all closing costs
on the sale of Executive's current home plus all acquisition costs on the
purchase of his new home in the Bay Area. The Company also will pay for the
packing and unpacking of his household goods, relocation of his household goods
and two house hunting trips including business class airfare from Tokyo, Japan
to the Bay Area for Executive, his spouse and dependent child. The Company
agrees to pay for the relocation of household goods from the Executive's
temporary residence in Tokyo to either Connecticut or California, as Executive
deems necessary, and from Executive's current home in Connecticut to a new home
in California. The Executive shall present appropriate supporting documentation
of such costs in accordance with the Company's generally applicable policies.
(b) Temporary Living Expenses. The Company also will pay for
-------------------------
Executive's temporary living costs to make Executive whole until such time as
the Executive, his spouse and dependent children permanently relocate to the Bay
Area. The Executive shall present appropriate supporting documentation of such
costs in accordance with the Company's generally applicable policies. The
Company and Executive agree that such costs cannot be fully anticipated at this
time, but may total $200,000 to $300,000, and may include, but are not limited
to, the following: (a) a monthly housing allowance for rental of a furnished
apartment for Executive's family in Tokyo, Japan; (b) a monthly housing
allowance for Executive's rental of temporary housing in the Bay Area; (c)
tuition and related educational fees for Executive's dependent son; (d) monthly
support for Executive's spouse and dependent child in Tokyo, Japan through
Relocation Services; and (e) reimbursement for two roundtrip business class
airfares per month for either Executive to return to Tokyo, Japan or Executive's
spouse and dependent child to travel to the Bay Area. The Executive will book
such travel arrangements as far in advance as
5
<PAGE>
practicable to minimize the expense of such airfare, and make all possible
efforts to consolidate business travel with trips to Tokyo. In the event there
are additional unanticipated temporary living expenses, the Company will
evaluate in good faith payment of such expenses with the intent to make the
Executive whole.
(c) Gross-up. The Company will provide Executive a gross-up
--------
on payments for relocation and temporary living expenses that are not deductible
for tax purposes.
7. Term of Employment.
------------------
(a) Basic Rule. The Company agrees to continue the
----------
Executive's Employment, and the Executive agrees to remain in Employment with
the Company, from the commencement date set forth in Section 1(d) until the date
when the Executive's Employment terminates pursuant to Subsection (b) below (the
"Employment Period"). The Executive's Employment with the Company shall be "at
will," which means that either the Executive or the Company may terminate the
Executive's Employment at any time, for any reason, with or without Cause. Any
contrary representations, which may have been made to the Executive shall be
superseded by this Agreement. This Agreement shall constitute the full and
complete agreement between the Executive and the Company on the "at will" nature
of the Executive's Employment, which may only be changed in an express written
agreement signed by the Executive and a duly authorized officer of the Company.
(b) Termination. The Company may terminate the Executive's
-----------
Employment at any time and for any reason (or no reason), and with "Cause" or
"Without Cause," by giving the Executive notice in writing. The Executive may
terminate his Employment by giving the Company 14 days' advance notice in
writing. The Executive's Employment shall terminate automatically in the event
of his death.
(c) Rights Upon Termination. Except as expressly provided in
-----------------------
Section 8, upon the termination of the Executive's Employment pursuant to this
Section 7, the Executive shall be entitled to the compensation, benefits and
reimbursements described in Sections 2, 3 and 4 for the period preceding the
effective date of the termination, including payment of a pro rata share of
Executive's target bonus for the year in which the termination occurs. The
payments under this Agreement shall fully discharge all responsibilities of the
Company to the Executive.
(d) Termination of Agreement. This Agreement shall terminate
------------------------
when all obligations of the parties hereunder have been satisfied. The
termination of this Agreement shall not limit or otherwise affect any of the
Executive's obligations under Section 9.
8. Termination Benefits.
--------------------
(a) Severance Pay. If the Company terminates the Executive's
-------------
Employment "Without Cause" or Executive resigns for "Good Reason," then the
Company shall pay the Executive a lump sum payment equal to the sum of (i)
twelve months of his Base Salary plus (ii) his annual target bonus. The Company
also will pay for the cost of Executive continuing his medical coverage for
himself and his eligible dependents under COBRA for a period of one
6
<PAGE>
year following the date his employment terminates if he elects to continue that
coverage. The Company will also accelerate the vesting of the Executive's
outstanding stock options and forgive Executive's repayment of the Loan in
accordance with Sections 2(d)(v) and 5, respectively. Executive's Base Salary
shall be paid at the rate in effect at the time of the termination of Employment
and in accordance with the Company's standard payroll procedures.
9. Non-Solicitation and Non-Disclosure.
-----------------------------------
(a) Non-Solicitation. During the period commencing on the
----------------
date of this Agreement and continuing until the first anniversary of the date
when the Executive's Employment terminated for any reason, the Executive shall
not directly or indirectly, personally or through others, solicit or attempt to
solicit (on the Executive's own behalf or on behalf of any other person or
entity) the employment or retaining of any employee or consultant of the Company
or any of the Company's affiliates.
(b) Non-Disclosure. As a condition of employment Executive
--------------
will execute the Company's standard Proprietary Information Agreement, a copy of
which is attached.
10. Legal Fees. The Company will pay Executive's reasonable
----------
attorneys' fees in connection with negotiating and drafting this Agreement.
11. Successors.
----------
(a) Company's Successors. This Agreement shall be binding
--------------------
upon any successor (whether direct or indirect and whether by purchase, lease,
merger, consolidation, liquidation or otherwise) to all or substantially all of
the Company's business and/or assets. For all purposes under this Agreement, the
term "Company" shall include any successor to the Company's business and/or
assets which becomes bound by this Agreement.
(b) Executive's Successors. This Agreement and all rights of
----------------------
the Executive hereunder shall inure to the benefit of, and be enforceable by,
the Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees.
12. Indemnity. The Company will indemnify and provide a defense to
---------
the Executive to the full extent permitted by law and its bylaws with respect to
any claims arising out of the performance of his duties as an employee, director
or officer of the Company. To the same extent, the Company will pay, and subject
to any legal limitations, advance all expenses, including reasonable attorney
fees and costs of court-approved settlements, actually and necessarily incurred
by Executive in connection with the defense of any action, suit or proceeding
and in connection with any appeal, which has been brought against Executive by
reason of his service as an officer, director or agent of the Company, or his
acceptance of this Agreement or the performance of his duties thereunder. The
Company shall use its best efforts to obtain coverage for Executive under a
liability insurance policy or policies that cover the actions of officers and
directors of the Company.
13. Miscellaneous Provisions.
------------------------
7
<PAGE>
(a) Notice. Notices and all other communications contemplated
------
by this Agreement shall be in writing and shall be deemed to have been duly
given when personally delivered or when mailed by overnight courier, U.S.
registered or certified mail, return receipt requested and postage prepaid. In
the case of the Executive, mailed notices shall be addressed to him at the home
address which he most recently communicated to the Company in writing. In the
case of the Company, mailed notices shall be addressed to its corporate
headquarters, and all notices shall be directed to the attention of its
Secretary.
(b) Modifications and Waivers. No provision of this Agreement
-------------------------
shall be modified, waived or discharged unless the modification, waiver or
discharge is agreed to in writing and signed by the Executive and by an
authorized officer of the Company (other than the Executive). No waiver by
either party of any breach of, or of compliance with, any condition or provision
of this Agreement by the other party shall be considered a waiver of any other
condition or provision or of the same condition or provision at another time.
(c) Whole Agreement. No other agreements, representations or
---------------
understandings (whether oral or written) which are not expressly set forth in
this Agreement have been made or entered into by either party with respect to
the subject matter of this Agreement. This Agreement, the Proprietary
Information Agreement, and applicable stock option agreements and stock plans,
contain the entire understanding of the parties with respect to the subject
matter hereof.
(d) Taxes. All payments made under this Agreement shall be
-----
subject to reduction to reflect taxes or other charges required to be withheld
by law.
(e) Choice of Law. The validity, interpretation, construction
-------------
and performance of this Agreement shall be governed by the laws of the State of
California (except provisions governing the choice of law).
(f) Severability. The invalidity or unenforceability of any
------------
provision or provisions of this Agreement shall not affect the validity or
enforceability of any other provision hereof, which shall remain in full force
and effect.
(g) No Assignment. This Agreement and all rights and
-------------
obligations of the Executive hereunder are personal to the Executive and may not
be transferred or assigned by the Executive at any time. The Company may assign
its rights under this Agreement to any entity that assumes the Company's
obligations hereunder in connection with any sale or transfer of all or a
substantial portion of the Company's assets to such entity.
(h) Arbitration. Any dispute or claim arising out of or in
connection with this Agreement will be finally settled by binding arbitration in
San Francisco, California in accordance with the rules of the American
Arbitration Association by one arbitrator appointed in accordance with said
rules. The Executive and the Company shall split the cost of the arbitration
filing and hearing fees and the cost of the arbitrator. Each party shall bear
its own attorney fees, unless otherwise determined by the arbitrator. The
arbitrator shall apply California law, without reference to rules of conflicts
of law or rules of statutory arbitration, to the resolution of any
8
<PAGE>
dispute. Judgment on the award rendered by the arbitrator may be entered in any
court having jurisdiction thereof. Notwithstanding the foregoing, the parties
may apply to any court of competent jurisdiction for preliminary or interim
equitable relief, or to compel arbitration in accordance with this paragraph,
without breach of this arbitration provision. This Subsection 13(h) shall not
apply to any dispute or claim relating to the Proprietary Information Agreement.
(i) Headings. The headings of the paragraphs contained in
--------
this Agreement are for reference purposes only and shall not in any way affect
the meaning or interpretation of any provision of this Agreement.
(j) Counterparts. This Agreement may be executed in two or
------------
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, each of the parties has executed this Agreement,
in the case of the Company by its duly authorized officer, as of the day and
year first above written.
EXECUTIVE
/S/ Alfred J. Amoroso
________________________________
Alfred J. Amoroso
CROSSWORLDS SOFTWARE, INC.
By: /s/ Katrina A. Garnett
_____________________________
Title: Chairman
__________________________
EXHIBIT A - Stock Option Agreements
EXHIBIT B - Proprietary Information Agreement
9
<PAGE>
EXHIBIT A
---------
CROSSWORLDS SOFTWARE, INC.
1999 EXECUTIVE STOCK PLAN
STOCK OPTION AGREEMENT--EARLY EXERCISE
Unless otherwise defined herein, the terms defined in the CrossWorlds
Software, Inc. 1999 Stock Plan (the "Plan") shall have the same defined meanings
in this Option Agreement.
1. NOTICE OF STOCK OPTION GRANT
----------------------------
You have been granted an option to purchase Common Stock of the CrossWorlds
Software, Inc. (the "Company"), subject to the terms and conditions of the Plan
and this Option Agreement, as follows:
<TABLE>
<CAPTION>
Optionee Alfred J. Amoroso
<S> <C>
c/o CrossWorlds Software
577 Airport Blvd. Suite 800
Burlingame, CA 94010 USA
Grant Number 00001492
Date of Grant 10/11/99
Vesting Commencement Date 10/11/99
Exercise Price per Share $ 6.60
Number of Shares Granted 15,151
Total Exercise Price $99,996.60
Type of Option: ISO
Term/Expiration Date: 10/11/09
</TABLE>
Option.doc
1. Vesting Schedule. You may exercise this Option, in whole or in part
----------------
immediately following the Date of Grant. These option shares are subject to the
following vesting schedule (and subject to the Company's right to repurchase
shares as set forth in Exhibit A, Section 4(a)):
-------------------------
The shares of Common Stock subject to the Option (the "Shares") shall vest in
equal monthly installments over forty-eight (48) months from the Vesting
Commencement Date.
2. Termination Period. You may exercise this Option for 90 days after
------------------
termination of your Continuous Status as an Employee, Consultant or Director, or
for such longer period upon your death or disability as provided in the Plan.
If your status changes from Employee to Consultant or Director; or Director or
Consultant to Employee, this Option Agreement shall remain in effect. In no
case may you exercise this Option after the Term/Expiration Date as provided
above.
3. Agreement to Terms. Optionee acknowledges receipt of a copy of the Plan and
------------------
represents that he is familiar with the terms and provisions thereof, and hereby
accepts this Option subject to all of the terms and provisions thereof.
Optionee has reviewed the Plan and this Option in their entirety, including the
terms and conditions of Grant on the reverse side hereof, has had an opportunity
to obtain the advice of counsel prior to executing this Option and fully
understands all provisions of the Option. Optionee hereby agrees to accept as
binding, conclusive and final all decisions or interpretations of the
Administrator upon any questions arising under the Plan or this Option.
Optionee further agrees to notify the Company upon any change in the residence
address indicated below.
OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE
OPTION HEREOF IS EARNED ONLY BY CONTINUING CONSULTANCY, DIRECTORSHIP OR
EMPLOYMENT AT THE WILL OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING
GRANTED THIS OPTION OR ACQUIRING SHARES HEREUNDER). OPTIONEE FURTHER
ACKNOWLEDGES AND AGREES THAT NOTHING IN THIS AGREEMENT, NOR IN THE COMPANY'S
STOCK OPTION PLAN WHICH IS INCORPORATED HEREIN BY REFERENCE, SHALL CONFER UPON
OPTIONEE ANY RIGHT WITH RESPECT TO CONTINUATION OF EMPLOYMENT, CONSULTANCY OR
DIRECTORSHIP BY THE COMPANY, NOR SHALL IT INTERFERE IN ANY WAY WITH OPTIONEE'S
RIGHT OR THE COMPANY'S RIGHT TO TERMINATE OPTIONEE'S EMPLOYMENT, CONSULTANCY OR
DIRECTORSHIP AT ANY TIME, WITH OR WITHOUT CAUSE.
Dated: 10/11/99
-------------------------------------------
OPTIONEE
By: /s/ Alfred J. Amoroso
----------------------------------------------
CROSSWORLDS SOFTWARE, INC.,
a Delaware corporation
By: /s/ Stacey Giamalis
----------------------------------------------
Title: General Counsel
<PAGE>
1. TERMS AND CONDITIONS OF GRANT
a. Grant of Option. CrossWorlds Software, Inc. (the "Company"), hereby
----------------
grants to the Optionee (the "Optionee") named in the Notice of Grant, a
[nonstatutory ][incentive] stock option (the "Option") to purchase the total
number of shares of Common Stock (the Shares") set forth in the Notice of Grant,
at the exercise price per share set forth in the Notice of Grant (the "Exercise
Price") subject to the terms, definitions and provisions of the 1999 Stock Plan
(the "Plan") adopted by the Company, which is incorporated herein by reference.
Unless otherwise defined herein, the terms defined in the Plan shall have the
same defined meanings in this Option Agreement.
b. Exercise of Option. This Option shall be exercisable during its term in
------------------
accordance with the Vesting Schedule set out in the Notice of Grant and with the
provisions of Section 9 of the Plan as follows:
(i) Right to Exercise. (a) This Option may be exercised in whole or in
-----------------
part at any time after the Date of Grant, as to Shares which have not yet vested
under the vesting schedule indicated on the Notice of Stock Option Grant;
provided, however, that Optionee shall execute as a condition to such exercise
- -------- -------
of this Option, the Early Exercise Notice and Restricted Stock Purchase
Agreement attached hereto as Exhibit A (the "Early Exercise Agreement"). If
--------- ------------------------
Optionee chooses to exercise this Option solely as to Shares which have vested
under the vesting schedule indicated on the Notice of Stock Option Grant,
Optionee shall complete and execute the form of Exercise Notice attached hereto
as Exhibit B (the "Exercise Agreement"). Notwithstanding the foregoing, the
--------- ------------------
Company may in its discretion prescribe or accept a different form of notice of
exercise and/or stock purchase agreement if such forms are otherwise consistent
with this Agreement, the Plan and then-applicable law. (b) This Option may not
be exercised for a fraction of a Share. (c) In the event of Optionee's death,
Disability or other termination of the Optionee's Continuous Status as an
Employee, Consultant or Director, the exercisability of the Option is governed
by Sections g, h and i below, subject to the limitation contained in Section k.
below. (d) In no event may this Option be exercised after the date of
expiration of the term of this Option as set forth in the Notice of Grant.
(ii) Method of Exercise. This Option shall be exercisable by execution
------------------
and delivery of the Early Exercise Agreement or the Exercise Agreement,
whichever is applicable, or of any other written notice approved for such
purpose by the Company which shall state the election to exercise the Option,
the number of Shares in respect of which the Option is being exercised, and such
other representations and agreements as to the holder's investment intent with
respect to such shares of Common Stock as may be required by the Company
pursuant to the provisions of the Plan. Such written notice shall be signed by
the Optionee and shall be delivered in person or by certified mail to the
Secretary of the Company. The written notice shall be accompanied by payment of
the Exercise Price. This Option shall be deemed to be exercised upon receipt by
the Company of such written notice accompanied by the Exercise Price.
No Shares will be issued pursuant to the exercise of an Option unless such
issuance and such exercise shall comply with all relevant provisions of law and
the requirements of any stock exchange or national market system upon which the
Common Stock is then listed. Assuming such compliance, for income tax purposes
the Shares shall be considered transferred to the Optionee on the date on which
the Option is exercised with respect to such Shares.
c. Optionee's Representations. In the event the Shares purchasable pursuant
--------------------------
to the exercise of this Option have not been registered under the Securities Act
of 1933, as amended, at the time this Option is exercised, Optionee shall, if
required by the Company, concurrently with the exercise of all or any portion of
this Option, deliver to the Company his or her Investment Representation
Statement in the form attached hereto as Exhibit C.
d. Lock-Up Period. Optionee hereby agrees that if so requested by the
--------------
Company or any representative of the underwriters (the "Managing Underwriter")
in connection with any registration of the offering of any securities of the
Company under the Securities Act, Optionee shall not sell or otherwise transfer
any Shares or other securities of the Company during the 180-day period (or such
longer period as may be requested in writing by the Managing Underwriter and
agreed to in writing by the Company) (the "Market Standoff Period") following
the effective date of a registration statement of the Company filed under the
Securities Act; provided, however, that such restriction shall apply only to
the first registration statement of the Company to become effective under the
Securities Act that includes securities to be sold on behalf of the Company to
the public in an underwritten public offering under the Securities Act. The
Company may impose stop-transfer instructions with respect to securities subject
to the foregoing restrictions until the end of such Market Standoff Period.
e. Method of Payment. Payment of the Exercise Price shall be by any of the
-----------------
following, or a combination thereof, at the election of the Optionee:
(i) cash; or
(ii) check; or
(iii) surrender of other shares of Common Stock of the Company which (A)
in the case of Shares acquired pursuant to the exercise of a Company option,
have been owned by the Optionee for more than six (6) months on the date of
surrender, and (B) have a Fair Market Value on the date of surrender equal to
the Exercise Price of the Shares as to which the Option is being exercised; or
(iv) to the extent authorized by the Company, delivery of a properly
executed exercise notice together with such other documentation as the
Administrator and the broker, if applicable, share require to effect an exercise
of the Option and delivery to the Company of the sale or loan proceeds required
to pay the Exercise Price; or
(v) promissory note (in the form provided by the Company).
f. Restrictions on Exercise. This Option may not be exercised if the
------------------------
issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any applicable
federal or state securities or other law or regulation, including any rule under
Part 207 of Title 12 of the Code of Federal Regulations as promulgated by the
Federal Reserve Board. As a condition to the exercise of this Option, the
Company may require Optionee to make any representation and warranty to the
Company as may be required by any applicable law or regulation.
g. Termination of Relationship. In the event an Optionee's Continuous
---------------------------
Status as an Employee, Consultant or Director terminates, Optionee may, to the
extent otherwise so entitled at the date of such termination (the "Termination
Date"), exercise this Option during the Termination Period set out in the Notice
of Grant. To the extent that Optionee was not entitled to exercise this Option
at the date of such termination, or if Optionee does not exercise this Option
within the time specified herein, the Option shall terminate.
h. Disability of Optionee. Notwithstanding the provisions of Section g.
----------------------
above, in the event of termination of an Optionee's Continuous Status as an
Employee, Consultant or Director as a result of his or her Disability, Optionee
may, but only within twelve (12) months from the date of such termination (and
in no event later than the expiration date of the term of such Option as set
forth in the Notice of Grant) exercise the Option to the extent otherwise
entitled to exercise it at the date of such termination. To the extent that
Optionee is not entitled to exercise the Option at the date of termination, or
if Optionee does not exercise such Option to the extent so entitled within the
time specified herein, the Option shall terminate, and the Shares covered by
such Option shall revert to the Plan.
i. Death of Optionee. In the event of termination of Optionee's Continuous
-----------------
Status as an Employee or Consultant as a result of the death of Optionee, the
Option may be exercised at any time within twelve (12) months following the date
of death (but in no event later than the date of expiration of the term of this
Option as set forth in Section k. below), by Optionee's estate or by a person
who acquired the right to exercise the Option by bequest or inheritance, but
only to the extent the Optionee could exercise the Option at the date of death.
j. Non-Transferability of Option. Options may not be sold, pledged,
-----------------------------
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution and may be exercised, during the
lifetime of the Optionee, only by the Optionee. The terms of this Option shall
be binding upon the executors, administrators, heirs, successors and assigns of
the Optionee.
k. Term of Option. This Option may be exercised only within the term set
--------------
out in the Notice of Grant, and may be exercised during such term only in
accordance with the Plan and the terms of this Option. The limitations set out
in Section 7 of the Plan regarding Options granted to more than ten percent
(10%) shareholders shall apply to this Option.
l. Tax Consequences. Set forth below is a brief summary as of the date of
----------------
this Option of some of the federal tax consequences of exercise of this Option
and disposition of the Shares. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE
TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. OPTIONEE SHOULD CONSULT A TAX
ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.
(i) Exercise of an NSO. There may be a regular federal income tax
------------------
liability upon the exercise of an NSO. The Optionee will be treated as having
received compensation income (taxable at ordinary income tax rates) equal to the
excess, if any, of the Fair Market Value of the Shares on the date of exercise
over the Exercise Price. In the case of the exercise of Option Shares which
have not vested as of the date of exercise, the Optionee will not realize
compensation income on the exercise until the date(s) on which shares vest
(i.e., have been released from the Company's repurchase option) unless the
Optionee files an election under Section 83(b) of the Code (an "83(b)
Election"). If an 83(b) election is filed, the amount of compensation income
will be determined on the date of exercise. If Optionee is an Employee, the
Company will be required to withhold from Optionee's compensation or collect
from Optionee and pay to the applicable taxing authorities an amount equal to a
percentage of this compensation income at the time of exercise or vesting, as
applicable.
(ii) Disposition of Shares. If Shares are held for more than one year
---------------------
after the date of exercise (or the date of vesting, if later, in the case of the
exercise of unvested option shares and the Optionee had not filed an 83(b)
election at the time of such exercise, any gain realized on disposition of the
Shares will be treated as long-term capital gain for federal income tax
purposes.
<PAGE>
EXHIBIT A
---------
CROSSWORLDS SOFTWARE, INC.
1999 EXECUTIVE STOCK PLAN
EARLY EXERCISE NOTICE AND STOCK PURCHASE AGREEMENT
CrossWorlds Software, Inc.
577 Airport Boulevard, Suite 800
Burlingame, CA 94010-2024
Attention: Stock Administrator
1. Exercise of Option. Effective as of today, ___________, _____, the
------------------
undersigned ("Purchaser") __________________ hereby elects to exercise
Purchaser's option to purchase _________ shares of the Common Stock (the
"Shares") of CrossWorlds Software, Inc. (the "Company") under and pursuant to
the CrossWorlds Software , Inc., 1999 Executive Stock Plan, as amended (the
"Plan") and the Stock Option Agreement dated _____________________________ (the
"Option Agreement"). Of these Shares, Purchaser has elected to purchase
_______________ of those Shares which have become vested as of the date hereof
under the Vesting Schedule set forth in the Notice of Stock Option Grant (the
"Vested Shares") and _____________ Shares which have not yet vested under such
- --------------
Vesting Schedule (the "Unvested Shares"). The purchase price for the Shares
---------------
shall be $______ per Share for a total purchase price of $_______________.
The term "Shares" refers to the purchased Shares and all
------
securities received in replacement of the Shares or as stock dividends or
splits, all securities received in replacement of the Shares in a
recapitalization, merger, reorganization, exchange or the like, and all new,
substituted or additional securities or other properties to which Purchaser is
entitled by reason of Purchaser's ownership of the Shares.
2. Representations of Purchaser. Purchaser acknowledges that Purchaser
----------------------------
has received, read and understood the Plan and the Option Agreement and agrees
to abide by and be bound by their terms and conditions.
3. Rights as Stockholder. Until the stock certificate evidencing such
---------------------
Shares is issued (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company), no right to vote
or receive dividends or any other rights as a stockholder shall exist with
respect to the Optioned Stock, notwithstanding the exercise of the Option. The
Company shall issue (or cause to be issued) such stock certificate promptly
after the Option is exercised. No adjustment will be made for a dividend or
other right for which the record date is prior to the date the stock certificate
is issued, except as provided in Section 12 of the Plan.
Purchaser shall enjoy rights as a stockholder until such time as
Purchaser disposes of the Shares or the Company and/or its assignee(s) exercises
the Right of First Refusal hereunder. Upon such exercise, Purchaser shall have
no further rights as a holder of the Shares so purchased except the right to
receive payment for the Shares so purchased in accordance with the provisions of
this Agreement, and Purchaser shall forthwith cause the certificate(s)
evidencing the Shares so purchased to be surrendered to the Company for transfer
or cancellation.
4. Limitations on Transfer. In addition to any other limitation on
-----------------------
transfer created by applicable securities laws, Purchaser shall not assign,
encumber or dispose of any interest in the Shares while the Shares are subject
to the Company's Repurchase Option (as defined below). After any Shares have
been released from such Repurchase Option, Purchaser shall not assign, encumber
or dispose of any interest in such Shares except in compliance with the
provisions below and applicable securities laws.
(a) Repurchase Option.
-----------------
(i) If Purchaser's Continuous Status as an Employee or Consultant
terminates for any reason (including for cause, death or disability), the
Company shall upon the date of such termination (the "Termination Date") have an
----------------
irrevocable, exclusive option (the "Repurchase Option") for a period of 60 days
-----------------
from such date to repurchase all or any portion of the Unvested Shares held by
Purchaser as of the Termination Date which have not yet been released from the
Company's Repurchase Option at the original purchase price per Share specified
in Section 1 (adjusted for any stock splits, stock dividends and the like).
(ii) The Repurchase Option shall be exercised by the Company by
written notice to Purchaser or Purchaser's executor and, at the Company's
option, (A) by delivery to Purchaser or Purchaser's executor with such notice of
a check in the amount of the purchase price for the Shares being purchased, or
(B) in the event Purchaser is indebted to the Company, by cancellation by the
Company of an amount of such indebtedness equal to the purchase price for the
Shares being repurchased, or (C) by a combination of (A) and (B) so that the
combined payment and cancellation of indebtedness equals such purchase price.
Upon delivery of such notice and payment of the purchase price in any of the
ways described above, the Company shall become the legal and beneficial owner of
the Shares being repurchased and all rights and interest therein or related
thereto, and the Company shall have the right to transfer to its own name the
number of Shares being repurchased by the Company, without further action by
Purchaser.
(iii) One hundred percent (100%) of the Unvested Shares shall
initially be subject to the Repurchase Option. The Unvested Shares shall be
released from the Repurchase Option in accordance with the Vesting Schedule set
forth in the Notice of Stock Option Grant
<PAGE>
until all Shares are released from the Repurchase Option. Fractional shares
shall be rounded to the nearest whole share.
(b) Company's Right of First Refusal. Before any Shares held by
--------------------------------
Purchaser or any transferee (either being sometimes referred to herein as the
"Holder") may be sold or otherwise transferred (including transfer by gift or
operation of law), the Company or its assignee(s) shall have a right of first
refusal to purchase the Shares on the terms and conditions set forth in this
Section (the "Right of First Refusal").
(i) Notice of Proposed Transfer. The Holder of the Shares shall
---------------------------
deliver to the Company a written notice (the "Notice") stating: (i) the
Holder's bona fide intention to sell or otherwise transfer such Shares; (ii) the
name of each proposed purchaser or other transferee ("Proposed Transferee");
(iii) the number of Shares to be transferred to each Proposed Transferee; and
(iv) the bona fide cash price or other consideration for which the Holder
proposes to transfer the Shares (the "Offered Price"), and the Holder shall
offer the Shares at the Offered Price to the Company or its assignee(s).
(ii) Exercise of Right of First Refusal. At any time within
----------------------------------
thirty (30) days after receipt of the Notice, the Company and/or its assignee(s)
may, by giving written notice to the Holder, elect to purchase all, but not less
than all, of the Shares proposed to be transferred to any one or more of the
Proposed Transferees, at the purchase price determined in accordance with
subsection (c) below.
(iii) Purchase Price. The purchase price ("Purchase Price") for
--------------
the Shares purchased by the Company or its assignee(s) under this Section shall
be the Offered Price. If the Offered Price includes consideration other than
cash, the cash equivalent value of the non-cash consideration shall be
determined by the Board of Directors of the Company in good faith.
(iv) Payment. Payment of the Purchase Price shall be made, at
-------
the option of the Company or its assignee(s), in cash (by check), by
cancellation of all or a portion of any outstanding indebtedness of the Holder
to the Company (or, in the case of repurchase by an assignee, to the assignee),
or by any combination thereof within 30 days after receipt of the Notice or in
the manner and at the times set forth in the Notice.
(v) Holder's Right to Transfer. If all of the Shares proposed
--------------------------
in the Notice to be transferred to a given Proposed Transferee are not purchased
by the Company and/or its assignee(s) as provided in this Section, then the
Holder may sell or otherwise transfer such Shares to that Proposed Transferee at
the Offered Price or at a higher price, provided that such sale or other
transfer is consummated within 120 days after the date of the Notice and
provided further that any such sale or other transfer is effected in accordance
with any applicable securities laws and the Proposed Transferee agrees in
writing that the provisions of this Section shall continue to apply to the
Shares in the hands of such Proposed Transferee. If the Shares described in the
Notice are not transferred to the Proposed Transferee within such period, a new
Notice shall be given to the Company, and the Company and/or its assignees shall
again be offered the Right of First Refusal before any Shares held by the Holder
may be sold or otherwise transferred.
(vi) Exception for Certain Family Transfers. Anything to the
--------------------------------------
contrary contained in this Section notwithstanding, the transfer of any or all
of the Shares during the Purchaser's lifetime or on the Purchaser's death by
will or intestacy to the Purchaser's immediate family or a trust for the benefit
of the Purchaser's immediate family shall be exempt from the provisions of this
Section. "Immediate Family" as used herein shall mean spouse, lineal descendant
or antecedent, father, mother, brother or sister. In such case, the transferee
or other recipient shall receive and hold the Shares so transferred subject to
the provisions of this Section, and there shall be no further transfer of such
Shares except in accordance with the terms of this Section.
(vii) Termination of Right of First Refusal. The Right of First
-------------------------------------
Refusal shall terminate as to any Shares 90 days after the (i) first sale of
Common Stock of the Company to the general public pursuant to a registration
statement filed with and declared effective by the Securities and Exchange
Commission under the Securities Act of 1933, as amended, or (ii) a merger of the
Company with a corporation whose stock is publicly traded on a national
exchange.
5. Transfer of Shares; Escrow.
--------------------------
(a) Purchaser hereby authorizes and directs the Secretary of the
Company, or such other person designated by the Company, to transfer any
Unvested Shares as to which the Repurchase Option has been exercised from
Purchaser to the Company.
(b) To ensure the availability for delivery of Purchaser's Unvested
Shares upon repurchase by the Company pursuant to the Repurchase Option under
Section 4(a), Purchaser hereby appoints Katrina A. Garnett of the Company, or
any other person designated by the Company, as escrow agent (the "Escrow Agent")
------------
and as Purchaser's attorney-in-fact to sell, assign and transfer unto the
Company such Unvested Shares, if any, as may be repurchased by the Company
pursuant to the Repurchase Option and shall, upon execution of this Agreement,
deliver and deposit with the Escrow Agent the share certificates representing
the Unvested Shares, together with two stock assignments duly endorsed in blank
and in the form attached hereto as Attachment A . The Unvested Shares and stock
------------
assignment shall be held by the Escrow Agent in escrow pursuant to Joint Escrow
Instructions in the form attached hereto as Attachment B , until (i) the Company
------------
exercises its Repurchase Option as provided in Section 4(a), (ii) such Unvested
Shares become Vested Shares, or (iii) such time as this Agreement no longer is
in effect. Upon vesting of the Unvested Shares, the Escrow Agent shall promptly
deliver to Purchaser the certificate or certificates representing such Shares in
the Escrow Agent's
<PAGE>
possession belonging to Purchaser, and the Escrow Agent shall be discharged of
all further obligations hereunder. Notwithstanding any of the foregoing,
however, the Escrow Agent shall nevertheless retain such certificate or
certificates as Escrow Agent if so required pursuant to other restriction
imposed pursuant to this Agreement.
(c) The Escrow Agent shall not be liable for any act it may do or omit
to do with respect to holding the Shares in escrow and while acting in good
faith and in the exercise of its judgment.
(d) Transfer or sale of the Shares is subject to restrictions on
transfer imposed by any applicable state and federal securities laws. Any
transferee shall hold such Shares subject to all the provisions hereof and shall
acknowledge the same by signing a copy of this Agreement.
(e) No Shares may be sold, pledged, hypothecated or otherwise
transferred by Purchaser until such Shares have become Vested Shares and are no
longer subject to any security agreement for the benefit of the Company.
6. Ownership, Voting Rights, Duties. This Agreement shall not affect in
--------------------------------
any way the ownership, voting rights or other rights or duties of Purchaser,
except as specifically provided herein. Purchaser shall enjoy rights as a
stockholder until such time as Purchaser disposes of the Shares or the Company
and/or its assignee(s) exercises either the Repurchase Option or the Right of
First Refusal hereunder. Upon any such exercise, Purchaser shall have no
further rights as a holder of the Shares so purchased except the right to
receive payment for the Shares so purchased in accordance with the provisions of
this Agreement, and Purchaser or the Escrow Agent, as the case may be, shall
forthwith cause the certificate(s) evidencing the Shares so purchased to be
surrendered to the Company for transfer or cancellation.
7. Tax Consultation. Purchaser understands that Purchaser may suffer
----------------
adverse tax consequences as a result of Purchaser's purchase or disposition of
the Shares. Purchaser represents that Purchaser has consulted with any tax
consultants Purchaser deems advisable in connection with the purchase or
disposition of the Shares and that Purchaser is not relying on the Company for
any tax advice.
8. Restrictive Legends; Stop-Transfer Orders; Market Standoff
----------------------------------------------------------
(a) Legends. Purchaser understands and agrees that the Company shall
-------
cause the legends set forth below or legends substantially equivalent thereto,
to be placed upon any certificate(s) evidencing ownership of the Shares together
with any other legends that may be required by the Company or by state or
federal securities laws:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED,
SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND
UNTIL REGISTERED UNDER THE ACT OR, IN THE OPINION OF COMPANY
COUNSEL SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH
OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE
THEREWITH.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON TRANSFER AND A RIGHT OF FIRST REFUSAL HELD BY THE
ISSUER OR ITS ASSIGNEE(S) AS SET FORTH IN AN AGREEMENT BETWEEN THE
ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH
MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH
TRANSFER RESTRICTIONS AND RIGHT OF FIRST REFUSAL ARE BINDING ON
TRANSFEREES OF THESE SHARES.
(b) Stop-Transfer Notices. Purchaser agrees that, in order to ensure
---------------------
compliance with the restrictions referred to herein, the Company may issue
appropriate "stop transfer" instructions to its transfer agent, if any, and
that, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
(c) Market Standoff. Purchaser hereby agrees that if so requested by
---------------
the Company or any representative of the underwriters in connection with any
registration of the offering of any securities of the Company under the
Securities Act of 1933, as amended (the "Securities Act"), neither Purchaser nor
--------------
Purchaser shall sell or otherwise transfer any Shares or other securities of the
Company during such period as the Company and the representatives of the
underwriters may request (not to exceed 180 days) following the effective date
of any registration statement of the Company filed under the Securities Act for
an underwritten public offering. The Company may impose stop-transfer
instructions with respect to Shares subject to the foregoing restrictions until
the end of such market standoff period.
(d) Refusal to Transfer. The Company shall not be required (i) to
-------------------
transfer on its books any Shares that have been sold or otherwise transferred in
violation of any of the provisions of this Agreement or (ii) to treat as owner
of such Shares or to accord the right to vote or pay dividends to any purchaser
or other transferee to whom such Shares shall have been so transferred.
9. Section 83(b) Election. Purchaser understands that Section 83(a) of
----------------------
the Internal Revenue Code of 1986, as amended (the
<PAGE>
"Code"), taxes as ordinary income for a [Nonstatutory] [Incentive] Stock Option
the difference between the amount paid for the Shares and the Fair Market Value
of the Shares as of the date any restrictions on the Shares lapse. In this
context, "restriction" means the right of the Company to buy back the Shares
-----------
pursuant to the Repurchase Option set forth in Section 4(a) of this Agreement.
Purchaser understands that Purchaser may elect to be taxed at the time the
Shares are purchased, rather than when and as the Repurchase Option expires, by
filing an election under Section 83(b) (an "83(b) Election") of the Code with
--------------
the Internal Revenue Service within 30 days from the date of purchase. Even if
the Fair Market Value of the Shares at the time of the execution of this
Agreement equals the amount paid for the Shares, the election must be made to
avoid income tax treatment under Section 83(a) in the future. Purchaser
acknowledge that it is Purchaser's sole responsibility and not the Company's to
timely file the 83(b) Election, even if Purchaser requests the Company or its
representative to make this filing on Purchaser's behalf. Purchaser understands
that failure to file such an election in a timely manner may result in adverse
tax consequences for Purchaser. Purchaser further understands that an additional
copy of such election form should be filed with his or her federal income tax
return for the calendar year in which the date of this Agreement falls.
Purchaser acknowledges that the foregoing is only a summary of the effect of
United States federal income taxation with respect to purchase of the Shares
hereunder, and does not purport to be complete. Purchaser further acknowledges
that the Company has directed Purchaser to seek independent advice regarding the
applicable provisions of the Code, the income tax laws of any municipality,
state or foreign country in which Purchaser may reside, and the tax consequences
of Purchaser's death.
Purchaser agrees that he or she will execute and deliver to the
Company with this executed Agreement a copy of the Acknowledgment and Statement
of Decision Regarding Section 83(b) Election (the "Acknowledgment") attached
--------------
hereto as Attachment C. Purchaser further agrees that he or she will execute
------------
and submit with the Acknowledgment a copy of the 83(b) Election attached hereto
as Attachment D (for tax purposes in connection with the early exercise of an
------------
option) if Purchaser has indicated in the Acknowledgment his or her decision to
make such an election.
10. Notices. All notices and other communications required or permitted
-------
hereunder shall be in writing, shall be effective when given, and shall in any
event be deemed to be given (a) five (5) days after the deposit with the U.S.
Postal Service, if delivered by first class mail, postage prepaid (b) upon
delivery, if delivered by hand, or (c) one business day after the business day
of deposit with Federal Express or similar overnight courier, freight prepaid,
and shall be addressed (i) if to Purchaser, at Purchaser's address as set forth
beneath Purchaser's signature to this Agreement, or at such other address as
Purchaser shall have furnished to the Company in writing, (ii) if to the
Company, to CrossWorlds Software, Inc., with copy to Venture Law Group, 2775
Sand Hill Road, Menlo Park, California 94025, Attention: Jon E. Gavenman, Esq.,
or Katrina A. Garnett, at CrossWorlds Software, Inc., or at such other address
as the Escrow Agent shall have furnished to the parties.
11. Successors and Assigns. The Company may assign any of its rights
----------------------
under this Agreement to single or multiple assignees, and this Agreement shall
inure to the benefit of the successors and assigns of the Company. Subject to
the restrictions on transfer herein set forth, this Agreement shall be binding
upon Purchaser and his or her heirs, executors, administrators, successors and
assigns.
12. Interpretation. Any dispute regarding the interpretation of this
--------------
Agreement shall be submitted by Purchaser or by the Company forthwith to the
Company's Board of Directors or the committee thereof that administers the Plan,
which shall review such dispute at its next regular meeting. The resolution of
such a dispute by the Board or committee shall be final and binding on the
Company and on Purchaser.
13. Governing Law; Severability. This Agreement shall be governed by and
---------------------------
construed in accordance with the laws of the State of California excluding that
body of law pertaining to conflicts of law. Should any provision of this
Agreement be determined by a court of law to be illegal or unenforceable, the
other provisions shall nevertheless remain effective and shall remain
enforceable.
14. Notices. Any notice required or permitted hereunder shall be given in
-------
writing and shall be deemed effectively given upon personal delivery or upon
deposit in the United States mail by certified mail, with postage and fees
prepaid, addressed to the other party at its address as shown below beneath its
signature, or to such other address as such party may designate in writing from
time to time to the other party.
15. Further Instruments. The parties agree to execute such further
-------------------
instruments and to take such further action as may be reasonably necessary to
carry out the purposes and intent of this Agreement.
16. Delivery of Payment. Purchaser herewith delivers to the Company the
-------------------
full Exercise Price for the Shares.
<PAGE>
17. Entire Agreement. The Plan and Notice of Grant/Option Agreement are
----------------
incorporated herein by reference. This Agreement, the Plan, the Option
Agreement and the Investment Representation Statement constitute the entire
agreement of the parties with respect to the subject matter hereof and supersede
in their entirety all prior undertakings and agreements of the Company and
Purchaser with respect to the subject matter hereof, and may not be modified
adversely to the Purchaser's interest except by means of a writing signed by the
Company and Purchaser.
Submitted by: Accepted by:
PURCHASER: CROSSWORLDS SOFTWARE, INC.
By:_________________________________ By:_________________________________
Name:_______________________________ Its:________________________________
Address: Address:
- ------- -------
____________________________________ 577 Airport Boulevard, Suite 800
____________________________________ Burlingame, CA 94010-2024
<PAGE>
ATTACHMENT A
------------
ASSIGNMENT SEPARATE FROM CERTIFICATE
------------------------------------
FOR VALUE RECEIVED and pursuant to that certain Early Exercise Notice
and Restricted Stock Purchase Agreement between the undersigned ("Purchaser")
--------
and CrossWorlds Software, Inc. (the "Company") dated _____________, ____ (the
-------
"Agreement"), Purchaser hereby sells, assigns and transfers unto
- ----------
_______________________________ (________) shares of the Common Stock of the
Company, standing in Purchaser's name on the books of the Company and
represented by Certificate No. ___, and hereby irrevocably appoints
_____________________________ to transfer said stock on the books of the Company
with full power of substitution in the premises. THIS ASSIGNMENT MAY ONLY BE
USED AS AUTHORIZED BY THE AGREEMENT AND THE ATTACHMENTS THERETO.
Dated: _________________
Signature:
_______________________________________
Purchaser
_______________________________________
Spouse of Purchaser (if applicable)
Instruction: Please do not fill in any blanks other than the signature line.
The purpose of this assignment is to enable the Company to exercise its
Repurchase Option set forth in the Agreement without requiring additional
signatures on the part of Purchaser.
<PAGE>
ATTACHMENT B
------------
JOINT ESCROW INSTRUCTIONS
-------------------------
_______________, ____
Katrina A. Garnett
CrossWorlds Software, Inc.
577 Airport Boulevard, Suite 800
Burlingame, CA 94010
As Escrow Agent for both CrossWorlds Software, Inc., a Delaware
corporation (the "Company"), and the undersigned purchaser of stock of the
-------
Company ("Purchaser"), you are hereby authorized and directed to hold the
---------
documents delivered to you pursuant to the terms of that certain Early Exercise
Notice and Restricted Stock Purchase Agreement ("Agreement"), dated as of
---------
__________ __, 19__, between the Company and the undersigned, in accordance with
the following instructions:
1. In the event that the Company and/or any assignee of the Company
(referred to collectively for convenience herein as the ("Company") exercises
-------
the Company's repurchase option set forth in the Agreement, the Company shall
give to Purchaser and you a written notice specifying the number of shares of
stock to be purchased, the purchase price, and the time for a closing hereunder
at the principal office of the Company. Purchaser and the Company hereby
irrevocably authorize and direct you to close the transaction contemplated by
such notice in accordance with the terms of said notice.
2. At the closing, you are directed (a) to date the stock assignments
necessary for the transfer in question, (b) to fill in the number of shares
being transferred, and (c) to deliver same, together with the certificate
evidencing the shares of stock to be transferred, to the Company or its
assignee, against the simultaneous delivery to you of the purchase price (by
cash, a check, or some combination thereof) for the number of shares of stock
being purchased pursuant to the exercise of the Company's repurchase option.
3. Purchaser irrevocably authorizes the Company to deposit with you
any certificates evidencing shares of stock to be held by you hereunder and any
additions and substitutions to said shares as defined in the Agreement.
Purchaser does hereby irrevocably constitute and appoint you as Purchaser's
attorney-in-fact and agent for the term of this escrow to execute with respect
to such securities all documents necessary or appropriate to make such
securities negotiable and to complete any transaction herein contemplated,
including but not limited to the filing with any applicable state blue sky
authority of any required applications for consent to, or notice of transfer of,
the securities. Subject to the provisions of this paragraph 3, Purchaser shall
exercise all rights and privileges of a shareholder of the Company while the
stock is held by you.
4. Upon written request of Purchaser, but no more than once per
calendar year, unless the Company's repurchase option has been exercised, you
will deliver to Purchaser a certificate or certificates representing so many
shares of stock as are not then subject to the Company's repurchase option.
Within sixty (60) days after cessation of Purchaser's continuous employment by
or services to the Company, or any parent or subsidiary of the Company, you will
deliver to Purchaser a certificate or certificates representing the aggregate
number of shares held or issued pursuant to the Agreement and not purchased by
the Company or its assignees pursuant to exercise of the Company's repurchase
option.
5. If at the time of termination of this escrow you should have in
your possession any documents, securities, or other property belonging to
Purchaser, you shall deliver all of the same to Purchaser and shall be
discharged of all further obligations hereunder.
6. Your duties hereunder may be altered, amended, modified or revoked
only by a writing signed by all of the parties hereto.
7. You shall be obligated only for the performance of such duties as
are specifically set forth herein and may rely and shall be protected in relying
or refraining from acting on any instrument reasonably believed by you to be
genuine and to have been signed or presented by the proper party or parties.
You shall not be personally liable for any act you may do or omit to do
hereunder as Escrow Agent or as attorney-in-fact for Purchaser while acting in
good faith, and any act done or omitted by you pursuant to the advice of your
own attorneys shall be conclusive evidence of such good faith.
8. You are hereby expressly authorized to disregard any and all
warnings given by any of the parties hereto or by any other person or
corporation, excepting only orders or process of courts of law and are hereby
expressly authorized to comply with and obey orders, judgments or decrees of any
court. In case you obey or comply with any such order, judgment or
<PAGE>
decree, you shall not be liable to any of the parties hereto or to any other
person, firm or corporation by reason of such compliance, notwithstanding any
such order, judgment or decree being subsequently reversed, modified, annulled,
set aside, vacated or found to have been entered without jurisdiction.
9. You shall not be liable in any respect on account of the
identity, authorities or rights of the parties executing or delivering or
purporting to execute or deliver the Agreement or any documents or papers
deposited or called for hereunder .
10. You shall not be liable for the outlawing of any rights under the
Statute of Limitations with respect to these Joint Escrow Instructions or any
documents deposited with you.
11. You shall be entitled to employ such legal counsel and other
experts as you may deem necessary properly to advise you in connection with your
obligations hereunder, may rely upon the advice of such counsel, and may pay
such counsel reasonable compensation therefor.
12. Your responsibilities as Escrow Agent hereunder shall terminate
if you shall cease to be an officer or agent of the Company or if you shall
resign by written notice to each party. In the event of any such termination,
the Company shall appoint a successor Escrow Agent.
13. If you reasonably require other or further instruments in
connection with these Joint Escrow Instructions or obligations in respect
hereto, the necessary parties hereto shall join in furnishing such instruments.
14. It is understood and agreed that should any dispute arise with
respect to the delivery and/or ownership or right of possession of the
securities held by you hereunder, you are authorized and directed to retain in
your possession without liability to anyone all or any part of said securities
until such disputes shall have been settled either by mutual written agreement
of the parties concerned or by a final order, decree or judgment of a court of
competent jurisdiction after the time for appeal has expired and no appeal has
been perfected, but you shall be under no duty whatsoever to institute or defend
any such proceedings.
15. All notices and other communications required or permitted
hereunder shall be in writing, shall be effective when given, and shall in any
event be deemed to be given (a) five (5) days after deposit with the U.S. Postal
Service, if delivered by first class mail, postage prepaid, (b) upon delivery,
if delivered by hand, or (c) one business day after the business day of deposit
with Federal Express or similar overnight courier, freight prepaid, and shall be
addressed to each of the other parties thereunto entitled at the following
addresses or at such other addresses as a party may designate by ten days
advance written notice to each of the other parties hereto.
COMPANY: CrossWorlds Software, Inc.
577 Airport Boulevard, Suite 800
Burlingame, CA 94010
Attn: Controller
PURCHASER:
ESCROW AGENT: Katrina A. Garnett
CrossWorlds Software, Inc.
577 Airport Boulevard, Suite 800
Burlingame, CA 94010
16. By signing these Joint Escrow Instructions, you become a party
hereto only for the purpose of said Joint Escrow Instructions; you do not become
a party to the Agreement.
17. This instrument shall be binding upon and inure to the benefit of
the parties hereto, and their respective successors and permitted assigns.
<PAGE>
18. These Joint Escrow Instructions shall be governed by, and
construed and enforced in accordance with, the laws of the State of California
as they apply to contracts entered into and wholly to be performed within such
state.
Very truly yours,
CROSSWORLDS SOFTWARE, INC.
____________________________________
Katrina A. Garnett
PURCHASER:
____________________________________
Purchaser
ESCROW AGENT:
____________________________________
Katrina A. Garnett
<PAGE>
ATTACHMENT C
------------
ACKNOWLEDGMENT AND STATEMENT OF DECISION
----------------------------------------
REGARDING SECTION 83(b) ELECTION
--------------------------------
The undersigned (which term includes the undersigned's spouse), a purchaser
of ___________ shares of Common Stock of CrossWorlds Software, Inc., a
California corporation (the "Company") by exercise of an option (the "Option")
------- ------
granted pursuant to the Company's 1999 Executive Stock Plan (the "Plan"), hereby
----
states as follows:
1. The undersigned acknowledges receipt of a copy of the Plan relating to
the offering of such shares. The undersigned has carefully reviewed the Plan and
the option agreement pursuant to which the Option was granted.
2. The undersigned either [check and complete as applicable]:
(a) ____ has consulted, and has been fully advised by, the
undersigned's own tax advisor,
_____________________________________, whose business address is
______________________________, regarding the federal, state and
local tax consequences of purchasing shares under the Plan, and
particularly regarding the advisability of making elections
pursuant to Section 83(b) of the Internal Revenue Code of 1986,
as amended (the "Code") and pursuant to the corresponding
----
provisions, if any, of applicable state law; or
(b) ____ has knowingly chosen not to consult such a tax advisor.
3. The undersigned hereby states that the undersigned has decided [check
as applicable]:
(a) ____ to make an election pursuant to Section 83(b) of the Code,
and is submitting to the Company, together with the undersigned's
executed Early Exercise Notice and Stock Purchase Agreement, an
executed form entitled "Election Under Section 83(b) of the
Internal Revenue Code of 1986;" or
(b) ____ not to make an election pursuant to Section 83(b) of the
Code.
4. Neither the Company nor any subsidiary or representative of the
Company has made any warranty or representation to the undersigned with respect
to the tax consequences of the undersigned's purchase of shares under the Plan
or of the making or failure to make an election pursuant to Section 83(b) of the
Code or the corresponding provisions, if any, of applicable state law.
Date:___________________________ _________________________________
Purchaser
Date:___________________________ _________________________________
Spouse of Purchaser (if applicable)
<PAGE>
ATTACHMENT D
------------
ELECTION UNDER SECTION 83(b)
----------------------------
OF THE INTERNAL REVENUE CODE OF 1986
------------------------------------
The undersigned taxpayer hereby elects, pursuant to Section 83(b) of the
Internal Revenue Code, to include in taxpayer's gross income for the current
taxable year, the amount of any income that may be taxable to taxpayer in
connection with taxpayer's receipt of the property described below:
1. The name, address, taxpayer identification number and taxable year of the
undersigned are as follows:
NAME OF TAXPAYER: ________________
NAME OF SPOUSE: ________________
ADDRESS:
IDENTIFICATION NO. OF TAXPAYER: _______________
IDENTIFICATION NO. OF SPOUSE: _______________
TAXABLE YEAR: __________
2. The property with respect to which the election is made is described as
follows:
______________ shares of the Common Stock $.001 par value, of CrossWorlds
Software, Inc., a California corporation (the "Company").
-------
3. The date on which the property was transferred is: _______________
4. The property is subject to the following restrictions:
Repurchase option at cost in favor of the Company upon termination of
taxpayer's employment or consulting relationship.
5. The Fair Market Value at the time of transfer, determined without regard to
any restriction other than a restriction which by its terms will never
lapse, of such property is: $____________
6. The amount (if any) paid for such property: $____________
The undersigned has submitted a copy of this statement to the person for whom
the services were performed in connection with the undersigned's receipt of the
above-described property. The transferee of such property is the person
performing the services in connection with the transfer of said property.
The undersigned understands that the foregoing election may not be revoked
- --------------------------------------------------------------------------
except with the consent of the Commissioner.
- -------------------------------------------
Dated:_______________________ ___________________________________
Purchaser
Dated:_______________________ ___________________________________
Spouse of Purchaser (if applicable)
<PAGE>
EXHIBIT B
---------
CROSSWORLDS SOFTWARE, INC.
1999 EXECUTIVE STOCK PLAN
EXERCISE AGREEMENT
CrossWorlds Software, Inc.
577 Airport Boulevard, Suite 800
Burlingame, CA 94010-2024
Attention: Stock Administrator
1. Exercise of Option. Effective as of today, ___________, 1999, the
------------------
undersigned ("Purchaser") __________________ hereby elects to exercise
Purchaser's option to purchase _________ shares of the Common Stock (the
"Shares") of CrossWorlds Software, Inc. (the "Company") under and pursuant to
the CrossWorlds Software , Inc., 1999 Executive Stock Plan, as amended (the
"Plan") and the Incentive Agreement dated _____________________________ (the
"Option Agreement").
2. Representations of Purchaser. Purchaser acknowledges that Purchaser
----------------------------
has received, read and understood the Plan and the Option Agreement and agrees
to abide by and be bound by their terms and conditions.
3. Rights as Stockholder. Until the stock certificate evidencing such
---------------------
Shares is issued (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company), no right to vote
or receive dividends or any other rights as a stockholder shall exist with
respect to the Optioned Stock, notwithstanding the exercise of the Option. The
Company shall issue (or cause to be issued) such stock certificate promptly
after the Option is exercised. No adjustment will be made for a dividend or
other right for which the record date is prior to the date the stock certificate
is issued, except as provided in Section 12 of the Plan.
Purchaser shall enjoy rights as a stockholder until such time as
Purchaser disposes of the Shares or the Company and/or its assignee(s) exercises
the Right of First Refusal hereunder. Upon such exercise, Purchaser shall have
no further rights as a holder of the Shares so purchased except the right to
receive payment for the Shares so purchased in accordance with the provisions of
this Agreement, and Purchaser shall forthwith cause the certificate(s)
evidencing the Shares so purchased to be surrendered to the Company for transfer
or cancellation.
4. Company's Right of First Refusal. Before any Shares held by Purchaser
--------------------------------
or any transferee (either being sometimes referred to herein as the "Holder")
may be sold or otherwise transferred (including transfer by gift or operation of
law), the Company or its assignee(s) shall have a right of first refusal to
purchase the Shares on the terms and conditions set forth in this Section (the
"Right of First Refusal").
(a) Notice of Proposed Transfer. The Holder of the Shares shall
---------------------------
deliver to the Company a written notice (the "Notice") stating: (i) the
Holder's bona fide intention to sell or otherwise transfer such Shares; (ii) the
name of each proposed purchaser or other transferee ("Proposed Transferee");
(iii) the number of Shares to be transferred to each Proposed Transferee; and
(iv) the bona fide cash price or other consideration for which the Holder
proposes to transfer the Shares (the "Offered Price"), and the Holder shall
offer the Shares at the Offered Price to the Company or its assignee(s).
(b) Exercise of Right of First Refusal. At any time within thirty
----------------------------------
(30) days after receipt of the Notice, the Company and/or its assignee(s) may,
by giving written notice to the Holder, elect to purchase all, but not less than
all, of the Shares proposed to be transferred to any one or more of the Proposed
Transferees, at the purchase price determined in accordance with subsection (c)
below.
(c) Purchase Price. The purchase price ("Purchase Price") for the
--------------
Shares purchased by the Company or its assignee(s) under this Section shall be
the Offered Price. If the Offered Price includes consideration other than cash,
the cash equivalent value of the non-cash consideration shall be determined by
the Board of Directors of the Company in good faith.
(d) Payment. Payment of the Purchase Price shall be made, at the
-------
option of the Company or its assignee(s), in cash (by check), by cancellation of
all or a portion of any outstanding indebtedness of the Holder to the Company
(or, in the case of repurchase by an assignee, to the assignee), or by any
combination thereof within 30 days after receipt of the Notice or in the manner
and at the times set forth in the Notice.
(e) Holder's Right to Transfer. If all of the Shares proposed in the
--------------------------
Notice to be transferred to a given Proposed Transferee are not purchased by the
Company and/or its assignee(s) as provided in this Section, then the Holder may
sell or otherwise transfer such Shares to that Proposed Transferee at the
Offered Price or at a higher price, provided that such sale or other transfer is
consummated within 120 days after the date of the Notice and provided further
that any such sale or other transfer is effected in accordance with any
applicable securities laws and the Proposed Transferee agrees in writing that
the provisions of this Section shall continue to apply to the Shares in the
hands of such Proposed Transferee. If the Shares described in the Notice are
not transferred to the Proposed Transferee within such period, a new Notice
shall be given to the Company, and the Company and/or its assignees shall again
be offered the Right of First Refusal before any Shares held by the Holder may
be sold or otherwise transferred.
(f) Exception for Certain Family Transfers. Anything to the contrary
--------------------------------------
contained in this Section notwithstanding, the transfer of any or all of the
Shares during the Purchaser's lifetime or on the Purchaser's death by will or
intestacy to the Purchaser's immediate family or a trust for the benefit of the
Purchaser's immediate family shall be exempt from the provisions of this
Section. "Immediate Family" as used herein shall mean spouse, lineal descendant
or antecedent, father, mother, brother or sister. In such case, the transferee
or other recipient shall receive and hold the Shares so transferred subject to
the provisions of this Section, and there shall be no further transfer of such
Shares except in accordance with the terms of this Section.
(g) Termination of Right of First Refusal. The Right of First Refusal
-------------------------------------
shall terminate as to any Shares 90 days after the (i) first sale of Common
Stock of the Company to the general public pursuant to a registration statement
filed with and declared effective by the Securities and Exchange Commission
under the Securities Act of 1933, as amended, or (ii) a merger of the Company
with a corporation whose stock is publicly traded on a national exchange.
<PAGE>
5. Tax Consultation. Purchaser understands that Purchaser may suffer
----------------
adverse tax consequences as a result of Purchaser's purchase or disposition of
the Shares. Purchaser represents that Purchaser has consulted with any tax
consultants Purchaser deems advisable in connection with the purchase or
disposition of the Shares and that Purchaser is not relying on the Company for
any tax advice.
6. Restrictive Legends; Stop-Transfer Orders; Market Standoff.
----------------------------------------------------------
(a) Legends. Purchaser understands and agrees that the Company shall
-------
cause the legends set forth below or legends substantially equivalent thereto,
to be placed upon any certificate(s) evidencing ownership of the Shares together
with any other legends that may be required by the Company or by state or
federal securities laws:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED, SOLD
OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL
REGISTERED UNDER THE ACT OR, IN THE OPINION OF COMPANY COUNSEL
SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR
TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE THEREWITH.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON TRANSFER AND A RIGHT OF FIRST REFUSAL HELD BY THE
ISSUER OR ITS ASSIGNEE(S) AS SET FORTH IN AN AGREEMENT BETWEEN THE
ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY
BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH TRANSFER
RESTRICTIONS AND RIGHT OF FIRST REFUSAL ARE BINDING ON TRANSFEREES
OF THESE SHARES.
(b) Stop-Transfer Notices. Purchaser agrees that, in order to
---------------------
ensure compliance with the restrictions referred to herein, the Company may
issue appropriate "stop transfer" instructions to its transfer agent, if any,
and that, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
(c) Market Standoff. Purchaser hereby agrees that if so requested
---------------
by the Company or any representative of the underwriters in connection with any
registration of the offering of any securities of the Company under the
Securities Act of 1933, as amended (the "Securities Act"), neither Purchaser nor
--------------
Purchaser shall sell or otherwise transfer any Shares or other securities of the
Company during such period as the Company and the representatives of the
underwriters may request (not to exceed 180 days) following the effective date
of any registration statement of the Company filed under the Securities Act for
an underwritten public offering. The Company may impose stop-transfer
instructions with respect to Shares subject to the foregoing restrictions until
the end of such market standoff period.
(d) Refusal to Transfer. The Company shall not be required (i) to
-------------------
transfer on its books any Shares that have been sold or otherwise transferred in
violation of any of the provisions of this Agreement or (ii) to treat as owner
of such Shares or to accord the right to vote or pay dividends to any purchaser
or other transferee to whom such Shares shall have been so transferred.
7. Successors and Assigns. The Company may assign any of its rights under
----------------------
this Agreement to single or multiple assignees, and this Agreement shall inure
to the benefit of the successors and assigns of the Company. Subject to the
restrictions on transfer herein set forth, this Agreement shall be binding upon
Purchaser and his or her heirs, executors, administrators, successors and
assigns.
8. Interpretation. Any dispute regarding the interpretation of this
--------------
Agreement shall be submitted by Purchaser or by the Company forthwith to the
Company's Board of Directors or the committee thereof that administers the Plan,
which shall review such dispute at its next regular meeting. The resolution of
such a dispute by the Board or committee shall be final and binding on the
Company and on Purchaser.
9. Governing Law; Severability. This Agreement shall be governed by and
---------------------------
construed in accordance with the laws of the State of California excluding that
body of law pertaining to conflicts of law. Should any provision of this
Agreement be determined by a court of law to be illegal or unenforceable, the
other provisions shall nevertheless remain effective and shall remain
enforceable.
10. Notices. Any notice required or permitted hereunder shall be given in
-------
writing and shall be deemed effectively given upon personal delivery or upon
deposit in the United States mail by certified mail, with postage and fees
prepaid, addressed to the other party at its address as shown below beneath its
signature, or to such other address as such party may designate in writing from
time to time to the other party.
11. Further Instruments. The parties agree to execute such further
-------------------
instruments and to take such further action as may be reasonably necessary to
carry out the purposes and intent of this Agreement.
12. Delivery of Payment. Purchaser herewith delivers to the Company the
-------------------
full Exercise Price for the Shares.
13. Entire Agreement. The Plan and Notice of Grant/Option Agreement are
----------------
incorporated herein by reference. This Agreement, the Plan, the Option
Agreement and the Investment Representation Statement constitute the entire
agreement of the parties with respect to the subject matter hereof and supersede
in their entirety all prior undertakings and agreements of the Company and
Purchaser with respect to the subject matter hereof, and may not be modified
adversely to
<PAGE>
the Purchaser's interest except by means of a writing signed by the Company and
Purchaser.
Submitted by: Accepted by:
PURCHASER:
CROSSWORLDS SOFTWARE, INC.
By:_______________________________ By:______________________________
Name:_____________________________ Its:_____________________________
Address: Address:
- ------- -------
__________________________________ 577 Airport Boulevard, Suite 800
__________________________________ Burlingame, CA 94010-2024
<PAGE>
EXHIBIT C
---------
INVESTMENT REPRESENTATION STATEMENT
PURCHASER: _____________________
COMPANY: CROSSWORLDS SOFTWARE, INC.
SECURITY: ___________ shares of Common Stock
AMOUNT: __________________________________
DATE: __________________________________
In connection with the purchase of the above-listed Securities, the
undersigned Purchaser represents to the Company the following:
(a) Purchaser is aware of the Company's business affairs and financial
condition and has acquired sufficient information about the Company to reach an
informed and knowledgeable decision to acquire the Securities. Purchaser is
acquiring these Securities for investment for Purchaser's own account only and
not with a view to, or for resale in connection with, any "distribution" thereof
within the meaning of the Securities Act of 1933, as amended (the "Securities
Act").
(b) Purchaser acknowledges and understands that the Securities constitute
"restricted securities" under the Securities Act and have not been registered
under the Securities Act in reliance upon a specific exemption therefrom, which
exemption depends upon, among other things, the bona fide nature of Purchaser's
investment intent as expressed herein. In this connection, Purchaser
understands that, in the view of the Securities and Exchange Commission, the
statutory basis for such exemption may be unavailable if Purchaser's
representation was predicated solely upon a present intention to hold these
Securities for the minimum capital gains period specified under tax statutes,
for a deferred sale, for or until an increase or decrease in the market price of
the Securities, or for a period of one year or any other fixed period in the
future. Purchaser further understands that the Securities must be held
indefinitely unless they are subsequently registered under the Securities Act or
an exemption from such registration is available. Purchaser further
acknowledges and understands that the Company is under no obligation to register
the Securities. Purchaser understands that the certificate evidencing the
Securities will be imprinted with a legend which prohibits the transfer of the
Securities unless they are registered or such registration is not required in
the opinion of counsel satisfactory to the Company and any other legend required
under applicable state securities laws.
(c) Purchaser is familiar with the provisions of Rule 701 and Rule 144,
each promulgated under the Securities Act, which, in substance, permit limited
public resale of "restricted securities" acquired, directly or indirectly from
the issuer thereof, in a non-public offering subject to the satisfaction of
certain conditions. Rule 701 provides that if the issuer qualifies under Rule
701 at the time of the grant of the Option to the Purchaser, the exercise will
be exempt from registration under the Securities Act. In the event the Company
becomes subject to the reporting requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, ninety (90) days thereafter (or such longer
period as any market stand-off agreement may require) the Securities exempt
under Rule 701 may be resold, subject to the satisfaction of certain of the
conditions specified by Rule 144, including: (1) the resale being made through
a broker in an unsolicited "broker's transaction" or in transactions directly
with a market maker (as said term is defined under the Securities Exchange Act
of 1934); and, in the case of an affiliate, (2) the availability of certain
public information about the Company, (3) the amount of Securities being sold
during any three month period not exceeding the limitations specified in Rule
144(e), and (4) the timely filing of a Form 144, if applicable.
In the event that the Company does not qualify under Rule 701 at the time
of grant of the Option, then the Securities may be resold in certain limited
circumstances subject to the provisions of Rule 144, which requires the resale
to occur not less than one year after the later of the date the Securities were
sold by the Company or the date the Securities were sold by an affiliate of the
Company, within the meaning of Rule 144; and, in the case of acquisition of the
Securities by an affiliate, or by a non-affiliate who subsequently holds the
Securities less than two years, the satisfaction of the conditions set forth in
sections (1), (2), (3) and (4) of the paragraph immediately above.
(d) Purchaser hereby agrees that if so requested by the Company or any
representative of the underwriters in connection with any registration of the
offering of any securities of the Company under the Securities Act, Purchaser
shall not sell or otherwise transfer any Shares or other securities of the
Company during the 180-day period following the effective date of a registration
statement of the Company filed under the Securities Act; provided, however, that
such restriction shall only apply to the first registration statement of the
Company to become effective under the Securities Act which include securities to
be sold on behalf of the Company to the public in an underwritten public
offering under the Securities Act. The Company may impose stop-transfer
instructions with respect to securities subject to the foregoing restrictions
until the end of such 180-day period.
<PAGE>
(e) Purchaser further understands that in the event all of the applicable
requirements of Rule 701 or 144 are not satisfied, registration under the
Securities Act, compliance with Regulation A, or some other registration
exemption will be required; and that, notwithstanding the fact that Rules 144
and 701 are not exclusive, the Staff of the Securities and Exchange Commission
has expressed its opinion that persons proposing to sell private placement
securities other than in a registered offering and otherwise than pursuant to
Rules 144 or 701 will have a substantial burden of proof in establishing that an
exemption from registration is available for such offers or sales, and that such
persons and their respective brokers who participate in such transactions do so
at their own risk. Purchaser understands that no assurances can be given that
any such other registration exemption will be available in such event.
Signature of Purchaser:
______________________________
Date:___________________, 19__
<PAGE>
CROSSWORLDS SOFTWARE, INC.
1999 EXECUTIVE STOCK PLAN
STOCK OPTION AGREEMENT--EARLY EXERCISE
Unless otherwise defined herein, the terms defined in the CrossWorlds
Software, Inc. 1999 Stock Plan (the "Plan") shall have the same defined meanings
in this Option Agreement.
1. NOTICE OF STOCK OPTION GRANT
----------------------------
You have been granted an option to purchase Common Stock of the CrossWorlds
Software, Inc. (the "Company"), subject to the terms and conditions of the Plan
and this Option Agreement, as follows:
<TABLE>
<CAPTION>
Optionee Alfred J. Amoroso
<S> <C>
c/o CrossWorlds Software
577 Airport Blvd. Suite 800
Burlingame, CA 94010 USA
Grant Number 00001493
Date of Grant 10/11/99
Vesting Commencement Date 10/11/99
Exercise Price per Share $ 6.60
Number of Shares Granted 1,313,094
Total Exercise Price $8,666,420.40
Type of Option: NQ
Term/Expiration Date: 10/11/09
</TABLE>
Option.doc
1. Vesting Schedule. You may exercise this Option, in whole or in part
----------------
immediately following the Date of Grant. These option shares are subject to the
following vesting schedule (and subject to the Company's right to repurchase
shares as set forth in Exhibit A, Section 4(a)):
-------------------------
The shares of Common Stock subject to the Option (the "Shares") shall vest in
equal monthly installments over forty-eight (48) months from the Vesting
Commencement Date.
2. Termination Period. You may exercise this Option for 90 days after
------------------
termination of your Continuous Status as an Employee, Consultant or Director, or
for such longer period upon your death or disability as provided in the Plan.
If your status changes from Employee to Consultant or Director; or Director or
Consultant to Employee, this Option Agreement shall remain in effect. In no
case may you exercise this Option after the Term/Expiration Date as provided
above.
3. Agreement to Terms. Optionee acknowledges receipt of a copy of the Plan and
------------------
represents that he is familiar with the terms and provisions thereof, and hereby
accepts this Option subject to all of the terms and provisions thereof.
Optionee has reviewed the Plan and this Option in their entirety, including the
terms and conditions of Grant on the reverse side hereof, has had an opportunity
to obtain the advice of counsel prior to executing this Option and fully
understands all provisions of the Option. Optionee hereby agrees to accept as
binding, conclusive and final all decisions or interpretations of the
Administrator upon any questions arising under the Plan or this Option.
Optionee further agrees to notify the Company upon any change in the residence
address indicated below.
OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE
OPTION HEREOF IS EARNED ONLY BY CONTINUING CONSULTANCY, DIRECTORSHIP OR
EMPLOYMENT AT THE WILL OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING
GRANTED THIS OPTION OR ACQUIRING SHARES HEREUNDER). OPTIONEE FURTHER
ACKNOWLEDGES AND AGREES THAT NOTHING IN THIS AGREEMENT, NOR IN THE COMPANY'S
STOCK OPTION PLAN WHICH IS INCORPORATED HEREIN BY REFERENCE, SHALL CONFER UPON
OPTIONEE ANY RIGHT WITH RESPECT TO CONTINUATION OF EMPLOYMENT, CONSULTANCY OR
DIRECTORSHIP BY THE COMPANY, NOR SHALL IT INTERFERE IN ANY WAY WITH OPTIONEE'S
RIGHT OR THE COMPANY'S RIGHT TO TERMINATE OPTIONEE'S EMPLOYMENT, CONSULTANCY OR
DIRECTORSHIP AT ANY TIME, WITH OR WITHOUT CAUSE.
Dated: 10/11/99
-----------------------------------
OPTIONEE
By: /s/ Alfred J. Amoroso
--------------------------------------
CROSSWORLDS SOFTWARE, INC.,
a Delaware corporation
By: /s/ Stacey Giamalis
--------------------------------------
Title: General Counsel
<PAGE>
1. TERMS AND CONDITIONS OF GRANT
a. Grant of Option. CrossWorlds Software, Inc. (the "Company"), hereby
----------------
grants to the Optionee (the "Optionee") named in the Notice of Grant, a
[nonstatutory ][incentive] stock option (the "Option") to purchase the total
number of shares of Common Stock (the Shares") set forth in the Notice of Grant,
at the exercise price per share set forth in the Notice of Grant (the "Exercise
Price") subject to the terms, definitions and provisions of the 1999 Stock Plan
(the "Plan") adopted by the Company, which is incorporated herein by reference.
Unless otherwise defined herein, the terms defined in the Plan shall have the
same defined meanings in this Option Agreement.
b. Exercise of Option. This Option shall be exercisable during its term in
------------------
accordance with the Vesting Schedule set out in the Notice of Grant and with the
provisions of Section 9 of the Plan as follows:
(i) Right to Exercise. (a) This Option may be exercised in whole or in
-----------------
part at any time after the Date of Grant, as to Shares which have not yet vested
under the vesting schedule indicated on the Notice of Stock Option Grant;
provided, however, that Optionee shall execute as a condition to such exercise
- -------- -------
of this Option, the Early Exercise Notice and Restricted Stock Purchase
Agreement attached hereto as Exhibit A (the "Early Exercise Agreement"). If
--------- ------------------------
Optionee chooses to exercise this Option solely as to Shares which have vested
under the vesting schedule indicated on the Notice of Stock Option Grant,
Optionee shall complete and execute the form of Exercise Notice attached hereto
as Exhibit B (the "Exercise Agreement"). Notwithstanding the foregoing, the
--------- ------------------
Company may in its discretion prescribe or accept a different form of notice of
exercise and/or stock purchase agreement if such forms are otherwise consistent
with this Agreement, the Plan and then-applicable law. (b) This Option may not
be exercised for a fraction of a Share. (c) In the event of Optionee's death,
Disability or other termination of the Optionee's Continuous Status as an
Employee, Consultant or Director, the exercisability of the Option is governed
by Sections g, h and i below, subject to the limitation contained in Section k.
below. (d) In no event may this Option be exercised after the date of
expiration of the term of this Option as set forth in the Notice of Grant.
(ii) Method of Exercise. This Option shall be exercisable by execution
------------------
and delivery of the Early Exercise Agreement or the Exercise Agreement,
whichever is applicable, or of any other written notice approved for such
purpose by the Company which shall state the election to exercise the Option,
the number of Shares in respect of which the Option is being exercised, and such
other representations and agreements as to the holder's investment intent with
respect to such shares of Common Stock as may be required by the Company
pursuant to the provisions of the Plan. Such written notice shall be signed by
the Optionee and shall be delivered in person or by certified mail to the
Secretary of the Company. The written notice shall be accompanied by payment of
the Exercise Price. This Option shall be deemed to be exercised upon receipt by
the Company of such written notice accompanied by the Exercise Price.
No Shares will be issued pursuant to the exercise of an Option unless such
issuance and such exercise shall comply with all relevant provisions of law and
the requirements of any stock exchange or national market system upon which the
Common Stock is then listed. Assuming such compliance, for income tax purposes
the Shares shall be considered transferred to the Optionee on the date on which
the Option is exercised with respect to such Shares.
c. Optionee's Representations. In the event the Shares purchasable pursuant
--------------------------
to the exercise of this Option have not been registered under the Securities Act
of 1933, as amended, at the time this Option is exercised, Optionee shall, if
required by the Company, concurrently with the exercise of all or any portion of
this Option, deliver to the Company his or her Investment Representation
Statement in the form attached hereto as Exhibit C.
d. Lock-Up Period. Optionee hereby agrees that if so requested by the
--------------
Company or any representative of the underwriters (the "Managing Underwriter")
in connection with any registration of the offering of any securities of the
Company under the Securities Act, Optionee shall not sell or otherwise transfer
any Shares or other securities of the Company during the 180-day period (or such
longer period as may be requested in writing by the Managing Underwriter and
agreed to in writing by the Company) (the "Market Standoff Period") following
the effective date of a registration statement of the Company filed under the
Securities Act; provided, however, that such restriction shall apply only to
the first registration statement of the Company to become effective under the
Securities Act that includes securities to be sold on behalf of the Company to
the public in an underwritten public offering under the Securities Act. The
Company may impose stop-transfer instructions with respect to securities subject
to the foregoing restrictions until the end of such Market Standoff Period.
e. Method of Payment. Payment of the Exercise Price shall be by any of the
-----------------
following, or a combination thereof, at the election of the Optionee:
(i) cash; or
(ii) check; or
(iii) surrender of other shares of Common Stock of the Company which (A)
in the case of Shares acquired pursuant to the exercise of a Company option,
have been owned by the Optionee for more than six (6) months on the date of
surrender, and (B) have a Fair Market Value on the date of surrender equal to
the Exercise Price of the Shares as to which the Option is being exercised; or
(iv) to the extent authorized by the Company, delivery of a properly
executed exercise notice together with such other documentation as the
Administrator and the broker, if applicable, share require to effect an exercise
of the Option and delivery to the Company of the sale or loan proceeds required
to pay the Exercise Price; or
(v) promissory note (in the form provided by the Company).
f. Restrictions on Exercise. This Option may not be exercised if the
------------------------
issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any applicable
federal or state securities or other law or regulation, including any rule under
Part 207 of Title 12 of the Code of Federal Regulations as promulgated by the
Federal Reserve Board. As a condition to the exercise of this Option, the
Company may require Optionee to make any representation and warranty to the
Company as may be required by any applicable law or regulation.
g. Termination of Relationship. In the event an Optionee's Continuous
---------------------------
Status as an Employee, Consultant or Director terminates, Optionee may, to the
extent otherwise so entitled at the date of such termination (the "Termination
Date"), exercise this Option during the Termination Period set out in the Notice
of Grant. To the extent that Optionee was not entitled to exercise this Option
at the date of such termination, or if Optionee does not exercise this Option
within the time specified herein, the Option shall terminate.
h. Disability of Optionee. Notwithstanding the provisions of Section g.
----------------------
above, in the event of termination of an Optionee's Continuous Status as an
Employee, Consultant or Director as a result of his or her Disability, Optionee
may, but only within twelve (12) months from the date of such termination (and
in no event later than the expiration date of the term of such Option as set
forth in the Notice of Grant) exercise the Option to the extent otherwise
entitled to exercise it at the date of such termination. To the extent that
Optionee is not entitled to exercise the Option at the date of termination, or
if Optionee does not exercise such Option to the extent so entitled within the
time specified herein, the Option shall terminate, and the Shares covered by
such Option shall revert to the Plan.
i. Death of Optionee. In the event of termination of Optionee's Continuous
-----------------
Status as an Employee or Consultant as a result of the death of Optionee, the
Option may be exercised at any time within twelve (12) months following the date
of death (but in no event later than the date of expiration of the term of this
Option as set forth in Section k. below), by Optionee's estate or by a person
who acquired the right to exercise the Option by bequest or inheritance, but
only to the extent the Optionee could exercise the Option at the date of death.
j. Non-Transferability of Option. Options may not be sold, pledged,
-----------------------------
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution and may be exercised, during the
lifetime of the Optionee, only by the Optionee. The terms of this Option shall
be binding upon the executors, administrators, heirs, successors and assigns of
the Optionee.
k. Term of Option. This Option may be exercised only within the term set
--------------
out in the Notice of Grant, and may be exercised during such term only in
accordance with the Plan and the terms of this Option. The limitations set out
in Section 7 of the Plan regarding Options granted to more than ten percent
(10%) shareholders shall apply to this Option.
l. Tax Consequences. Set forth below is a brief summary as of the date of
----------------
this Option of some of the federal tax consequences of exercise of this Option
and disposition of the Shares. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE
TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. OPTIONEE SHOULD CONSULT A TAX
ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.
(i) Exercise of an NSO. There may be a regular federal income tax
------------------
liability upon the exercise of an NSO. The Optionee will be treated as having
received compensation income (taxable at ordinary income tax rates) equal to the
excess, if any, of the Fair Market Value of the Shares on the date of exercise
over the Exercise Price. In the case of the exercise of Option Shares which
have not vested as of the date of exercise, the Optionee will not realize
compensation income on the exercise until the date(s) on which shares vest
(i.e., have been released from the Company's repurchase option) unless the
Optionee files an election under Section 83(b) of the Code (an "83(b)
Election"). If an 83(b) election is filed, the amount of compensation income
will be determined on the date of exercise. If Optionee is an Employee, the
Company will be required to withhold from Optionee's compensation or collect
from Optionee and pay to the applicable taxing authorities an amount equal to a
percentage of this compensation income at the time of exercise or vesting, as
applicable.
(ii) Disposition of Shares. If Shares are held for more than one year
---------------------
after the date of exercise (or the date of vesting, if later, in the case of the
exercise of unvested option shares and the Optionee had not filed an 83(b)
election at the time of such exercise, any gain realized on disposition of the
Shares will be treated as long-term capital gain for federal income tax
purposes.
<PAGE>
EXHIBIT A
---------
CROSSWORLDS SOFTWARE, INC.
1999 EXECUTIVE STOCK PLAN
EARLY EXERCISE NOTICE AND STOCK PURCHASE AGREEMENT
CrossWorlds Software, Inc.
577 Airport Boulevard, Suite 800
Burlingame, CA 94010-2024
Attention: Stock Administrator
1. Exercise of Option. Effective as of today, ___________, _____, the
------------------
undersigned ("Purchaser") __________________ hereby elects to exercise
Purchaser's option to purchase _________ shares of the Common Stock (the
"Shares") of CrossWorlds Software, Inc. (the "Company") under and pursuant to
the CrossWorlds Software , Inc., 1999 Executive Stock Plan, as amended (the
"Plan") and the Stock Option Agreement dated _____________________________ (the
"Option Agreement"). Of these Shares, Purchaser has elected to purchase
_______________ of those Shares which have become vested as of the date hereof
under the Vesting Schedule set forth in the Notice of Stock Option Grant (the
"Vested Shares") and _____________ Shares which have not yet vested under such
- --------------
Vesting Schedule (the "Unvested Shares"). The purchase price for the Shares
---------------
shall be $______ per Share for a total purchase price of $_______________.
The term "Shares" refers to the purchased Shares and all
------
securities received in replacement of the Shares or as stock dividends or
splits, all securities received in replacement of the Shares in a
recapitalization, merger, reorganization, exchange or the like, and all new,
substituted or additional securities or other properties to which Purchaser is
entitled by reason of Purchaser's ownership of the Shares.
2. Representations of Purchaser. Purchaser acknowledges that Purchaser
----------------------------
has received, read and understood the Plan and the Option Agreement and agrees
to abide by and be bound by their terms and conditions.
3. Rights as Stockholder. Until the stock certificate evidencing such
---------------------
Shares is issued (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company), no right to vote
or receive dividends or any other rights as a stockholder shall exist with
respect to the Optioned Stock, notwithstanding the exercise of the Option. The
Company shall issue (or cause to be issued) such stock certificate promptly
after the Option is exercised. No adjustment will be made for a dividend or
other right for which the record date is prior to the date the stock certificate
is issued, except as provided in Section 12 of the Plan.
Purchaser shall enjoy rights as a stockholder until such time as
Purchaser disposes of the Shares or the Company and/or its assignee(s) exercises
the Right of First Refusal hereunder. Upon such exercise, Purchaser shall have
no further rights as a holder of the Shares so purchased except the right to
receive payment for the Shares so purchased in accordance with the provisions of
this Agreement, and Purchaser shall forthwith cause the certificate(s)
evidencing the Shares so purchased to be surrendered to the Company for transfer
or cancellation.
4. Limitations on Transfer. In addition to any other limitation on
-----------------------
transfer created by applicable securities laws, Purchaser shall not assign,
encumber or dispose of any interest in the Shares while the Shares are subject
to the Company's Repurchase Option (as defined below). After any Shares have
been released from such Repurchase Option, Purchaser shall not assign, encumber
or dispose of any interest in such Shares except in compliance with the
provisions below and applicable securities laws.
(a) Repurchase Option.
-----------------
(i) If Purchaser's Continuous Status as an Employee or Consultant
terminates for any reason (including for cause, death or disability), the
Company shall upon the date of such termination (the "Termination Date") have an
----------------
irrevocable, exclusive option (the "Repurchase Option") for a period of 60 days
-----------------
from such date to repurchase all or any portion of the Unvested Shares held by
Purchaser as of the Termination Date which have not yet been released from the
Company's Repurchase Option at the original purchase price per Share specified
in Section 1 (adjusted for any stock splits, stock dividends and the like).
(ii) The Repurchase Option shall be exercised by the Company by
written notice to Purchaser or Purchaser's executor and, at the Company's
option, (A) by delivery to Purchaser or Purchaser's executor with such notice of
a check in the amount of the purchase price for the Shares being purchased, or
(B) in the event Purchaser is indebted to the Company, by cancellation by the
Company of an amount of such indebtedness equal to the purchase price for the
Shares being repurchased, or (C) by a combination of (A) and (B) so that the
combined payment and cancellation of indebtedness equals such purchase price.
Upon delivery of such notice and payment of the purchase price in any of the
ways described above, the Company shall become the legal and beneficial owner of
the Shares being repurchased and all rights and interest therein or related
thereto, and the Company shall have the right to transfer to its own name the
number of Shares being repurchased by the Company, without further action by
Purchaser.
(iii) One hundred percent (100%) of the Unvested Shares shall
initially be subject to the Repurchase Option. The Unvested Shares shall be
released from the Repurchase Option in accordance with the Vesting Schedule set
forth in the Notice of Stock Option Grant
<PAGE>
until all Shares are released from the Repurchase Option. Fractional shares
shall be rounded to the nearest whole share.
(b) Company's Right of First Refusal. Before any Shares held by
--------------------------------
Purchaser or any transferee (either being sometimes referred to herein as the
"Holder") may be sold or otherwise transferred (including transfer by gift or
operation of law), the Company or its assignee(s) shall have a right of first
refusal to purchase the Shares on the terms and conditions set forth in this
Section (the "Right of First Refusal").
(i) Notice of Proposed Transfer. The Holder of the Shares shall
---------------------------
deliver to the Company a written notice (the "Notice") stating: (i) the
Holder's bona fide intention to sell or otherwise transfer such Shares; (ii) the
name of each proposed purchaser or other transferee ("Proposed Transferee");
(iii) the number of Shares to be transferred to each Proposed Transferee; and
(iv) the bona fide cash price or other consideration for which the Holder
proposes to transfer the Shares (the "Offered Price"), and the Holder shall
offer the Shares at the Offered Price to the Company or its assignee(s).
(ii) Exercise of Right of First Refusal. At any time within
----------------------------------
thirty (30) days after receipt of the Notice, the Company and/or its assignee(s)
may, by giving written notice to the Holder, elect to purchase all, but not less
than all, of the Shares proposed to be transferred to any one or more of the
Proposed Transferees, at the purchase price determined in accordance with
subsection (c) below.
(iii) Purchase Price. The purchase price ("Purchase Price") for
--------------
the Shares purchased by the Company or its assignee(s) under this Section shall
be the Offered Price. If the Offered Price includes consideration other than
cash, the cash equivalent value of the non-cash consideration shall be
determined by the Board of Directors of the Company in good faith.
(iv) Payment. Payment of the Purchase Price shall be made, at
-------
the option of the Company or its assignee(s), in cash (by check), by
cancellation of all or a portion of any outstanding indebtedness of the Holder
to the Company (or, in the case of repurchase by an assignee, to the assignee),
or by any combination thereof within 30 days after receipt of the Notice or in
the manner and at the times set forth in the Notice.
(v) Holder's Right to Transfer. If all of the Shares proposed
--------------------------
in the Notice to be transferred to a given Proposed Transferee are not purchased
by the Company and/or its assignee(s) as provided in this Section, then the
Holder may sell or otherwise transfer such Shares to that Proposed Transferee at
the Offered Price or at a higher price, provided that such sale or other
transfer is consummated within 120 days after the date of the Notice and
provided further that any such sale or other transfer is effected in accordance
with any applicable securities laws and the Proposed Transferee agrees in
writing that the provisions of this Section shall continue to apply to the
Shares in the hands of such Proposed Transferee. If the Shares described in the
Notice are not transferred to the Proposed Transferee within such period, a new
Notice shall be given to the Company, and the Company and/or its assignees shall
again be offered the Right of First Refusal before any Shares held by the Holder
may be sold or otherwise transferred.
(vi) Exception for Certain Family Transfers. Anything to the
--------------------------------------
contrary contained in this Section notwithstanding, the transfer of any or all
of the Shares during the Purchaser's lifetime or on the Purchaser's death by
will or intestacy to the Purchaser's immediate family or a trust for the benefit
of the Purchaser's immediate family shall be exempt from the provisions of this
Section. "Immediate Family" as used herein shall mean spouse, lineal descendant
or antecedent, father, mother, brother or sister. In such case, the transferee
or other recipient shall receive and hold the Shares so transferred subject to
the provisions of this Section, and there shall be no further transfer of such
Shares except in accordance with the terms of this Section.
(vii) Termination of Right of First Refusal. The Right of First
-------------------------------------
Refusal shall terminate as to any Shares 90 days after the (i) first sale of
Common Stock of the Company to the general public pursuant to a registration
statement filed with and declared effective by the Securities and Exchange
Commission under the Securities Act of 1933, as amended, or (ii) a merger of the
Company with a corporation whose stock is publicly traded on a national
exchange.
5. Transfer of Shares; Escrow.
--------------------------
(a) Purchaser hereby authorizes and directs the Secretary of the
Company, or such other person designated by the Company, to transfer any
Unvested Shares as to which the Repurchase Option has been exercised from
Purchaser to the Company.
(b) To ensure the availability for delivery of Purchaser's Unvested
Shares upon repurchase by the Company pursuant to the Repurchase Option under
Section 4(a), Purchaser hereby appoints Katrina A. Garnett of the Company, or
any other person designated by the Company, as escrow agent (the "Escrow Agent")
------------
and as Purchaser's attorney-in-fact to sell, assign and transfer unto the
Company such Unvested Shares, if any, as may be repurchased by the Company
pursuant to the Repurchase Option and shall, upon execution of this Agreement,
deliver and deposit with the Escrow Agent the share certificates representing
the Unvested Shares, together with two stock assignments duly endorsed in blank
and in the form attached hereto as Attachment A . The Unvested Shares and stock
------------
assignment shall be held by the Escrow Agent in escrow pursuant to Joint Escrow
Instructions in the form attached hereto as Attachment B , until (i) the Company
------------
exercises its Repurchase Option as provided in Section 4(a), (ii) such Unvested
Shares become Vested Shares, or (iii) such time as this Agreement no longer is
in effect. Upon vesting of the Unvested Shares, the Escrow Agent shall promptly
deliver to Purchaser the certificate or certificates representing such Shares in
the Escrow Agent's
<PAGE>
possession belonging to Purchaser, and the Escrow Agent shall be discharged of
all further obligations hereunder. Notwithstanding any of the foregoing,
however, the Escrow Agent shall nevertheless retain such certificate or
certificates as Escrow Agent if so required pursuant to other restriction
imposed pursuant to this Agreement.
(c) The Escrow Agent shall not be liable for any act it may do or omit
to do with respect to holding the Shares in escrow and while acting in good
faith and in the exercise of its judgment.
(d) Transfer or sale of the Shares is subject to restrictions on
transfer imposed by any applicable state and federal securities laws. Any
transferee shall hold such Shares subject to all the provisions hereof and shall
acknowledge the same by signing a copy of this Agreement.
(e) No Shares may be sold, pledged, hypothecated or otherwise
transferred by Purchaser until such Shares have become Vested Shares and are no
longer subject to any security agreement for the benefit of the Company.
6. Ownership, Voting Rights, Duties. This Agreement shall not affect in
--------------------------------
any way the ownership, voting rights or other rights or duties of Purchaser,
except as specifically provided herein. Purchaser shall enjoy rights as a
stockholder until such time as Purchaser disposes of the Shares or the Company
and/or its assignee(s) exercises either the Repurchase Option or the Right of
First Refusal hereunder. Upon any such exercise, Purchaser shall have no
further rights as a holder of the Shares so purchased except the right to
receive payment for the Shares so purchased in accordance with the provisions of
this Agreement, and Purchaser or the Escrow Agent, as the case may be, shall
forthwith cause the certificate(s) evidencing the Shares so purchased to be
surrendered to the Company for transfer or cancellation.
7. Tax Consultation. Purchaser understands that Purchaser may suffer
----------------
adverse tax consequences as a result of Purchaser's purchase or disposition of
the Shares. Purchaser represents that Purchaser has consulted with any tax
consultants Purchaser deems advisable in connection with the purchase or
disposition of the Shares and that Purchaser is not relying on the Company for
any tax advice.
8. Restrictive Legends; Stop-Transfer Orders; Market Standoff
----------------------------------------------------------
(a) Legends. Purchaser understands and agrees that the Company shall
-------
cause the legends set forth below or legends substantially equivalent thereto,
to be placed upon any certificate(s) evidencing ownership of the Shares together
with any other legends that may be required by the Company or by state or
federal securities laws:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED,
SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND
UNTIL REGISTERED UNDER THE ACT OR, IN THE OPINION OF COMPANY
COUNSEL SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH
OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE
THEREWITH.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON TRANSFER AND A RIGHT OF FIRST REFUSAL HELD BY THE
ISSUER OR ITS ASSIGNEE(S) AS SET FORTH IN AN AGREEMENT BETWEEN THE
ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH
MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH
TRANSFER RESTRICTIONS AND RIGHT OF FIRST REFUSAL ARE BINDING ON
TRANSFEREES OF THESE SHARES.
(b) Stop-Transfer Notices. Purchaser agrees that, in order to ensure
---------------------
compliance with the restrictions referred to herein, the Company may issue
appropriate "stop transfer" instructions to its transfer agent, if any, and
that, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
(c) Market Standoff. Purchaser hereby agrees that if so requested by
---------------
the Company or any representative of the underwriters in connection with any
registration of the offering of any securities of the Company under the
Securities Act of 1933, as amended (the "Securities Act"), neither Purchaser nor
--------------
Purchaser shall sell or otherwise transfer any Shares or other securities of the
Company during such period as the Company and the representatives of the
underwriters may request (not to exceed 180 days) following the effective date
of any registration statement of the Company filed under the Securities Act for
an underwritten public offering. The Company may impose stop-transfer
instructions with respect to Shares subject to the foregoing restrictions until
the end of such market standoff period.
(d) Refusal to Transfer. The Company shall not be required (i) to
-------------------
transfer on its books any Shares that have been sold or otherwise transferred in
violation of any of the provisions of this Agreement or (ii) to treat as owner
of such Shares or to accord the right to vote or pay dividends to any purchaser
or other transferee to whom such Shares shall have been so transferred.
9. Section 83(b) Election. Purchaser understands that Section 83(a) of
----------------------
the Internal Revenue Code of 1986, as amended (the
<PAGE>
"Code"), taxes as ordinary income for a [Nonstatutory] [Incentive] Stock Option
the difference between the amount paid for the Shares and the Fair Market Value
of the Shares as of the date any restrictions on the Shares lapse. In this
context, "restriction" means the right of the Company to buy back the Shares
-----------
pursuant to the Repurchase Option set forth in Section 4(a) of this Agreement.
Purchaser understands that Purchaser may elect to be taxed at the time the
Shares are purchased, rather than when and as the Repurchase Option expires, by
filing an election under Section 83(b) (an "83(b) Election") of the Code with
--------------
the Internal Revenue Service within 30 days from the date of purchase. Even if
the Fair Market Value of the Shares at the time of the execution of this
Agreement equals the amount paid for the Shares, the election must be made to
avoid income tax treatment under Section 83(a) in the future. Purchaser
acknowledge that it is Purchaser's sole responsibility and not the Company's to
timely file the 83(b) Election, even if Purchaser requests the Company or its
representative to make this filing on Purchaser's behalf. Purchaser understands
that failure to file such an election in a timely manner may result in adverse
tax consequences for Purchaser. Purchaser further understands that an additional
copy of such election form should be filed with his or her federal income tax
return for the calendar year in which the date of this Agreement falls.
Purchaser acknowledges that the foregoing is only a summary of the effect of
United States federal income taxation with respect to purchase of the Shares
hereunder, and does not purport to be complete. Purchaser further acknowledges
that the Company has directed Purchaser to seek independent advice regarding the
applicable provisions of the Code, the income tax laws of any municipality,
state or foreign country in which Purchaser may reside, and the tax consequences
of Purchaser's death.
Purchaser agrees that he or she will execute and deliver to the
Company with this executed Agreement a copy of the Acknowledgment and Statement
of Decision Regarding Section 83(b) Election (the "Acknowledgment") attached
--------------
hereto as Attachment C. Purchaser further agrees that he or she will execute
------------
and submit with the Acknowledgment a copy of the 83(b) Election attached hereto
as Attachment D (for tax purposes in connection with the early exercise of an
------------
option) if Purchaser has indicated in the Acknowledgment his or her decision to
make such an election.
10. Notices. All notices and other communications required or permitted
-------
hereunder shall be in writing, shall be effective when given, and shall in any
event be deemed to be given (a) five (5) days after the deposit with the U.S.
Postal Service, if delivered by first class mail, postage prepaid (b) upon
delivery, if delivered by hand, or (c) one business day after the business day
of deposit with Federal Express or similar overnight courier, freight prepaid,
and shall be addressed (i) if to Purchaser, at Purchaser's address as set forth
beneath Purchaser's signature to this Agreement, or at such other address as
Purchaser shall have furnished to the Company in writing, (ii) if to the
Company, to CrossWorlds Software, Inc., with copy to Venture Law Group, 2775
Sand Hill Road, Menlo Park, California 94025, Attention: Jon E. Gavenman, Esq.,
or Katrina A. Garnett, at CrossWorlds Software, Inc., or at such other address
as the Escrow Agent shall have furnished to the parties.
11. Successors and Assigns. The Company may assign any of its rights
----------------------
under this Agreement to single or multiple assignees, and this Agreement shall
inure to the benefit of the successors and assigns of the Company. Subject to
the restrictions on transfer herein set forth, this Agreement shall be binding
upon Purchaser and his or her heirs, executors, administrators, successors and
assigns.
12. Interpretation. Any dispute regarding the interpretation of this
--------------
Agreement shall be submitted by Purchaser or by the Company forthwith to the
Company's Board of Directors or the committee thereof that administers the Plan,
which shall review such dispute at its next regular meeting. The resolution of
such a dispute by the Board or committee shall be final and binding on the
Company and on Purchaser.
13. Governing Law; Severability. This Agreement shall be governed by and
---------------------------
construed in accordance with the laws of the State of California excluding that
body of law pertaining to conflicts of law. Should any provision of this
Agreement be determined by a court of law to be illegal or unenforceable, the
other provisions shall nevertheless remain effective and shall remain
enforceable.
14. Notices. Any notice required or permitted hereunder shall be given in
-------
writing and shall be deemed effectively given upon personal delivery or upon
deposit in the United States mail by certified mail, with postage and fees
prepaid, addressed to the other party at its address as shown below beneath its
signature, or to such other address as such party may designate in writing from
time to time to the other party.
15. Further Instruments. The parties agree to execute such further
-------------------
instruments and to take such further action as may be reasonably necessary to
carry out the purposes and intent of this Agreement.
16. Delivery of Payment. Purchaser herewith delivers to the Company the
-------------------
full Exercise Price for the Shares.
<PAGE>
17. Entire Agreement. The Plan and Notice of Grant/Option Agreement are
----------------
incorporated herein by reference. This Agreement, the Plan, the Option
Agreement and the Investment Representation Statement constitute the entire
agreement of the parties with respect to the subject matter hereof and supersede
in their entirety all prior undertakings and agreements of the Company and
Purchaser with respect to the subject matter hereof, and may not be modified
adversely to the Purchaser's interest except by means of a writing signed by the
Company and Purchaser.
Submitted by: Accepted by:
PURCHASER: CROSSWORLDS SOFTWARE, INC.
By:_________________________________ By:_________________________________
Name:_______________________________ Its:________________________________
Address: Address:
- ------- -------
____________________________________ 577 Airport Boulevard, Suite 800
____________________________________ Burlingame, CA 94010-2024
<PAGE>
ATTACHMENT A
------------
ASSIGNMENT SEPARATE FROM CERTIFICATE
------------------------------------
FOR VALUE RECEIVED and pursuant to that certain Early Exercise Notice
and Restricted Stock Purchase Agreement between the undersigned ("Purchaser")
--------
and CrossWorlds Software, Inc. (the "Company") dated _____________, ____ (the
-------
"Agreement"), Purchaser hereby sells, assigns and transfers unto
- ----------
_______________________________ (________) shares of the Common Stock of the
Company, standing in Purchaser's name on the books of the Company and
represented by Certificate No. ___, and hereby irrevocably appoints
_____________________________ to transfer said stock on the books of the Company
with full power of substitution in the premises. THIS ASSIGNMENT MAY ONLY BE
USED AS AUTHORIZED BY THE AGREEMENT AND THE ATTACHMENTS THERETO.
Dated: _________________
Signature:
_______________________________________
Purchaser
_______________________________________
Spouse of Purchaser (if applicable)
Instruction: Please do not fill in any blanks other than the signature line.
The purpose of this assignment is to enable the Company to exercise its
Repurchase Option set forth in the Agreement without requiring additional
signatures on the part of Purchaser.
<PAGE>
ATTACHMENT B
------------
JOINT ESCROW INSTRUCTIONS
-------------------------
_______________, ____
Katrina A. Garnett
CrossWorlds Software, Inc.
577 Airport Boulevard, Suite 800
Burlingame, CA 94010
As Escrow Agent for both CrossWorlds Software, Inc., a Delaware
corporation (the "Company"), and the undersigned purchaser of stock of the
-------
Company ("Purchaser"), you are hereby authorized and directed to hold the
---------
documents delivered to you pursuant to the terms of that certain Early Exercise
Notice and Restricted Stock Purchase Agreement ("Agreement"), dated as of
---------
__________ __, 19__, between the Company and the undersigned, in accordance with
the following instructions:
1. In the event that the Company and/or any assignee of the Company
(referred to collectively for convenience herein as the ("Company") exercises
-------
the Company's repurchase option set forth in the Agreement, the Company shall
give to Purchaser and you a written notice specifying the number of shares of
stock to be purchased, the purchase price, and the time for a closing hereunder
at the principal office of the Company. Purchaser and the Company hereby
irrevocably authorize and direct you to close the transaction contemplated by
such notice in accordance with the terms of said notice.
2. At the closing, you are directed (a) to date the stock assignments
necessary for the transfer in question, (b) to fill in the number of shares
being transferred, and (c) to deliver same, together with the certificate
evidencing the shares of stock to be transferred, to the Company or its
assignee, against the simultaneous delivery to you of the purchase price (by
cash, a check, or some combination thereof) for the number of shares of stock
being purchased pursuant to the exercise of the Company's repurchase option.
3. Purchaser irrevocably authorizes the Company to deposit with you
any certificates evidencing shares of stock to be held by you hereunder and any
additions and substitutions to said shares as defined in the Agreement.
Purchaser does hereby irrevocably constitute and appoint you as Purchaser's
attorney-in-fact and agent for the term of this escrow to execute with respect
to such securities all documents necessary or appropriate to make such
securities negotiable and to complete any transaction herein contemplated,
including but not limited to the filing with any applicable state blue sky
authority of any required applications for consent to, or notice of transfer of,
the securities. Subject to the provisions of this paragraph 3, Purchaser shall
exercise all rights and privileges of a shareholder of the Company while the
stock is held by you.
4. Upon written request of Purchaser, but no more than once per
calendar year, unless the Company's repurchase option has been exercised, you
will deliver to Purchaser a certificate or certificates representing so many
shares of stock as are not then subject to the Company's repurchase option.
Within sixty (60) days after cessation of Purchaser's continuous employment by
or services to the Company, or any parent or subsidiary of the Company, you will
deliver to Purchaser a certificate or certificates representing the aggregate
number of shares held or issued pursuant to the Agreement and not purchased by
the Company or its assignees pursuant to exercise of the Company's repurchase
option.
5. If at the time of termination of this escrow you should have in
your possession any documents, securities, or other property belonging to
Purchaser, you shall deliver all of the same to Purchaser and shall be
discharged of all further obligations hereunder.
6. Your duties hereunder may be altered, amended, modified or revoked
only by a writing signed by all of the parties hereto.
7. You shall be obligated only for the performance of such duties as
are specifically set forth herein and may rely and shall be protected in relying
or refraining from acting on any instrument reasonably believed by you to be
genuine and to have been signed or presented by the proper party or parties.
You shall not be personally liable for any act you may do or omit to do
hereunder as Escrow Agent or as attorney-in-fact for Purchaser while acting in
good faith, and any act done or omitted by you pursuant to the advice of your
own attorneys shall be conclusive evidence of such good faith.
8. You are hereby expressly authorized to disregard any and all
warnings given by any of the parties hereto or by any other person or
corporation, excepting only orders or process of courts of law and are hereby
expressly authorized to comply with and obey orders, judgments or decrees of any
court. In case you obey or comply with any such order, judgment or
<PAGE>
decree, you shall not be liable to any of the parties hereto or to any other
person, firm or corporation by reason of such compliance, notwithstanding any
such order, judgment or decree being subsequently reversed, modified, annulled,
set aside, vacated or found to have been entered without jurisdiction.
9. You shall not be liable in any respect on account of the
identity, authorities or rights of the parties executing or delivering or
purporting to execute or deliver the Agreement or any documents or papers
deposited or called for hereunder .
10. You shall not be liable for the outlawing of any rights under the
Statute of Limitations with respect to these Joint Escrow Instructions or any
documents deposited with you.
11. You shall be entitled to employ such legal counsel and other
experts as you may deem necessary properly to advise you in connection with your
obligations hereunder, may rely upon the advice of such counsel, and may pay
such counsel reasonable compensation therefor.
12. Your responsibilities as Escrow Agent hereunder shall terminate
if you shall cease to be an officer or agent of the Company or if you shall
resign by written notice to each party. In the event of any such termination,
the Company shall appoint a successor Escrow Agent.
13. If you reasonably require other or further instruments in
connection with these Joint Escrow Instructions or obligations in respect
hereto, the necessary parties hereto shall join in furnishing such instruments.
14. It is understood and agreed that should any dispute arise with
respect to the delivery and/or ownership or right of possession of the
securities held by you hereunder, you are authorized and directed to retain in
your possession without liability to anyone all or any part of said securities
until such disputes shall have been settled either by mutual written agreement
of the parties concerned or by a final order, decree or judgment of a court of
competent jurisdiction after the time for appeal has expired and no appeal has
been perfected, but you shall be under no duty whatsoever to institute or defend
any such proceedings.
15. All notices and other communications required or permitted
hereunder shall be in writing, shall be effective when given, and shall in any
event be deemed to be given (a) five (5) days after deposit with the U.S. Postal
Service, if delivered by first class mail, postage prepaid, (b) upon delivery,
if delivered by hand, or (c) one business day after the business day of deposit
with Federal Express or similar overnight courier, freight prepaid, and shall be
addressed to each of the other parties thereunto entitled at the following
addresses or at such other addresses as a party may designate by ten days
advance written notice to each of the other parties hereto.
COMPANY: CrossWorlds Software, Inc.
577 Airport Boulevard, Suite 800
Burlingame, CA 94010
Attn: Controller
PURCHASER:
ESCROW AGENT: Katrina A. Garnett
CrossWorlds Software, Inc.
577 Airport Boulevard, Suite 800
Burlingame, CA 94010
16. By signing these Joint Escrow Instructions, you become a party
hereto only for the purpose of said Joint Escrow Instructions; you do not become
a party to the Agreement.
17. This instrument shall be binding upon and inure to the benefit of
the parties hereto, and their respective successors and permitted assigns.
<PAGE>
18. These Joint Escrow Instructions shall be governed by, and
construed and enforced in accordance with, the laws of the State of California
as they apply to contracts entered into and wholly to be performed within such
state.
Very truly yours,
CROSSWORLDS SOFTWARE, INC.
____________________________________
Katrina A. Garnett
PURCHASER:
____________________________________
Purchaser
ESCROW AGENT:
____________________________________
Katrina A. Garnett
<PAGE>
ATTACHMENT C
------------
ACKNOWLEDGMENT AND STATEMENT OF DECISION
----------------------------------------
REGARDING SECTION 83(b) ELECTION
--------------------------------
The undersigned (which term includes the undersigned's spouse), a purchaser
of ___________ shares of Common Stock of CrossWorlds Software, Inc., a
California corporation (the "Company") by exercise of an option (the "Option")
------- ------
granted pursuant to the Company's 1999 Executive Stock Plan (the "Plan"), hereby
----
states as follows:
1. The undersigned acknowledges receipt of a copy of the Plan relating to
the offering of such shares. The undersigned has carefully reviewed the Plan and
the option agreement pursuant to which the Option was granted.
2. The undersigned either [check and complete as applicable]:
(a) ____ has consulted, and has been fully advised by, the
undersigned's own tax advisor,
_____________________________________, whose business address is
______________________________, regarding the federal, state and
local tax consequences of purchasing shares under the Plan, and
particularly regarding the advisability of making elections
pursuant to Section 83(b) of the Internal Revenue Code of 1986,
as amended (the "Code") and pursuant to the corresponding
----
provisions, if any, of applicable state law; or
(b) ____ has knowingly chosen not to consult such a tax advisor.
3. The undersigned hereby states that the undersigned has decided [check
as applicable]:
(a) ____ to make an election pursuant to Section 83(b) of the Code,
and is submitting to the Company, together with the undersigned's
executed Early Exercise Notice and Stock Purchase Agreement, an
executed form entitled "Election Under Section 83(b) of the
Internal Revenue Code of 1986;" or
(b) ____ not to make an election pursuant to Section 83(b) of the
Code.
4. Neither the Company nor any subsidiary or representative of the
Company has made any warranty or representation to the undersigned with respect
to the tax consequences of the undersigned's purchase of shares under the Plan
or of the making or failure to make an election pursuant to Section 83(b) of the
Code or the corresponding provisions, if any, of applicable state law.
Date:___________________________ _________________________________
Purchaser
Date:___________________________ _________________________________
Spouse of Purchaser (if applicable)
<PAGE>
ATTACHMENT D
------------
ELECTION UNDER SECTION 83(b)
----------------------------
OF THE INTERNAL REVENUE CODE OF 1986
------------------------------------
The undersigned taxpayer hereby elects, pursuant to Section 83(b) of the
Internal Revenue Code, to include in taxpayer's gross income for the current
taxable year, the amount of any income that may be taxable to taxpayer in
connection with taxpayer's receipt of the property described below:
1. The name, address, taxpayer identification number and taxable year of the
undersigned are as follows:
NAME OF TAXPAYER: ________________
NAME OF SPOUSE: ________________
ADDRESS:
IDENTIFICATION NO. OF TAXPAYER: _______________
IDENTIFICATION NO. OF SPOUSE: _______________
TAXABLE YEAR: __________
2. The property with respect to which the election is made is described as
follows:
______________ shares of the Common Stock $.001 par value, of CrossWorlds
Software, Inc., a California corporation (the "Company").
-------
3. The date on which the property was transferred is: _______________
4. The property is subject to the following restrictions:
Repurchase option at cost in favor of the Company upon termination of
taxpayer's employment or consulting relationship.
5. The Fair Market Value at the time of transfer, determined without regard to
any restriction other than a restriction which by its terms will never
lapse, of such property is: $____________
6. The amount (if any) paid for such property: $____________
The undersigned has submitted a copy of this statement to the person for whom
the services were performed in connection with the undersigned's receipt of the
above-described property. The transferee of such property is the person
performing the services in connection with the transfer of said property.
The undersigned understands that the foregoing election may not be revoked
- --------------------------------------------------------------------------
except with the consent of the Commissioner.
- -------------------------------------------
Dated:_______________________ ___________________________________
Purchaser
Dated:_______________________ ___________________________________
Spouse of Purchaser (if applicable)
<PAGE>
EXHIBIT B
---------
CROSSWORLDS SOFTWARE, INC.
1999 EXECUTIVE STOCK PLAN
EXERCISE AGREEMENT
CrossWorlds Software, Inc.
577 Airport Boulevard, Suite 800
Burlingame, CA 94010-2024
Attention: Stock Administrator
1. Exercise of Option. Effective as of today, ___________, 1999, the
------------------
undersigned ("Purchaser") __________________ hereby elects to exercise
Purchaser's option to purchase _________ shares of the Common Stock (the
"Shares") of CrossWorlds Software, Inc. (the "Company") under and pursuant to
the CrossWorlds Software , Inc., 1999 Executive Stock Plan, as amended (the
"Plan") and the Incentive Agreement dated _____________________________ (the
"Option Agreement").
2. Representations of Purchaser. Purchaser acknowledges that Purchaser
----------------------------
has received, read and understood the Plan and the Option Agreement and agrees
to abide by and be bound by their terms and conditions.
3. Rights as Stockholder. Until the stock certificate evidencing such
---------------------
Shares is issued (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company), no right to vote
or receive dividends or any other rights as a stockholder shall exist with
respect to the Optioned Stock, notwithstanding the exercise of the Option. The
Company shall issue (or cause to be issued) such stock certificate promptly
after the Option is exercised. No adjustment will be made for a dividend or
other right for which the record date is prior to the date the stock certificate
is issued, except as provided in Section 12 of the Plan.
Purchaser shall enjoy rights as a stockholder until such time as
Purchaser disposes of the Shares or the Company and/or its assignee(s) exercises
the Right of First Refusal hereunder. Upon such exercise, Purchaser shall have
no further rights as a holder of the Shares so purchased except the right to
receive payment for the Shares so purchased in accordance with the provisions of
this Agreement, and Purchaser shall forthwith cause the certificate(s)
evidencing the Shares so purchased to be surrendered to the Company for transfer
or cancellation.
4. Company's Right of First Refusal. Before any Shares held by Purchaser
--------------------------------
or any transferee (either being sometimes referred to herein as the "Holder")
may be sold or otherwise transferred (including transfer by gift or operation of
law), the Company or its assignee(s) shall have a right of first refusal to
purchase the Shares on the terms and conditions set forth in this Section (the
"Right of First Refusal").
(a) Notice of Proposed Transfer. The Holder of the Shares shall
---------------------------
deliver to the Company a written notice (the "Notice") stating: (i) the
Holder's bona fide intention to sell or otherwise transfer such Shares; (ii) the
name of each proposed purchaser or other transferee ("Proposed Transferee");
(iii) the number of Shares to be transferred to each Proposed Transferee; and
(iv) the bona fide cash price or other consideration for which the Holder
proposes to transfer the Shares (the "Offered Price"), and the Holder shall
offer the Shares at the Offered Price to the Company or its assignee(s).
(b) Exercise of Right of First Refusal. At any time within thirty
----------------------------------
(30) days after receipt of the Notice, the Company and/or its assignee(s) may,
by giving written notice to the Holder, elect to purchase all, but not less than
all, of the Shares proposed to be transferred to any one or more of the Proposed
Transferees, at the purchase price determined in accordance with subsection (c)
below.
(c) Purchase Price. The purchase price ("Purchase Price") for the
--------------
Shares purchased by the Company or its assignee(s) under this Section shall be
the Offered Price. If the Offered Price includes consideration other than cash,
the cash equivalent value of the non-cash consideration shall be determined by
the Board of Directors of the Company in good faith.
(d) Payment. Payment of the Purchase Price shall be made, at the
-------
option of the Company or its assignee(s), in cash (by check), by cancellation of
all or a portion of any outstanding indebtedness of the Holder to the Company
(or, in the case of repurchase by an assignee, to the assignee), or by any
combination thereof within 30 days after receipt of the Notice or in the manner
and at the times set forth in the Notice.
(e) Holder's Right to Transfer. If all of the Shares proposed in the
--------------------------
Notice to be transferred to a given Proposed Transferee are not purchased by the
Company and/or its assignee(s) as provided in this Section, then the Holder may
sell or otherwise transfer such Shares to that Proposed Transferee at the
Offered Price or at a higher price, provided that such sale or other transfer is
consummated within 120 days after the date of the Notice and provided further
that any such sale or other transfer is effected in accordance with any
applicable securities laws and the Proposed Transferee agrees in writing that
the provisions of this Section shall continue to apply to the Shares in the
hands of such Proposed Transferee. If the Shares described in the Notice are
not transferred to the Proposed Transferee within such period, a new Notice
shall be given to the Company, and the Company and/or its assignees shall again
be offered the Right of First Refusal before any Shares held by the Holder may
be sold or otherwise transferred.
(f) Exception for Certain Family Transfers. Anything to the contrary
--------------------------------------
contained in this Section notwithstanding, the transfer of any or all of the
Shares during the Purchaser's lifetime or on the Purchaser's death by will or
intestacy to the Purchaser's immediate family or a trust for the benefit of the
Purchaser's immediate family shall be exempt from the provisions of this
Section. "Immediate Family" as used herein shall mean spouse, lineal descendant
or antecedent, father, mother, brother or sister. In such case, the transferee
or other recipient shall receive and hold the Shares so transferred subject to
the provisions of this Section, and there shall be no further transfer of such
Shares except in accordance with the terms of this Section.
(g) Termination of Right of First Refusal. The Right of First Refusal
-------------------------------------
shall terminate as to any Shares 90 days after the (i) first sale of Common
Stock of the Company to the general public pursuant to a registration statement
filed with and declared effective by the Securities and Exchange Commission
under the Securities Act of 1933, as amended, or (ii) a merger of the Company
with a corporation whose stock is publicly traded on a national exchange.
<PAGE>
5. Tax Consultation. Purchaser understands that Purchaser may suffer
----------------
adverse tax consequences as a result of Purchaser's purchase or disposition of
the Shares. Purchaser represents that Purchaser has consulted with any tax
consultants Purchaser deems advisable in connection with the purchase or
disposition of the Shares and that Purchaser is not relying on the Company for
any tax advice.
6. Restrictive Legends; Stop-Transfer Orders; Market Standoff.
----------------------------------------------------------
(a) Legends. Purchaser understands and agrees that the Company shall
-------
cause the legends set forth below or legends substantially equivalent thereto,
to be placed upon any certificate(s) evidencing ownership of the Shares together
with any other legends that may be required by the Company or by state or
federal securities laws:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED, SOLD
OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL
REGISTERED UNDER THE ACT OR, IN THE OPINION OF COMPANY COUNSEL
SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR
TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE THEREWITH.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON TRANSFER AND A RIGHT OF FIRST REFUSAL HELD BY THE
ISSUER OR ITS ASSIGNEE(S) AS SET FORTH IN AN AGREEMENT BETWEEN THE
ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY
BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH TRANSFER
RESTRICTIONS AND RIGHT OF FIRST REFUSAL ARE BINDING ON TRANSFEREES
OF THESE SHARES.
(b) Stop-Transfer Notices. Purchaser agrees that, in order to
---------------------
ensure compliance with the restrictions referred to herein, the Company may
issue appropriate "stop transfer" instructions to its transfer agent, if any,
and that, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
(c) Market Standoff. Purchaser hereby agrees that if so requested
---------------
by the Company or any representative of the underwriters in connection with any
registration of the offering of any securities of the Company under the
Securities Act of 1933, as amended (the "Securities Act"), neither Purchaser nor
--------------
Purchaser shall sell or otherwise transfer any Shares or other securities of the
Company during such period as the Company and the representatives of the
underwriters may request (not to exceed 180 days) following the effective date
of any registration statement of the Company filed under the Securities Act for
an underwritten public offering. The Company may impose stop-transfer
instructions with respect to Shares subject to the foregoing restrictions until
the end of such market standoff period.
(d) Refusal to Transfer. The Company shall not be required (i) to
-------------------
transfer on its books any Shares that have been sold or otherwise transferred in
violation of any of the provisions of this Agreement or (ii) to treat as owner
of such Shares or to accord the right to vote or pay dividends to any purchaser
or other transferee to whom such Shares shall have been so transferred.
7. Successors and Assigns. The Company may assign any of its rights under
----------------------
this Agreement to single or multiple assignees, and this Agreement shall inure
to the benefit of the successors and assigns of the Company. Subject to the
restrictions on transfer herein set forth, this Agreement shall be binding upon
Purchaser and his or her heirs, executors, administrators, successors and
assigns.
8. Interpretation. Any dispute regarding the interpretation of this
--------------
Agreement shall be submitted by Purchaser or by the Company forthwith to the
Company's Board of Directors or the committee thereof that administers the Plan,
which shall review such dispute at its next regular meeting. The resolution of
such a dispute by the Board or committee shall be final and binding on the
Company and on Purchaser.
9. Governing Law; Severability. This Agreement shall be governed by and
---------------------------
construed in accordance with the laws of the State of California excluding that
body of law pertaining to conflicts of law. Should any provision of this
Agreement be determined by a court of law to be illegal or unenforceable, the
other provisions shall nevertheless remain effective and shall remain
enforceable.
10. Notices. Any notice required or permitted hereunder shall be given in
-------
writing and shall be deemed effectively given upon personal delivery or upon
deposit in the United States mail by certified mail, with postage and fees
prepaid, addressed to the other party at its address as shown below beneath its
signature, or to such other address as such party may designate in writing from
time to time to the other party.
11. Further Instruments. The parties agree to execute such further
-------------------
instruments and to take such further action as may be reasonably necessary to
carry out the purposes and intent of this Agreement.
12. Delivery of Payment. Purchaser herewith delivers to the Company the
-------------------
full Exercise Price for the Shares.
13. Entire Agreement. The Plan and Notice of Grant/Option Agreement are
----------------
incorporated herein by reference. This Agreement, the Plan, the Option
Agreement and the Investment Representation Statement constitute the entire
agreement of the parties with respect to the subject matter hereof and supersede
in their entirety all prior undertakings and agreements of the Company and
Purchaser with respect to the subject matter hereof, and may not be modified
adversely to
<PAGE>
the Purchaser's interest except by means of a writing signed by the Company and
Purchaser.
Submitted by: Accepted by:
PURCHASER:
CROSSWORLDS SOFTWARE, INC.
By:_______________________________ By:______________________________
Name:_____________________________ Its:_____________________________
Address: Address:
- ------- -------
__________________________________ 577 Airport Boulevard, Suite 800
__________________________________ Burlingame, CA 94010-2024
<PAGE>
EXHIBIT C
---------
INVESTMENT REPRESENTATION STATEMENT
PURCHASER: _____________________
COMPANY: CROSSWORLDS SOFTWARE, INC.
SECURITY: ___________ shares of Common Stock
AMOUNT: __________________________________
DATE: __________________________________
In connection with the purchase of the above-listed Securities, the
undersigned Purchaser represents to the Company the following:
(a) Purchaser is aware of the Company's business affairs and financial
condition and has acquired sufficient information about the Company to reach an
informed and knowledgeable decision to acquire the Securities. Purchaser is
acquiring these Securities for investment for Purchaser's own account only and
not with a view to, or for resale in connection with, any "distribution" thereof
within the meaning of the Securities Act of 1933, as amended (the "Securities
Act").
(b) Purchaser acknowledges and understands that the Securities constitute
"restricted securities" under the Securities Act and have not been registered
under the Securities Act in reliance upon a specific exemption therefrom, which
exemption depends upon, among other things, the bona fide nature of Purchaser's
investment intent as expressed herein. In this connection, Purchaser
understands that, in the view of the Securities and Exchange Commission, the
statutory basis for such exemption may be unavailable if Purchaser's
representation was predicated solely upon a present intention to hold these
Securities for the minimum capital gains period specified under tax statutes,
for a deferred sale, for or until an increase or decrease in the market price of
the Securities, or for a period of one year or any other fixed period in the
future. Purchaser further understands that the Securities must be held
indefinitely unless they are subsequently registered under the Securities Act or
an exemption from such registration is available. Purchaser further
acknowledges and understands that the Company is under no obligation to register
the Securities. Purchaser understands that the certificate evidencing the
Securities will be imprinted with a legend which prohibits the transfer of the
Securities unless they are registered or such registration is not required in
the opinion of counsel satisfactory to the Company and any other legend required
under applicable state securities laws.
(c) Purchaser is familiar with the provisions of Rule 701 and Rule 144,
each promulgated under the Securities Act, which, in substance, permit limited
public resale of "restricted securities" acquired, directly or indirectly from
the issuer thereof, in a non-public offering subject to the satisfaction of
certain conditions. Rule 701 provides that if the issuer qualifies under Rule
701 at the time of the grant of the Option to the Purchaser, the exercise will
be exempt from registration under the Securities Act. In the event the Company
becomes subject to the reporting requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, ninety (90) days thereafter (or such longer
period as any market stand-off agreement may require) the Securities exempt
under Rule 701 may be resold, subject to the satisfaction of certain of the
conditions specified by Rule 144, including: (1) the resale being made through
a broker in an unsolicited "broker's transaction" or in transactions directly
with a market maker (as said term is defined under the Securities Exchange Act
of 1934); and, in the case of an affiliate, (2) the availability of certain
public information about the Company, (3) the amount of Securities being sold
during any three month period not exceeding the limitations specified in Rule
144(e), and (4) the timely filing of a Form 144, if applicable.
In the event that the Company does not qualify under Rule 701 at the time
of grant of the Option, then the Securities may be resold in certain limited
circumstances subject to the provisions of Rule 144, which requires the resale
to occur not less than one year after the later of the date the Securities were
sold by the Company or the date the Securities were sold by an affiliate of the
Company, within the meaning of Rule 144; and, in the case of acquisition of the
Securities by an affiliate, or by a non-affiliate who subsequently holds the
Securities less than two years, the satisfaction of the conditions set forth in
sections (1), (2), (3) and (4) of the paragraph immediately above.
(d) Purchaser hereby agrees that if so requested by the Company or any
representative of the underwriters in connection with any registration of the
offering of any securities of the Company under the Securities Act, Purchaser
shall not sell or otherwise transfer any Shares or other securities of the
Company during the 180-day period following the effective date of a registration
statement of the Company filed under the Securities Act; provided, however, that
such restriction shall only apply to the first registration statement of the
Company to become effective under the Securities Act which include securities to
be sold on behalf of the Company to the public in an underwritten public
offering under the Securities Act. The Company may impose stop-transfer
instructions with respect to securities subject to the foregoing restrictions
until the end of such 180-day period.
<PAGE>
(e) Purchaser further understands that in the event all of the applicable
requirements of Rule 701 or 144 are not satisfied, registration under the
Securities Act, compliance with Regulation A, or some other registration
exemption will be required; and that, notwithstanding the fact that Rules 144
and 701 are not exclusive, the Staff of the Securities and Exchange Commission
has expressed its opinion that persons proposing to sell private placement
securities other than in a registered offering and otherwise than pursuant to
Rules 144 or 701 will have a substantial burden of proof in establishing that an
exemption from registration is available for such offers or sales, and that such
persons and their respective brokers who participate in such transactions do so
at their own risk. Purchaser understands that no assurances can be given that
any such other registration exemption will be available in such event.
Signature of Purchaser:
______________________________
Date:___________________, 19__
<PAGE>
CROSSWORLDS SOFTWARE, INC.
1999 EXECUTIVE STOCK PLAN
STOCK OPTION AGREEMENT--EARLY EXERCISE
Unless otherwise defined herein, the terms defined in the CrossWorlds
Software, Inc. 1999 Stock Plan (the "Plan") shall have the same defined meanings
in this Option Agreement.
1. NOTICE OF STOCK OPTION GRANT
----------------------------
You have been granted an option to purchase Common Stock of the CrossWorlds
Software, Inc. (the "Company"), subject to the terms and conditions of the Plan
and this Option Agreement, as follows:
<TABLE>
<CAPTION>
Optionee Alfred J. Amoroso
<S> <C>
c/o CrossWorlds Software
577 Airport Blvd. Suite 800
Burlingame, CA 94010 USA
Grant Number 00001494
Date of Grant 10/11/99
Vesting Commencement Date 10/11/99
Exercise Price per Share $ 6.60
Number of Shares Granted 796,947
Total Exercise Price $5,259,850.20
Type of Option: NQ
Term/Expiration Date: 10/11/09
</TABLE>
Option.doc
1. Vesting Schedule. You may exercise this Option, in whole or in part
----------------
immediately following the Date of Grant. These option shares are subject to the
following vesting schedule (and subject to the Company's right to repurchase
shares as set forth in Exhibit A, Section 4(a)):
-------------------------
The shares of Common Stock subject to the Option (the "Shares") shall vest in
equal monthly installments over forty-eight (48) months from the Vesting
Commencement Date, provided that such option shall become fully vested (and no
longer subject to any repurchase right) immediately upon the effective date of
the Company's initial public offering.
2. Termination Period. You may exercise this Option for 90 days after
------------------
termination of your Continuous Status as an Employee, Consultant or Director, or
for such longer period upon your death or disability as provided in the Plan.
If your status changes from Employee to Consultant or Director; or Director or
Consultant to Employee, this Option Agreement shall remain in effect. In no
case may you exercise this Option after the Term/Expiration Date as provided
above.
3. Agreement to Terms. Optionee acknowledges receipt of a copy of the Plan and
------------------
represents that he is familiar with the terms and provisions thereof, and hereby
accepts this Option subject to all of the terms and provisions thereof.
Optionee has reviewed the Plan and this Option in their entirety, including the
terms and conditions of Grant on the reverse side hereof, has had an opportunity
to obtain the advice of counsel prior to executing this Option and fully
understands all provisions of the Option. Optionee hereby agrees to accept as
binding, conclusive and final all decisions or interpretations of the
Administrator upon any questions arising under the Plan or this Option.
Optionee further agrees to notify the Company upon any change in the residence
address indicated below.
OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE
OPTION HEREOF IS EARNED ONLY BY CONTINUING CONSULTANCY, DIRECTORSHIP OR
EMPLOYMENT AT THE WILL OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING
GRANTED THIS OPTION OR ACQUIRING SHARES HEREUNDER). OPTIONEE FURTHER
ACKNOWLEDGES AND AGREES THAT NOTHING IN THIS AGREEMENT, NOR IN THE COMPANY'S
STOCK OPTION PLAN WHICH IS INCORPORATED HEREIN BY REFERENCE, SHALL CONFER UPON
OPTIONEE ANY RIGHT WITH RESPECT TO CONTINUATION OF EMPLOYMENT, CONSULTANCY OR
DIRECTORSHIP BY THE COMPANY, NOR SHALL IT INTERFERE IN ANY WAY WITH OPTIONEE'S
RIGHT OR THE COMPANY'S RIGHT TO TERMINATE OPTIONEE'S EMPLOYMENT, CONSULTANCY OR
DIRECTORSHIP AT ANY TIME, WITH OR WITHOUT CAUSE.
Dated: 10/11/99
---------------------------------------
OPTIONEE
By: /s/ Alfred J. Amoroso
------------------------------------------
CROSSWORLDS SOFTWARE, INC.,
a Delaware corporation
By: /s/ Stacey Giamalis
------------------------------------------
Title: General Counsel
<PAGE>
1. TERMS AND CONDITIONS OF GRANT
a. Grant of Option. CrossWorlds Software, Inc. (the "Company"), hereby
----------------
grants to the Optionee (the "Optionee") named in the Notice of Grant, a
[nonstatutory ][incentive] stock option (the "Option") to purchase the total
number of shares of Common Stock (the Shares") set forth in the Notice of Grant,
at the exercise price per share set forth in the Notice of Grant (the "Exercise
Price") subject to the terms, definitions and provisions of the 1999 Stock Plan
(the "Plan") adopted by the Company, which is incorporated herein by reference.
Unless otherwise defined herein, the terms defined in the Plan shall have the
same defined meanings in this Option Agreement.
b. Exercise of Option. This Option shall be exercisable during its term in
------------------
accordance with the Vesting Schedule set out in the Notice of Grant and with the
provisions of Section 9 of the Plan as follows:
(i) Right to Exercise. (a) This Option may be exercised in whole or in
-----------------
part at any time after the Date of Grant, as to Shares which have not yet vested
under the vesting schedule indicated on the Notice of Stock Option Grant;
provided, however, that Optionee shall execute as a condition to such exercise
- -------- -------
of this Option, the Early Exercise Notice and Restricted Stock Purchase
Agreement attached hereto as Exhibit A (the "Early Exercise Agreement"). If
--------- ------------------------
Optionee chooses to exercise this Option solely as to Shares which have vested
under the vesting schedule indicated on the Notice of Stock Option Grant,
Optionee shall complete and execute the form of Exercise Notice attached hereto
as Exhibit B (the "Exercise Agreement"). Notwithstanding the foregoing, the
--------- ------------------
Company may in its discretion prescribe or accept a different form of notice of
exercise and/or stock purchase agreement if such forms are otherwise consistent
with this Agreement, the Plan and then-applicable law. (b) This Option may not
be exercised for a fraction of a Share. (c) In the event of Optionee's death,
Disability or other termination of the Optionee's Continuous Status as an
Employee, Consultant or Director, the exercisability of the Option is governed
by Sections g, h and i below, subject to the limitation contained in Section k.
below. (d) In no event may this Option be exercised after the date of
expiration of the term of this Option as set forth in the Notice of Grant.
(ii) Method of Exercise. This Option shall be exercisable by execution
------------------
and delivery of the Early Exercise Agreement or the Exercise Agreement,
whichever is applicable, or of any other written notice approved for such
purpose by the Company which shall state the election to exercise the Option,
the number of Shares in respect of which the Option is being exercised, and such
other representations and agreements as to the holder's investment intent with
respect to such shares of Common Stock as may be required by the Company
pursuant to the provisions of the Plan. Such written notice shall be signed by
the Optionee and shall be delivered in person or by certified mail to the
Secretary of the Company. The written notice shall be accompanied by payment of
the Exercise Price. This Option shall be deemed to be exercised upon receipt by
the Company of such written notice accompanied by the Exercise Price.
No Shares will be issued pursuant to the exercise of an Option unless such
issuance and such exercise shall comply with all relevant provisions of law and
the requirements of any stock exchange or national market system upon which the
Common Stock is then listed. Assuming such compliance, for income tax purposes
the Shares shall be considered transferred to the Optionee on the date on which
the Option is exercised with respect to such Shares.
c. Optionee's Representations. In the event the Shares purchasable pursuant
--------------------------
to the exercise of this Option have not been registered under the Securities Act
of 1933, as amended, at the time this Option is exercised, Optionee shall, if
required by the Company, concurrently with the exercise of all or any portion of
this Option, deliver to the Company his or her Investment Representation
Statement in the form attached hereto as Exhibit C.
d. Lock-Up Period. Optionee hereby agrees that if so requested by the
--------------
Company or any representative of the underwriters (the "Managing Underwriter")
in connection with any registration of the offering of any securities of the
Company under the Securities Act, Optionee shall not sell or otherwise transfer
any Shares or other securities of the Company during the 180-day period (or such
longer period as may be requested in writing by the Managing Underwriter and
agreed to in writing by the Company) (the "Market Standoff Period") following
the effective date of a registration statement of the Company filed under the
Securities Act; provided, however, that such restriction shall apply only to
the first registration statement of the Company to become effective under the
Securities Act that includes securities to be sold on behalf of the Company to
the public in an underwritten public offering under the Securities Act. The
Company may impose stop-transfer instructions with respect to securities subject
to the foregoing restrictions until the end of such Market Standoff Period.
e. Method of Payment. Payment of the Exercise Price shall be by any of the
-----------------
following, or a combination thereof, at the election of the Optionee:
(i) cash; or
(ii) check; or
(iii) surrender of other shares of Common Stock of the Company which (A)
in the case of Shares acquired pursuant to the exercise of a Company option,
have been owned by the Optionee for more than six (6) months on the date of
surrender, and (B) have a Fair Market Value on the date of surrender equal to
the Exercise Price of the Shares as to which the Option is being exercised; or
(iv) to the extent authorized by the Company, delivery of a properly
executed exercise notice together with such other documentation as the
Administrator and the broker, if applicable, share require to effect an exercise
of the Option and delivery to the Company of the sale or loan proceeds required
to pay the Exercise Price; or
(v) promissory note (in the form provided by the Company).
f. Restrictions on Exercise. This Option may not be exercised if the
------------------------
issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any applicable
federal or state securities or other law or regulation, including any rule under
Part 207 of Title 12 of the Code of Federal Regulations as promulgated by the
Federal Reserve Board. As a condition to the exercise of this Option, the
Company may require Optionee to make any representation and warranty to the
Company as may be required by any applicable law or regulation.
g. Termination of Relationship. In the event an Optionee's Continuous
---------------------------
Status as an Employee, Consultant or Director terminates, Optionee may, to the
extent otherwise so entitled at the date of such termination (the "Termination
Date"), exercise this Option during the Termination Period set out in the Notice
of Grant. To the extent that Optionee was not entitled to exercise this Option
at the date of such termination, or if Optionee does not exercise this Option
within the time specified herein, the Option shall terminate.
h. Disability of Optionee. Notwithstanding the provisions of Section g.
----------------------
above, in the event of termination of an Optionee's Continuous Status as an
Employee, Consultant or Director as a result of his or her Disability, Optionee
may, but only within twelve (12) months from the date of such termination (and
in no event later than the expiration date of the term of such Option as set
forth in the Notice of Grant) exercise the Option to the extent otherwise
entitled to exercise it at the date of such termination. To the extent that
Optionee is not entitled to exercise the Option at the date of termination, or
if Optionee does not exercise such Option to the extent so entitled within the
time specified herein, the Option shall terminate, and the Shares covered by
such Option shall revert to the Plan.
i. Death of Optionee. In the event of termination of Optionee's Continuous
-----------------
Status as an Employee or Consultant as a result of the death of Optionee, the
Option may be exercised at any time within twelve (12) months following the date
of death (but in no event later than the date of expiration of the term of this
Option as set forth in Section k. below), by Optionee's estate or by a person
who acquired the right to exercise the Option by bequest or inheritance, but
only to the extent the Optionee could exercise the Option at the date of death.
j. Non-Transferability of Option. Options may not be sold, pledged,
-----------------------------
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution and may be exercised, during the
lifetime of the Optionee, only by the Optionee. The terms of this Option shall
be binding upon the executors, administrators, heirs, successors and assigns of
the Optionee.
k. Term of Option. This Option may be exercised only within the term set
--------------
out in the Notice of Grant, and may be exercised during such term only in
accordance with the Plan and the terms of this Option. The limitations set out
in Section 7 of the Plan regarding Options granted to more than ten percent
(10%) shareholders shall apply to this Option.
l. Tax Consequences. Set forth below is a brief summary as of the date of
----------------
this Option of some of the federal tax consequences of exercise of this Option
and disposition of the Shares. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE
TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. OPTIONEE SHOULD CONSULT A TAX
ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.
(i) Exercise of an NSO. There may be a regular federal income tax
------------------
liability upon the exercise of an NSO. The Optionee will be treated as having
received compensation income (taxable at ordinary income tax rates) equal to the
excess, if any, of the Fair Market Value of the Shares on the date of exercise
over the Exercise Price. In the case of the exercise of Option Shares which
have not vested as of the date of exercise, the Optionee will not realize
compensation income on the exercise until the date(s) on which shares vest
(i.e., have been released from the Company's repurchase option) unless the
Optionee files an election under Section 83(b) of the Code (an "83(b)
Election"). If an 83(b) election is filed, the amount of compensation income
will be determined on the date of exercise. If Optionee is an Employee, the
Company will be required to withhold from Optionee's compensation or collect
from Optionee and pay to the applicable taxing authorities an amount equal to a
percentage of this compensation income at the time of exercise or vesting, as
applicable.
(ii) Disposition of Shares. If Shares are held for more than one year
---------------------
after the date of exercise (or the date of vesting, if later, in the case of the
exercise of unvested option shares and the Optionee had not filed an 83(b)
election at the time of such exercise, any gain realized on disposition of the
Shares will be treated as long-term capital gain for federal income tax
purposes.
<PAGE>
EXHIBIT A
---------
CROSSWORLDS SOFTWARE, INC.
1999 EXECUTIVE STOCK PLAN
EARLY EXERCISE NOTICE AND STOCK PURCHASE AGREEMENT
CrossWorlds Software, Inc.
577 Airport Boulevard, Suite 800
Burlingame, CA 94010-2024
Attention: Stock Administrator
1. Exercise of Option. Effective as of today, ___________, _____, the
------------------
undersigned ("Purchaser") __________________ hereby elects to exercise
Purchaser's option to purchase _________ shares of the Common Stock (the
"Shares") of CrossWorlds Software, Inc. (the "Company") under and pursuant to
the CrossWorlds Software , Inc., 1999 Executive Stock Plan, as amended (the
"Plan") and the Stock Option Agreement dated _____________________________ (the
"Option Agreement"). Of these Shares, Purchaser has elected to purchase
_______________ of those Shares which have become vested as of the date hereof
under the Vesting Schedule set forth in the Notice of Stock Option Grant (the
"Vested Shares") and _____________ Shares which have not yet vested under such
- --------------
Vesting Schedule (the "Unvested Shares"). The purchase price for the Shares
---------------
shall be $______ per Share for a total purchase price of $_______________.
The term "Shares" refers to the purchased Shares and all
------
securities received in replacement of the Shares or as stock dividends or
splits, all securities received in replacement of the Shares in a
recapitalization, merger, reorganization, exchange or the like, and all new,
substituted or additional securities or other properties to which Purchaser is
entitled by reason of Purchaser's ownership of the Shares.
2. Representations of Purchaser. Purchaser acknowledges that Purchaser
----------------------------
has received, read and understood the Plan and the Option Agreement and agrees
to abide by and be bound by their terms and conditions.
3. Rights as Stockholder. Until the stock certificate evidencing such
---------------------
Shares is issued (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company), no right to vote
or receive dividends or any other rights as a stockholder shall exist with
respect to the Optioned Stock, notwithstanding the exercise of the Option. The
Company shall issue (or cause to be issued) such stock certificate promptly
after the Option is exercised. No adjustment will be made for a dividend or
other right for which the record date is prior to the date the stock certificate
is issued, except as provided in Section 12 of the Plan.
Purchaser shall enjoy rights as a stockholder until such time as
Purchaser disposes of the Shares or the Company and/or its assignee(s) exercises
the Right of First Refusal hereunder. Upon such exercise, Purchaser shall have
no further rights as a holder of the Shares so purchased except the right to
receive payment for the Shares so purchased in accordance with the provisions of
this Agreement, and Purchaser shall forthwith cause the certificate(s)
evidencing the Shares so purchased to be surrendered to the Company for transfer
or cancellation.
4. Limitations on Transfer. In addition to any other limitation on
-----------------------
transfer created by applicable securities laws, Purchaser shall not assign,
encumber or dispose of any interest in the Shares while the Shares are subject
to the Company's Repurchase Option (as defined below). After any Shares have
been released from such Repurchase Option, Purchaser shall not assign, encumber
or dispose of any interest in such Shares except in compliance with the
provisions below and applicable securities laws.
(a) Repurchase Option.
-----------------
(i) If Purchaser's Continuous Status as an Employee or Consultant
terminates for any reason (including for cause, death or disability), the
Company shall upon the date of such termination (the "Termination Date") have an
----------------
irrevocable, exclusive option (the "Repurchase Option") for a period of 60 days
-----------------
from such date to repurchase all or any portion of the Unvested Shares held by
Purchaser as of the Termination Date which have not yet been released from the
Company's Repurchase Option at the original purchase price per Share specified
in Section 1 (adjusted for any stock splits, stock dividends and the like).
(ii) The Repurchase Option shall be exercised by the Company by
written notice to Purchaser or Purchaser's executor and, at the Company's
option, (A) by delivery to Purchaser or Purchaser's executor with such notice of
a check in the amount of the purchase price for the Shares being purchased, or
(B) in the event Purchaser is indebted to the Company, by cancellation by the
Company of an amount of such indebtedness equal to the purchase price for the
Shares being repurchased, or (C) by a combination of (A) and (B) so that the
combined payment and cancellation of indebtedness equals such purchase price.
Upon delivery of such notice and payment of the purchase price in any of the
ways described above, the Company shall become the legal and beneficial owner of
the Shares being repurchased and all rights and interest therein or related
thereto, and the Company shall have the right to transfer to its own name the
number of Shares being repurchased by the Company, without further action by
Purchaser.
(iii) One hundred percent (100%) of the Unvested Shares shall
initially be subject to the Repurchase Option. The Unvested Shares shall be
released from the Repurchase Option in accordance with the Vesting Schedule set
forth in the Notice of Stock Option Grant
<PAGE>
until all Shares are released from the Repurchase Option. Fractional shares
shall be rounded to the nearest whole share.
(b) Company's Right of First Refusal. Before any Shares held by
--------------------------------
Purchaser or any transferee (either being sometimes referred to herein as the
"Holder") may be sold or otherwise transferred (including transfer by gift or
operation of law), the Company or its assignee(s) shall have a right of first
refusal to purchase the Shares on the terms and conditions set forth in this
Section (the "Right of First Refusal").
(i) Notice of Proposed Transfer. The Holder of the Shares shall
---------------------------
deliver to the Company a written notice (the "Notice") stating: (i) the
Holder's bona fide intention to sell or otherwise transfer such Shares; (ii) the
name of each proposed purchaser or other transferee ("Proposed Transferee");
(iii) the number of Shares to be transferred to each Proposed Transferee; and
(iv) the bona fide cash price or other consideration for which the Holder
proposes to transfer the Shares (the "Offered Price"), and the Holder shall
offer the Shares at the Offered Price to the Company or its assignee(s).
(ii) Exercise of Right of First Refusal. At any time within
----------------------------------
thirty (30) days after receipt of the Notice, the Company and/or its assignee(s)
may, by giving written notice to the Holder, elect to purchase all, but not less
than all, of the Shares proposed to be transferred to any one or more of the
Proposed Transferees, at the purchase price determined in accordance with
subsection (c) below.
(iii) Purchase Price. The purchase price ("Purchase Price") for
--------------
the Shares purchased by the Company or its assignee(s) under this Section shall
be the Offered Price. If the Offered Price includes consideration other than
cash, the cash equivalent value of the non-cash consideration shall be
determined by the Board of Directors of the Company in good faith.
(iv) Payment. Payment of the Purchase Price shall be made, at
-------
the option of the Company or its assignee(s), in cash (by check), by
cancellation of all or a portion of any outstanding indebtedness of the Holder
to the Company (or, in the case of repurchase by an assignee, to the assignee),
or by any combination thereof within 30 days after receipt of the Notice or in
the manner and at the times set forth in the Notice.
(v) Holder's Right to Transfer. If all of the Shares proposed
--------------------------
in the Notice to be transferred to a given Proposed Transferee are not purchased
by the Company and/or its assignee(s) as provided in this Section, then the
Holder may sell or otherwise transfer such Shares to that Proposed Transferee at
the Offered Price or at a higher price, provided that such sale or other
transfer is consummated within 120 days after the date of the Notice and
provided further that any such sale or other transfer is effected in accordance
with any applicable securities laws and the Proposed Transferee agrees in
writing that the provisions of this Section shall continue to apply to the
Shares in the hands of such Proposed Transferee. If the Shares described in the
Notice are not transferred to the Proposed Transferee within such period, a new
Notice shall be given to the Company, and the Company and/or its assignees shall
again be offered the Right of First Refusal before any Shares held by the Holder
may be sold or otherwise transferred.
(vi) Exception for Certain Family Transfers. Anything to the
--------------------------------------
contrary contained in this Section notwithstanding, the transfer of any or all
of the Shares during the Purchaser's lifetime or on the Purchaser's death by
will or intestacy to the Purchaser's immediate family or a trust for the benefit
of the Purchaser's immediate family shall be exempt from the provisions of this
Section. "Immediate Family" as used herein shall mean spouse, lineal descendant
or antecedent, father, mother, brother or sister. In such case, the transferee
or other recipient shall receive and hold the Shares so transferred subject to
the provisions of this Section, and there shall be no further transfer of such
Shares except in accordance with the terms of this Section.
(vii) Termination of Right of First Refusal. The Right of First
-------------------------------------
Refusal shall terminate as to any Shares 90 days after the (i) first sale of
Common Stock of the Company to the general public pursuant to a registration
statement filed with and declared effective by the Securities and Exchange
Commission under the Securities Act of 1933, as amended, or (ii) a merger of the
Company with a corporation whose stock is publicly traded on a national
exchange.
5. Transfer of Shares; Escrow.
--------------------------
(a) Purchaser hereby authorizes and directs the Secretary of the
Company, or such other person designated by the Company, to transfer any
Unvested Shares as to which the Repurchase Option has been exercised from
Purchaser to the Company.
(b) To ensure the availability for delivery of Purchaser's Unvested
Shares upon repurchase by the Company pursuant to the Repurchase Option under
Section 4(a), Purchaser hereby appoints Katrina A. Garnett of the Company, or
any other person designated by the Company, as escrow agent (the "Escrow Agent")
------------
and as Purchaser's attorney-in-fact to sell, assign and transfer unto the
Company such Unvested Shares, if any, as may be repurchased by the Company
pursuant to the Repurchase Option and shall, upon execution of this Agreement,
deliver and deposit with the Escrow Agent the share certificates representing
the Unvested Shares, together with two stock assignments duly endorsed in blank
and in the form attached hereto as Attachment A . The Unvested Shares and stock
------------
assignment shall be held by the Escrow Agent in escrow pursuant to Joint Escrow
Instructions in the form attached hereto as Attachment B , until (i) the Company
------------
exercises its Repurchase Option as provided in Section 4(a), (ii) such Unvested
Shares become Vested Shares, or (iii) such time as this Agreement no longer is
in effect. Upon vesting of the Unvested Shares, the Escrow Agent shall promptly
deliver to Purchaser the certificate or certificates representing such Shares in
the Escrow Agent's
<PAGE>
possession belonging to Purchaser, and the Escrow Agent shall be discharged of
all further obligations hereunder. Notwithstanding any of the foregoing,
however, the Escrow Agent shall nevertheless retain such certificate or
certificates as Escrow Agent if so required pursuant to other restriction
imposed pursuant to this Agreement.
(c) The Escrow Agent shall not be liable for any act it may do or omit
to do with respect to holding the Shares in escrow and while acting in good
faith and in the exercise of its judgment.
(d) Transfer or sale of the Shares is subject to restrictions on
transfer imposed by any applicable state and federal securities laws. Any
transferee shall hold such Shares subject to all the provisions hereof and shall
acknowledge the same by signing a copy of this Agreement.
(e) No Shares may be sold, pledged, hypothecated or otherwise
transferred by Purchaser until such Shares have become Vested Shares and are no
longer subject to any security agreement for the benefit of the Company.
6. Ownership, Voting Rights, Duties. This Agreement shall not affect in
--------------------------------
any way the ownership, voting rights or other rights or duties of Purchaser,
except as specifically provided herein. Purchaser shall enjoy rights as a
stockholder until such time as Purchaser disposes of the Shares or the Company
and/or its assignee(s) exercises either the Repurchase Option or the Right of
First Refusal hereunder. Upon any such exercise, Purchaser shall have no
further rights as a holder of the Shares so purchased except the right to
receive payment for the Shares so purchased in accordance with the provisions of
this Agreement, and Purchaser or the Escrow Agent, as the case may be, shall
forthwith cause the certificate(s) evidencing the Shares so purchased to be
surrendered to the Company for transfer or cancellation.
7. Tax Consultation. Purchaser understands that Purchaser may suffer
----------------
adverse tax consequences as a result of Purchaser's purchase or disposition of
the Shares. Purchaser represents that Purchaser has consulted with any tax
consultants Purchaser deems advisable in connection with the purchase or
disposition of the Shares and that Purchaser is not relying on the Company for
any tax advice.
8. Restrictive Legends; Stop-Transfer Orders; Market Standoff
----------------------------------------------------------
(a) Legends. Purchaser understands and agrees that the Company shall
-------
cause the legends set forth below or legends substantially equivalent thereto,
to be placed upon any certificate(s) evidencing ownership of the Shares together
with any other legends that may be required by the Company or by state or
federal securities laws:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED,
SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND
UNTIL REGISTERED UNDER THE ACT OR, IN THE OPINION OF COMPANY
COUNSEL SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH
OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE
THEREWITH.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON TRANSFER AND A RIGHT OF FIRST REFUSAL HELD BY THE
ISSUER OR ITS ASSIGNEE(S) AS SET FORTH IN AN AGREEMENT BETWEEN THE
ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH
MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH
TRANSFER RESTRICTIONS AND RIGHT OF FIRST REFUSAL ARE BINDING ON
TRANSFEREES OF THESE SHARES.
(b) Stop-Transfer Notices. Purchaser agrees that, in order to ensure
---------------------
compliance with the restrictions referred to herein, the Company may issue
appropriate "stop transfer" instructions to its transfer agent, if any, and
that, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
(c) Market Standoff. Purchaser hereby agrees that if so requested by
---------------
the Company or any representative of the underwriters in connection with any
registration of the offering of any securities of the Company under the
Securities Act of 1933, as amended (the "Securities Act"), neither Purchaser nor
--------------
Purchaser shall sell or otherwise transfer any Shares or other securities of the
Company during such period as the Company and the representatives of the
underwriters may request (not to exceed 180 days) following the effective date
of any registration statement of the Company filed under the Securities Act for
an underwritten public offering. The Company may impose stop-transfer
instructions with respect to Shares subject to the foregoing restrictions until
the end of such market standoff period.
(d) Refusal to Transfer. The Company shall not be required (i) to
-------------------
transfer on its books any Shares that have been sold or otherwise transferred in
violation of any of the provisions of this Agreement or (ii) to treat as owner
of such Shares or to accord the right to vote or pay dividends to any purchaser
or other transferee to whom such Shares shall have been so transferred.
9. Section 83(b) Election. Purchaser understands that Section 83(a) of
----------------------
the Internal Revenue Code of 1986, as amended (the
<PAGE>
"Code"), taxes as ordinary income for a [Nonstatutory] [Incentive] Stock Option
the difference between the amount paid for the Shares and the Fair Market Value
of the Shares as of the date any restrictions on the Shares lapse. In this
context, "restriction" means the right of the Company to buy back the Shares
-----------
pursuant to the Repurchase Option set forth in Section 4(a) of this Agreement.
Purchaser understands that Purchaser may elect to be taxed at the time the
Shares are purchased, rather than when and as the Repurchase Option expires, by
filing an election under Section 83(b) (an "83(b) Election") of the Code with
--------------
the Internal Revenue Service within 30 days from the date of purchase. Even if
the Fair Market Value of the Shares at the time of the execution of this
Agreement equals the amount paid for the Shares, the election must be made to
avoid income tax treatment under Section 83(a) in the future. Purchaser
acknowledge that it is Purchaser's sole responsibility and not the Company's to
timely file the 83(b) Election, even if Purchaser requests the Company or its
representative to make this filing on Purchaser's behalf. Purchaser understands
that failure to file such an election in a timely manner may result in adverse
tax consequences for Purchaser. Purchaser further understands that an additional
copy of such election form should be filed with his or her federal income tax
return for the calendar year in which the date of this Agreement falls.
Purchaser acknowledges that the foregoing is only a summary of the effect of
United States federal income taxation with respect to purchase of the Shares
hereunder, and does not purport to be complete. Purchaser further acknowledges
that the Company has directed Purchaser to seek independent advice regarding the
applicable provisions of the Code, the income tax laws of any municipality,
state or foreign country in which Purchaser may reside, and the tax consequences
of Purchaser's death.
Purchaser agrees that he or she will execute and deliver to the
Company with this executed Agreement a copy of the Acknowledgment and Statement
of Decision Regarding Section 83(b) Election (the "Acknowledgment") attached
--------------
hereto as Attachment C. Purchaser further agrees that he or she will execute
------------
and submit with the Acknowledgment a copy of the 83(b) Election attached hereto
as Attachment D (for tax purposes in connection with the early exercise of an
------------
option) if Purchaser has indicated in the Acknowledgment his or her decision to
make such an election.
10. Notices. All notices and other communications required or permitted
-------
hereunder shall be in writing, shall be effective when given, and shall in any
event be deemed to be given (a) five (5) days after the deposit with the U.S.
Postal Service, if delivered by first class mail, postage prepaid (b) upon
delivery, if delivered by hand, or (c) one business day after the business day
of deposit with Federal Express or similar overnight courier, freight prepaid,
and shall be addressed (i) if to Purchaser, at Purchaser's address as set forth
beneath Purchaser's signature to this Agreement, or at such other address as
Purchaser shall have furnished to the Company in writing, (ii) if to the
Company, to CrossWorlds Software, Inc., with copy to Venture Law Group, 2775
Sand Hill Road, Menlo Park, California 94025, Attention: Jon E. Gavenman, Esq.,
or Katrina A. Garnett, at CrossWorlds Software, Inc., or at such other address
as the Escrow Agent shall have furnished to the parties.
11. Successors and Assigns. The Company may assign any of its rights
----------------------
under this Agreement to single or multiple assignees, and this Agreement shall
inure to the benefit of the successors and assigns of the Company. Subject to
the restrictions on transfer herein set forth, this Agreement shall be binding
upon Purchaser and his or her heirs, executors, administrators, successors and
assigns.
12. Interpretation. Any dispute regarding the interpretation of this
--------------
Agreement shall be submitted by Purchaser or by the Company forthwith to the
Company's Board of Directors or the committee thereof that administers the Plan,
which shall review such dispute at its next regular meeting. The resolution of
such a dispute by the Board or committee shall be final and binding on the
Company and on Purchaser.
13. Governing Law; Severability. This Agreement shall be governed by and
---------------------------
construed in accordance with the laws of the State of California excluding that
body of law pertaining to conflicts of law. Should any provision of this
Agreement be determined by a court of law to be illegal or unenforceable, the
other provisions shall nevertheless remain effective and shall remain
enforceable.
14. Notices. Any notice required or permitted hereunder shall be given in
-------
writing and shall be deemed effectively given upon personal delivery or upon
deposit in the United States mail by certified mail, with postage and fees
prepaid, addressed to the other party at its address as shown below beneath its
signature, or to such other address as such party may designate in writing from
time to time to the other party.
15. Further Instruments. The parties agree to execute such further
-------------------
instruments and to take such further action as may be reasonably necessary to
carry out the purposes and intent of this Agreement.
16. Delivery of Payment. Purchaser herewith delivers to the Company the
-------------------
full Exercise Price for the Shares.
<PAGE>
17. Entire Agreement. The Plan and Notice of Grant/Option Agreement are
----------------
incorporated herein by reference. This Agreement, the Plan, the Option
Agreement and the Investment Representation Statement constitute the entire
agreement of the parties with respect to the subject matter hereof and supersede
in their entirety all prior undertakings and agreements of the Company and
Purchaser with respect to the subject matter hereof, and may not be modified
adversely to the Purchaser's interest except by means of a writing signed by the
Company and Purchaser.
Submitted by: Accepted by:
PURCHASER: CROSSWORLDS SOFTWARE, INC.
By:_________________________________ By:_________________________________
Name:_______________________________ Its:________________________________
Address: Address:
- ------- -------
____________________________________ 577 Airport Boulevard, Suite 800
____________________________________ Burlingame, CA 94010-2024
<PAGE>
ATTACHMENT A
------------
ASSIGNMENT SEPARATE FROM CERTIFICATE
------------------------------------
FOR VALUE RECEIVED and pursuant to that certain Early Exercise Notice
and Restricted Stock Purchase Agreement between the undersigned ("Purchaser")
--------
and CrossWorlds Software, Inc. (the "Company") dated _____________, ____ (the
-------
"Agreement"), Purchaser hereby sells, assigns and transfers unto
- ----------
_______________________________ (________) shares of the Common Stock of the
Company, standing in Purchaser's name on the books of the Company and
represented by Certificate No. ___, and hereby irrevocably appoints
_____________________________ to transfer said stock on the books of the Company
with full power of substitution in the premises. THIS ASSIGNMENT MAY ONLY BE
USED AS AUTHORIZED BY THE AGREEMENT AND THE ATTACHMENTS THERETO.
Dated: _________________
Signature:
_______________________________________
Purchaser
_______________________________________
Spouse of Purchaser (if applicable)
Instruction: Please do not fill in any blanks other than the signature line.
The purpose of this assignment is to enable the Company to exercise its
Repurchase Option set forth in the Agreement without requiring additional
signatures on the part of Purchaser.
<PAGE>
ATTACHMENT B
------------
JOINT ESCROW INSTRUCTIONS
-------------------------
_______________, ____
Katrina A. Garnett
CrossWorlds Software, Inc.
577 Airport Boulevard, Suite 800
Burlingame, CA 94010
As Escrow Agent for both CrossWorlds Software, Inc., a Delaware
corporation (the "Company"), and the undersigned purchaser of stock of the
-------
Company ("Purchaser"), you are hereby authorized and directed to hold the
---------
documents delivered to you pursuant to the terms of that certain Early Exercise
Notice and Restricted Stock Purchase Agreement ("Agreement"), dated as of
---------
__________ __, 19__, between the Company and the undersigned, in accordance with
the following instructions:
1. In the event that the Company and/or any assignee of the Company
(referred to collectively for convenience herein as the ("Company") exercises
-------
the Company's repurchase option set forth in the Agreement, the Company shall
give to Purchaser and you a written notice specifying the number of shares of
stock to be purchased, the purchase price, and the time for a closing hereunder
at the principal office of the Company. Purchaser and the Company hereby
irrevocably authorize and direct you to close the transaction contemplated by
such notice in accordance with the terms of said notice.
2. At the closing, you are directed (a) to date the stock assignments
necessary for the transfer in question, (b) to fill in the number of shares
being transferred, and (c) to deliver same, together with the certificate
evidencing the shares of stock to be transferred, to the Company or its
assignee, against the simultaneous delivery to you of the purchase price (by
cash, a check, or some combination thereof) for the number of shares of stock
being purchased pursuant to the exercise of the Company's repurchase option.
3. Purchaser irrevocably authorizes the Company to deposit with you
any certificates evidencing shares of stock to be held by you hereunder and any
additions and substitutions to said shares as defined in the Agreement.
Purchaser does hereby irrevocably constitute and appoint you as Purchaser's
attorney-in-fact and agent for the term of this escrow to execute with respect
to such securities all documents necessary or appropriate to make such
securities negotiable and to complete any transaction herein contemplated,
including but not limited to the filing with any applicable state blue sky
authority of any required applications for consent to, or notice of transfer of,
the securities. Subject to the provisions of this paragraph 3, Purchaser shall
exercise all rights and privileges of a shareholder of the Company while the
stock is held by you.
4. Upon written request of Purchaser, but no more than once per
calendar year, unless the Company's repurchase option has been exercised, you
will deliver to Purchaser a certificate or certificates representing so many
shares of stock as are not then subject to the Company's repurchase option.
Within sixty (60) days after cessation of Purchaser's continuous employment by
or services to the Company, or any parent or subsidiary of the Company, you will
deliver to Purchaser a certificate or certificates representing the aggregate
number of shares held or issued pursuant to the Agreement and not purchased by
the Company or its assignees pursuant to exercise of the Company's repurchase
option.
5. If at the time of termination of this escrow you should have in
your possession any documents, securities, or other property belonging to
Purchaser, you shall deliver all of the same to Purchaser and shall be
discharged of all further obligations hereunder.
6. Your duties hereunder may be altered, amended, modified or revoked
only by a writing signed by all of the parties hereto.
7. You shall be obligated only for the performance of such duties as
are specifically set forth herein and may rely and shall be protected in relying
or refraining from acting on any instrument reasonably believed by you to be
genuine and to have been signed or presented by the proper party or parties.
You shall not be personally liable for any act you may do or omit to do
hereunder as Escrow Agent or as attorney-in-fact for Purchaser while acting in
good faith, and any act done or omitted by you pursuant to the advice of your
own attorneys shall be conclusive evidence of such good faith.
8. You are hereby expressly authorized to disregard any and all
warnings given by any of the parties hereto or by any other person or
corporation, excepting only orders or process of courts of law and are hereby
expressly authorized to comply with and obey orders, judgments or decrees of any
court. In case you obey or comply with any such order, judgment or
<PAGE>
decree, you shall not be liable to any of the parties hereto or to any other
person, firm or corporation by reason of such compliance, notwithstanding any
such order, judgment or decree being subsequently reversed, modified, annulled,
set aside, vacated or found to have been entered without jurisdiction.
9. You shall not be liable in any respect on account of the
identity, authorities or rights of the parties executing or delivering or
purporting to execute or deliver the Agreement or any documents or papers
deposited or called for hereunder .
10. You shall not be liable for the outlawing of any rights under the
Statute of Limitations with respect to these Joint Escrow Instructions or any
documents deposited with you.
11. You shall be entitled to employ such legal counsel and other
experts as you may deem necessary properly to advise you in connection with your
obligations hereunder, may rely upon the advice of such counsel, and may pay
such counsel reasonable compensation therefor.
12. Your responsibilities as Escrow Agent hereunder shall terminate
if you shall cease to be an officer or agent of the Company or if you shall
resign by written notice to each party. In the event of any such termination,
the Company shall appoint a successor Escrow Agent.
13. If you reasonably require other or further instruments in
connection with these Joint Escrow Instructions or obligations in respect
hereto, the necessary parties hereto shall join in furnishing such instruments.
14. It is understood and agreed that should any dispute arise with
respect to the delivery and/or ownership or right of possession of the
securities held by you hereunder, you are authorized and directed to retain in
your possession without liability to anyone all or any part of said securities
until such disputes shall have been settled either by mutual written agreement
of the parties concerned or by a final order, decree or judgment of a court of
competent jurisdiction after the time for appeal has expired and no appeal has
been perfected, but you shall be under no duty whatsoever to institute or defend
any such proceedings.
15. All notices and other communications required or permitted
hereunder shall be in writing, shall be effective when given, and shall in any
event be deemed to be given (a) five (5) days after deposit with the U.S. Postal
Service, if delivered by first class mail, postage prepaid, (b) upon delivery,
if delivered by hand, or (c) one business day after the business day of deposit
with Federal Express or similar overnight courier, freight prepaid, and shall be
addressed to each of the other parties thereunto entitled at the following
addresses or at such other addresses as a party may designate by ten days
advance written notice to each of the other parties hereto.
COMPANY: CrossWorlds Software, Inc.
577 Airport Boulevard, Suite 800
Burlingame, CA 94010
Attn: Controller
PURCHASER:
ESCROW AGENT: Katrina A. Garnett
CrossWorlds Software, Inc.
577 Airport Boulevard, Suite 800
Burlingame, CA 94010
16. By signing these Joint Escrow Instructions, you become a party
hereto only for the purpose of said Joint Escrow Instructions; you do not become
a party to the Agreement.
17. This instrument shall be binding upon and inure to the benefit of
the parties hereto, and their respective successors and permitted assigns.
<PAGE>
18. These Joint Escrow Instructions shall be governed by, and
construed and enforced in accordance with, the laws of the State of California
as they apply to contracts entered into and wholly to be performed within such
state.
Very truly yours,
CROSSWORLDS SOFTWARE, INC.
____________________________________
Katrina A. Garnett
PURCHASER:
____________________________________
Purchaser
ESCROW AGENT:
____________________________________
Katrina A. Garnett
<PAGE>
ATTACHMENT C
------------
ACKNOWLEDGMENT AND STATEMENT OF DECISION
----------------------------------------
REGARDING SECTION 83(b) ELECTION
--------------------------------
The undersigned (which term includes the undersigned's spouse), a purchaser
of ___________ shares of Common Stock of CrossWorlds Software, Inc., a
California corporation (the "Company") by exercise of an option (the "Option")
------- ------
granted pursuant to the Company's 1999 Executive Stock Plan (the "Plan"), hereby
----
states as follows:
1. The undersigned acknowledges receipt of a copy of the Plan relating to
the offering of such shares. The undersigned has carefully reviewed the Plan and
the option agreement pursuant to which the Option was granted.
2. The undersigned either [check and complete as applicable]:
(a) ____ has consulted, and has been fully advised by, the
undersigned's own tax advisor,
_____________________________________, whose business address is
______________________________, regarding the federal, state and
local tax consequences of purchasing shares under the Plan, and
particularly regarding the advisability of making elections
pursuant to Section 83(b) of the Internal Revenue Code of 1986,
as amended (the "Code") and pursuant to the corresponding
----
provisions, if any, of applicable state law; or
(b) ____ has knowingly chosen not to consult such a tax advisor.
3. The undersigned hereby states that the undersigned has decided [check
as applicable]:
(a) ____ to make an election pursuant to Section 83(b) of the Code,
and is submitting to the Company, together with the undersigned's
executed Early Exercise Notice and Stock Purchase Agreement, an
executed form entitled "Election Under Section 83(b) of the
Internal Revenue Code of 1986;" or
(b) ____ not to make an election pursuant to Section 83(b) of the
Code.
4. Neither the Company nor any subsidiary or representative of the
Company has made any warranty or representation to the undersigned with respect
to the tax consequences of the undersigned's purchase of shares under the Plan
or of the making or failure to make an election pursuant to Section 83(b) of the
Code or the corresponding provisions, if any, of applicable state law.
Date:___________________________ _________________________________
Purchaser
Date:___________________________ _________________________________
Spouse of Purchaser (if applicable)
<PAGE>
ATTACHMENT D
------------
ELECTION UNDER SECTION 83(b)
----------------------------
OF THE INTERNAL REVENUE CODE OF 1986
------------------------------------
The undersigned taxpayer hereby elects, pursuant to Section 83(b) of the
Internal Revenue Code, to include in taxpayer's gross income for the current
taxable year, the amount of any income that may be taxable to taxpayer in
connection with taxpayer's receipt of the property described below:
1. The name, address, taxpayer identification number and taxable year of the
undersigned are as follows:
NAME OF TAXPAYER: ________________
NAME OF SPOUSE: ________________
ADDRESS:
IDENTIFICATION NO. OF TAXPAYER: _______________
IDENTIFICATION NO. OF SPOUSE: _______________
TAXABLE YEAR: __________
2. The property with respect to which the election is made is described as
follows:
______________ shares of the Common Stock $.001 par value, of CrossWorlds
Software, Inc., a California corporation (the "Company").
-------
3. The date on which the property was transferred is: _______________
4. The property is subject to the following restrictions:
Repurchase option at cost in favor of the Company upon termination of
taxpayer's employment or consulting relationship.
5. The Fair Market Value at the time of transfer, determined without regard to
any restriction other than a restriction which by its terms will never
lapse, of such property is: $____________
6. The amount (if any) paid for such property: $____________
The undersigned has submitted a copy of this statement to the person for whom
the services were performed in connection with the undersigned's receipt of the
above-described property. The transferee of such property is the person
performing the services in connection with the transfer of said property.
The undersigned understands that the foregoing election may not be revoked
- --------------------------------------------------------------------------
except with the consent of the Commissioner.
- -------------------------------------------
Dated:_______________________ ___________________________________
Purchaser
Dated:_______________________ ___________________________________
Spouse of Purchaser (if applicable)
<PAGE>
EXHIBIT B
---------
CROSSWORLDS SOFTWARE, INC.
1999 EXECUTIVE STOCK PLAN
EXERCISE AGREEMENT
CrossWorlds Software, Inc.
577 Airport Boulevard, Suite 800
Burlingame, CA 94010-2024
Attention: Stock Administrator
1. Exercise of Option. Effective as of today, ___________, 1999, the
------------------
undersigned ("Purchaser") __________________ hereby elects to exercise
Purchaser's option to purchase _________ shares of the Common Stock (the
"Shares") of CrossWorlds Software, Inc. (the "Company") under and pursuant to
the CrossWorlds Software , Inc., 1999 Executive Stock Plan, as amended (the
"Plan") and the Incentive Agreement dated _____________________________ (the
"Option Agreement").
2. Representations of Purchaser. Purchaser acknowledges that Purchaser
----------------------------
has received, read and understood the Plan and the Option Agreement and agrees
to abide by and be bound by their terms and conditions.
3. Rights as Stockholder. Until the stock certificate evidencing such
---------------------
Shares is issued (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company), no right to vote
or receive dividends or any other rights as a stockholder shall exist with
respect to the Optioned Stock, notwithstanding the exercise of the Option. The
Company shall issue (or cause to be issued) such stock certificate promptly
after the Option is exercised. No adjustment will be made for a dividend or
other right for which the record date is prior to the date the stock certificate
is issued, except as provided in Section 12 of the Plan.
Purchaser shall enjoy rights as a stockholder until such time as
Purchaser disposes of the Shares or the Company and/or its assignee(s) exercises
the Right of First Refusal hereunder. Upon such exercise, Purchaser shall have
no further rights as a holder of the Shares so purchased except the right to
receive payment for the Shares so purchased in accordance with the provisions of
this Agreement, and Purchaser shall forthwith cause the certificate(s)
evidencing the Shares so purchased to be surrendered to the Company for transfer
or cancellation.
4. Company's Right of First Refusal. Before any Shares held by Purchaser
--------------------------------
or any transferee (either being sometimes referred to herein as the "Holder")
may be sold or otherwise transferred (including transfer by gift or operation of
law), the Company or its assignee(s) shall have a right of first refusal to
purchase the Shares on the terms and conditions set forth in this Section (the
"Right of First Refusal").
(a) Notice of Proposed Transfer. The Holder of the Shares shall
---------------------------
deliver to the Company a written notice (the "Notice") stating: (i) the
Holder's bona fide intention to sell or otherwise transfer such Shares; (ii) the
name of each proposed purchaser or other transferee ("Proposed Transferee");
(iii) the number of Shares to be transferred to each Proposed Transferee; and
(iv) the bona fide cash price or other consideration for which the Holder
proposes to transfer the Shares (the "Offered Price"), and the Holder shall
offer the Shares at the Offered Price to the Company or its assignee(s).
(b) Exercise of Right of First Refusal. At any time within thirty
----------------------------------
(30) days after receipt of the Notice, the Company and/or its assignee(s) may,
by giving written notice to the Holder, elect to purchase all, but not less than
all, of the Shares proposed to be transferred to any one or more of the Proposed
Transferees, at the purchase price determined in accordance with subsection (c)
below.
(c) Purchase Price. The purchase price ("Purchase Price") for the
--------------
Shares purchased by the Company or its assignee(s) under this Section shall be
the Offered Price. If the Offered Price includes consideration other than cash,
the cash equivalent value of the non-cash consideration shall be determined by
the Board of Directors of the Company in good faith.
(d) Payment. Payment of the Purchase Price shall be made, at the
-------
option of the Company or its assignee(s), in cash (by check), by cancellation of
all or a portion of any outstanding indebtedness of the Holder to the Company
(or, in the case of repurchase by an assignee, to the assignee), or by any
combination thereof within 30 days after receipt of the Notice or in the manner
and at the times set forth in the Notice.
(e) Holder's Right to Transfer. If all of the Shares proposed in the
--------------------------
Notice to be transferred to a given Proposed Transferee are not purchased by the
Company and/or its assignee(s) as provided in this Section, then the Holder may
sell or otherwise transfer such Shares to that Proposed Transferee at the
Offered Price or at a higher price, provided that such sale or other transfer is
consummated within 120 days after the date of the Notice and provided further
that any such sale or other transfer is effected in accordance with any
applicable securities laws and the Proposed Transferee agrees in writing that
the provisions of this Section shall continue to apply to the Shares in the
hands of such Proposed Transferee. If the Shares described in the Notice are
not transferred to the Proposed Transferee within such period, a new Notice
shall be given to the Company, and the Company and/or its assignees shall again
be offered the Right of First Refusal before any Shares held by the Holder may
be sold or otherwise transferred.
(f) Exception for Certain Family Transfers. Anything to the contrary
--------------------------------------
contained in this Section notwithstanding, the transfer of any or all of the
Shares during the Purchaser's lifetime or on the Purchaser's death by will or
intestacy to the Purchaser's immediate family or a trust for the benefit of the
Purchaser's immediate family shall be exempt from the provisions of this
Section. "Immediate Family" as used herein shall mean spouse, lineal descendant
or antecedent, father, mother, brother or sister. In such case, the transferee
or other recipient shall receive and hold the Shares so transferred subject to
the provisions of this Section, and there shall be no further transfer of such
Shares except in accordance with the terms of this Section.
(g) Termination of Right of First Refusal. The Right of First Refusal
-------------------------------------
shall terminate as to any Shares 90 days after the (i) first sale of Common
Stock of the Company to the general public pursuant to a registration statement
filed with and declared effective by the Securities and Exchange Commission
under the Securities Act of 1933, as amended, or (ii) a merger of the Company
with a corporation whose stock is publicly traded on a national exchange.
<PAGE>
5. Tax Consultation. Purchaser understands that Purchaser may suffer
----------------
adverse tax consequences as a result of Purchaser's purchase or disposition of
the Shares. Purchaser represents that Purchaser has consulted with any tax
consultants Purchaser deems advisable in connection with the purchase or
disposition of the Shares and that Purchaser is not relying on the Company for
any tax advice.
6. Restrictive Legends; Stop-Transfer Orders; Market Standoff.
----------------------------------------------------------
(a) Legends. Purchaser understands and agrees that the Company shall
-------
cause the legends set forth below or legends substantially equivalent thereto,
to be placed upon any certificate(s) evidencing ownership of the Shares together
with any other legends that may be required by the Company or by state or
federal securities laws:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED, SOLD
OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL
REGISTERED UNDER THE ACT OR, IN THE OPINION OF COMPANY COUNSEL
SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR
TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE THEREWITH.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON TRANSFER AND A RIGHT OF FIRST REFUSAL HELD BY THE
ISSUER OR ITS ASSIGNEE(S) AS SET FORTH IN AN AGREEMENT BETWEEN THE
ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY
BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH TRANSFER
RESTRICTIONS AND RIGHT OF FIRST REFUSAL ARE BINDING ON TRANSFEREES
OF THESE SHARES.
(b) Stop-Transfer Notices. Purchaser agrees that, in order to
---------------------
ensure compliance with the restrictions referred to herein, the Company may
issue appropriate "stop transfer" instructions to its transfer agent, if any,
and that, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
(c) Market Standoff. Purchaser hereby agrees that if so requested
---------------
by the Company or any representative of the underwriters in connection with any
registration of the offering of any securities of the Company under the
Securities Act of 1933, as amended (the "Securities Act"), neither Purchaser nor
--------------
Purchaser shall sell or otherwise transfer any Shares or other securities of the
Company during such period as the Company and the representatives of the
underwriters may request (not to exceed 180 days) following the effective date
of any registration statement of the Company filed under the Securities Act for
an underwritten public offering. The Company may impose stop-transfer
instructions with respect to Shares subject to the foregoing restrictions until
the end of such market standoff period.
(d) Refusal to Transfer. The Company shall not be required (i) to
-------------------
transfer on its books any Shares that have been sold or otherwise transferred in
violation of any of the provisions of this Agreement or (ii) to treat as owner
of such Shares or to accord the right to vote or pay dividends to any purchaser
or other transferee to whom such Shares shall have been so transferred.
7. Successors and Assigns. The Company may assign any of its rights under
----------------------
this Agreement to single or multiple assignees, and this Agreement shall inure
to the benefit of the successors and assigns of the Company. Subject to the
restrictions on transfer herein set forth, this Agreement shall be binding upon
Purchaser and his or her heirs, executors, administrators, successors and
assigns.
8. Interpretation. Any dispute regarding the interpretation of this
--------------
Agreement shall be submitted by Purchaser or by the Company forthwith to the
Company's Board of Directors or the committee thereof that administers the Plan,
which shall review such dispute at its next regular meeting. The resolution of
such a dispute by the Board or committee shall be final and binding on the
Company and on Purchaser.
9. Governing Law; Severability. This Agreement shall be governed by and
---------------------------
construed in accordance with the laws of the State of California excluding that
body of law pertaining to conflicts of law. Should any provision of this
Agreement be determined by a court of law to be illegal or unenforceable, the
other provisions shall nevertheless remain effective and shall remain
enforceable.
10. Notices. Any notice required or permitted hereunder shall be given in
-------
writing and shall be deemed effectively given upon personal delivery or upon
deposit in the United States mail by certified mail, with postage and fees
prepaid, addressed to the other party at its address as shown below beneath its
signature, or to such other address as such party may designate in writing from
time to time to the other party.
11. Further Instruments. The parties agree to execute such further
-------------------
instruments and to take such further action as may be reasonably necessary to
carry out the purposes and intent of this Agreement.
12. Delivery of Payment. Purchaser herewith delivers to the Company the
-------------------
full Exercise Price for the Shares.
13. Entire Agreement. The Plan and Notice of Grant/Option Agreement are
----------------
incorporated herein by reference. This Agreement, the Plan, the Option
Agreement and the Investment Representation Statement constitute the entire
agreement of the parties with respect to the subject matter hereof and supersede
in their entirety all prior undertakings and agreements of the Company and
Purchaser with respect to the subject matter hereof, and may not be modified
adversely to
<PAGE>
the Purchaser's interest except by means of a writing signed by the Company and
Purchaser.
Submitted by: Accepted by:
PURCHASER:
CROSSWORLDS SOFTWARE, INC.
By:_______________________________ By:______________________________
Name:_____________________________ Its:_____________________________
Address: Address:
- ------- -------
__________________________________ 577 Airport Boulevard, Suite 800
__________________________________ Burlingame, CA 94010-2024
<PAGE>
EXHIBIT C
---------
INVESTMENT REPRESENTATION STATEMENT
PURCHASER: _____________________
COMPANY: CROSSWORLDS SOFTWARE, INC.
SECURITY: ___________ shares of Common Stock
AMOUNT: __________________________________
DATE: __________________________________
In connection with the purchase of the above-listed Securities, the
undersigned Purchaser represents to the Company the following:
(a) Purchaser is aware of the Company's business affairs and financial
condition and has acquired sufficient information about the Company to reach an
informed and knowledgeable decision to acquire the Securities. Purchaser is
acquiring these Securities for investment for Purchaser's own account only and
not with a view to, or for resale in connection with, any "distribution" thereof
within the meaning of the Securities Act of 1933, as amended (the "Securities
Act").
(b) Purchaser acknowledges and understands that the Securities constitute
"restricted securities" under the Securities Act and have not been registered
under the Securities Act in reliance upon a specific exemption therefrom, which
exemption depends upon, among other things, the bona fide nature of Purchaser's
investment intent as expressed herein. In this connection, Purchaser
understands that, in the view of the Securities and Exchange Commission, the
statutory basis for such exemption may be unavailable if Purchaser's
representation was predicated solely upon a present intention to hold these
Securities for the minimum capital gains period specified under tax statutes,
for a deferred sale, for or until an increase or decrease in the market price of
the Securities, or for a period of one year or any other fixed period in the
future. Purchaser further understands that the Securities must be held
indefinitely unless they are subsequently registered under the Securities Act or
an exemption from such registration is available. Purchaser further
acknowledges and understands that the Company is under no obligation to register
the Securities. Purchaser understands that the certificate evidencing the
Securities will be imprinted with a legend which prohibits the transfer of the
Securities unless they are registered or such registration is not required in
the opinion of counsel satisfactory to the Company and any other legend required
under applicable state securities laws.
(c) Purchaser is familiar with the provisions of Rule 701 and Rule 144,
each promulgated under the Securities Act, which, in substance, permit limited
public resale of "restricted securities" acquired, directly or indirectly from
the issuer thereof, in a non-public offering subject to the satisfaction of
certain conditions. Rule 701 provides that if the issuer qualifies under Rule
701 at the time of the grant of the Option to the Purchaser, the exercise will
be exempt from registration under the Securities Act. In the event the Company
becomes subject to the reporting requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, ninety (90) days thereafter (or such longer
period as any market stand-off agreement may require) the Securities exempt
under Rule 701 may be resold, subject to the satisfaction of certain of the
conditions specified by Rule 144, including: (1) the resale being made through
a broker in an unsolicited "broker's transaction" or in transactions directly
with a market maker (as said term is defined under the Securities Exchange Act
of 1934); and, in the case of an affiliate, (2) the availability of certain
public information about the Company, (3) the amount of Securities being sold
during any three month period not exceeding the limitations specified in Rule
144(e), and (4) the timely filing of a Form 144, if applicable.
In the event that the Company does not qualify under Rule 701 at the time
of grant of the Option, then the Securities may be resold in certain limited
circumstances subject to the provisions of Rule 144, which requires the resale
to occur not less than one year after the later of the date the Securities were
sold by the Company or the date the Securities were sold by an affiliate of the
Company, within the meaning of Rule 144; and, in the case of acquisition of the
Securities by an affiliate, or by a non-affiliate who subsequently holds the
Securities less than two years, the satisfaction of the conditions set forth in
sections (1), (2), (3) and (4) of the paragraph immediately above.
(d) Purchaser hereby agrees that if so requested by the Company or any
representative of the underwriters in connection with any registration of the
offering of any securities of the Company under the Securities Act, Purchaser
shall not sell or otherwise transfer any Shares or other securities of the
Company during the 180-day period following the effective date of a registration
statement of the Company filed under the Securities Act; provided, however, that
such restriction shall only apply to the first registration statement of the
Company to become effective under the Securities Act which include securities to
be sold on behalf of the Company to the public in an underwritten public
offering under the Securities Act. The Company may impose stop-transfer
instructions with respect to securities subject to the foregoing restrictions
until the end of such 180-day period.
<PAGE>
(e) Purchaser further understands that in the event all of the applicable
requirements of Rule 701 or 144 are not satisfied, registration under the
Securities Act, compliance with Regulation A, or some other registration
exemption will be required; and that, notwithstanding the fact that Rules 144
and 701 are not exclusive, the Staff of the Securities and Exchange Commission
has expressed its opinion that persons proposing to sell private placement
securities other than in a registered offering and otherwise than pursuant to
Rules 144 or 701 will have a substantial burden of proof in establishing that an
exemption from registration is available for such offers or sales, and that such
persons and their respective brokers who participate in such transactions do so
at their own risk. Purchaser understands that no assurances can be given that
any such other registration exemption will be available in such event.
Signature of Purchaser:
______________________________
Date:___________________, 19__
<PAGE>
EXHIBIT B
---------
Employee Agreement
CROSSWORLDS SOFTWARE, INC.
Employment, Confidential Information and Invention Assignment Agreement
As a condition of my employment with CrossWorlds Software, Inc., its
subsidiaries, affiliates, successors or assigns (together the "Company"), and in
-------
consideration of my employment with the Company and my receipt of the
compensation now and hereafter paid to me by Company, I agree to the following:
1. Employment.
----------
(a) I understand and acknowledge that my employment with the Company
is for an unspecified duration and constitutes `at-will' employment. I
acknowledge that this employment relationship may be terminated at any time,
with or without good cause or for any or no cause, at the option either of the
Company or myself, with or without notice.
(b) I agree that, during the term of my employment with the Company, I
will not engage in any other employment, occupation, consulting or other
business activity directly related to the business in which the Company is now
involved or becomes involved during the term of my employment, nor will I engage
in any other activities that conflict with my obligations to the Company.
(c) I agree to adhere to the Company's Conflict of Interest Guidelines
attached as Exhibit A hereto.
---------
2. Confidential Information.
---------------------------
(a) Company Information. I agree at all times during the term of my
-------------------
employment and thereafter to hold in strictest confidence, and not to use except
for the benefit of the Company or to disclose to any person, firm or corporation
without written authorization of the Board of Directors of the Company, any
Confidential Information of the Company. I understand that "Confidential
------------
Information" means any Company proprietary information, technical data, trade
- -----------
secrets or know-how, including, but not limited to, research, product plans,
products, services, customer lists and customers (including, but not limited to,
customers of the Company on whom I called or with whom I became acquainted
during the term of my employment), markets, software, developments, inventions,
processes, formulas, technology, designs, drawings, engineering, hardware
configuration information, marketing, finances or other business information
disclosed to me by the Company either directly or indirectly in writing, orally
or by drawings or observation of parts or equipment. I further understand that
Confidential Information does not include any of the foregoing items which has
become publicly known and
<PAGE>
made generally available through no wrongful act of mine or of others who were
under confidentiality obligations as to the item or items involved.
(b) Former Employer Information. I agree that I will not, during my
---------------------------
employment with the Company, improperly use or disclose any proprietary
information or trade secrets of any former or concurrent employer or other
person or entity and that I will not bring onto the premises of the Company any
unpublished document or proprietary information belonging to any such employer,
person or entity unless consented to in writing by such employer, person or
entity.
(c) Third Party Information. I recognize that the Company has
-----------------------
received and in the future will receive from third parties their confidential or
proprietary information subject to a duty on the Company's part to maintain the
confidentiality of such information and to use it only for certain limited
purposes. I agree to hold all such confidential or proprietary information in
the strictest confidence and not to disclose it to any person, firm or
corporation or to use it except as necessary in carrying out my work for the
Company consistent with the Company's agreement with such third party.
3. Inventions.
-------------
(a) Assignment of Inventions. I agree that I will promptly make full
------------------------
written disclosure to the Company, will hold in trust for the sole right and
benefit of the Company, and hereby assign to the Company, or its designee, all
my right, title, and interest in and to any and all inventions, original works
of authorship, developments, concepts, improvements or trade secrets, whether or
not patentable or registrable under copyright or similar laws, which I may
solely or jointly conceive or develop or reduce to practice, or cause to be
conceived or developed or reduced to practice, during the period of time I am in
the employ of the Company (collectively referred to as "Inventions") and which
----------
(i) are developed using the equipment, supplies, facilities or Confidential
Information of the Company, (ii) result from or are suggested by work performed
by me for the Company, or (iii) relate (or, for employees in Kansas, Minnesota
or Washington only, which directly relate) to the business, or to the actual or
demonstrably anticipated research or development of the Company will be the sole
and exclusive property of the Company, and I will and hereby do assign all my
right, title and interest in such Inventions to the Company, except as provided
in Section 3(f). I further acknowledge that all original works of authorship
which are made by me (solely or jointly with others) within the scope of and
during the period of my employment with the Company and which are protectible by
copyright are `works made for hire,' as that term is defined in the United
States Copyright Act.
(b) Patent and Copyright Registrations. I agree to assist the
----------------------------------
Company, or its designee, at the Company's expense, in every proper way to
secure the Company's rights in the Inventions and any copyrights, patents, mask
work rights or other intellectual property rights relating thereto in any and
all countries, including the disclosure to the Company of all pertinent
information and data with respect thereto, the execution of all applications,
specifications, oaths, assignments and all other instruments which the Company
shall deem necessary in order to apply for and obtain such rights and in order
to assign and convey to the Company, its successors,
-2-
<PAGE>
assigns, and nominees the sole and exclusive rights, title and interest in and
to such Inventions, and any copyrights, patents, mask work rights or other
intellectual property rights relating thereto. I further agree that my
obligation to execute or cause to be executed, when it is in my power to do
so, any such instrument or papers shall continue after the termination of this
Agreement. If the Company is unable because of my mental or physical
incapacity or for any other reason to secure my signature to apply for or to
pursue any application for any United States or foreign patents or copyright
registrations covering Inventions or original works of authorship assigned to
the Company as above, then I hereby irrevocably designate and appoint the
Company and its duly authorized officers and agents as my agent and attorney
in fact, to act for and in my behalf and stead to execute and file any such
applications and to do all other lawfully permitted acts to further the
prosecution and issuance of letters patent or copyright registrations thereon
with the same legal force and effect as if executed by me.
(c) Maintenance of Records. I agree to keep and maintain adequate and
----------------------
current written records of all Inventions made by me (solely or jointly with
others) during the term of my employment with the Company. The records will be
in the form of notes, sketches, drawings, and any other format that may be
specified by the Company. The records will be available to and remain the sole
property of the Company at all times.
(d) Inventions Assigned to the United States. I agree to assign to
----------------------------------------
the United States government all my right, title, and interest in and to any and
all Inventions whenever such full title is required to be in the United States
by a contract between the Company and the United States or any of its agencies.
(e) Inventions Retained and Licensed. I provide below a list of all
--------------------------------
inventions, original works of authorship, developments, improvements, and trade
secrets which were made by me prior to my employment with the Company
(collectively referred to as "Prior Inventions"), which belong to me, which
----------------
relate to the Company's proposed business, products or research and development,
and which are not assigned to the Company hereunder; or, if no such list is
attached, I represent that there are no such Prior Inventions. If in the course
of my employment with the Company, I incorporate into a Company product, process
or machine a Prior Invention owned by me or in which I have an interest, the
Company is hereby granted and shall have a nonexclusive, royalty-free,
irrevocable, perpetual, worldwide license to make, have made, modify, use and
sell such Prior Invention as part of or in connection with such product, process
or machine.
Prior Inventions:
Identifying Number
Title Date or Brief Description
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
-3-
<PAGE>
(f) Exception to Assignments. I understand that the provisions of
------------------------
this Agreement requiring assignment of Inventions to the Company do not apply to
any invention that (i) I develop entirely on my own time; and (ii) I develop
without using Company equipment, supplies, facilities, or trade secret
information; and (iii) do not result from any work performed by me for the
Company; and (iv) do not relate (or, for employees in Kansas, Minnesota or
Washington only, do not directly relate) at the time of conception or reduction
--------
to practice to the Company's business, or to its actual or demonstrably
anticipated research or development. Any such invention will be owned entirely
by me, even if developed by me during the time period in which I am employed by
the Company./1/ I will advise the Company promptly in writing of any inventions
that I believe meet the criteria for exclusion set forth herein and are not
otherwise disclosed pursuant to Section 3(e) above.
(g) Return of Company Documents. I agree that, at the time of leaving
---------------------------
the employ of the Company, I will deliver to the Company (and will not keep in
my possession, recreate or deliver to anyone else) any and all devices, records,
data, notes, reports, proposals, lists, correspondence, specifications, drawings
blueprints, sketches, materials, equipment, other documents or property, or
reproductions of any aforementioned items developed by me pursuant to my
employment with the Company or otherwise belonging to the Company, its
successors or assigns. In the event of the termination of my employment, I
agree to sign and deliver the `Termination Certificate' attached hereto as
-------------------------
Exhibit B.
- ---------
4. Notification of New Employer. In the event that I leave the employ of
----------------------------
the Company, I hereby grant consent to notification by the Company to my new
employer or consulting client about my rights and obligations under this
Agreement.
5. No Solicitation of Employees. In consideration for my employment by
----------------------------
the Company and other valuable consideration, receipt of which is hereby
acknowledged, I agree that during the period of my association with the
Company as an employee, officer and/or director and a period of twelve (12)
months thereafter, I shall not solicit the employment of any person
- -----------------
/1/ For employees in California only, the Company acknowledges the applicability
of Section 2870 of the California Labor Code, which provides: "Any provision in
an employment agreement which provides that an employee shall assign, or offer
to assign, any of his or her rights in an invention to his or her employer shall
not apply to an invention that the employee developed entirely on his or her own
time without using the employer's equipment, supplies, facilities, or trade
secret information except for those inventions that either: (i) relate at the
time of conception or reduction to practice of the invention to the employer's
business, or actual or demonstrably anticipated research or development of the
employer and (ii) result from any work performed by the employee for the
employer. To the extent a provision in an employment agreement purports to
require an employee to assign an invention otherwise excluded from being
required to be assigned under subdivision (a), the provision is against the
public policy of this state and is unenforceable."
-4-
<PAGE>
who shall then be employed by the Company (as an employee or consultant) or
who shall have been employed by the Company (as an employee or consultant)
within the prior twelve (12) month period, on behalf of myself or any other
person, firm, corporation, association or other entity, directly or
indirectly.
6. Representations. I represent that my performance of all the terms of
---------------
this Agreement will not breach any agreement to keep in confidence propriety
information acquired by me in confidence or in trust prior to my employment by
the Company. I have not entered into, and I agree I will not enter into, any
oral or written agreement in conflict herewith. I agree to execute any proper
oath or verify any proper document required to carry out the terms of this
Agreement.
7. Arbitration and Equitable Relief.
--------------------------------
(a) Arbitration. Except as provided in Section 7(b) below, I agree
-----------
that any dispute or controversy arising out of or relating to any
interpretation, construction, performance or breach of this Agreement, shall be
settled by arbitration to be held in San Mateo County, California, in accordance
with the rules then in effect of the American Arbitration Association. The
arbitrator may grant injunctions or other relief in such dispute or controversy.
The decision of the arbitrator shall be final, conclusive and binding on the
parties to the arbitration. Judgment may be entered on the arbitrator's
decision in any court having jurisdiction. The Company and I shall each pay
one-half of the costs and expenses of such arbitration, and each of us shall
separately pay our counsel fees and expenses.
(b) Equitable Remedies. I agree that it would be impossible or
------------------
inadequate to measure and calculate the Company's damages from any breach of the
covenants set forth in Sections 2, 3 and 5 herein. Accordingly, I agree that if
I breach any such Section, the Company will have available, in addition to any
other right or remedy available, the right to obtain an injunction from a court
of competent jurisdiction restraining such breach or threatened breach and to
specific performance of any such provision of this Agreement. I further agree
that no bond or other security shall be required in obtaining such equitable
relief and I hereby consent to the issuance of such injunction and to the
ordering of specific performance.
8. General Provisions.
------------------
(a) Governing Law; Consent to Personal Jurisdiction. This Agreement
-----------------------------------------------
will be governed by the laws of the State of California as they apply to
contracts entered into and wholly to be performed within such State. I hereby
expressly consent to the nonexclusive personal jurisdiction and venue of the
state and federal courts located in the federal Northern District of California
for any lawsuit filed there against me by the Company arising from or relating
to this Agreement.
(b) Entire Agreement. This Agreement sets forth the entire agreement
----------------
and understanding between the Company and me relating to the subject matter
herein and merges all prior discussions between us. No modification of or
amendment to this Agreement, nor any
-5-
<PAGE>
waiver of any rights under this Agreement, will be effective unless in writing
signed by the party to be charged. Any subsequent change or changes in my
duties, salary or compensation will not affect the validity or scope of this
Agreement.
(b) Severability. If one or more of the provisions in this Agreement
------------
are deemed void by law, then the remaining provisions will continue in full
force and effect.
-6-
<PAGE>
(c) Successors and Assigns. This Agreement will be binding upon my
----------------------
heirs, executors, administrators and other legal representatives and will be for
the benefit of the Company, its successors, and its assigns.
Date: October 5, 1999
/s/ Alfred J. Amoroso
----------------------------------------
Signature
----------------------------------------
Witness
Name (Print)
-7-
<PAGE>
EXHIBIT A
---------
CROSSWORLDS SOFTWARE, INC.
Conflict of Interest Guidelines
It is the policy of CrossWorlds Software, Inc. and its subsidiaries and
affiliates (together, the "Company") to conduct its affairs in strict compliance
-------
with the letter and spirit of the law and to adhere to the highest principles of
business ethics. Accordingly, all officers, employees and independent
contractors must avoid activities which are in conflict, or give the appearance
of being in conflict, with these principles and with the interests of the
Company. The following are potentially compromising situations which must be
avoided. Any exceptions must be reported to the President and written approval
for continuation must be obtained.
1. Revealing confidential information to outsiders or misusing
confidential information. Unauthorized divulging of information is a violation
of this policy whether or not for personal gain and whether or not harm to the
Company is intended. (The Employment, Confidential Information and Invention
Assignment Agreement elaborates on this principle and is a binding agreement.)
2. Accepting or offering substantial gifts, excessive entertainment,
favors or payments which may be deemed to constitute undue influence or
otherwise be improper or embarrassing to the Company.
3. Participating in civic or professional organizations that might involve
divulging confidential information of the Company.
4. Initiating or approving any form of personal or social harassment of
employees.
5. Investing or holding outside directorship in suppliers, customers, or
competing companies, including financial speculations, where such investment or
directorship might influence in any manner a decision or course of action of the
Company.
6. Borrowing from or lending to employees, customers or suppliers.
7. Acquiring real estate of interest to the Company.
8. Improperly using or disclosing to the Company any proprietary
information or trade secrets of any former or concurrent employer or other
person or entity with whom obligations of confidentiality exist.
9. Unlawfully discussing prices, costs, customers, sales or markets with
competing companies or their employees.
10. Making any unlawful agreement with distributors with respect to
prices.
<PAGE>
11. Improperly using or authorizing the use of any inventions which are
the subject of patent claims of any other person or entity.
12. Engaging in any conduct which is not in the best interest of the
Company.
Each officer, employee and independent contractor must take every necessary
action to ensure compliance with these guidelines and to bring problem areas to
the attention of higher management for review. Violations of this conflict of
interest policy may result in discharge without warning.
-9-
<PAGE>
EXHIBIT B
---------
CROSSWORLDS SOFTWARE, INC.
Termination Certificate
This is to certify that I do not have in my possession, nor have I failed
to return, any devices, records, data, notes, reports, proposals, lists,
correspondence, specifications, drawings, blueprints, sketches, materials,
equipment, other documents or property, or reproductions of any aforementioned
items belonging to CrossWorlds Software, Inc., its subsidiaries, affiliates,
successors or assigns (together, the "Company").
-------
I further certify that I have complied with all the terms of the Company's
Employment, Confidential Information and Invention Assignment Agreement signed
by me (the "Employee Agreement"), including the reporting of any inventions and
------------------
original works of authorship (as defined therein) conceived or made by me
(solely or jointly with others) covered by the Employee Agreement.
I further agree that, in compliance with the Employment Agreement, I will
preserve as confidential all trade secrets, confidential knowledge, data or
other proprietary information relating to products, processes, know-how,
designs, formulas, developmental or experimental work, computer programs, data
bases, other original works of authorship, customer lists, business plans,
financial information or other subject matter pertaining to any business of the
Company or any of its employees, clients, consultants or licensees.
I further agree that for twelve (12) months from this date, I shall not
solicit the employment of any person who shall then be employed by the Company
(as an employee or consultant) or who shall have been employed by the Company
(as an employee or consultant) within the prior twelve (12) month period, on
behalf of myself or any other person, firm, corporation, association or other
entity, directly or indirectly, all as provided more fully with the Employee
Agreement.
Date: ___________________, 199__
----------------------------------------
Signature
----------------------------------------
Name (Print)
<PAGE>
EXHIBIT 10.9
EMPLOYMENT AGREEMENT
This AGREEMENT is entered into as of 1-1-2000, by and between Arthur
R. Matin (the "Executive") and CrossWorlds Software, Inc., a Delaware
corporation (the "Company").
1. Duties and Scope of Employment.
------------------------------
(a) Position. For the term of his employment under this
Agreement ("Employment"), the Company agrees to employ the Executive in the
position of Senior Vice President of Worldwide Sales. The Executive shall report
to the Company's Chief Executive Officer.
(b) Obligations to the Company. During the term of his
--------------------------
Employment, the Executive shall devote his full business efforts and time to the
Company. The Executive shall comply with the Company's policies and rules, as
they may be in effect from time to time during the term of his Employment.
(c) No Conflicting Obligations. The Executive represents and
--------------------------
warrants to the Company that he is under no obligations or commitments, whether
contractual or otherwise, that are inconsistent with his obligations under this
Agreement. The Executive represents and warrants that he will not use or
disclose, in connection with his employment by the Company, any trade secrets or
other proprietary information or intellectual property in which the Executive or
any other person has any right, title or interest and that his employment by the
Company as contemplated by this Agreement will not infringe or violate the
rights of any other person or entity. The Executive represents and warrants to
the Company that he has returned all property and confidential information
belonging to any prior employers.
(d) Commencement Date. The Executive shall commence full-time
-----------------
Employment on January 1, 2000.
(e) Office Location. The Executive's office will be located in
---------------
Westport, Connecticut.
2. Cash and Incentive Compensation.
-------------------------------
(a) Salary. The Company shall pay the Executive as compensation
------
for his services a base salary at the rate of not less than $20,833.33 per
month, payable in accordance with the Company's standard payroll schedule. (The
compensation specified in this Subsection (a), together with any increases in
such compensation that the Company may grant from time to time, is referred to
in this Agreement as "Base Salary.")
(b) Sign-On Bonus. The Executive shall be paid a sign-on bonus
-------------
of $300,000, less all applicable deductions, that will be earned when Executive
commences Employment. This bonus will be paid on or before March 1, 2000.
(c) Target Bonus. The Executive will be eligible to earn an
------------
annual bonus (the "Bonus") with a target of $225,000 based on his achievement of
objective criteria
<PAGE>
established by the Company's Chief Executive Officer. Any bonus payable
hereunder shall be payable annually in accordance with the Company's normal
practices and policies.
(d) Stock Options.
-------------
(i) Option Grant. Subject to the approval of the Company's
------------
Board of Directors, the Company shall grant the Executive a stock option to
purchase 400,000 shares of the Company's common stock. This option will be
granted as soon as reasonably practicable after the date Executive's Employment
commences. The per share exercise price of the option will be equal to the per
share fair market value of the common stock on the date of grant, as determined
by the Board of Directors. The term of such option shall be 10 years, subject to
earlier expiration in the event of the termination of the Executive's
Employment. Such option shall be immediately exercisable, if Executive elects to
do so, but the purchased shares shall be subject to repurchase by the Company at
the exercise price in the event that the Executive's Employment terminates
before he vests in the shares, except that 50,000 shares of the option shall
vest immediately upon commencement of employment and will not be subject to the
Company's right of repurchase. As to the remaining 350,000 shares of the option,
the Executive shall vest in the option shares, and the Company's repurchase
right if applicable shall lapse, in equal monthly installments over forty-eight
(48) months from the date Executive's Employment commences.
(ii) Exercise of Options. The option grant made pursuant to
-------------------
subsection (i) above shall be subject to the Company's standard form of stock
option agreement, a copy of which is attached hereto as an exhibit and must be
executed as a condition of the grant and exercise. Executive shall have the
right to exercise his option shares while he remains employed by the Company by
delivering a full recourse promissory note secured by a pledge of the shares
purchased thereunder. If required under the laws of the Company's state of
incorporation, Executive shall pay cash for the par value of the exercised
option shares. Interest on the promissory note shall accrue at the minimum
applicable federal rate under the Internal Revenue Code to avoid imputed income.
The principal balance and interest shall be due in full on the earlier of the
fourth anniversary of Executive's hire date or 90 days after the termination of
Executive's Employment. The note shall be subject to such other terms and
conditions as may be agreed to by the Company and Executive. The credit extended
to Executive hereunder shall equal the aggregate option price payable for the
purchased shares.
(iii) Registration of Shares. The Company will take all
----------------------
reasonable steps at its sole cost and expense to register Executive's stock
following an initial public offering so that Executive can sell any vested
shares of stock if he so chooses following the expiration of any applicable
lock-up period. Nothing herein will be interpreted as requiring the Company to
breach any rights regarding the registration of securities under the Securities
Act of 1933.
(iv) Effect of Termination of Employment. If the Company
-----------------------------------
terminates Executive's Employment "Without Cause," or Executive resigns for
"Good Reason," then Executive shall receive additional vesting of all of his
outstanding options and, if applicable, the Company's repurchase rights as to
such shares will lapse, as if he had provided an additional twelve (12) months
of service from the date employment terminates.
2
<PAGE>
(v) Effect of Change of Control. In the event of a Change of
---------------------------
Control during the period of Executive's employment, then each of Executive's
outstanding options will become fully vested and, if applicable, the Company's
repurchase rights will lapse as to all shares subject to all options.
(vi) Definitions.
-----------
(a) "Change of Control." For all purposes under this
--------------------
Agreement, "Change of Control" shall mean (i) a merger or consolidation in which
securities possessing at least fifty percent (50%) of the total combined voting
power of the Corporation's outstanding securities are transferred to a person or
persons different from the persons holding those securities immediately prior to
such transaction, or (ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete liquidation or
dissolution of the Corporation.
(b) "Good Reason." For all purposes under this
--------------
Agreement, "Good Reason" for Executive's resignation will exist if he resigns
within sixty days of any of the following: (i) any reduction in his base salary
or target bonus; (ii) any material reduction in his benefits; (iii) a change in
his position with the Company or a successor company which materially reduces
his duties or level of responsibility; or (iv) any requirement that he relocate
his place of employment by more than thirty-five (35) miles from his then
current office, provided such reduction, change or reduction is effected by the
Company without his written consent. A resignation by Executive under any other
circumstances or for any other reasons will be a resignation "Without Good
Reason."
(c) Termination for "Cause." For all purposes under
------------------------
this Agreement, a termination for "Cause" shall mean a good faith determination
by the Company's Board of Directors that Executive's Employment be terminated
for any of the following reasons: (i) willful misconduct which materially
damages the Company; (ii) misappropriation of the assets of the Company; or
(iii) conviction of, or a plea of "guilty" or "no contest" to, a felony under
the laws of the United States or any state thereof. A termination of Executive's
Employment in any other circumstances or for any other reasons will be a
termination "Without Cause."
3. Vacation and Executive Benefits. During the term of his
-------------------------------
Employment, the Executive shall be eligible for paid vacation in accordance with
the Company's standard policy for similarly situated employees, as it may be
amended from time to time. During the term of his Employment, the Executive
shall be eligible to participate in any employee benefit plans maintained by the
Company for similarly situated employees, subject in each case to the generally
applicable terms and conditions of the plan in question and to the
determinations of any person or committee administering such plan.
4. Business Expenses. During the term of his Employment, the
-----------------
Executive shall be authorized to incur necessary and reasonable travel,
entertainment and other business expenses in connection with his duties
hereunder. The Company shall reimburse the Executive for such expenses upon
presentation of an itemized account and appropriate supporting documentation,
all in accordance with the Company's generally applicable policies.
3
<PAGE>
5. Term of Employment.
------------------
(a) Basic Rule. The Company agrees to continue the
----------
Executive's Employment, and the Executive agrees to remain in Employment with
the Company, from the commencement date set forth in Section 1(d) until the date
when the Executive's Employment terminates pursuant to Subsection (b) below (the
"Employment Period"). The Executive's Employment with the Company shall be "at
will," which means that either the Executive or the Company may terminate the
Executive's Employment at any time, for any reason, with or without Cause. Any
contrary representations, which may have been made to the Executive shall be
superseded by this Agreement. This Agreement shall constitute the full and
complete agreement between the Executive and the Company on the "at will" nature
of the Executive's Employment, which may only be changed in an express written
agreement signed by the Executive and a duly authorized officer of the Company.
(b) Termination. The Company may terminate the Executive's
-----------
Employment at any time and for any reason (or no reason), and with "Cause" or
"Without Cause," by giving the Executive notice in writing. The Executive may
terminate his Employment by giving the Company 14 days' advance notice in
writing. The Executive's Employment shall terminate automatically in the event
of his death.
(c) Rights Upon Termination. Except as expressly provided in
-----------------------
Section 6, upon the termination of the Executive's Employment pursuant to this
Section 5, the Executive shall be entitled to the compensation, benefits and
reimbursements described in Sections 2, 3 and 4 for the period preceding the
effective date of the termination, including payment of a pro rata share of
Executive's target bonus for the year in which the termination occurs. The
payments under this Agreement shall fully discharge all responsibilities of the
Company to the Executive.
(d) Termination of Agreement. This Agreement shall terminate
------------------------
when all obligations of the parties hereunder have been satisfied. The
termination of this Agreement shall not limit or otherwise affect any of the
Executive's obligations under Section 7.
6. Termination Benefits.
--------------------
(a) Severance Pay. If the Company terminates the Executive's
-------------
Employment "Without Cause" or Executive resigns for "Good Reason" other than in
connection with a Change of Control, then the Company shall pay the Executive a
lump sum payment equal to the sum of (i) six (6) months of his Base Salary plus
(ii) one-half of his annual target bonus. The Company also will pay for the cost
of Executive continuing his medical coverage for himself and his eligible
dependents under COBRA for a period of six (6) months following the date his
employment terminates if he elects to continue that coverage. Executive's Base
Salary shall be paid at the rate in effect at the time of the termination of
Employment and in accordance with the Company's standard payroll procedures.
(b) Severance Pay Upon Change of Control. If the Company
------------------------------------
terminates the Executive's Employment "Without Cause" or Executive resigns for
"Good Reason" within one year after a Change of Control, then the Company shall
pay the Executive a lump sum payment equal to the sum of (i) nine (9) months of
his Base Salary plus (ii) three-
4
<PAGE>
quarters of his annual target bonus. The Company also will pay for the cost of
Executive continuing his medical coverage for himself and his eligible
dependents under COBRA for a period of nine (9) months following the date his
employment terminates if he elects to continue that coverage. Executive's Base
Salary shall be paid at the rate in effect at the time of the termination of
Employment and in accordance with the Company's standard payroll procedures.
7. Non-Solicitation and Non-Disclosure.
-----------------------------------
(a) Non-Solicitation. During the period commencing on the
date of this Agreement and continuing until the first anniversary of the date
when the Executive's Employment terminated for any reason, the Executive shall
not directly or indirectly, personally or through others, solicit or attempt to
solicit (on the Executive's own behalf or on behalf of any other person or
entity) the employment or retaining of any employee or consultant of the Company
or any of the Company's affiliates.
(b) Non-Disclosure. As a condition of employment Executive
will execute the Company's standard Proprietary Information Agreement, a copy of
which is attached.
8. Legal Fees. The Company will pay Executive's reasonable
----------
attorneys' fees in connection with negotiating and drafting this Agreement.
9. Successors.
----------
(a) Company's Successors. This Agreement shall be binding
--------------------
upon any successor (whether direct or indirect and whether by purchase, lease,
merger, consolidation, liquidation or otherwise) to all or substantially all of
the Company's business and/or assets. For all purposes under this Agreement, the
term "Company" shall include any successor to the Company's business and/or
assets which becomes bound by this Agreement.
(b) Executive's Successors. This Agreement and all rights of
----------------------
the Executive hereunder shall inure to the benefit of, and be enforceable by,
the Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees.
10. Indemnity. The Company will indemnify and provide a defense to
---------
the Executive to the full extent permitted by law and its bylaws with respect to
any claims arising out of the performance of his duties as an employee, director
or officer of the Company. To the same extent, the Company will pay, and subject
to any legal limitations, advance all expenses, including reasonable attorney
fees and costs of court-approved settlements, actually and necessarily incurred
by Executive in connection with the defense of any action, suit or proceeding
and in connection with any appeal, which has been brought against Executive by
reason of his service as an officer, director or agent of the Company, or his
acceptance of this Agreement or the performance of his duties thereunder. The
Company shall use its best efforts to obtain coverage for Executive under a
liability insurance policy or policies that cover the actions of officers and
directors of the Company.
5
<PAGE>
11. Miscellaneous Provisions.
------------------------
(a) Notice. Notices and all other communications
------
contemplated by this Agreement shall be in writing and shall be deemed to have
been duly given when personally delivered or when mailed by overnight courier,
U.S. registered or certified mail, return receipt requested and postage prepaid.
In the case of the Executive, mailed notices shall be addressed to him at the
home address which he most recently communicated to the Company in writing. In
the case of the Company, mailed notices shall be addressed to its corporate
headquarters, and all notices shall be directed to the attention of its
Secretary.
(b) Modifications and Waivers. No provision of this
-------------------------
Agreement shall be modified, waived or discharged unless the modification,
waiver or discharge is agreed to in writing and signed by the Executive and by
an authorized officer of the Company (other than the Executive). No waiver by
either party of any breach of, or of compliance with, any condition or provision
of this Agreement by the other party shall be considered a waiver of any other
condition or provision or of the same condition or provision at another time.
(c) Whole Agreement. No other agreements, representations or
---------------
understandings (whether oral or written) which are not expressly set forth in
this Agreement have been made or entered into by either party with respect to
the subject matter of this Agreement. This Agreement, the Proprietary
Information Agreement, and applicable stock option agreements and stock plans,
contain the entire understanding of the parties with respect to the subject
matter hereof.
(d) Taxes. All payments made under this Agreement shall be
-----
subject to reduction to reflect taxes or other charges required to be withheld
by law.
(e) Choice of Law. The validity, interpretation,
-------------
construction and performance of this Agreement shall be governed by the laws of
the State of California (except provisions governing the choice of law).
(f) Severability. The invalidity or unenforceability of any
------------
provision or provisions of this Agreement shall not affect the validity or
enforceability of any other provision hereof, which shall remain in full force
and effect.
(g) No Assignment. This Agreement and all rights and
-------------
obligations of the Executive hereunder are personal to the Executive and may not
be transferred or assigned by the Executive at any time. The Company may assign
its rights under this Agreement to any entity that assumes the Company's
obligations hereunder in connection with any sale or transfer of all or a
substantial portion of the Company's assets to such entity.
(h) Arbitration. Any dispute or claim arising out of or in
-----------
connection with this Agreement will be finally settled by binding arbitration in
San Francisco, California in accordance with the rules of the American
Arbitration Association by one arbitrator appointed in accordance with said
rules. The Executive and the Company shall split the cost of the arbitration
filing and hearing fees and the cost of the arbitrator. Each party shall bear
its own attorney fees, unless otherwise determined by the arbitrator. The
arbitrator shall apply California law, without reference to rules of conflicts
of law or rules of statutory arbitration, to the resolution of any
6
<PAGE>
dispute. Judgment on the award rendered by the arbitrator may be entered in any
court having jurisdiction thereof. Notwithstanding the foregoing, the parties
may apply to any court of competent jurisdiction for preliminary or interim
equitable relief, or to compel arbitration in accordance with this paragraph,
without breach of this arbitration provision. This Subsection 11(h) shall not
apply to any dispute or claim relating to the Proprietary Information Agreement.
(i) Headings. The headings of the paragraphs contained in
--------
this Agreement are for reference purposes only and shall not in any way affect
the meaning or interpretation of any provision of this Agreement.
(j) Counterparts. This Agreement may be executed in two or
------------
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, each of the parties has executed this Agreement,
in the case of the Company by its duly authorized officer, as of the day and
year first above written.
EXECUTIVE
/s/ Arthur R. Matin
--------------------------
Arthur R. Matin
CROSSWORLDS SOFTWARE, INC.
By:/s/ Alfred J. Amoroso
-----------------------
Title: President and CEO
--------------------
EXHIBIT A - Stock Option Agreement
EXHIBIT B - Proprietary Information Agreement
7
<PAGE>
CROSSWORLDS SOFTWARE, INC.
1999 EXECUTIVE STOCK PLAN
STOCK OPTION AGREEMENT--EARLY EXERCISE
Unless otherwise defined herein, the terms defined in the CrossWorlds
Software, Inc. 1999 Stock Plan (the "Plan") shall have the same defined meanings
in this Option Agreement.
1. NOTICE OF STOCK OPTION GRANT
----------------------------
You have been granted an option to purchase Common Stock of the CrossWorlds
Software, Inc. (the "Company"), subject to the terms and conditions of the Plan
and this Option Agreement, as follows:
Optionee Art Matin
7 Melwood Lane
Westport, CT 06880 USA
Grant Number 00001712
Date of Grant 01/12/2000
Vesting Commencement Date 01/12/2000
Exercise Price per Share $ 9.00
Number of Shares Granted 51,736
Total Exercise Price $465,624.00
Type of Option: ISO
Term/Expiration Date: 01/12/2010
1. Vesting Schedule. You may exercise this Option, in whole or in part
----------------
immediately following the Date of Grant. These option shares are subject to the
following vesting schedule (and subject to the Company's right to repurchase
shares as set forth in Exhibit A, Section 4(a)):
-------------------------
The shares of Common Stock subject to the Option (the "Shares") shall vest
as to 1/8th of the Shares on the date which is six (6) months from the Vesting
Commencement Date, with a further 1/48th of the Shares subject to the Option
vesting at the end of each one-month period thereafter, such that the Option
shall be vested in full 48 months following the Vesting Commencement Date
assuming Continuous Status as an Employee or Consultant.
2. Termination Period. You may exercise this Option for 90 days after
------------------
termination of your Continuous Status as an Employee, Consultant or Director, or
for such longer period upon your death or disability as provided in the Plan.
If your status changes from Employee to Consultant or Director; or Director or
Consultant to Employee, this Option Agreement shall remain in effect. In no
case may you exercise this Option after the Term/Expiration Date as provided
above.
3. Agreement to Terms. Optionee acknowledges receipt of a copy of the Plan and
------------------
represents that he is familiar with the terms and provisions thereof, and hereby
accepts this Option subject to all of the terms and provisions thereof.
Optionee has reviewed the Plan and this Option in their entirety, including the
terms and conditions of Grant on the reverse side hereof, has had an opportunity
to obtain the advice of counsel prior to executing this Option and fully
understands all provisions of the Option. Optionee hereby agrees to accept as
binding, conclusive and final all decisions or interpretations of the
Administrator upon any questions arising under the Plan or this Option.
Optionee further agrees to notify the Company upon any change in the residence
address indicated below.
OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE
OPTION HEREOF IS EARNED ONLY BY CONTINUING CONSULTANCY, DIRECTORSHIP OR
EMPLOYMENT AT THE WILL OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING
GRANTED THIS OPTION OR ACQUIRING SHARES HEREUNDER). OPTIONEE FURTHER
ACKNOWLEDGES AND AGREES THAT NOTHING IN THIS AGREEMENT, NOR IN THE COMPANY'S
STOCK OPTION PLAN WHICH IS INCORPORATED HEREIN BY REFERENCE, SHALL CONFER UPON
OPTIONEE ANY RIGHT WITH RESPECT TO CONTINUATION OF EMPLOYMENT, CONSULTANCY OR
DIRECTORSHIP BY THE COMPANY, NOR SHALL IT INTERFERE IN ANY WAY WITH OPTIONEE'S
RIGHT OR THE COMPANY'S RIGHT TO TERMINATE OPTIONEE'S EMPLOYMENT, CONSULTANCY OR
DIRECTORSHIP AT ANY TIME, WITH OR WITHOUT CAUSE.
Dated: 01/12/2000
-------------------------------------------
OPTIONEE
By: /s/ Art Matin
----------------------------------------------
CROSSWORLDS SOFTWARE, INC.,
a Delaware corporation
By: /s/ Stacey Giamalis
----------------------------------------------
Title: General Counsel
<PAGE>
1. TERMS AND CONDITIONS OF GRANT
a. Grant of Option. CrossWorlds Software, Inc. (the "Company"), hereby
----------------
grants to the Optionee (the "Optionee") named in the Notice of Grant, a
[nonstatutory ][incentive] stock option (the "Option") to purchase the total
number of shares of Common Stock (the Shares") set forth in the Notice of Grant,
at the exercise price per share set forth in the Notice of Grant (the "Exercise
Price") subject to the terms, definitions and provisions of the 1999 Stock Plan
(the "Plan") adopted by the Company, which is incorporated herein by reference.
Unless otherwise defined herein, the terms defined in the Plan shall have the
same defined meanings in this Option Agreement.
b. Exercise of Option. This Option shall be exercisable during its term in
------------------
accordance with the Vesting Schedule set out in the Notice of Grant and with the
provisions of Section 9 of the Plan as follows:
(i) Right to Exercise. (a) This Option may be exercised in whole or in
-----------------
part at any time after the Date of Grant, as to Shares which have not yet vested
under the vesting schedule indicated on the Notice of Stock Option Grant;
provided, however, that Optionee shall execute as a condition to such exercise
- -------- -------
of this Option, the Early Exercise Notice and Restricted Stock Purchase
Agreement attached hereto as Exhibit A (the "Early Exercise Agreement"). If
--------- ------------------------
Optionee chooses to exercise this Option solely as to Shares which have vested
under the vesting schedule indicated on the Notice of Stock Option Grant,
Optionee shall complete and execute the form of Exercise Notice attached hereto
as Exhibit B (the "Exercise Agreement"). Notwithstanding the foregoing, the
--------- ------------------
Company may in its discretion prescribe or accept a different form of notice of
exercise and/or stock purchase agreement if such forms are otherwise consistent
with this Agreement, the Plan and then-applicable law. (b) This Option may not
be exercised for a fraction of a Share. (c) In the event of Optionee's death,
Disability or other termination of the Optionee's Continuous Status as an
Employee, Consultant or Director, the exercisability of the Option is governed
by Sections g, h and i below, subject to the limitation contained in Section k.
below. (d) In no event may this Option be exercised after the date of
expiration of the term of this Option as set forth in the Notice of Grant.
(ii) Method of Exercise. This Option shall be exercisable by execution
------------------
and delivery of the Early Exercise Agreement or the Exercise Agreement,
whichever is applicable, or of any other written notice approved for such
purpose by the Company which shall state the election to exercise the Option,
the number of Shares in respect of which the Option is being exercised, and such
other representations and agreements as to the holder's investment intent with
respect to such shares of Common Stock as may be required by the Company
pursuant to the provisions of the Plan. Such written notice shall be signed by
the Optionee and shall be delivered in person or by certified mail to the
Secretary of the Company. The written notice shall be accompanied by payment of
the Exercise Price. This Option shall be deemed to be exercised upon receipt by
the Company of such written notice accompanied by the Exercise Price.
No Shares will be issued pursuant to the exercise of an Option unless such
issuance and such exercise shall comply with all relevant provisions of law and
the requirements of any stock exchange or national market system upon which the
Common Stock is then listed. Assuming such compliance, for income tax purposes
the Shares shall be considered transferred to the Optionee on the date on which
the Option is exercised with respect to such Shares.
c. Optionee's Representations. In the event the Shares purchasable pursuant
--------------------------
to the exercise of this Option have not been registered under the Securities Act
of 1933, as amended, at the time this Option is exercised, Optionee shall, if
required by the Company, concurrently with the exercise of all or any portion of
this Option, deliver to the Company his or her Investment Representation
Statement in the form attached hereto as Exhibit C.
d. Lock-Up Period. Optionee hereby agrees that if so requested by the
--------------
Company or any representative of the underwriters (the "Managing Underwriter")
in connection with any registration of the offering of any securities of the
Company under the Securities Act, Optionee shall not sell or otherwise transfer
any Shares or other securities of the Company during the 180-day period (or such
longer period as may be requested in writing by the Managing Underwriter and
agreed to in writing by the Company) (the "Market Standoff Period") following
the effective date of a registration statement of the Company filed under the
Securities Act; provided, however, that such restriction shall apply only to
the first registration statement of the Company to become effective under the
Securities Act that includes securities to be sold on behalf of the Company to
the public in an underwritten public offering under the Securities Act. The
Company may impose stop-transfer instructions with respect to securities subject
to the foregoing restrictions until the end of such Market Standoff Period.
e. Method of Payment. Payment of the Exercise Price shall be by any of the
-----------------
following, or a combination thereof, at the election of the Optionee:
(i) cash; or
(ii) check; or
(iii) surrender of other shares of Common Stock of the Company which (A)
in the case of Shares acquired pursuant to the exercise of a Company option,
have been owned by the Optionee for more than six (6) months on the date of
surrender, and (B) have a Fair Market Value on the date of surrender equal to
the Exercise Price of the Shares as to which the Option is being exercised; or
(iv) to the extent authorized by the Company, delivery of a properly
executed exercise notice together with such other documentation as the
Administrator and the broker, if applicable, share require to effect an exercise
of the Option and delivery to the Company of the sale or loan proceeds required
to pay the Exercise Price; or
(v) promissory note (in the form provided by the Company).
f. Restrictions on Exercise. This Option may not be exercised if the
------------------------
issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any applicable
federal or state securities or other law or regulation, including any rule under
Part 207 of Title 12 of the Code of Federal Regulations as promulgated by the
Federal Reserve Board. As a condition to the exercise of this Option, the
Company may require Optionee to make any representation and warranty to the
Company as may be required by any applicable law or regulation.
g. Termination of Relationship. In the event an Optionee's Continuous
---------------------------
Status as an Employee, Consultant or Director terminates, Optionee may, to the
extent otherwise so entitled at the date of such termination (the "Termination
Date"), exercise this Option during the Termination Period set out in the Notice
of Grant. To the extent that Optionee was not entitled to exercise this Option
at the date of such termination, or if Optionee does not exercise this Option
within the time specified herein, the Option shall terminate.
h. Disability of Optionee. Notwithstanding the provisions of Section g.
----------------------
above, in the event of termination of an Optionee's Continuous Status as an
Employee, Consultant or Director as a result of his or her Disability, Optionee
may, but only within twelve (12) months from the date of such termination (and
in no event later than the expiration date of the term of such Option as set
forth in the Notice of Grant) exercise the Option to the extent otherwise
entitled to exercise it at the date of such termination. To the extent that
Optionee is not entitled to exercise the Option at the date of termination, or
if Optionee does not exercise such Option to the extent so entitled within the
time specified herein, the Option shall terminate, and the Shares covered by
such Option shall revert to the Plan.
i. Death of Optionee. In the event of termination of Optionee's Continuous
-----------------
Status as an Employee or Consultant as a result of the death of Optionee, the
Option may be exercised at any time within twelve (12) months following the date
of death (but in no event later than the date of expiration of the term of this
Option as set forth in Section k. below), by Optionee's estate or by a person
who acquired the right to exercise the Option by bequest or inheritance, but
only to the extent the Optionee could exercise the Option at the date of death.
j. Non-Transferability of Option. Options may not be sold, pledged,
-----------------------------
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution and may be exercised, during the
lifetime of the Optionee, only by the Optionee. The terms of this Option shall
be binding upon the executors, administrators, heirs, successors and assigns of
the Optionee.
k. Term of Option. This Option may be exercised only within the term set
--------------
out in the Notice of Grant, and may be exercised during such term only in
accordance with the Plan and the terms of this Option. The limitations set out
in Section 7 of the Plan regarding Options granted to more than ten percent
(10%) shareholders shall apply to this Option.
l. Tax Consequences. Set forth below is a brief summary as of the date of
----------------
this Option of some of the federal tax consequences of exercise of this Option
and disposition of the Shares. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE
TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. OPTIONEE SHOULD CONSULT A TAX
ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.
(i) Exercise of an NSO. There may be a regular federal income tax
------------------
liability upon the exercise of an NSO. The Optionee will be treated as having
received compensation income (taxable at ordinary income tax rates) equal to the
excess, if any, of the Fair Market Value of the Shares on the date of exercise
over the Exercise Price. In the case of the exercise of Option Shares which
have not vested as of the date of exercise, the Optionee will not realize
compensation income on the exercise until the date(s) on which shares vest
(i.e., have been released from the Company's repurchase option) unless the
Optionee files an election under Section 83(b) of the Code (an "83(b)
Election"). If an 83(b) election is filed, the amount of compensation income
will be determined on the date of exercise. If Optionee is an Employee, the
Company will be required to withhold from Optionee's compensation or collect
from Optionee and pay to the applicable taxing authorities an amount equal to a
percentage of this compensation income at the time of exercise or vesting, as
applicable.
(ii) Disposition of Shares. If Shares are held for more than one year
---------------------
after the date of exercise (or the date of vesting, if later, in the case of the
exercise of unvested option shares and the Optionee had not filed an 83(b)
election at the time of such exercise, any gain realized on disposition of the
Shares will be treated as long-term capital gain for federal income tax
purposes.
<PAGE>
EXHIBIT A
---------
CROSSWORLDS SOFTWARE, INC.
1999 EXECUTIVE STOCK PLAN
EARLY EXERCISE NOTICE AND STOCK PURCHASE AGREEMENT
CrossWorlds Software, Inc.
577 Airport Boulevard, Suite 800
Burlingame, CA 94010-2024
Attention: Stock Administrator
1. Exercise of Option. Effective as of today, ___________, _____, the
------------------
undersigned ("Purchaser") __________________ hereby elects to exercise
Purchaser's option to purchase _________ shares of the Common Stock (the
"Shares") of CrossWorlds Software, Inc. (the "Company") under and pursuant to
the CrossWorlds Software , Inc., 1999 Executive Stock Plan, as amended (the
"Plan") and the Stock Option Agreement dated _____________________________ (the
"Option Agreement"). Of these Shares, Purchaser has elected to purchase
_______________ of those Shares which have become vested as of the date hereof
under the Vesting Schedule set forth in the Notice of Stock Option Grant (the
"Vested Shares") and _____________ Shares which have not yet vested under such
- --------------
Vesting Schedule (the "Unvested Shares"). The purchase price for the Shares
---------------
shall be $______ per Share for a total purchase price of $_______________.
The term "Shares" refers to the purchased Shares and all
------
securities received in replacement of the Shares or as stock dividends or
splits, all securities received in replacement of the Shares in a
recapitalization, merger, reorganization, exchange or the like, and all new,
substituted or additional securities or other properties to which Purchaser is
entitled by reason of Purchaser's ownership of the Shares.
2. Representations of Purchaser. Purchaser acknowledges that Purchaser
----------------------------
has received, read and understood the Plan and the Option Agreement and agrees
to abide by and be bound by their terms and conditions.
3. Rights as Stockholder. Until the stock certificate evidencing such
---------------------
Shares is issued (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company), no right to vote
or receive dividends or any other rights as a stockholder shall exist with
respect to the Optioned Stock, notwithstanding the exercise of the Option. The
Company shall issue (or cause to be issued) such stock certificate promptly
after the Option is exercised. No adjustment will be made for a dividend or
other right for which the record date is prior to the date the stock certificate
is issued, except as provided in Section 12 of the Plan.
Purchaser shall enjoy rights as a stockholder until such time as
Purchaser disposes of the Shares or the Company and/or its assignee(s) exercises
the Right of First Refusal hereunder. Upon such exercise, Purchaser shall have
no further rights as a holder of the Shares so purchased except the right to
receive payment for the Shares so purchased in accordance with the provisions of
this Agreement, and Purchaser shall forthwith cause the certificate(s)
evidencing the Shares so purchased to be surrendered to the Company for transfer
or cancellation.
4. Limitations on Transfer. In addition to any other limitation on
-----------------------
transfer created by applicable securities laws, Purchaser shall not assign,
encumber or dispose of any interest in the Shares while the Shares are subject
to the Company's Repurchase Option (as defined below). After any Shares have
been released from such Repurchase Option, Purchaser shall not assign, encumber
or dispose of any interest in such Shares except in compliance with the
provisions below and applicable securities laws.
(a) Repurchase Option.
-----------------
(i) If Purchaser's Continuous Status as an Employee or Consultant
terminates for any reason (including for cause, death or disability), the
Company shall upon the date of such termination (the "Termination Date") have an
----------------
irrevocable, exclusive option (the "Repurchase Option") for a period of 60 days
-----------------
from such date to repurchase all or any portion of the Unvested Shares held by
Purchaser as of the Termination Date which have not yet been released from the
Company's Repurchase Option at the original purchase price per Share specified
in Section 1 (adjusted for any stock splits, stock dividends and the like).
(ii) The Repurchase Option shall be exercised by the Company by
written notice to Purchaser or Purchaser's executor and, at the Company's
option, (A) by delivery to Purchaser or Purchaser's executor with such notice of
a check in the amount of the purchase price for the Shares being purchased, or
(B) in the event Purchaser is indebted to the Company, by cancellation by the
Company of an amount of such indebtedness equal to the purchase price for the
Shares being repurchased, or (C) by a combination of (A) and (B) so that the
combined payment and cancellation of indebtedness equals such purchase price.
Upon delivery of such notice and payment of the purchase price in any of the
ways described above, the Company shall become the legal and beneficial owner of
the Shares being repurchased and all rights and interest therein or related
thereto, and the Company shall have the right to transfer to its own name the
number of Shares being repurchased by the Company, without further action by
Purchaser.
(iii) One hundred percent (100%) of the Unvested Shares shall
initially be subject to the Repurchase Option. The Unvested Shares shall be
released from the Repurchase Option in accordance with the Vesting Schedule set
forth in the Notice of Stock Option Grant
<PAGE>
until all Shares are released from the Repurchase Option. Fractional shares
shall be rounded to the nearest whole share.
(b) Company's Right of First Refusal. Before any Shares held by
--------------------------------
Purchaser or any transferee (either being sometimes referred to herein as the
"Holder") may be sold or otherwise transferred (including transfer by gift or
operation of law), the Company or its assignee(s) shall have a right of first
refusal to purchase the Shares on the terms and conditions set forth in this
Section (the "Right of First Refusal").
(i) Notice of Proposed Transfer. The Holder of the Shares shall
---------------------------
deliver to the Company a written notice (the "Notice") stating: (i) the
Holder's bona fide intention to sell or otherwise transfer such Shares; (ii) the
name of each proposed purchaser or other transferee ("Proposed Transferee");
(iii) the number of Shares to be transferred to each Proposed Transferee; and
(iv) the bona fide cash price or other consideration for which the Holder
proposes to transfer the Shares (the "Offered Price"), and the Holder shall
offer the Shares at the Offered Price to the Company or its assignee(s).
(ii) Exercise of Right of First Refusal. At any time within
----------------------------------
thirty (30) days after receipt of the Notice, the Company and/or its assignee(s)
may, by giving written notice to the Holder, elect to purchase all, but not less
than all, of the Shares proposed to be transferred to any one or more of the
Proposed Transferees, at the purchase price determined in accordance with
subsection (c) below.
(iii) Purchase Price. The purchase price ("Purchase Price") for
--------------
the Shares purchased by the Company or its assignee(s) under this Section shall
be the Offered Price. If the Offered Price includes consideration other than
cash, the cash equivalent value of the non-cash consideration shall be
determined by the Board of Directors of the Company in good faith.
(iv) Payment. Payment of the Purchase Price shall be made, at
-------
the option of the Company or its assignee(s), in cash (by check), by
cancellation of all or a portion of any outstanding indebtedness of the Holder
to the Company (or, in the case of repurchase by an assignee, to the assignee),
or by any combination thereof within 30 days after receipt of the Notice or in
the manner and at the times set forth in the Notice.
(v) Holder's Right to Transfer. If all of the Shares proposed
--------------------------
in the Notice to be transferred to a given Proposed Transferee are not purchased
by the Company and/or its assignee(s) as provided in this Section, then the
Holder may sell or otherwise transfer such Shares to that Proposed Transferee at
the Offered Price or at a higher price, provided that such sale or other
transfer is consummated within 120 days after the date of the Notice and
provided further that any such sale or other transfer is effected in accordance
with any applicable securities laws and the Proposed Transferee agrees in
writing that the provisions of this Section shall continue to apply to the
Shares in the hands of such Proposed Transferee. If the Shares described in the
Notice are not transferred to the Proposed Transferee within such period, a new
Notice shall be given to the Company, and the Company and/or its assignees shall
again be offered the Right of First Refusal before any Shares held by the Holder
may be sold or otherwise transferred.
(vi) Exception for Certain Family Transfers. Anything to the
--------------------------------------
contrary contained in this Section notwithstanding, the transfer of any or all
of the Shares during the Purchaser's lifetime or on the Purchaser's death by
will or intestacy to the Purchaser's immediate family or a trust for the benefit
of the Purchaser's immediate family shall be exempt from the provisions of this
Section. "Immediate Family" as used herein shall mean spouse, lineal descendant
or antecedent, father, mother, brother or sister. In such case, the transferee
or other recipient shall receive and hold the Shares so transferred subject to
the provisions of this Section, and there shall be no further transfer of such
Shares except in accordance with the terms of this Section.
(vii) Termination of Right of First Refusal. The Right of First
-------------------------------------
Refusal shall terminate as to any Shares 90 days after the (i) first sale of
Common Stock of the Company to the general public pursuant to a registration
statement filed with and declared effective by the Securities and Exchange
Commission under the Securities Act of 1933, as amended, or (ii) a merger of the
Company with a corporation whose stock is publicly traded on a national
exchange.
5. Transfer of Shares; Escrow.
--------------------------
(a) Purchaser hereby authorizes and directs the Secretary of the
Company, or such other person designated by the Company, to transfer any
Unvested Shares as to which the Repurchase Option has been exercised from
Purchaser to the Company.
(b) To ensure the availability for delivery of Purchaser's Unvested
Shares upon repurchase by the Company pursuant to the Repurchase Option under
Section 4(a), Purchaser hereby appoints Katrina A. Garnett of the Company, or
any other person designated by the Company, as escrow agent (the "Escrow Agent")
------------
and as Purchaser's attorney-in-fact to sell, assign and transfer unto the
Company such Unvested Shares, if any, as may be repurchased by the Company
pursuant to the Repurchase Option and shall, upon execution of this Agreement,
deliver and deposit with the Escrow Agent the share certificates representing
the Unvested Shares, together with two stock assignments duly endorsed in blank
and in the form attached hereto as Attachment A . The Unvested Shares and stock
------------
assignment shall be held by the Escrow Agent in escrow pursuant to Joint Escrow
Instructions in the form attached hereto as Attachment B , until (i) the Company
------------
exercises its Repurchase Option as provided in Section 4(a), (ii) such Unvested
Shares become Vested Shares, or (iii) such time as this Agreement no longer is
in effect. Upon vesting of the Unvested Shares, the Escrow Agent shall promptly
deliver to Purchaser the certificate or certificates representing such Shares in
the Escrow Agent's
<PAGE>
possession belonging to Purchaser, and the Escrow Agent shall be discharged of
all further obligations hereunder. Notwithstanding any of the foregoing,
however, the Escrow Agent shall nevertheless retain such certificate or
certificates as Escrow Agent if so required pursuant to other restriction
imposed pursuant to this Agreement.
(c) The Escrow Agent shall not be liable for any act it may do or omit
to do with respect to holding the Shares in escrow and while acting in good
faith and in the exercise of its judgment.
(d) Transfer or sale of the Shares is subject to restrictions on
transfer imposed by any applicable state and federal securities laws. Any
transferee shall hold such Shares subject to all the provisions hereof and shall
acknowledge the same by signing a copy of this Agreement.
(e) No Shares may be sold, pledged, hypothecated or otherwise
transferred by Purchaser until such Shares have become Vested Shares and are no
longer subject to any security agreement for the benefit of the Company.
6. Ownership, Voting Rights, Duties. This Agreement shall not affect in
--------------------------------
any way the ownership, voting rights or other rights or duties of Purchaser,
except as specifically provided herein. Purchaser shall enjoy rights as a
stockholder until such time as Purchaser disposes of the Shares or the Company
and/or its assignee(s) exercises either the Repurchase Option or the Right of
First Refusal hereunder. Upon any such exercise, Purchaser shall have no
further rights as a holder of the Shares so purchased except the right to
receive payment for the Shares so purchased in accordance with the provisions of
this Agreement, and Purchaser or the Escrow Agent, as the case may be, shall
forthwith cause the certificate(s) evidencing the Shares so purchased to be
surrendered to the Company for transfer or cancellation.
7. Tax Consultation. Purchaser understands that Purchaser may suffer
----------------
adverse tax consequences as a result of Purchaser's purchase or disposition of
the Shares. Purchaser represents that Purchaser has consulted with any tax
consultants Purchaser deems advisable in connection with the purchase or
disposition of the Shares and that Purchaser is not relying on the Company for
any tax advice.
8. Restrictive Legends; Stop-Transfer Orders; Market Standoff
----------------------------------------------------------
(a) Legends. Purchaser understands and agrees that the Company shall
-------
cause the legends set forth below or legends substantially equivalent thereto,
to be placed upon any certificate(s) evidencing ownership of the Shares together
with any other legends that may be required by the Company or by state or
federal securities laws:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED,
SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND
UNTIL REGISTERED UNDER THE ACT OR, IN THE OPINION OF COMPANY
COUNSEL SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH
OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE
THEREWITH.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON TRANSFER AND A RIGHT OF FIRST REFUSAL HELD BY THE
ISSUER OR ITS ASSIGNEE(S) AS SET FORTH IN AN AGREEMENT BETWEEN THE
ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH
MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH
TRANSFER RESTRICTIONS AND RIGHT OF FIRST REFUSAL ARE BINDING ON
TRANSFEREES OF THESE SHARES.
(b) Stop-Transfer Notices. Purchaser agrees that, in order to ensure
---------------------
compliance with the restrictions referred to herein, the Company may issue
appropriate "stop transfer" instructions to its transfer agent, if any, and
that, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
(c) Market Standoff. Purchaser hereby agrees that if so requested by
---------------
the Company or any representative of the underwriters in connection with any
registration of the offering of any securities of the Company under the
Securities Act of 1933, as amended (the "Securities Act"), neither Purchaser nor
--------------
Purchaser shall sell or otherwise transfer any Shares or other securities of the
Company during such period as the Company and the representatives of the
underwriters may request (not to exceed 180 days) following the effective date
of any registration statement of the Company filed under the Securities Act for
an underwritten public offering. The Company may impose stop-transfer
instructions with respect to Shares subject to the foregoing restrictions until
the end of such market standoff period.
(d) Refusal to Transfer. The Company shall not be required (i) to
-------------------
transfer on its books any Shares that have been sold or otherwise transferred in
violation of any of the provisions of this Agreement or (ii) to treat as owner
of such Shares or to accord the right to vote or pay dividends to any purchaser
or other transferee to whom such Shares shall have been so transferred.
9. Section 83(b) Election. Purchaser understands that Section 83(a) of
----------------------
the Internal Revenue Code of 1986, as amended (the
<PAGE>
"Code"), taxes as ordinary income for a [Nonstatutory] [Incentive] Stock Option
the difference between the amount paid for the Shares and the Fair Market Value
of the Shares as of the date any restrictions on the Shares lapse. In this
context, "restriction" means the right of the Company to buy back the Shares
-----------
pursuant to the Repurchase Option set forth in Section 4(a) of this Agreement.
Purchaser understands that Purchaser may elect to be taxed at the time the
Shares are purchased, rather than when and as the Repurchase Option expires, by
filing an election under Section 83(b) (an "83(b) Election") of the Code with
--------------
the Internal Revenue Service within 30 days from the date of purchase. Even if
the Fair Market Value of the Shares at the time of the execution of this
Agreement equals the amount paid for the Shares, the election must be made to
avoid income tax treatment under Section 83(a) in the future. Purchaser
acknowledge that it is Purchaser's sole responsibility and not the Company's to
timely file the 83(b) Election, even if Purchaser requests the Company or its
representative to make this filing on Purchaser's behalf. Purchaser understands
that failure to file such an election in a timely manner may result in adverse
tax consequences for Purchaser. Purchaser further understands that an additional
copy of such election form should be filed with his or her federal income tax
return for the calendar year in which the date of this Agreement falls.
Purchaser acknowledges that the foregoing is only a summary of the effect of
United States federal income taxation with respect to purchase of the Shares
hereunder, and does not purport to be complete. Purchaser further acknowledges
that the Company has directed Purchaser to seek independent advice regarding the
applicable provisions of the Code, the income tax laws of any municipality,
state or foreign country in which Purchaser may reside, and the tax consequences
of Purchaser's death.
Purchaser agrees that he or she will execute and deliver to the
Company with this executed Agreement a copy of the Acknowledgment and Statement
of Decision Regarding Section 83(b) Election (the "Acknowledgment") attached
--------------
hereto as Attachment C. Purchaser further agrees that he or she will execute
------------
and submit with the Acknowledgment a copy of the 83(b) Election attached hereto
as Attachment D (for tax purposes in connection with the early exercise of an
------------
option) if Purchaser has indicated in the Acknowledgment his or her decision to
make such an election.
10. Notices. All notices and other communications required or permitted
-------
hereunder shall be in writing, shall be effective when given, and shall in any
event be deemed to be given (a) five (5) days after the deposit with the U.S.
Postal Service, if delivered by first class mail, postage prepaid (b) upon
delivery, if delivered by hand, or (c) one business day after the business day
of deposit with Federal Express or similar overnight courier, freight prepaid,
and shall be addressed (i) if to Purchaser, at Purchaser's address as set forth
beneath Purchaser's signature to this Agreement, or at such other address as
Purchaser shall have furnished to the Company in writing, (ii) if to the
Company, to CrossWorlds Software, Inc., with copy to Venture Law Group, 2775
Sand Hill Road, Menlo Park, California 94025, Attention: Jon E. Gavenman, Esq.,
or Katrina A. Garnett, at CrossWorlds Software, Inc., or at such other address
as the Escrow Agent shall have furnished to the parties.
11. Successors and Assigns. The Company may assign any of its rights
----------------------
under this Agreement to single or multiple assignees, and this Agreement shall
inure to the benefit of the successors and assigns of the Company. Subject to
the restrictions on transfer herein set forth, this Agreement shall be binding
upon Purchaser and his or her heirs, executors, administrators, successors and
assigns.
12. Interpretation. Any dispute regarding the interpretation of this
--------------
Agreement shall be submitted by Purchaser or by the Company forthwith to the
Company's Board of Directors or the committee thereof that administers the Plan,
which shall review such dispute at its next regular meeting. The resolution of
such a dispute by the Board or committee shall be final and binding on the
Company and on Purchaser.
13. Governing Law; Severability. This Agreement shall be governed by and
---------------------------
construed in accordance with the laws of the State of California excluding that
body of law pertaining to conflicts of law. Should any provision of this
Agreement be determined by a court of law to be illegal or unenforceable, the
other provisions shall nevertheless remain effective and shall remain
enforceable.
14. Notices. Any notice required or permitted hereunder shall be given in
-------
writing and shall be deemed effectively given upon personal delivery or upon
deposit in the United States mail by certified mail, with postage and fees
prepaid, addressed to the other party at its address as shown below beneath its
signature, or to such other address as such party may designate in writing from
time to time to the other party.
15. Further Instruments. The parties agree to execute such further
-------------------
instruments and to take such further action as may be reasonably necessary to
carry out the purposes and intent of this Agreement.
16. Delivery of Payment. Purchaser herewith delivers to the Company the
-------------------
full Exercise Price for the Shares.
<PAGE>
17. Entire Agreement. The Plan and Notice of Grant/Option Agreement are
----------------
incorporated herein by reference. This Agreement, the Plan, the Option
Agreement and the Investment Representation Statement constitute the entire
agreement of the parties with respect to the subject matter hereof and supersede
in their entirety all prior undertakings and agreements of the Company and
Purchaser with respect to the subject matter hereof, and may not be modified
adversely to the Purchaser's interest except by means of a writing signed by the
Company and Purchaser.
Submitted by: Accepted by:
PURCHASER: CROSSWORLDS SOFTWARE, INC.
By:_________________________________ By:_________________________________
Name:_______________________________ Its:________________________________
Address: Address:
- ------- -------
____________________________________ 577 Airport Boulevard, Suite 800
____________________________________ Burlingame, CA 94010-2024
<PAGE>
ATTACHMENT A
------------
ASSIGNMENT SEPARATE FROM CERTIFICATE
------------------------------------
FOR VALUE RECEIVED and pursuant to that certain Early Exercise Notice
and Restricted Stock Purchase Agreement between the undersigned ("Purchaser")
--------
and CrossWorlds Software, Inc. (the "Company") dated _____________, ____ (the
-------
"Agreement"), Purchaser hereby sells, assigns and transfers unto
- ----------
_______________________________ (________) shares of the Common Stock of the
Company, standing in Purchaser's name on the books of the Company and
represented by Certificate No. ___, and hereby irrevocably appoints
_____________________________ to transfer said stock on the books of the Company
with full power of substitution in the premises. THIS ASSIGNMENT MAY ONLY BE
USED AS AUTHORIZED BY THE AGREEMENT AND THE ATTACHMENTS THERETO.
Dated: _________________
Signature:
_______________________________________
Purchaser
_______________________________________
Spouse of Purchaser (if applicable)
Instruction: Please do not fill in any blanks other than the signature line.
The purpose of this assignment is to enable the Company to exercise its
Repurchase Option set forth in the Agreement without requiring additional
signatures on the part of Purchaser.
<PAGE>
ATTACHMENT B
------------
JOINT ESCROW INSTRUCTIONS
-------------------------
_______________, ____
Katrina A. Garnett
CrossWorlds Software, Inc.
577 Airport Boulevard, Suite 800
Burlingame, CA 94010
As Escrow Agent for both CrossWorlds Software, Inc., a Delaware
corporation (the "Company"), and the undersigned purchaser of stock of the
-------
Company ("Purchaser"), you are hereby authorized and directed to hold the
---------
documents delivered to you pursuant to the terms of that certain Early Exercise
Notice and Restricted Stock Purchase Agreement ("Agreement"), dated as of
---------
__________ __, 19__, between the Company and the undersigned, in accordance with
the following instructions:
1. In the event that the Company and/or any assignee of the Company
(referred to collectively for convenience herein as the ("Company") exercises
-------
the Company's repurchase option set forth in the Agreement, the Company shall
give to Purchaser and you a written notice specifying the number of shares of
stock to be purchased, the purchase price, and the time for a closing hereunder
at the principal office of the Company. Purchaser and the Company hereby
irrevocably authorize and direct you to close the transaction contemplated by
such notice in accordance with the terms of said notice.
2. At the closing, you are directed (a) to date the stock assignments
necessary for the transfer in question, (b) to fill in the number of shares
being transferred, and (c) to deliver same, together with the certificate
evidencing the shares of stock to be transferred, to the Company or its
assignee, against the simultaneous delivery to you of the purchase price (by
cash, a check, or some combination thereof) for the number of shares of stock
being purchased pursuant to the exercise of the Company's repurchase option.
3. Purchaser irrevocably authorizes the Company to deposit with you
any certificates evidencing shares of stock to be held by you hereunder and any
additions and substitutions to said shares as defined in the Agreement.
Purchaser does hereby irrevocably constitute and appoint you as Purchaser's
attorney-in-fact and agent for the term of this escrow to execute with respect
to such securities all documents necessary or appropriate to make such
securities negotiable and to complete any transaction herein contemplated,
including but not limited to the filing with any applicable state blue sky
authority of any required applications for consent to, or notice of transfer of,
the securities. Subject to the provisions of this paragraph 3, Purchaser shall
exercise all rights and privileges of a shareholder of the Company while the
stock is held by you.
4. Upon written request of Purchaser, but no more than once per
calendar year, unless the Company's repurchase option has been exercised, you
will deliver to Purchaser a certificate or certificates representing so many
shares of stock as are not then subject to the Company's repurchase option.
Within sixty (60) days after cessation of Purchaser's continuous employment by
or services to the Company, or any parent or subsidiary of the Company, you will
deliver to Purchaser a certificate or certificates representing the aggregate
number of shares held or issued pursuant to the Agreement and not purchased by
the Company or its assignees pursuant to exercise of the Company's repurchase
option.
5. If at the time of termination of this escrow you should have in
your possession any documents, securities, or other property belonging to
Purchaser, you shall deliver all of the same to Purchaser and shall be
discharged of all further obligations hereunder.
6. Your duties hereunder may be altered, amended, modified or revoked
only by a writing signed by all of the parties hereto.
7. You shall be obligated only for the performance of such duties as
are specifically set forth herein and may rely and shall be protected in relying
or refraining from acting on any instrument reasonably believed by you to be
genuine and to have been signed or presented by the proper party or parties.
You shall not be personally liable for any act you may do or omit to do
hereunder as Escrow Agent or as attorney-in-fact for Purchaser while acting in
good faith, and any act done or omitted by you pursuant to the advice of your
own attorneys shall be conclusive evidence of such good faith.
8. You are hereby expressly authorized to disregard any and all
warnings given by any of the parties hereto or by any other person or
corporation, excepting only orders or process of courts of law and are hereby
expressly authorized to comply with and obey orders, judgments or decrees of any
court. In case you obey or comply with any such order, judgment or
<PAGE>
decree, you shall not be liable to any of the parties hereto or to any other
person, firm or corporation by reason of such compliance, notwithstanding any
such order, judgment or decree being subsequently reversed, modified, annulled,
set aside, vacated or found to have been entered without jurisdiction.
9. You shall not be liable in any respect on account of the
identity, authorities or rights of the parties executing or delivering or
purporting to execute or deliver the Agreement or any documents or papers
deposited or called for hereunder .
10. You shall not be liable for the outlawing of any rights under the
Statute of Limitations with respect to these Joint Escrow Instructions or any
documents deposited with you.
11. You shall be entitled to employ such legal counsel and other
experts as you may deem necessary properly to advise you in connection with your
obligations hereunder, may rely upon the advice of such counsel, and may pay
such counsel reasonable compensation therefor.
12. Your responsibilities as Escrow Agent hereunder shall terminate
if you shall cease to be an officer or agent of the Company or if you shall
resign by written notice to each party. In the event of any such termination,
the Company shall appoint a successor Escrow Agent.
13. If you reasonably require other or further instruments in
connection with these Joint Escrow Instructions or obligations in respect
hereto, the necessary parties hereto shall join in furnishing such instruments.
14. It is understood and agreed that should any dispute arise with
respect to the delivery and/or ownership or right of possession of the
securities held by you hereunder, you are authorized and directed to retain in
your possession without liability to anyone all or any part of said securities
until such disputes shall have been settled either by mutual written agreement
of the parties concerned or by a final order, decree or judgment of a court of
competent jurisdiction after the time for appeal has expired and no appeal has
been perfected, but you shall be under no duty whatsoever to institute or defend
any such proceedings.
15. All notices and other communications required or permitted
hereunder shall be in writing, shall be effective when given, and shall in any
event be deemed to be given (a) five (5) days after deposit with the U.S. Postal
Service, if delivered by first class mail, postage prepaid, (b) upon delivery,
if delivered by hand, or (c) one business day after the business day of deposit
with Federal Express or similar overnight courier, freight prepaid, and shall be
addressed to each of the other parties thereunto entitled at the following
addresses or at such other addresses as a party may designate by ten days
advance written notice to each of the other parties hereto.
COMPANY: CrossWorlds Software, Inc.
577 Airport Boulevard, Suite 800
Burlingame, CA 94010
Attn: Controller
PURCHASER:
ESCROW AGENT: Katrina A. Garnett
CrossWorlds Software, Inc.
577 Airport Boulevard, Suite 800
Burlingame, CA 94010
16. By signing these Joint Escrow Instructions, you become a party
hereto only for the purpose of said Joint Escrow Instructions; you do not become
a party to the Agreement.
17. This instrument shall be binding upon and inure to the benefit of
the parties hereto, and their respective successors and permitted assigns.
<PAGE>
18. These Joint Escrow Instructions shall be governed by, and
construed and enforced in accordance with, the laws of the State of California
as they apply to contracts entered into and wholly to be performed within such
state.
Very truly yours,
CROSSWORLDS SOFTWARE, INC.
____________________________________
Katrina A. Garnett
PURCHASER:
____________________________________
Purchaser
ESCROW AGENT:
____________________________________
Katrina A. Garnett
<PAGE>
ATTACHMENT C
------------
ACKNOWLEDGMENT AND STATEMENT OF DECISION
----------------------------------------
REGARDING SECTION 83(b) ELECTION
--------------------------------
The undersigned (which term includes the undersigned's spouse), a purchaser
of ___________ shares of Common Stock of CrossWorlds Software, Inc., a
California corporation (the "Company") by exercise of an option (the "Option")
------- ------
granted pursuant to the Company's 1999 Executive Stock Plan (the "Plan"), hereby
----
states as follows:
1. The undersigned acknowledges receipt of a copy of the Plan relating to
the offering of such shares. The undersigned has carefully reviewed the Plan and
the option agreement pursuant to which the Option was granted.
2. The undersigned either [check and complete as applicable]:
(a) ____ has consulted, and has been fully advised by, the
undersigned's own tax advisor,
_____________________________________, whose business address is
______________________________, regarding the federal, state and
local tax consequences of purchasing shares under the Plan, and
particularly regarding the advisability of making elections
pursuant to Section 83(b) of the Internal Revenue Code of 1986,
as amended (the "Code") and pursuant to the corresponding
----
provisions, if any, of applicable state law; or
(b) ____ has knowingly chosen not to consult such a tax advisor.
3. The undersigned hereby states that the undersigned has decided [check
as applicable]:
(a) ____ to make an election pursuant to Section 83(b) of the Code,
and is submitting to the Company, together with the undersigned's
executed Early Exercise Notice and Stock Purchase Agreement, an
executed form entitled "Election Under Section 83(b) of the
Internal Revenue Code of 1986;" or
(b) ____ not to make an election pursuant to Section 83(b) of the
Code.
4. Neither the Company nor any subsidiary or representative of the
Company has made any warranty or representation to the undersigned with respect
to the tax consequences of the undersigned's purchase of shares under the Plan
or of the making or failure to make an election pursuant to Section 83(b) of the
Code or the corresponding provisions, if any, of applicable state law.
Date:___________________________ _________________________________
Purchaser
Date:___________________________ _________________________________
Spouse of Purchaser (if applicable)
<PAGE>
ATTACHMENT D
------------
ELECTION UNDER SECTION 83(b)
----------------------------
OF THE INTERNAL REVENUE CODE OF 1986
------------------------------------
The undersigned taxpayer hereby elects, pursuant to Section 83(b) of the
Internal Revenue Code, to include in taxpayer's gross income for the current
taxable year, the amount of any income that may be taxable to taxpayer in
connection with taxpayer's receipt of the property described below:
1. The name, address, taxpayer identification number and taxable year of the
undersigned are as follows:
NAME OF TAXPAYER: ________________
NAME OF SPOUSE: ________________
ADDRESS:
IDENTIFICATION NO. OF TAXPAYER: _______________
IDENTIFICATION NO. OF SPOUSE: _______________
TAXABLE YEAR: __________
2. The property with respect to which the election is made is described as
follows:
______________ shares of the Common Stock $.001 par value, of CrossWorlds
Software, Inc., a California corporation (the "Company").
-------
3. The date on which the property was transferred is: _______________
4. The property is subject to the following restrictions:
Repurchase option at cost in favor of the Company upon termination of
taxpayer's employment or consulting relationship.
5. The Fair Market Value at the time of transfer, determined without regard to
any restriction other than a restriction which by its terms will never
lapse, of such property is: $____________
6. The amount (if any) paid for such property: $____________
The undersigned has submitted a copy of this statement to the person for whom
the services were performed in connection with the undersigned's receipt of the
above-described property. The transferee of such property is the person
performing the services in connection with the transfer of said property.
The undersigned understands that the foregoing election may not be revoked
- --------------------------------------------------------------------------
except with the consent of the Commissioner.
- -------------------------------------------
Dated:_______________________ ___________________________________
Purchaser
Dated:_______________________ ___________________________________
Spouse of Purchaser (if applicable)
<PAGE>
EXHIBIT B
---------
CROSSWORLDS SOFTWARE, INC.
1999 EXECUTIVE STOCK PLAN
EXERCISE AGREEMENT
CrossWorlds Software, Inc.
577 Airport Boulevard, Suite 800
Burlingame, CA 94010-2024
Attention: Stock Administrator
1. Exercise of Option. Effective as of today, ___________, 1999, the
------------------
undersigned ("Purchaser") __________________ hereby elects to exercise
Purchaser's option to purchase _________ shares of the Common Stock (the
"Shares") of CrossWorlds Software, Inc. (the "Company") under and pursuant to
the CrossWorlds Software , Inc., 1999 Executive Stock Plan, as amended (the
"Plan") and the Incentive Agreement dated _____________________________ (the
"Option Agreement").
2. Representations of Purchaser. Purchaser acknowledges that Purchaser
----------------------------
has received, read and understood the Plan and the Option Agreement and agrees
to abide by and be bound by their terms and conditions.
3. Rights as Stockholder. Until the stock certificate evidencing such
---------------------
Shares is issued (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company), no right to vote
or receive dividends or any other rights as a stockholder shall exist with
respect to the Optioned Stock, notwithstanding the exercise of the Option. The
Company shall issue (or cause to be issued) such stock certificate promptly
after the Option is exercised. No adjustment will be made for a dividend or
other right for which the record date is prior to the date the stock certificate
is issued, except as provided in Section 12 of the Plan.
Purchaser shall enjoy rights as a stockholder until such time as
Purchaser disposes of the Shares or the Company and/or its assignee(s) exercises
the Right of First Refusal hereunder. Upon such exercise, Purchaser shall have
no further rights as a holder of the Shares so purchased except the right to
receive payment for the Shares so purchased in accordance with the provisions of
this Agreement, and Purchaser shall forthwith cause the certificate(s)
evidencing the Shares so purchased to be surrendered to the Company for transfer
or cancellation.
4. Company's Right of First Refusal. Before any Shares held by Purchaser
--------------------------------
or any transferee (either being sometimes referred to herein as the "Holder")
may be sold or otherwise transferred (including transfer by gift or operation of
law), the Company or its assignee(s) shall have a right of first refusal to
purchase the Shares on the terms and conditions set forth in this Section (the
"Right of First Refusal").
(a) Notice of Proposed Transfer. The Holder of the Shares shall
---------------------------
deliver to the Company a written notice (the "Notice") stating: (i) the
Holder's bona fide intention to sell or otherwise transfer such Shares; (ii) the
name of each proposed purchaser or other transferee ("Proposed Transferee");
(iii) the number of Shares to be transferred to each Proposed Transferee; and
(iv) the bona fide cash price or other consideration for which the Holder
proposes to transfer the Shares (the "Offered Price"), and the Holder shall
offer the Shares at the Offered Price to the Company or its assignee(s).
(b) Exercise of Right of First Refusal. At any time within thirty
----------------------------------
(30) days after receipt of the Notice, the Company and/or its assignee(s) may,
by giving written notice to the Holder, elect to purchase all, but not less than
all, of the Shares proposed to be transferred to any one or more of the Proposed
Transferees, at the purchase price determined in accordance with subsection (c)
below.
(c) Purchase Price. The purchase price ("Purchase Price") for the
--------------
Shares purchased by the Company or its assignee(s) under this Section shall be
the Offered Price. If the Offered Price includes consideration other than cash,
the cash equivalent value of the non-cash consideration shall be determined by
the Board of Directors of the Company in good faith.
(d) Payment. Payment of the Purchase Price shall be made, at the
-------
option of the Company or its assignee(s), in cash (by check), by cancellation of
all or a portion of any outstanding indebtedness of the Holder to the Company
(or, in the case of repurchase by an assignee, to the assignee), or by any
combination thereof within 30 days after receipt of the Notice or in the manner
and at the times set forth in the Notice.
(e) Holder's Right to Transfer. If all of the Shares proposed in the
--------------------------
Notice to be transferred to a given Proposed Transferee are not purchased by the
Company and/or its assignee(s) as provided in this Section, then the Holder may
sell or otherwise transfer such Shares to that Proposed Transferee at the
Offered Price or at a higher price, provided that such sale or other transfer is
consummated within 120 days after the date of the Notice and provided further
that any such sale or other transfer is effected in accordance with any
applicable securities laws and the Proposed Transferee agrees in writing that
the provisions of this Section shall continue to apply to the Shares in the
hands of such Proposed Transferee. If the Shares described in the Notice are
not transferred to the Proposed Transferee within such period, a new Notice
shall be given to the Company, and the Company and/or its assignees shall again
be offered the Right of First Refusal before any Shares held by the Holder may
be sold or otherwise transferred.
(f) Exception for Certain Family Transfers. Anything to the contrary
--------------------------------------
contained in this Section notwithstanding, the transfer of any or all of the
Shares during the Purchaser's lifetime or on the Purchaser's death by will or
intestacy to the Purchaser's immediate family or a trust for the benefit of the
Purchaser's immediate family shall be exempt from the provisions of this
Section. "Immediate Family" as used herein shall mean spouse, lineal descendant
or antecedent, father, mother, brother or sister. In such case, the transferee
or other recipient shall receive and hold the Shares so transferred subject to
the provisions of this Section, and there shall be no further transfer of such
Shares except in accordance with the terms of this Section.
(g) Termination of Right of First Refusal. The Right of First Refusal
-------------------------------------
shall terminate as to any Shares 90 days after the (i) first sale of Common
Stock of the Company to the general public pursuant to a registration statement
filed with and declared effective by the Securities and Exchange Commission
under the Securities Act of 1933, as amended, or (ii) a merger of the Company
with a corporation whose stock is publicly traded on a national exchange.
<PAGE>
5. Tax Consultation. Purchaser understands that Purchaser may suffer
----------------
adverse tax consequences as a result of Purchaser's purchase or disposition of
the Shares. Purchaser represents that Purchaser has consulted with any tax
consultants Purchaser deems advisable in connection with the purchase or
disposition of the Shares and that Purchaser is not relying on the Company for
any tax advice.
6. Restrictive Legends; Stop-Transfer Orders; Market Standoff.
----------------------------------------------------------
(a) Legends. Purchaser understands and agrees that the Company shall
-------
cause the legends set forth below or legends substantially equivalent thereto,
to be placed upon any certificate(s) evidencing ownership of the Shares together
with any other legends that may be required by the Company or by state or
federal securities laws:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED, SOLD
OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL
REGISTERED UNDER THE ACT OR, IN THE OPINION OF COMPANY COUNSEL
SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR
TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE THEREWITH.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON TRANSFER AND A RIGHT OF FIRST REFUSAL HELD BY THE
ISSUER OR ITS ASSIGNEE(S) AS SET FORTH IN AN AGREEMENT BETWEEN THE
ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY
BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH TRANSFER
RESTRICTIONS AND RIGHT OF FIRST REFUSAL ARE BINDING ON TRANSFEREES
OF THESE SHARES.
(b) Stop-Transfer Notices. Purchaser agrees that, in order to
---------------------
ensure compliance with the restrictions referred to herein, the Company may
issue appropriate "stop transfer" instructions to its transfer agent, if any,
and that, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
(c) Market Standoff. Purchaser hereby agrees that if so requested
---------------
by the Company or any representative of the underwriters in connection with any
registration of the offering of any securities of the Company under the
Securities Act of 1933, as amended (the "Securities Act"), neither Purchaser nor
--------------
Purchaser shall sell or otherwise transfer any Shares or other securities of the
Company during such period as the Company and the representatives of the
underwriters may request (not to exceed 180 days) following the effective date
of any registration statement of the Company filed under the Securities Act for
an underwritten public offering. The Company may impose stop-transfer
instructions with respect to Shares subject to the foregoing restrictions until
the end of such market standoff period.
(d) Refusal to Transfer. The Company shall not be required (i) to
-------------------
transfer on its books any Shares that have been sold or otherwise transferred in
violation of any of the provisions of this Agreement or (ii) to treat as owner
of such Shares or to accord the right to vote or pay dividends to any purchaser
or other transferee to whom such Shares shall have been so transferred.
7. Successors and Assigns. The Company may assign any of its rights under
----------------------
this Agreement to single or multiple assignees, and this Agreement shall inure
to the benefit of the successors and assigns of the Company. Subject to the
restrictions on transfer herein set forth, this Agreement shall be binding upon
Purchaser and his or her heirs, executors, administrators, successors and
assigns.
8. Interpretation. Any dispute regarding the interpretation of this
--------------
Agreement shall be submitted by Purchaser or by the Company forthwith to the
Company's Board of Directors or the committee thereof that administers the Plan,
which shall review such dispute at its next regular meeting. The resolution of
such a dispute by the Board or committee shall be final and binding on the
Company and on Purchaser.
9. Governing Law; Severability. This Agreement shall be governed by and
---------------------------
construed in accordance with the laws of the State of California excluding that
body of law pertaining to conflicts of law. Should any provision of this
Agreement be determined by a court of law to be illegal or unenforceable, the
other provisions shall nevertheless remain effective and shall remain
enforceable.
10. Notices. Any notice required or permitted hereunder shall be given in
-------
writing and shall be deemed effectively given upon personal delivery or upon
deposit in the United States mail by certified mail, with postage and fees
prepaid, addressed to the other party at its address as shown below beneath its
signature, or to such other address as such party may designate in writing from
time to time to the other party.
11. Further Instruments. The parties agree to execute such further
-------------------
instruments and to take such further action as may be reasonably necessary to
carry out the purposes and intent of this Agreement.
12. Delivery of Payment. Purchaser herewith delivers to the Company the
-------------------
full Exercise Price for the Shares.
13. Entire Agreement. The Plan and Notice of Grant/Option Agreement are
----------------
incorporated herein by reference. This Agreement, the Plan, the Option
Agreement and the Investment Representation Statement constitute the entire
agreement of the parties with respect to the subject matter hereof and supersede
in their entirety all prior undertakings and agreements of the Company and
Purchaser with respect to the subject matter hereof, and may not be modified
adversely to
<PAGE>
the Purchaser's interest except by means of a writing signed by the Company and
Purchaser.
Submitted by: Accepted by:
PURCHASER:
CROSSWORLDS SOFTWARE, INC.
By:_______________________________ By:______________________________
Name:_____________________________ Its:_____________________________
Address: Address:
- ------- -------
__________________________________ 577 Airport Boulevard, Suite 800
__________________________________ Burlingame, CA 94010-2024
<PAGE>
EXHIBIT C
---------
INVESTMENT REPRESENTATION STATEMENT
PURCHASER: _____________________
COMPANY: CROSSWORLDS SOFTWARE, INC.
SECURITY: ___________ shares of Common Stock
AMOUNT: __________________________________
DATE: __________________________________
In connection with the purchase of the above-listed Securities, the
undersigned Purchaser represents to the Company the following:
(a) Purchaser is aware of the Company's business affairs and financial
condition and has acquired sufficient information about the Company to reach an
informed and knowledgeable decision to acquire the Securities. Purchaser is
acquiring these Securities for investment for Purchaser's own account only and
not with a view to, or for resale in connection with, any "distribution" thereof
within the meaning of the Securities Act of 1933, as amended (the "Securities
Act").
(b) Purchaser acknowledges and understands that the Securities constitute
"restricted securities" under the Securities Act and have not been registered
under the Securities Act in reliance upon a specific exemption therefrom, which
exemption depends upon, among other things, the bona fide nature of Purchaser's
investment intent as expressed herein. In this connection, Purchaser
understands that, in the view of the Securities and Exchange Commission, the
statutory basis for such exemption may be unavailable if Purchaser's
representation was predicated solely upon a present intention to hold these
Securities for the minimum capital gains period specified under tax statutes,
for a deferred sale, for or until an increase or decrease in the market price of
the Securities, or for a period of one year or any other fixed period in the
future. Purchaser further understands that the Securities must be held
indefinitely unless they are subsequently registered under the Securities Act or
an exemption from such registration is available. Purchaser further
acknowledges and understands that the Company is under no obligation to register
the Securities. Purchaser understands that the certificate evidencing the
Securities will be imprinted with a legend which prohibits the transfer of the
Securities unless they are registered or such registration is not required in
the opinion of counsel satisfactory to the Company and any other legend required
under applicable state securities laws.
(c) Purchaser is familiar with the provisions of Rule 701 and Rule 144,
each promulgated under the Securities Act, which, in substance, permit limited
public resale of "restricted securities" acquired, directly or indirectly from
the issuer thereof, in a non-public offering subject to the satisfaction of
certain conditions. Rule 701 provides that if the issuer qualifies under Rule
701 at the time of the grant of the Option to the Purchaser, the exercise will
be exempt from registration under the Securities Act. In the event the Company
becomes subject to the reporting requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, ninety (90) days thereafter (or such longer
period as any market stand-off agreement may require) the Securities exempt
under Rule 701 may be resold, subject to the satisfaction of certain of the
conditions specified by Rule 144, including: (1) the resale being made through
a broker in an unsolicited "broker's transaction" or in transactions directly
with a market maker (as said term is defined under the Securities Exchange Act
of 1934); and, in the case of an affiliate, (2) the availability of certain
public information about the Company, (3) the amount of Securities being sold
during any three month period not exceeding the limitations specified in Rule
144(e), and (4) the timely filing of a Form 144, if applicable.
In the event that the Company does not qualify under Rule 701 at the time
of grant of the Option, then the Securities may be resold in certain limited
circumstances subject to the provisions of Rule 144, which requires the resale
to occur not less than one year after the later of the date the Securities were
sold by the Company or the date the Securities were sold by an affiliate of the
Company, within the meaning of Rule 144; and, in the case of acquisition of the
Securities by an affiliate, or by a non-affiliate who subsequently holds the
Securities less than two years, the satisfaction of the conditions set forth in
sections (1), (2), (3) and (4) of the paragraph immediately above.
(d) Purchaser hereby agrees that if so requested by the Company or any
representative of the underwriters in connection with any registration of the
offering of any securities of the Company under the Securities Act, Purchaser
shall not sell or otherwise transfer any Shares or other securities of the
Company during the 180-day period following the effective date of a registration
statement of the Company filed under the Securities Act; provided, however, that
such restriction shall only apply to the first registration statement of the
Company to become effective under the Securities Act which include securities to
be sold on behalf of the Company to the public in an underwritten public
offering under the Securities Act. The Company may impose stop-transfer
instructions with respect to securities subject to the foregoing restrictions
until the end of such 180-day period.
<PAGE>
(e) Purchaser further understands that in the event all of the applicable
requirements of Rule 701 or 144 are not satisfied, registration under the
Securities Act, compliance with Regulation A, or some other registration
exemption will be required; and that, notwithstanding the fact that Rules 144
and 701 are not exclusive, the Staff of the Securities and Exchange Commission
has expressed its opinion that persons proposing to sell private placement
securities other than in a registered offering and otherwise than pursuant to
Rules 144 or 701 will have a substantial burden of proof in establishing that an
exemption from registration is available for such offers or sales, and that such
persons and their respective brokers who participate in such transactions do so
at their own risk. Purchaser understands that no assurances can be given that
any such other registration exemption will be available in such event.
Signature of Purchaser:
______________________________
Date:___________________, 19__
<PAGE>
CROSSWORLDS SOFTWARE, INC.
1999 EXECUTIVE STOCK PLAN
STOCK OPTION AGREEMENT--EARLY EXERCISE
Unless otherwise defined herein, the terms defined in the CrossWorlds
Software, Inc. 1999 Stock Plan (the "Plan") shall have the same defined meanings
in this Option Agreement.
1. NOTICE OF STOCK OPTION GRANT
----------------------------
You have been granted an option to purchase Common Stock of the CrossWorlds
Software, Inc. (the "Company"), subject to the terms and conditions of the Plan
and this Option Agreement, as follows:
Optionee Art Matin
7 Melwood Lane
Westport, CT 06880 USA
Grant Number 00001731
Date of Grant 01/12/2000
Vesting Commencement Date 01/12/2000
Exercise Price per Share $ 9.00
Number of Shares Granted 298,264
Total Exercise Price $2,684,376.00
Type of Option: NQ
Term/Expiration Date: 01/12/2010
1. Vesting Schedule. You may exercise this Option, in whole or in part
----------------
immediately following the Date of Grant. These option shares are subject to the
following vesting schedule (and subject to the Company's right to repurchase
shares as set forth in Exhibit A, Section 4(a)):
-------------------------
The shares of Common Stock subject to the Option (the "Shares") shall vest
as to 1/8th of the Shares on the date which is six (6) months from the Vesting
Commencement Date, with a further 1/48th of the Shares subject to the Option
vesting at the end of each one-month period thereafter, such that the Option
shall be vested in full 48 months following the Vesting Commencement Date
assuming Continuous Status as an Employee or Consultant.
2. Termination Period. You may exercise this Option for 90 days after
------------------
termination of your Continuous Status as an Employee, Consultant or Director, or
for such longer period upon your death or disability as provided in the Plan.
If your status changes from Employee to Consultant or Director; or Director or
Consultant to Employee, this Option Agreement shall remain in effect. In no
case may you exercise this Option after the Term/Expiration Date as provided
above.
3. Agreement to Terms. Optionee acknowledges receipt of a copy of the Plan and
------------------
represents that he is familiar with the terms and provisions thereof, and hereby
accepts this Option subject to all of the terms and provisions thereof.
Optionee has reviewed the Plan and this Option in their entirety, including the
terms and conditions of Grant on the reverse side hereof, has had an opportunity
to obtain the advice of counsel prior to executing this Option and fully
understands all provisions of the Option. Optionee hereby agrees to accept as
binding, conclusive and final all decisions or interpretations of the
Administrator upon any questions arising under the Plan or this Option.
Optionee further agrees to notify the Company upon any change in the residence
address indicated below.
OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE
OPTION HEREOF IS EARNED ONLY BY CONTINUING CONSULTANCY, DIRECTORSHIP OR
EMPLOYMENT AT THE WILL OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING
GRANTED THIS OPTION OR ACQUIRING SHARES HEREUNDER). OPTIONEE FURTHER
ACKNOWLEDGES AND AGREES THAT NOTHING IN THIS AGREEMENT, NOR IN THE COMPANY'S
STOCK OPTION PLAN WHICH IS INCORPORATED HEREIN BY REFERENCE, SHALL CONFER UPON
OPTIONEE ANY RIGHT WITH RESPECT TO CONTINUATION OF EMPLOYMENT, CONSULTANCY OR
DIRECTORSHIP BY THE COMPANY, NOR SHALL IT INTERFERE IN ANY WAY WITH OPTIONEE'S
RIGHT OR THE COMPANY'S RIGHT TO TERMINATE OPTIONEE'S EMPLOYMENT, CONSULTANCY OR
DIRECTORSHIP AT ANY TIME, WITH OR WITHOUT CAUSE.
Dated: 01/12/2000
-----------------------------------
OPTIONEE
By: /s/ Art Matin
--------------------------------------
CROSSWORLDS SOFTWARE, INC.,
a Delaware corporation
By: /s/ Stacey Giamalis
--------------------------------------
Title: General Counsel
<PAGE>
1. TERMS AND CONDITIONS OF GRANT
a. Grant of Option. CrossWorlds Software, Inc. (the "Company"), hereby
----------------
grants to the Optionee (the "Optionee") named in the Notice of Grant, a
[nonstatutory ][incentive] stock option (the "Option") to purchase the total
number of shares of Common Stock (the Shares") set forth in the Notice of Grant,
at the exercise price per share set forth in the Notice of Grant (the "Exercise
Price") subject to the terms, definitions and provisions of the 1999 Stock Plan
(the "Plan") adopted by the Company, which is incorporated herein by reference.
Unless otherwise defined herein, the terms defined in the Plan shall have the
same defined meanings in this Option Agreement.
b. Exercise of Option. This Option shall be exercisable during its term in
------------------
accordance with the Vesting Schedule set out in the Notice of Grant and with the
provisions of Section 9 of the Plan as follows:
(i) Right to Exercise. (a) This Option may be exercised in whole or in
-----------------
part at any time after the Date of Grant, as to Shares which have not yet vested
under the vesting schedule indicated on the Notice of Stock Option Grant;
provided, however, that Optionee shall execute as a condition to such exercise
- -------- -------
of this Option, the Early Exercise Notice and Restricted Stock Purchase
Agreement attached hereto as Exhibit A (the "Early Exercise Agreement"). If
--------- ------------------------
Optionee chooses to exercise this Option solely as to Shares which have vested
under the vesting schedule indicated on the Notice of Stock Option Grant,
Optionee shall complete and execute the form of Exercise Notice attached hereto
as Exhibit B (the "Exercise Agreement"). Notwithstanding the foregoing, the
--------- ------------------
Company may in its discretion prescribe or accept a different form of notice of
exercise and/or stock purchase agreement if such forms are otherwise consistent
with this Agreement, the Plan and then-applicable law. (b) This Option may not
be exercised for a fraction of a Share. (c) In the event of Optionee's death,
Disability or other termination of the Optionee's Continuous Status as an
Employee, Consultant or Director, the exercisability of the Option is governed
by Sections g, h and i below, subject to the limitation contained in Section k.
below. (d) In no event may this Option be exercised after the date of
expiration of the term of this Option as set forth in the Notice of Grant.
(ii) Method of Exercise. This Option shall be exercisable by execution
------------------
and delivery of the Early Exercise Agreement or the Exercise Agreement,
whichever is applicable, or of any other written notice approved for such
purpose by the Company which shall state the election to exercise the Option,
the number of Shares in respect of which the Option is being exercised, and such
other representations and agreements as to the holder's investment intent with
respect to such shares of Common Stock as may be required by the Company
pursuant to the provisions of the Plan. Such written notice shall be signed by
the Optionee and shall be delivered in person or by certified mail to the
Secretary of the Company. The written notice shall be accompanied by payment of
the Exercise Price. This Option shall be deemed to be exercised upon receipt by
the Company of such written notice accompanied by the Exercise Price.
No Shares will be issued pursuant to the exercise of an Option unless such
issuance and such exercise shall comply with all relevant provisions of law and
the requirements of any stock exchange or national market system upon which the
Common Stock is then listed. Assuming such compliance, for income tax purposes
the Shares shall be considered transferred to the Optionee on the date on which
the Option is exercised with respect to such Shares.
c. Optionee's Representations. In the event the Shares purchasable pursuant
--------------------------
to the exercise of this Option have not been registered under the Securities Act
of 1933, as amended, at the time this Option is exercised, Optionee shall, if
required by the Company, concurrently with the exercise of all or any portion of
this Option, deliver to the Company his or her Investment Representation
Statement in the form attached hereto as Exhibit C.
d. Lock-Up Period. Optionee hereby agrees that if so requested by the
--------------
Company or any representative of the underwriters (the "Managing Underwriter")
in connection with any registration of the offering of any securities of the
Company under the Securities Act, Optionee shall not sell or otherwise transfer
any Shares or other securities of the Company during the 180-day period (or such
longer period as may be requested in writing by the Managing Underwriter and
agreed to in writing by the Company) (the "Market Standoff Period") following
the effective date of a registration statement of the Company filed under the
Securities Act; provided, however, that such restriction shall apply only to
the first registration statement of the Company to become effective under the
Securities Act that includes securities to be sold on behalf of the Company to
the public in an underwritten public offering under the Securities Act. The
Company may impose stop-transfer instructions with respect to securities subject
to the foregoing restrictions until the end of such Market Standoff Period.
e. Method of Payment. Payment of the Exercise Price shall be by any of the
-----------------
following, or a combination thereof, at the election of the Optionee:
(i) cash; or
(ii) check; or
(iii) surrender of other shares of Common Stock of the Company which (A)
in the case of Shares acquired pursuant to the exercise of a Company option,
have been owned by the Optionee for more than six (6) months on the date of
surrender, and (B) have a Fair Market Value on the date of surrender equal to
the Exercise Price of the Shares as to which the Option is being exercised; or
(iv) to the extent authorized by the Company, delivery of a properly
executed exercise notice together with such other documentation as the
Administrator and the broker, if applicable, share require to effect an exercise
of the Option and delivery to the Company of the sale or loan proceeds required
to pay the Exercise Price; or
(v) promissory note (in the form provided by the Company).
f. Restrictions on Exercise. This Option may not be exercised if the
------------------------
issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any applicable
federal or state securities or other law or regulation, including any rule under
Part 207 of Title 12 of the Code of Federal Regulations as promulgated by the
Federal Reserve Board. As a condition to the exercise of this Option, the
Company may require Optionee to make any representation and warranty to the
Company as may be required by any applicable law or regulation.
g. Termination of Relationship. In the event an Optionee's Continuous
---------------------------
Status as an Employee, Consultant or Director terminates, Optionee may, to the
extent otherwise so entitled at the date of such termination (the "Termination
Date"), exercise this Option during the Termination Period set out in the Notice
of Grant. To the extent that Optionee was not entitled to exercise this Option
at the date of such termination, or if Optionee does not exercise this Option
within the time specified herein, the Option shall terminate.
h. Disability of Optionee. Notwithstanding the provisions of Section g.
----------------------
above, in the event of termination of an Optionee's Continuous Status as an
Employee, Consultant or Director as a result of his or her Disability, Optionee
may, but only within twelve (12) months from the date of such termination (and
in no event later than the expiration date of the term of such Option as set
forth in the Notice of Grant) exercise the Option to the extent otherwise
entitled to exercise it at the date of such termination. To the extent that
Optionee is not entitled to exercise the Option at the date of termination, or
if Optionee does not exercise such Option to the extent so entitled within the
time specified herein, the Option shall terminate, and the Shares covered by
such Option shall revert to the Plan.
i. Death of Optionee. In the event of termination of Optionee's Continuous
-----------------
Status as an Employee or Consultant as a result of the death of Optionee, the
Option may be exercised at any time within twelve (12) months following the date
of death (but in no event later than the date of expiration of the term of this
Option as set forth in Section k. below), by Optionee's estate or by a person
who acquired the right to exercise the Option by bequest or inheritance, but
only to the extent the Optionee could exercise the Option at the date of death.
j. Non-Transferability of Option. Options may not be sold, pledged,
-----------------------------
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution and may be exercised, during the
lifetime of the Optionee, only by the Optionee. The terms of this Option shall
be binding upon the executors, administrators, heirs, successors and assigns of
the Optionee.
k. Term of Option. This Option may be exercised only within the term set
--------------
out in the Notice of Grant, and may be exercised during such term only in
accordance with the Plan and the terms of this Option. The limitations set out
in Section 7 of the Plan regarding Options granted to more than ten percent
(10%) shareholders shall apply to this Option.
l. Tax Consequences. Set forth below is a brief summary as of the date of
----------------
this Option of some of the federal tax consequences of exercise of this Option
and disposition of the Shares. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE
TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. OPTIONEE SHOULD CONSULT A TAX
ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.
(i) Exercise of an NSO. There may be a regular federal income tax
------------------
liability upon the exercise of an NSO. The Optionee will be treated as having
received compensation income (taxable at ordinary income tax rates) equal to the
excess, if any, of the Fair Market Value of the Shares on the date of exercise
over the Exercise Price. In the case of the exercise of Option Shares which
have not vested as of the date of exercise, the Optionee will not realize
compensation income on the exercise until the date(s) on which shares vest
(i.e., have been released from the Company's repurchase option) unless the
Optionee files an election under Section 83(b) of the Code (an "83(b)
Election"). If an 83(b) election is filed, the amount of compensation income
will be determined on the date of exercise. If Optionee is an Employee, the
Company will be required to withhold from Optionee's compensation or collect
from Optionee and pay to the applicable taxing authorities an amount equal to a
percentage of this compensation income at the time of exercise or vesting, as
applicable.
(ii) Disposition of Shares. If Shares are held for more than one year
---------------------
after the date of exercise (or the date of vesting, if later, in the case of the
exercise of unvested option shares and the Optionee had not filed an 83(b)
election at the time of such exercise, any gain realized on disposition of the
Shares will be treated as long-term capital gain for federal income tax
purposes.
<PAGE>
EXHIBIT A
---------
CROSSWORLDS SOFTWARE, INC.
1999 EXECUTIVE STOCK PLAN
EARLY EXERCISE NOTICE AND STOCK PURCHASE AGREEMENT
CrossWorlds Software, Inc.
577 Airport Boulevard, Suite 800
Burlingame, CA 94010-2024
Attention: Stock Administrator
1. Exercise of Option. Effective as of today, ___________, _____, the
------------------
undersigned ("Purchaser") __________________ hereby elects to exercise
Purchaser's option to purchase _________ shares of the Common Stock (the
"Shares") of CrossWorlds Software, Inc. (the "Company") under and pursuant to
the CrossWorlds Software , Inc., 1999 Executive Stock Plan, as amended (the
"Plan") and the Stock Option Agreement dated _____________________________ (the
"Option Agreement"). Of these Shares, Purchaser has elected to purchase
_______________ of those Shares which have become vested as of the date hereof
under the Vesting Schedule set forth in the Notice of Stock Option Grant (the
"Vested Shares") and _____________ Shares which have not yet vested under such
- --------------
Vesting Schedule (the "Unvested Shares"). The purchase price for the Shares
---------------
shall be $______ per Share for a total purchase price of $_______________.
The term "Shares" refers to the purchased Shares and all
------
securities received in replacement of the Shares or as stock dividends or
splits, all securities received in replacement of the Shares in a
recapitalization, merger, reorganization, exchange or the like, and all new,
substituted or additional securities or other properties to which Purchaser is
entitled by reason of Purchaser's ownership of the Shares.
2. Representations of Purchaser. Purchaser acknowledges that Purchaser
----------------------------
has received, read and understood the Plan and the Option Agreement and agrees
to abide by and be bound by their terms and conditions.
3. Rights as Stockholder. Until the stock certificate evidencing such
---------------------
Shares is issued (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company), no right to vote
or receive dividends or any other rights as a stockholder shall exist with
respect to the Optioned Stock, notwithstanding the exercise of the Option. The
Company shall issue (or cause to be issued) such stock certificate promptly
after the Option is exercised. No adjustment will be made for a dividend or
other right for which the record date is prior to the date the stock certificate
is issued, except as provided in Section 12 of the Plan.
Purchaser shall enjoy rights as a stockholder until such time as
Purchaser disposes of the Shares or the Company and/or its assignee(s) exercises
the Right of First Refusal hereunder. Upon such exercise, Purchaser shall have
no further rights as a holder of the Shares so purchased except the right to
receive payment for the Shares so purchased in accordance with the provisions of
this Agreement, and Purchaser shall forthwith cause the certificate(s)
evidencing the Shares so purchased to be surrendered to the Company for transfer
or cancellation.
4. Limitations on Transfer. In addition to any other limitation on
-----------------------
transfer created by applicable securities laws, Purchaser shall not assign,
encumber or dispose of any interest in the Shares while the Shares are subject
to the Company's Repurchase Option (as defined below). After any Shares have
been released from such Repurchase Option, Purchaser shall not assign, encumber
or dispose of any interest in such Shares except in compliance with the
provisions below and applicable securities laws.
(a) Repurchase Option.
-----------------
(i) If Purchaser's Continuous Status as an Employee or Consultant
terminates for any reason (including for cause, death or disability), the
Company shall upon the date of such termination (the "Termination Date") have an
----------------
irrevocable, exclusive option (the "Repurchase Option") for a period of 60 days
-----------------
from such date to repurchase all or any portion of the Unvested Shares held by
Purchaser as of the Termination Date which have not yet been released from the
Company's Repurchase Option at the original purchase price per Share specified
in Section 1 (adjusted for any stock splits, stock dividends and the like).
(ii) The Repurchase Option shall be exercised by the Company by
written notice to Purchaser or Purchaser's executor and, at the Company's
option, (A) by delivery to Purchaser or Purchaser's executor with such notice of
a check in the amount of the purchase price for the Shares being purchased, or
(B) in the event Purchaser is indebted to the Company, by cancellation by the
Company of an amount of such indebtedness equal to the purchase price for the
Shares being repurchased, or (C) by a combination of (A) and (B) so that the
combined payment and cancellation of indebtedness equals such purchase price.
Upon delivery of such notice and payment of the purchase price in any of the
ways described above, the Company shall become the legal and beneficial owner of
the Shares being repurchased and all rights and interest therein or related
thereto, and the Company shall have the right to transfer to its own name the
number of Shares being repurchased by the Company, without further action by
Purchaser.
(iii) One hundred percent (100%) of the Unvested Shares shall
initially be subject to the Repurchase Option. The Unvested Shares shall be
released from the Repurchase Option in accordance with the Vesting Schedule set
forth in the Notice of Stock Option Grant
<PAGE>
until all Shares are released from the Repurchase Option. Fractional shares
shall be rounded to the nearest whole share.
(b) Company's Right of First Refusal. Before any Shares held by
--------------------------------
Purchaser or any transferee (either being sometimes referred to herein as the
"Holder") may be sold or otherwise transferred (including transfer by gift or
operation of law), the Company or its assignee(s) shall have a right of first
refusal to purchase the Shares on the terms and conditions set forth in this
Section (the "Right of First Refusal").
(i) Notice of Proposed Transfer. The Holder of the Shares shall
---------------------------
deliver to the Company a written notice (the "Notice") stating: (i) the
Holder's bona fide intention to sell or otherwise transfer such Shares; (ii) the
name of each proposed purchaser or other transferee ("Proposed Transferee");
(iii) the number of Shares to be transferred to each Proposed Transferee; and
(iv) the bona fide cash price or other consideration for which the Holder
proposes to transfer the Shares (the "Offered Price"), and the Holder shall
offer the Shares at the Offered Price to the Company or its assignee(s).
(ii) Exercise of Right of First Refusal. At any time within
----------------------------------
thirty (30) days after receipt of the Notice, the Company and/or its assignee(s)
may, by giving written notice to the Holder, elect to purchase all, but not less
than all, of the Shares proposed to be transferred to any one or more of the
Proposed Transferees, at the purchase price determined in accordance with
subsection (c) below.
(iii) Purchase Price. The purchase price ("Purchase Price") for
--------------
the Shares purchased by the Company or its assignee(s) under this Section shall
be the Offered Price. If the Offered Price includes consideration other than
cash, the cash equivalent value of the non-cash consideration shall be
determined by the Board of Directors of the Company in good faith.
(iv) Payment. Payment of the Purchase Price shall be made, at
-------
the option of the Company or its assignee(s), in cash (by check), by
cancellation of all or a portion of any outstanding indebtedness of the Holder
to the Company (or, in the case of repurchase by an assignee, to the assignee),
or by any combination thereof within 30 days after receipt of the Notice or in
the manner and at the times set forth in the Notice.
(v) Holder's Right to Transfer. If all of the Shares proposed
--------------------------
in the Notice to be transferred to a given Proposed Transferee are not purchased
by the Company and/or its assignee(s) as provided in this Section, then the
Holder may sell or otherwise transfer such Shares to that Proposed Transferee at
the Offered Price or at a higher price, provided that such sale or other
transfer is consummated within 120 days after the date of the Notice and
provided further that any such sale or other transfer is effected in accordance
with any applicable securities laws and the Proposed Transferee agrees in
writing that the provisions of this Section shall continue to apply to the
Shares in the hands of such Proposed Transferee. If the Shares described in the
Notice are not transferred to the Proposed Transferee within such period, a new
Notice shall be given to the Company, and the Company and/or its assignees shall
again be offered the Right of First Refusal before any Shares held by the Holder
may be sold or otherwise transferred.
(vi) Exception for Certain Family Transfers. Anything to the
--------------------------------------
contrary contained in this Section notwithstanding, the transfer of any or all
of the Shares during the Purchaser's lifetime or on the Purchaser's death by
will or intestacy to the Purchaser's immediate family or a trust for the benefit
of the Purchaser's immediate family shall be exempt from the provisions of this
Section. "Immediate Family" as used herein shall mean spouse, lineal descendant
or antecedent, father, mother, brother or sister. In such case, the transferee
or other recipient shall receive and hold the Shares so transferred subject to
the provisions of this Section, and there shall be no further transfer of such
Shares except in accordance with the terms of this Section.
(vii) Termination of Right of First Refusal. The Right of First
-------------------------------------
Refusal shall terminate as to any Shares 90 days after the (i) first sale of
Common Stock of the Company to the general public pursuant to a registration
statement filed with and declared effective by the Securities and Exchange
Commission under the Securities Act of 1933, as amended, or (ii) a merger of the
Company with a corporation whose stock is publicly traded on a national
exchange.
5. Transfer of Shares; Escrow.
--------------------------
(a) Purchaser hereby authorizes and directs the Secretary of the
Company, or such other person designated by the Company, to transfer any
Unvested Shares as to which the Repurchase Option has been exercised from
Purchaser to the Company.
(b) To ensure the availability for delivery of Purchaser's Unvested
Shares upon repurchase by the Company pursuant to the Repurchase Option under
Section 4(a), Purchaser hereby appoints Katrina A. Garnett of the Company, or
any other person designated by the Company, as escrow agent (the "Escrow Agent")
------------
and as Purchaser's attorney-in-fact to sell, assign and transfer unto the
Company such Unvested Shares, if any, as may be repurchased by the Company
pursuant to the Repurchase Option and shall, upon execution of this Agreement,
deliver and deposit with the Escrow Agent the share certificates representing
the Unvested Shares, together with two stock assignments duly endorsed in blank
and in the form attached hereto as Attachment A . The Unvested Shares and stock
------------
assignment shall be held by the Escrow Agent in escrow pursuant to Joint Escrow
Instructions in the form attached hereto as Attachment B , until (i) the Company
------------
exercises its Repurchase Option as provided in Section 4(a), (ii) such Unvested
Shares become Vested Shares, or (iii) such time as this Agreement no longer is
in effect. Upon vesting of the Unvested Shares, the Escrow Agent shall promptly
deliver to Purchaser the certificate or certificates representing such Shares in
the Escrow Agent's
<PAGE>
possession belonging to Purchaser, and the Escrow Agent shall be discharged of
all further obligations hereunder. Notwithstanding any of the foregoing,
however, the Escrow Agent shall nevertheless retain such certificate or
certificates as Escrow Agent if so required pursuant to other restriction
imposed pursuant to this Agreement.
(c) The Escrow Agent shall not be liable for any act it may do or omit
to do with respect to holding the Shares in escrow and while acting in good
faith and in the exercise of its judgment.
(d) Transfer or sale of the Shares is subject to restrictions on
transfer imposed by any applicable state and federal securities laws. Any
transferee shall hold such Shares subject to all the provisions hereof and shall
acknowledge the same by signing a copy of this Agreement.
(e) No Shares may be sold, pledged, hypothecated or otherwise
transferred by Purchaser until such Shares have become Vested Shares and are no
longer subject to any security agreement for the benefit of the Company.
6. Ownership, Voting Rights, Duties. This Agreement shall not affect in
--------------------------------
any way the ownership, voting rights or other rights or duties of Purchaser,
except as specifically provided herein. Purchaser shall enjoy rights as a
stockholder until such time as Purchaser disposes of the Shares or the Company
and/or its assignee(s) exercises either the Repurchase Option or the Right of
First Refusal hereunder. Upon any such exercise, Purchaser shall have no
further rights as a holder of the Shares so purchased except the right to
receive payment for the Shares so purchased in accordance with the provisions of
this Agreement, and Purchaser or the Escrow Agent, as the case may be, shall
forthwith cause the certificate(s) evidencing the Shares so purchased to be
surrendered to the Company for transfer or cancellation.
7. Tax Consultation. Purchaser understands that Purchaser may suffer
----------------
adverse tax consequences as a result of Purchaser's purchase or disposition of
the Shares. Purchaser represents that Purchaser has consulted with any tax
consultants Purchaser deems advisable in connection with the purchase or
disposition of the Shares and that Purchaser is not relying on the Company for
any tax advice.
8. Restrictive Legends; Stop-Transfer Orders; Market Standoff
----------------------------------------------------------
(a) Legends. Purchaser understands and agrees that the Company shall
-------
cause the legends set forth below or legends substantially equivalent thereto,
to be placed upon any certificate(s) evidencing ownership of the Shares together
with any other legends that may be required by the Company or by state or
federal securities laws:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED,
SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND
UNTIL REGISTERED UNDER THE ACT OR, IN THE OPINION OF COMPANY
COUNSEL SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH
OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE
THEREWITH.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON TRANSFER AND A RIGHT OF FIRST REFUSAL HELD BY THE
ISSUER OR ITS ASSIGNEE(S) AS SET FORTH IN AN AGREEMENT BETWEEN THE
ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH
MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH
TRANSFER RESTRICTIONS AND RIGHT OF FIRST REFUSAL ARE BINDING ON
TRANSFEREES OF THESE SHARES.
(b) Stop-Transfer Notices. Purchaser agrees that, in order to ensure
---------------------
compliance with the restrictions referred to herein, the Company may issue
appropriate "stop transfer" instructions to its transfer agent, if any, and
that, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
(c) Market Standoff. Purchaser hereby agrees that if so requested by
---------------
the Company or any representative of the underwriters in connection with any
registration of the offering of any securities of the Company under the
Securities Act of 1933, as amended (the "Securities Act"), neither Purchaser nor
--------------
Purchaser shall sell or otherwise transfer any Shares or other securities of the
Company during such period as the Company and the representatives of the
underwriters may request (not to exceed 180 days) following the effective date
of any registration statement of the Company filed under the Securities Act for
an underwritten public offering. The Company may impose stop-transfer
instructions with respect to Shares subject to the foregoing restrictions until
the end of such market standoff period.
(d) Refusal to Transfer. The Company shall not be required (i) to
-------------------
transfer on its books any Shares that have been sold or otherwise transferred in
violation of any of the provisions of this Agreement or (ii) to treat as owner
of such Shares or to accord the right to vote or pay dividends to any purchaser
or other transferee to whom such Shares shall have been so transferred.
9. Section 83(b) Election. Purchaser understands that Section 83(a) of
----------------------
the Internal Revenue Code of 1986, as amended (the
<PAGE>
"Code"), taxes as ordinary income for a [Nonstatutory] [Incentive] Stock Option
the difference between the amount paid for the Shares and the Fair Market Value
of the Shares as of the date any restrictions on the Shares lapse. In this
context, "restriction" means the right of the Company to buy back the Shares
-----------
pursuant to the Repurchase Option set forth in Section 4(a) of this Agreement.
Purchaser understands that Purchaser may elect to be taxed at the time the
Shares are purchased, rather than when and as the Repurchase Option expires, by
filing an election under Section 83(b) (an "83(b) Election") of the Code with
--------------
the Internal Revenue Service within 30 days from the date of purchase. Even if
the Fair Market Value of the Shares at the time of the execution of this
Agreement equals the amount paid for the Shares, the election must be made to
avoid income tax treatment under Section 83(a) in the future. Purchaser
acknowledge that it is Purchaser's sole responsibility and not the Company's to
timely file the 83(b) Election, even if Purchaser requests the Company or its
representative to make this filing on Purchaser's behalf. Purchaser understands
that failure to file such an election in a timely manner may result in adverse
tax consequences for Purchaser. Purchaser further understands that an additional
copy of such election form should be filed with his or her federal income tax
return for the calendar year in which the date of this Agreement falls.
Purchaser acknowledges that the foregoing is only a summary of the effect of
United States federal income taxation with respect to purchase of the Shares
hereunder, and does not purport to be complete. Purchaser further acknowledges
that the Company has directed Purchaser to seek independent advice regarding the
applicable provisions of the Code, the income tax laws of any municipality,
state or foreign country in which Purchaser may reside, and the tax consequences
of Purchaser's death.
Purchaser agrees that he or she will execute and deliver to the
Company with this executed Agreement a copy of the Acknowledgment and Statement
of Decision Regarding Section 83(b) Election (the "Acknowledgment") attached
--------------
hereto as Attachment C. Purchaser further agrees that he or she will execute
------------
and submit with the Acknowledgment a copy of the 83(b) Election attached hereto
as Attachment D (for tax purposes in connection with the early exercise of an
------------
option) if Purchaser has indicated in the Acknowledgment his or her decision to
make such an election.
10. Notices. All notices and other communications required or permitted
-------
hereunder shall be in writing, shall be effective when given, and shall in any
event be deemed to be given (a) five (5) days after the deposit with the U.S.
Postal Service, if delivered by first class mail, postage prepaid (b) upon
delivery, if delivered by hand, or (c) one business day after the business day
of deposit with Federal Express or similar overnight courier, freight prepaid,
and shall be addressed (i) if to Purchaser, at Purchaser's address as set forth
beneath Purchaser's signature to this Agreement, or at such other address as
Purchaser shall have furnished to the Company in writing, (ii) if to the
Company, to CrossWorlds Software, Inc., with copy to Venture Law Group, 2775
Sand Hill Road, Menlo Park, California 94025, Attention: Jon E. Gavenman, Esq.,
or Katrina A. Garnett, at CrossWorlds Software, Inc., or at such other address
as the Escrow Agent shall have furnished to the parties.
11. Successors and Assigns. The Company may assign any of its rights
----------------------
under this Agreement to single or multiple assignees, and this Agreement shall
inure to the benefit of the successors and assigns of the Company. Subject to
the restrictions on transfer herein set forth, this Agreement shall be binding
upon Purchaser and his or her heirs, executors, administrators, successors and
assigns.
12. Interpretation. Any dispute regarding the interpretation of this
--------------
Agreement shall be submitted by Purchaser or by the Company forthwith to the
Company's Board of Directors or the committee thereof that administers the Plan,
which shall review such dispute at its next regular meeting. The resolution of
such a dispute by the Board or committee shall be final and binding on the
Company and on Purchaser.
13. Governing Law; Severability. This Agreement shall be governed by and
---------------------------
construed in accordance with the laws of the State of California excluding that
body of law pertaining to conflicts of law. Should any provision of this
Agreement be determined by a court of law to be illegal or unenforceable, the
other provisions shall nevertheless remain effective and shall remain
enforceable.
14. Notices. Any notice required or permitted hereunder shall be given in
-------
writing and shall be deemed effectively given upon personal delivery or upon
deposit in the United States mail by certified mail, with postage and fees
prepaid, addressed to the other party at its address as shown below beneath its
signature, or to such other address as such party may designate in writing from
time to time to the other party.
15. Further Instruments. The parties agree to execute such further
-------------------
instruments and to take such further action as may be reasonably necessary to
carry out the purposes and intent of this Agreement.
16. Delivery of Payment. Purchaser herewith delivers to the Company the
-------------------
full Exercise Price for the Shares.
<PAGE>
17. Entire Agreement. The Plan and Notice of Grant/Option Agreement are
----------------
incorporated herein by reference. This Agreement, the Plan, the Option
Agreement and the Investment Representation Statement constitute the entire
agreement of the parties with respect to the subject matter hereof and supersede
in their entirety all prior undertakings and agreements of the Company and
Purchaser with respect to the subject matter hereof, and may not be modified
adversely to the Purchaser's interest except by means of a writing signed by the
Company and Purchaser.
Submitted by: Accepted by:
PURCHASER: CROSSWORLDS SOFTWARE, INC.
By:_________________________________ By:_________________________________
Name:_______________________________ Its:________________________________
Address: Address:
- ------- -------
____________________________________ 577 Airport Boulevard, Suite 800
____________________________________ Burlingame, CA 94010-2024
<PAGE>
ATTACHMENT A
------------
ASSIGNMENT SEPARATE FROM CERTIFICATE
------------------------------------
FOR VALUE RECEIVED and pursuant to that certain Early Exercise Notice
and Restricted Stock Purchase Agreement between the undersigned ("Purchaser")
--------
and CrossWorlds Software, Inc. (the "Company") dated _____________, ____ (the
-------
"Agreement"), Purchaser hereby sells, assigns and transfers unto
- ----------
_______________________________ (________) shares of the Common Stock of the
Company, standing in Purchaser's name on the books of the Company and
represented by Certificate No. ___, and hereby irrevocably appoints
_____________________________ to transfer said stock on the books of the Company
with full power of substitution in the premises. THIS ASSIGNMENT MAY ONLY BE
USED AS AUTHORIZED BY THE AGREEMENT AND THE ATTACHMENTS THERETO.
Dated: _________________
Signature:
_______________________________________
Purchaser
_______________________________________
Spouse of Purchaser (if applicable)
Instruction: Please do not fill in any blanks other than the signature line.
The purpose of this assignment is to enable the Company to exercise its
Repurchase Option set forth in the Agreement without requiring additional
signatures on the part of Purchaser.
<PAGE>
ATTACHMENT B
------------
JOINT ESCROW INSTRUCTIONS
-------------------------
_______________, ____
Katrina A. Garnett
CrossWorlds Software, Inc.
577 Airport Boulevard, Suite 800
Burlingame, CA 94010
As Escrow Agent for both CrossWorlds Software, Inc., a Delaware
corporation (the "Company"), and the undersigned purchaser of stock of the
-------
Company ("Purchaser"), you are hereby authorized and directed to hold the
---------
documents delivered to you pursuant to the terms of that certain Early Exercise
Notice and Restricted Stock Purchase Agreement ("Agreement"), dated as of
---------
__________ __, 19__, between the Company and the undersigned, in accordance with
the following instructions:
1. In the event that the Company and/or any assignee of the Company
(referred to collectively for convenience herein as the ("Company") exercises
-------
the Company's repurchase option set forth in the Agreement, the Company shall
give to Purchaser and you a written notice specifying the number of shares of
stock to be purchased, the purchase price, and the time for a closing hereunder
at the principal office of the Company. Purchaser and the Company hereby
irrevocably authorize and direct you to close the transaction contemplated by
such notice in accordance with the terms of said notice.
2. At the closing, you are directed (a) to date the stock assignments
necessary for the transfer in question, (b) to fill in the number of shares
being transferred, and (c) to deliver same, together with the certificate
evidencing the shares of stock to be transferred, to the Company or its
assignee, against the simultaneous delivery to you of the purchase price (by
cash, a check, or some combination thereof) for the number of shares of stock
being purchased pursuant to the exercise of the Company's repurchase option.
3. Purchaser irrevocably authorizes the Company to deposit with you
any certificates evidencing shares of stock to be held by you hereunder and any
additions and substitutions to said shares as defined in the Agreement.
Purchaser does hereby irrevocably constitute and appoint you as Purchaser's
attorney-in-fact and agent for the term of this escrow to execute with respect
to such securities all documents necessary or appropriate to make such
securities negotiable and to complete any transaction herein contemplated,
including but not limited to the filing with any applicable state blue sky
authority of any required applications for consent to, or notice of transfer of,
the securities. Subject to the provisions of this paragraph 3, Purchaser shall
exercise all rights and privileges of a shareholder of the Company while the
stock is held by you.
4. Upon written request of Purchaser, but no more than once per
calendar year, unless the Company's repurchase option has been exercised, you
will deliver to Purchaser a certificate or certificates representing so many
shares of stock as are not then subject to the Company's repurchase option.
Within sixty (60) days after cessation of Purchaser's continuous employment by
or services to the Company, or any parent or subsidiary of the Company, you will
deliver to Purchaser a certificate or certificates representing the aggregate
number of shares held or issued pursuant to the Agreement and not purchased by
the Company or its assignees pursuant to exercise of the Company's repurchase
option.
5. If at the time of termination of this escrow you should have in
your possession any documents, securities, or other property belonging to
Purchaser, you shall deliver all of the same to Purchaser and shall be
discharged of all further obligations hereunder.
6. Your duties hereunder may be altered, amended, modified or revoked
only by a writing signed by all of the parties hereto.
7. You shall be obligated only for the performance of such duties as
are specifically set forth herein and may rely and shall be protected in relying
or refraining from acting on any instrument reasonably believed by you to be
genuine and to have been signed or presented by the proper party or parties.
You shall not be personally liable for any act you may do or omit to do
hereunder as Escrow Agent or as attorney-in-fact for Purchaser while acting in
good faith, and any act done or omitted by you pursuant to the advice of your
own attorneys shall be conclusive evidence of such good faith.
8. You are hereby expressly authorized to disregard any and all
warnings given by any of the parties hereto or by any other person or
corporation, excepting only orders or process of courts of law and are hereby
expressly authorized to comply with and obey orders, judgments or decrees of any
court. In case you obey or comply with any such order, judgment or
<PAGE>
decree, you shall not be liable to any of the parties hereto or to any other
person, firm or corporation by reason of such compliance, notwithstanding any
such order, judgment or decree being subsequently reversed, modified, annulled,
set aside, vacated or found to have been entered without jurisdiction.
9. You shall not be liable in any respect on account of the
identity, authorities or rights of the parties executing or delivering or
purporting to execute or deliver the Agreement or any documents or papers
deposited or called for hereunder .
10. You shall not be liable for the outlawing of any rights under the
Statute of Limitations with respect to these Joint Escrow Instructions or any
documents deposited with you.
11. You shall be entitled to employ such legal counsel and other
experts as you may deem necessary properly to advise you in connection with your
obligations hereunder, may rely upon the advice of such counsel, and may pay
such counsel reasonable compensation therefor.
12. Your responsibilities as Escrow Agent hereunder shall terminate
if you shall cease to be an officer or agent of the Company or if you shall
resign by written notice to each party. In the event of any such termination,
the Company shall appoint a successor Escrow Agent.
13. If you reasonably require other or further instruments in
connection with these Joint Escrow Instructions or obligations in respect
hereto, the necessary parties hereto shall join in furnishing such instruments.
14. It is understood and agreed that should any dispute arise with
respect to the delivery and/or ownership or right of possession of the
securities held by you hereunder, you are authorized and directed to retain in
your possession without liability to anyone all or any part of said securities
until such disputes shall have been settled either by mutual written agreement
of the parties concerned or by a final order, decree or judgment of a court of
competent jurisdiction after the time for appeal has expired and no appeal has
been perfected, but you shall be under no duty whatsoever to institute or defend
any such proceedings.
15. All notices and other communications required or permitted
hereunder shall be in writing, shall be effective when given, and shall in any
event be deemed to be given (a) five (5) days after deposit with the U.S. Postal
Service, if delivered by first class mail, postage prepaid, (b) upon delivery,
if delivered by hand, or (c) one business day after the business day of deposit
with Federal Express or similar overnight courier, freight prepaid, and shall be
addressed to each of the other parties thereunto entitled at the following
addresses or at such other addresses as a party may designate by ten days
advance written notice to each of the other parties hereto.
COMPANY: CrossWorlds Software, Inc.
577 Airport Boulevard, Suite 800
Burlingame, CA 94010
Attn: Controller
PURCHASER:
ESCROW AGENT: Katrina A. Garnett
CrossWorlds Software, Inc.
577 Airport Boulevard, Suite 800
Burlingame, CA 94010
16. By signing these Joint Escrow Instructions, you become a party
hereto only for the purpose of said Joint Escrow Instructions; you do not become
a party to the Agreement.
17. This instrument shall be binding upon and inure to the benefit of
the parties hereto, and their respective successors and permitted assigns.
<PAGE>
18. These Joint Escrow Instructions shall be governed by, and
construed and enforced in accordance with, the laws of the State of California
as they apply to contracts entered into and wholly to be performed within such
state.
Very truly yours,
CROSSWORLDS SOFTWARE, INC.
____________________________________
Katrina A. Garnett
PURCHASER:
____________________________________
Purchaser
ESCROW AGENT:
____________________________________
Katrina A. Garnett
<PAGE>
ATTACHMENT C
------------
ACKNOWLEDGMENT AND STATEMENT OF DECISION
----------------------------------------
REGARDING SECTION 83(b) ELECTION
--------------------------------
The undersigned (which term includes the undersigned's spouse), a purchaser
of ___________ shares of Common Stock of CrossWorlds Software, Inc., a
California corporation (the "Company") by exercise of an option (the "Option")
------- ------
granted pursuant to the Company's 1999 Executive Stock Plan (the "Plan"), hereby
----
states as follows:
1. The undersigned acknowledges receipt of a copy of the Plan relating to
the offering of such shares. The undersigned has carefully reviewed the Plan and
the option agreement pursuant to which the Option was granted.
2. The undersigned either [check and complete as applicable]:
(a) ____ has consulted, and has been fully advised by, the
undersigned's own tax advisor,
_____________________________________, whose business address is
______________________________, regarding the federal, state and
local tax consequences of purchasing shares under the Plan, and
particularly regarding the advisability of making elections
pursuant to Section 83(b) of the Internal Revenue Code of 1986,
as amended (the "Code") and pursuant to the corresponding
----
provisions, if any, of applicable state law; or
(b) ____ has knowingly chosen not to consult such a tax advisor.
3. The undersigned hereby states that the undersigned has decided [check
as applicable]:
(a) ____ to make an election pursuant to Section 83(b) of the Code,
and is submitting to the Company, together with the undersigned's
executed Early Exercise Notice and Stock Purchase Agreement, an
executed form entitled "Election Under Section 83(b) of the
Internal Revenue Code of 1986;" or
(b) ____ not to make an election pursuant to Section 83(b) of the
Code.
4. Neither the Company nor any subsidiary or representative of the
Company has made any warranty or representation to the undersigned with respect
to the tax consequences of the undersigned's purchase of shares under the Plan
or of the making or failure to make an election pursuant to Section 83(b) of the
Code or the corresponding provisions, if any, of applicable state law.
Date:___________________________ _________________________________
Purchaser
Date:___________________________ _________________________________
Spouse of Purchaser (if applicable)
<PAGE>
ATTACHMENT D
------------
ELECTION UNDER SECTION 83(b)
----------------------------
OF THE INTERNAL REVENUE CODE OF 1986
------------------------------------
The undersigned taxpayer hereby elects, pursuant to Section 83(b) of the
Internal Revenue Code, to include in taxpayer's gross income for the current
taxable year, the amount of any income that may be taxable to taxpayer in
connection with taxpayer's receipt of the property described below:
1. The name, address, taxpayer identification number and taxable year of the
undersigned are as follows:
NAME OF TAXPAYER: ________________
NAME OF SPOUSE: ________________
ADDRESS:
IDENTIFICATION NO. OF TAXPAYER: _______________
IDENTIFICATION NO. OF SPOUSE: _______________
TAXABLE YEAR: __________
2. The property with respect to which the election is made is described as
follows:
______________ shares of the Common Stock $.001 par value, of CrossWorlds
Software, Inc., a California corporation (the "Company").
-------
3. The date on which the property was transferred is: _______________
4. The property is subject to the following restrictions:
Repurchase option at cost in favor of the Company upon termination of
taxpayer's employment or consulting relationship.
5. The Fair Market Value at the time of transfer, determined without regard to
any restriction other than a restriction which by its terms will never
lapse, of such property is: $____________
6. The amount (if any) paid for such property: $____________
The undersigned has submitted a copy of this statement to the person for whom
the services were performed in connection with the undersigned's receipt of the
above-described property. The transferee of such property is the person
performing the services in connection with the transfer of said property.
The undersigned understands that the foregoing election may not be revoked
- --------------------------------------------------------------------------
except with the consent of the Commissioner.
- -------------------------------------------
Dated:_______________________ ___________________________________
Purchaser
Dated:_______________________ ___________________________________
Spouse of Purchaser (if applicable)
<PAGE>
EXHIBIT B
---------
CROSSWORLDS SOFTWARE, INC.
1999 EXECUTIVE STOCK PLAN
EXERCISE AGREEMENT
CrossWorlds Software, Inc.
577 Airport Boulevard, Suite 800
Burlingame, CA 94010-2024
Attention: Stock Administrator
1. Exercise of Option. Effective as of today, ___________, 1999, the
------------------
undersigned ("Purchaser") __________________ hereby elects to exercise
Purchaser's option to purchase _________ shares of the Common Stock (the
"Shares") of CrossWorlds Software, Inc. (the "Company") under and pursuant to
the CrossWorlds Software , Inc., 1999 Executive Stock Plan, as amended (the
"Plan") and the Incentive Agreement dated _____________________________ (the
"Option Agreement").
2. Representations of Purchaser. Purchaser acknowledges that Purchaser
----------------------------
has received, read and understood the Plan and the Option Agreement and agrees
to abide by and be bound by their terms and conditions.
3. Rights as Stockholder. Until the stock certificate evidencing such
---------------------
Shares is issued (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company), no right to vote
or receive dividends or any other rights as a stockholder shall exist with
respect to the Optioned Stock, notwithstanding the exercise of the Option. The
Company shall issue (or cause to be issued) such stock certificate promptly
after the Option is exercised. No adjustment will be made for a dividend or
other right for which the record date is prior to the date the stock certificate
is issued, except as provided in Section 12 of the Plan.
Purchaser shall enjoy rights as a stockholder until such time as
Purchaser disposes of the Shares or the Company and/or its assignee(s) exercises
the Right of First Refusal hereunder. Upon such exercise, Purchaser shall have
no further rights as a holder of the Shares so purchased except the right to
receive payment for the Shares so purchased in accordance with the provisions of
this Agreement, and Purchaser shall forthwith cause the certificate(s)
evidencing the Shares so purchased to be surrendered to the Company for transfer
or cancellation.
4. Company's Right of First Refusal. Before any Shares held by Purchaser
--------------------------------
or any transferee (either being sometimes referred to herein as the "Holder")
may be sold or otherwise transferred (including transfer by gift or operation of
law), the Company or its assignee(s) shall have a right of first refusal to
purchase the Shares on the terms and conditions set forth in this Section (the
"Right of First Refusal").
(a) Notice of Proposed Transfer. The Holder of the Shares shall
---------------------------
deliver to the Company a written notice (the "Notice") stating: (i) the
Holder's bona fide intention to sell or otherwise transfer such Shares; (ii) the
name of each proposed purchaser or other transferee ("Proposed Transferee");
(iii) the number of Shares to be transferred to each Proposed Transferee; and
(iv) the bona fide cash price or other consideration for which the Holder
proposes to transfer the Shares (the "Offered Price"), and the Holder shall
offer the Shares at the Offered Price to the Company or its assignee(s).
(b) Exercise of Right of First Refusal. At any time within thirty
----------------------------------
(30) days after receipt of the Notice, the Company and/or its assignee(s) may,
by giving written notice to the Holder, elect to purchase all, but not less than
all, of the Shares proposed to be transferred to any one or more of the Proposed
Transferees, at the purchase price determined in accordance with subsection (c)
below.
(c) Purchase Price. The purchase price ("Purchase Price") for the
--------------
Shares purchased by the Company or its assignee(s) under this Section shall be
the Offered Price. If the Offered Price includes consideration other than cash,
the cash equivalent value of the non-cash consideration shall be determined by
the Board of Directors of the Company in good faith.
(d) Payment. Payment of the Purchase Price shall be made, at the
-------
option of the Company or its assignee(s), in cash (by check), by cancellation of
all or a portion of any outstanding indebtedness of the Holder to the Company
(or, in the case of repurchase by an assignee, to the assignee), or by any
combination thereof within 30 days after receipt of the Notice or in the manner
and at the times set forth in the Notice.
(e) Holder's Right to Transfer. If all of the Shares proposed in the
--------------------------
Notice to be transferred to a given Proposed Transferee are not purchased by the
Company and/or its assignee(s) as provided in this Section, then the Holder may
sell or otherwise transfer such Shares to that Proposed Transferee at the
Offered Price or at a higher price, provided that such sale or other transfer is
consummated within 120 days after the date of the Notice and provided further
that any such sale or other transfer is effected in accordance with any
applicable securities laws and the Proposed Transferee agrees in writing that
the provisions of this Section shall continue to apply to the Shares in the
hands of such Proposed Transferee. If the Shares described in the Notice are
not transferred to the Proposed Transferee within such period, a new Notice
shall be given to the Company, and the Company and/or its assignees shall again
be offered the Right of First Refusal before any Shares held by the Holder may
be sold or otherwise transferred.
(f) Exception for Certain Family Transfers. Anything to the contrary
--------------------------------------
contained in this Section notwithstanding, the transfer of any or all of the
Shares during the Purchaser's lifetime or on the Purchaser's death by will or
intestacy to the Purchaser's immediate family or a trust for the benefit of the
Purchaser's immediate family shall be exempt from the provisions of this
Section. "Immediate Family" as used herein shall mean spouse, lineal descendant
or antecedent, father, mother, brother or sister. In such case, the transferee
or other recipient shall receive and hold the Shares so transferred subject to
the provisions of this Section, and there shall be no further transfer of such
Shares except in accordance with the terms of this Section.
(g) Termination of Right of First Refusal. The Right of First Refusal
-------------------------------------
shall terminate as to any Shares 90 days after the (i) first sale of Common
Stock of the Company to the general public pursuant to a registration statement
filed with and declared effective by the Securities and Exchange Commission
under the Securities Act of 1933, as amended, or (ii) a merger of the Company
with a corporation whose stock is publicly traded on a national exchange.
<PAGE>
5. Tax Consultation. Purchaser understands that Purchaser may suffer
----------------
adverse tax consequences as a result of Purchaser's purchase or disposition of
the Shares. Purchaser represents that Purchaser has consulted with any tax
consultants Purchaser deems advisable in connection with the purchase or
disposition of the Shares and that Purchaser is not relying on the Company for
any tax advice.
6. Restrictive Legends; Stop-Transfer Orders; Market Standoff.
----------------------------------------------------------
(a) Legends. Purchaser understands and agrees that the Company shall
-------
cause the legends set forth below or legends substantially equivalent thereto,
to be placed upon any certificate(s) evidencing ownership of the Shares together
with any other legends that may be required by the Company or by state or
federal securities laws:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED, SOLD
OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL
REGISTERED UNDER THE ACT OR, IN THE OPINION OF COMPANY COUNSEL
SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR
TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE THEREWITH.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON TRANSFER AND A RIGHT OF FIRST REFUSAL HELD BY THE
ISSUER OR ITS ASSIGNEE(S) AS SET FORTH IN AN AGREEMENT BETWEEN THE
ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY
BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH TRANSFER
RESTRICTIONS AND RIGHT OF FIRST REFUSAL ARE BINDING ON TRANSFEREES
OF THESE SHARES.
(b) Stop-Transfer Notices. Purchaser agrees that, in order to
---------------------
ensure compliance with the restrictions referred to herein, the Company may
issue appropriate "stop transfer" instructions to its transfer agent, if any,
and that, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
(c) Market Standoff. Purchaser hereby agrees that if so requested
---------------
by the Company or any representative of the underwriters in connection with any
registration of the offering of any securities of the Company under the
Securities Act of 1933, as amended (the "Securities Act"), neither Purchaser nor
--------------
Purchaser shall sell or otherwise transfer any Shares or other securities of the
Company during such period as the Company and the representatives of the
underwriters may request (not to exceed 180 days) following the effective date
of any registration statement of the Company filed under the Securities Act for
an underwritten public offering. The Company may impose stop-transfer
instructions with respect to Shares subject to the foregoing restrictions until
the end of such market standoff period.
(d) Refusal to Transfer. The Company shall not be required (i) to
-------------------
transfer on its books any Shares that have been sold or otherwise transferred in
violation of any of the provisions of this Agreement or (ii) to treat as owner
of such Shares or to accord the right to vote or pay dividends to any purchaser
or other transferee to whom such Shares shall have been so transferred.
7. Successors and Assigns. The Company may assign any of its rights under
----------------------
this Agreement to single or multiple assignees, and this Agreement shall inure
to the benefit of the successors and assigns of the Company. Subject to the
restrictions on transfer herein set forth, this Agreement shall be binding upon
Purchaser and his or her heirs, executors, administrators, successors and
assigns.
8. Interpretation. Any dispute regarding the interpretation of this
--------------
Agreement shall be submitted by Purchaser or by the Company forthwith to the
Company's Board of Directors or the committee thereof that administers the Plan,
which shall review such dispute at its next regular meeting. The resolution of
such a dispute by the Board or committee shall be final and binding on the
Company and on Purchaser.
9. Governing Law; Severability. This Agreement shall be governed by and
---------------------------
construed in accordance with the laws of the State of California excluding that
body of law pertaining to conflicts of law. Should any provision of this
Agreement be determined by a court of law to be illegal or unenforceable, the
other provisions shall nevertheless remain effective and shall remain
enforceable.
10. Notices. Any notice required or permitted hereunder shall be given in
-------
writing and shall be deemed effectively given upon personal delivery or upon
deposit in the United States mail by certified mail, with postage and fees
prepaid, addressed to the other party at its address as shown below beneath its
signature, or to such other address as such party may designate in writing from
time to time to the other party.
11. Further Instruments. The parties agree to execute such further
-------------------
instruments and to take such further action as may be reasonably necessary to
carry out the purposes and intent of this Agreement.
12. Delivery of Payment. Purchaser herewith delivers to the Company the
-------------------
full Exercise Price for the Shares.
13. Entire Agreement. The Plan and Notice of Grant/Option Agreement are
----------------
incorporated herein by reference. This Agreement, the Plan, the Option
Agreement and the Investment Representation Statement constitute the entire
agreement of the parties with respect to the subject matter hereof and supersede
in their entirety all prior undertakings and agreements of the Company and
Purchaser with respect to the subject matter hereof, and may not be modified
adversely to
<PAGE>
the Purchaser's interest except by means of a writing signed by the Company and
Purchaser.
Submitted by: Accepted by:
PURCHASER:
CROSSWORLDS SOFTWARE, INC.
By:_______________________________ By:______________________________
Name:_____________________________ Its:_____________________________
Address: Address:
- ------- -------
__________________________________ 577 Airport Boulevard, Suite 800
__________________________________ Burlingame, CA 94010-2024
<PAGE>
EXHIBIT C
---------
INVESTMENT REPRESENTATION STATEMENT
PURCHASER: _____________________
COMPANY: CROSSWORLDS SOFTWARE, INC.
SECURITY: ___________ shares of Common Stock
AMOUNT: __________________________________
DATE: __________________________________
In connection with the purchase of the above-listed Securities, the
undersigned Purchaser represents to the Company the following:
(a) Purchaser is aware of the Company's business affairs and financial
condition and has acquired sufficient information about the Company to reach an
informed and knowledgeable decision to acquire the Securities. Purchaser is
acquiring these Securities for investment for Purchaser's own account only and
not with a view to, or for resale in connection with, any "distribution" thereof
within the meaning of the Securities Act of 1933, as amended (the "Securities
Act").
(b) Purchaser acknowledges and understands that the Securities constitute
"restricted securities" under the Securities Act and have not been registered
under the Securities Act in reliance upon a specific exemption therefrom, which
exemption depends upon, among other things, the bona fide nature of Purchaser's
investment intent as expressed herein. In this connection, Purchaser
understands that, in the view of the Securities and Exchange Commission, the
statutory basis for such exemption may be unavailable if Purchaser's
representation was predicated solely upon a present intention to hold these
Securities for the minimum capital gains period specified under tax statutes,
for a deferred sale, for or until an increase or decrease in the market price of
the Securities, or for a period of one year or any other fixed period in the
future. Purchaser further understands that the Securities must be held
indefinitely unless they are subsequently registered under the Securities Act or
an exemption from such registration is available. Purchaser further
acknowledges and understands that the Company is under no obligation to register
the Securities. Purchaser understands that the certificate evidencing the
Securities will be imprinted with a legend which prohibits the transfer of the
Securities unless they are registered or such registration is not required in
the opinion of counsel satisfactory to the Company and any other legend required
under applicable state securities laws.
(c) Purchaser is familiar with the provisions of Rule 701 and Rule 144,
each promulgated under the Securities Act, which, in substance, permit limited
public resale of "restricted securities" acquired, directly or indirectly from
the issuer thereof, in a non-public offering subject to the satisfaction of
certain conditions. Rule 701 provides that if the issuer qualifies under Rule
701 at the time of the grant of the Option to the Purchaser, the exercise will
be exempt from registration under the Securities Act. In the event the Company
becomes subject to the reporting requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, ninety (90) days thereafter (or such longer
period as any market stand-off agreement may require) the Securities exempt
under Rule 701 may be resold, subject to the satisfaction of certain of the
conditions specified by Rule 144, including: (1) the resale being made through
a broker in an unsolicited "broker's transaction" or in transactions directly
with a market maker (as said term is defined under the Securities Exchange Act
of 1934); and, in the case of an affiliate, (2) the availability of certain
public information about the Company, (3) the amount of Securities being sold
during any three month period not exceeding the limitations specified in Rule
144(e), and (4) the timely filing of a Form 144, if applicable.
In the event that the Company does not qualify under Rule 701 at the time
of grant of the Option, then the Securities may be resold in certain limited
circumstances subject to the provisions of Rule 144, which requires the resale
to occur not less than one year after the later of the date the Securities were
sold by the Company or the date the Securities were sold by an affiliate of the
Company, within the meaning of Rule 144; and, in the case of acquisition of the
Securities by an affiliate, or by a non-affiliate who subsequently holds the
Securities less than two years, the satisfaction of the conditions set forth in
sections (1), (2), (3) and (4) of the paragraph immediately above.
(d) Purchaser hereby agrees that if so requested by the Company or any
representative of the underwriters in connection with any registration of the
offering of any securities of the Company under the Securities Act, Purchaser
shall not sell or otherwise transfer any Shares or other securities of the
Company during the 180-day period following the effective date of a registration
statement of the Company filed under the Securities Act; provided, however, that
such restriction shall only apply to the first registration statement of the
Company to become effective under the Securities Act which include securities to
be sold on behalf of the Company to the public in an underwritten public
offering under the Securities Act. The Company may impose stop-transfer
instructions with respect to securities subject to the foregoing restrictions
until the end of such 180-day period.
<PAGE>
(e) Purchaser further understands that in the event all of the applicable
requirements of Rule 701 or 144 are not satisfied, registration under the
Securities Act, compliance with Regulation A, or some other registration
exemption will be required; and that, notwithstanding the fact that Rules 144
and 701 are not exclusive, the Staff of the Securities and Exchange Commission
has expressed its opinion that persons proposing to sell private placement
securities other than in a registered offering and otherwise than pursuant to
Rules 144 or 701 will have a substantial burden of proof in establishing that an
exemption from registration is available for such offers or sales, and that such
persons and their respective brokers who participate in such transactions do so
at their own risk. Purchaser understands that no assurances can be given that
any such other registration exemption will be available in such event.
Signature of Purchaser:
______________________________
Date:___________________, 19__
<PAGE>
CROSSWORLDS SOFTWARE, INC.
1999 EXECUTIVE STOCK PLAN
STOCK OPTION AGREEMENT--EARLY EXERCISE
Unless otherwise defined herein, the terms defined in the CrossWorlds
Software, Inc. 1999 Stock Plan (the "Plan") shall have the same defined meanings
in this Option Agreement.
1. NOTICE OF STOCK OPTION GRANT
----------------------------
You have been granted an option to purchase Common Stock of the CrossWorlds
Software, Inc. (the "Company"), subject to the terms and conditions of the Plan
and this Option Agreement, as follows:
Optionee Art Matin
7 Melwood Lane
Westport, CT 06880 USA
Grant Number 00001711
Date of Grant 01/12/2000
Vesting Commencement Date 01/12/2000
Exercise Price per Share $ 9.00
Number of Shares Granted 50,000
Total Exercise Price $450,000
Type of Option: NQ
Term/Expiration Date: 01/12/2010
1. Vesting Schedule. You may exercise this Option, in whole or in part
----------------
immediately following the Date of Grant. These option shares are subject to the
following vesting schedule (and subject to the Company's right to repurchase
shares as set forth in Exhibit A, Section 4(a)):
-------------------------
The shares of Common Stock subject to the Option (the "Shares") shall vest on
the Vesting Commencement Date such that the Option shall be vested in full upon
the Vesting Commencement Date.
2. Termination Period. You may exercise this Option for 90 days after
------------------
termination of your Continuous Status as an Employee, Consultant or Director, or
for such longer period upon your death or disability as provided in the Plan.
If your status changes from Employee to Consultant or Director; or Director or
Consultant to Employee, this Option Agreement shall remain in effect. In no
case may you exercise this Option after the Term/Expiration Date as provided
above.
3. Agreement to Terms. Optionee acknowledges receipt of a copy of the Plan and
------------------
represents that he is familiar with the terms and provisions thereof, and hereby
accepts this Option subject to all of the terms and provisions thereof.
Optionee has reviewed the Plan and this Option in their entirety, including the
terms and conditions of Grant on the reverse side hereof, has had an opportunity
to obtain the advice of counsel prior to executing this Option and fully
understands all provisions of the Option. Optionee hereby agrees to accept as
binding, conclusive and final all decisions or interpretations of the
Administrator upon any questions arising under the Plan or this Option.
Optionee further agrees to notify the Company upon any change in the residence
address indicated below.
OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE
OPTION HEREOF IS EARNED ONLY BY CONTINUING CONSULTANCY, DIRECTORSHIP OR
EMPLOYMENT AT THE WILL OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING
GRANTED THIS OPTION OR ACQUIRING SHARES HEREUNDER). OPTIONEE FURTHER
ACKNOWLEDGES AND AGREES THAT NOTHING IN THIS AGREEMENT, NOR IN THE COMPANY'S
STOCK OPTION PLAN WHICH IS INCORPORATED HEREIN BY REFERENCE, SHALL CONFER UPON
OPTIONEE ANY RIGHT WITH RESPECT TO CONTINUATION OF EMPLOYMENT, CONSULTANCY OR
DIRECTORSHIP BY THE COMPANY, NOR SHALL IT INTERFERE IN ANY WAY WITH OPTIONEE'S
RIGHT OR THE COMPANY'S RIGHT TO TERMINATE OPTIONEE'S EMPLOYMENT, CONSULTANCY OR
DIRECTORSHIP AT ANY TIME, WITH OR WITHOUT CAUSE.
Dated: 01/12/2000
---------------------------------------
OPTIONEE
By: /s/ Art Matin
------------------------------------------
CROSSWORLDS SOFTWARE, INC.,
a Delaware corporation
By: /s/ Stacey Giamalis
------------------------------------------
Title: General Counsel
<PAGE>
1. TERMS AND CONDITIONS OF GRANT
a. Grant of Option. CrossWorlds Software, Inc. (the "Company"), hereby
----------------
grants to the Optionee (the "Optionee") named in the Notice of Grant, a
[nonstatutory ][incentive] stock option (the "Option") to purchase the total
number of shares of Common Stock (the Shares") set forth in the Notice of Grant,
at the exercise price per share set forth in the Notice of Grant (the "Exercise
Price") subject to the terms, definitions and provisions of the 1999 Stock Plan
(the "Plan") adopted by the Company, which is incorporated herein by reference.
Unless otherwise defined herein, the terms defined in the Plan shall have the
same defined meanings in this Option Agreement.
b. Exercise of Option. This Option shall be exercisable during its term in
------------------
accordance with the Vesting Schedule set out in the Notice of Grant and with the
provisions of Section 9 of the Plan as follows:
(i) Right to Exercise. (a) This Option may be exercised in whole or in
-----------------
part at any time after the Date of Grant, as to Shares which have not yet vested
under the vesting schedule indicated on the Notice of Stock Option Grant;
provided, however, that Optionee shall execute as a condition to such exercise
- -------- -------
of this Option, the Early Exercise Notice and Restricted Stock Purchase
Agreement attached hereto as Exhibit A (the "Early Exercise Agreement"). If
--------- ------------------------
Optionee chooses to exercise this Option solely as to Shares which have vested
under the vesting schedule indicated on the Notice of Stock Option Grant,
Optionee shall complete and execute the form of Exercise Notice attached hereto
as Exhibit B (the "Exercise Agreement"). Notwithstanding the foregoing, the
--------- ------------------
Company may in its discretion prescribe or accept a different form of notice of
exercise and/or stock purchase agreement if such forms are otherwise consistent
with this Agreement, the Plan and then-applicable law. (b) This Option may not
be exercised for a fraction of a Share. (c) In the event of Optionee's death,
Disability or other termination of the Optionee's Continuous Status as an
Employee, Consultant or Director, the exercisability of the Option is governed
by Sections g, h and i below, subject to the limitation contained in Section k.
below. (d) In no event may this Option be exercised after the date of
expiration of the term of this Option as set forth in the Notice of Grant.
(ii) Method of Exercise. This Option shall be exercisable by execution
------------------
and delivery of the Early Exercise Agreement or the Exercise Agreement,
whichever is applicable, or of any other written notice approved for such
purpose by the Company which shall state the election to exercise the Option,
the number of Shares in respect of which the Option is being exercised, and such
other representations and agreements as to the holder's investment intent with
respect to such shares of Common Stock as may be required by the Company
pursuant to the provisions of the Plan. Such written notice shall be signed by
the Optionee and shall be delivered in person or by certified mail to the
Secretary of the Company. The written notice shall be accompanied by payment of
the Exercise Price. This Option shall be deemed to be exercised upon receipt by
the Company of such written notice accompanied by the Exercise Price.
No Shares will be issued pursuant to the exercise of an Option unless such
issuance and such exercise shall comply with all relevant provisions of law and
the requirements of any stock exchange or national market system upon which the
Common Stock is then listed. Assuming such compliance, for income tax purposes
the Shares shall be considered transferred to the Optionee on the date on which
the Option is exercised with respect to such Shares.
c. Optionee's Representations. In the event the Shares purchasable pursuant
--------------------------
to the exercise of this Option have not been registered under the Securities Act
of 1933, as amended, at the time this Option is exercised, Optionee shall, if
required by the Company, concurrently with the exercise of all or any portion of
this Option, deliver to the Company his or her Investment Representation
Statement in the form attached hereto as Exhibit C.
d. Lock-Up Period. Optionee hereby agrees that if so requested by the
--------------
Company or any representative of the underwriters (the "Managing Underwriter")
in connection with any registration of the offering of any securities of the
Company under the Securities Act, Optionee shall not sell or otherwise transfer
any Shares or other securities of the Company during the 180-day period (or such
longer period as may be requested in writing by the Managing Underwriter and
agreed to in writing by the Company) (the "Market Standoff Period") following
the effective date of a registration statement of the Company filed under the
Securities Act; provided, however, that such restriction shall apply only to
the first registration statement of the Company to become effective under the
Securities Act that includes securities to be sold on behalf of the Company to
the public in an underwritten public offering under the Securities Act. The
Company may impose stop-transfer instructions with respect to securities subject
to the foregoing restrictions until the end of such Market Standoff Period.
e. Method of Payment. Payment of the Exercise Price shall be by any of the
-----------------
following, or a combination thereof, at the election of the Optionee:
(i) cash; or
(ii) check; or
(iii) surrender of other shares of Common Stock of the Company which (A)
in the case of Shares acquired pursuant to the exercise of a Company option,
have been owned by the Optionee for more than six (6) months on the date of
surrender, and (B) have a Fair Market Value on the date of surrender equal to
the Exercise Price of the Shares as to which the Option is being exercised; or
(iv) to the extent authorized by the Company, delivery of a properly
executed exercise notice together with such other documentation as the
Administrator and the broker, if applicable, share require to effect an exercise
of the Option and delivery to the Company of the sale or loan proceeds required
to pay the Exercise Price; or
(v) promissory note (in the form provided by the Company).
f. Restrictions on Exercise. This Option may not be exercised if the
------------------------
issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any applicable
federal or state securities or other law or regulation, including any rule under
Part 207 of Title 12 of the Code of Federal Regulations as promulgated by the
Federal Reserve Board. As a condition to the exercise of this Option, the
Company may require Optionee to make any representation and warranty to the
Company as may be required by any applicable law or regulation.
g. Termination of Relationship. In the event an Optionee's Continuous
---------------------------
Status as an Employee, Consultant or Director terminates, Optionee may, to the
extent otherwise so entitled at the date of such termination (the "Termination
Date"), exercise this Option during the Termination Period set out in the Notice
of Grant. To the extent that Optionee was not entitled to exercise this Option
at the date of such termination, or if Optionee does not exercise this Option
within the time specified herein, the Option shall terminate.
h. Disability of Optionee. Notwithstanding the provisions of Section g.
----------------------
above, in the event of termination of an Optionee's Continuous Status as an
Employee, Consultant or Director as a result of his or her Disability, Optionee
may, but only within twelve (12) months from the date of such termination (and
in no event later than the expiration date of the term of such Option as set
forth in the Notice of Grant) exercise the Option to the extent otherwise
entitled to exercise it at the date of such termination. To the extent that
Optionee is not entitled to exercise the Option at the date of termination, or
if Optionee does not exercise such Option to the extent so entitled within the
time specified herein, the Option shall terminate, and the Shares covered by
such Option shall revert to the Plan.
i. Death of Optionee. In the event of termination of Optionee's Continuous
-----------------
Status as an Employee or Consultant as a result of the death of Optionee, the
Option may be exercised at any time within twelve (12) months following the date
of death (but in no event later than the date of expiration of the term of this
Option as set forth in Section k. below), by Optionee's estate or by a person
who acquired the right to exercise the Option by bequest or inheritance, but
only to the extent the Optionee could exercise the Option at the date of death.
j. Non-Transferability of Option. Options may not be sold, pledged,
-----------------------------
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution and may be exercised, during the
lifetime of the Optionee, only by the Optionee. The terms of this Option shall
be binding upon the executors, administrators, heirs, successors and assigns of
the Optionee.
k. Term of Option. This Option may be exercised only within the term set
--------------
out in the Notice of Grant, and may be exercised during such term only in
accordance with the Plan and the terms of this Option. The limitations set out
in Section 7 of the Plan regarding Options granted to more than ten percent
(10%) shareholders shall apply to this Option.
l. Tax Consequences. Set forth below is a brief summary as of the date of
----------------
this Option of some of the federal tax consequences of exercise of this Option
and disposition of the Shares. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE
TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. OPTIONEE SHOULD CONSULT A TAX
ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.
(i) Exercise of an NSO. There may be a regular federal income tax
------------------
liability upon the exercise of an NSO. The Optionee will be treated as having
received compensation income (taxable at ordinary income tax rates) equal to the
excess, if any, of the Fair Market Value of the Shares on the date of exercise
over the Exercise Price. In the case of the exercise of Option Shares which
have not vested as of the date of exercise, the Optionee will not realize
compensation income on the exercise until the date(s) on which shares vest
(i.e., have been released from the Company's repurchase option) unless the
Optionee files an election under Section 83(b) of the Code (an "83(b)
Election"). If an 83(b) election is filed, the amount of compensation income
will be determined on the date of exercise. If Optionee is an Employee, the
Company will be required to withhold from Optionee's compensation or collect
from Optionee and pay to the applicable taxing authorities an amount equal to a
percentage of this compensation income at the time of exercise or vesting, as
applicable.
(ii) Disposition of Shares. If Shares are held for more than one year
---------------------
after the date of exercise (or the date of vesting, if later, in the case of the
exercise of unvested option shares and the Optionee had not filed an 83(b)
election at the time of such exercise, any gain realized on disposition of the
Shares will be treated as long-term capital gain for federal income tax
purposes.
<PAGE>
EXHIBIT A
---------
CROSSWORLDS SOFTWARE, INC.
1999 EXECUTIVE STOCK PLAN
EARLY EXERCISE NOTICE AND STOCK PURCHASE AGREEMENT
CrossWorlds Software, Inc.
577 Airport Boulevard, Suite 800
Burlingame, CA 94010-2024
Attention: Stock Administrator
1. Exercise of Option. Effective as of today, ___________, _____, the
------------------
undersigned ("Purchaser") __________________ hereby elects to exercise
Purchaser's option to purchase _________ shares of the Common Stock (the
"Shares") of CrossWorlds Software, Inc. (the "Company") under and pursuant to
the CrossWorlds Software , Inc., 1999 Executive Stock Plan, as amended (the
"Plan") and the Stock Option Agreement dated _____________________________ (the
"Option Agreement"). Of these Shares, Purchaser has elected to purchase
_______________ of those Shares which have become vested as of the date hereof
under the Vesting Schedule set forth in the Notice of Stock Option Grant (the
"Vested Shares") and _____________ Shares which have not yet vested under such
- --------------
Vesting Schedule (the "Unvested Shares"). The purchase price for the Shares
---------------
shall be $______ per Share for a total purchase price of $_______________.
The term "Shares" refers to the purchased Shares and all
------
securities received in replacement of the Shares or as stock dividends or
splits, all securities received in replacement of the Shares in a
recapitalization, merger, reorganization, exchange or the like, and all new,
substituted or additional securities or other properties to which Purchaser is
entitled by reason of Purchaser's ownership of the Shares.
2. Representations of Purchaser. Purchaser acknowledges that Purchaser
----------------------------
has received, read and understood the Plan and the Option Agreement and agrees
to abide by and be bound by their terms and conditions.
3. Rights as Stockholder. Until the stock certificate evidencing such
---------------------
Shares is issued (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company), no right to vote
or receive dividends or any other rights as a stockholder shall exist with
respect to the Optioned Stock, notwithstanding the exercise of the Option. The
Company shall issue (or cause to be issued) such stock certificate promptly
after the Option is exercised. No adjustment will be made for a dividend or
other right for which the record date is prior to the date the stock certificate
is issued, except as provided in Section 12 of the Plan.
Purchaser shall enjoy rights as a stockholder until such time as
Purchaser disposes of the Shares or the Company and/or its assignee(s) exercises
the Right of First Refusal hereunder. Upon such exercise, Purchaser shall have
no further rights as a holder of the Shares so purchased except the right to
receive payment for the Shares so purchased in accordance with the provisions of
this Agreement, and Purchaser shall forthwith cause the certificate(s)
evidencing the Shares so purchased to be surrendered to the Company for transfer
or cancellation.
4. Limitations on Transfer. In addition to any other limitation on
-----------------------
transfer created by applicable securities laws, Purchaser shall not assign,
encumber or dispose of any interest in the Shares while the Shares are subject
to the Company's Repurchase Option (as defined below). After any Shares have
been released from such Repurchase Option, Purchaser shall not assign, encumber
or dispose of any interest in such Shares except in compliance with the
provisions below and applicable securities laws.
(a) Repurchase Option.
-----------------
(i) If Purchaser's Continuous Status as an Employee or Consultant
terminates for any reason (including for cause, death or disability), the
Company shall upon the date of such termination (the "Termination Date") have an
----------------
irrevocable, exclusive option (the "Repurchase Option") for a period of 60 days
-----------------
from such date to repurchase all or any portion of the Unvested Shares held by
Purchaser as of the Termination Date which have not yet been released from the
Company's Repurchase Option at the original purchase price per Share specified
in Section 1 (adjusted for any stock splits, stock dividends and the like).
(ii) The Repurchase Option shall be exercised by the Company by
written notice to Purchaser or Purchaser's executor and, at the Company's
option, (A) by delivery to Purchaser or Purchaser's executor with such notice of
a check in the amount of the purchase price for the Shares being purchased, or
(B) in the event Purchaser is indebted to the Company, by cancellation by the
Company of an amount of such indebtedness equal to the purchase price for the
Shares being repurchased, or (C) by a combination of (A) and (B) so that the
combined payment and cancellation of indebtedness equals such purchase price.
Upon delivery of such notice and payment of the purchase price in any of the
ways described above, the Company shall become the legal and beneficial owner of
the Shares being repurchased and all rights and interest therein or related
thereto, and the Company shall have the right to transfer to its own name the
number of Shares being repurchased by the Company, without further action by
Purchaser.
(iii) One hundred percent (100%) of the Unvested Shares shall
initially be subject to the Repurchase Option. The Unvested Shares shall be
released from the Repurchase Option in accordance with the Vesting Schedule set
forth in the Notice of Stock Option Grant
<PAGE>
until all Shares are released from the Repurchase Option. Fractional shares
shall be rounded to the nearest whole share.
(b) Company's Right of First Refusal. Before any Shares held by
--------------------------------
Purchaser or any transferee (either being sometimes referred to herein as the
"Holder") may be sold or otherwise transferred (including transfer by gift or
operation of law), the Company or its assignee(s) shall have a right of first
refusal to purchase the Shares on the terms and conditions set forth in this
Section (the "Right of First Refusal").
(i) Notice of Proposed Transfer. The Holder of the Shares shall
---------------------------
deliver to the Company a written notice (the "Notice") stating: (i) the
Holder's bona fide intention to sell or otherwise transfer such Shares; (ii) the
name of each proposed purchaser or other transferee ("Proposed Transferee");
(iii) the number of Shares to be transferred to each Proposed Transferee; and
(iv) the bona fide cash price or other consideration for which the Holder
proposes to transfer the Shares (the "Offered Price"), and the Holder shall
offer the Shares at the Offered Price to the Company or its assignee(s).
(ii) Exercise of Right of First Refusal. At any time within
----------------------------------
thirty (30) days after receipt of the Notice, the Company and/or its assignee(s)
may, by giving written notice to the Holder, elect to purchase all, but not less
than all, of the Shares proposed to be transferred to any one or more of the
Proposed Transferees, at the purchase price determined in accordance with
subsection (c) below.
(iii) Purchase Price. The purchase price ("Purchase Price") for
--------------
the Shares purchased by the Company or its assignee(s) under this Section shall
be the Offered Price. If the Offered Price includes consideration other than
cash, the cash equivalent value of the non-cash consideration shall be
determined by the Board of Directors of the Company in good faith.
(iv) Payment. Payment of the Purchase Price shall be made, at
-------
the option of the Company or its assignee(s), in cash (by check), by
cancellation of all or a portion of any outstanding indebtedness of the Holder
to the Company (or, in the case of repurchase by an assignee, to the assignee),
or by any combination thereof within 30 days after receipt of the Notice or in
the manner and at the times set forth in the Notice.
(v) Holder's Right to Transfer. If all of the Shares proposed
--------------------------
in the Notice to be transferred to a given Proposed Transferee are not purchased
by the Company and/or its assignee(s) as provided in this Section, then the
Holder may sell or otherwise transfer such Shares to that Proposed Transferee at
the Offered Price or at a higher price, provided that such sale or other
transfer is consummated within 120 days after the date of the Notice and
provided further that any such sale or other transfer is effected in accordance
with any applicable securities laws and the Proposed Transferee agrees in
writing that the provisions of this Section shall continue to apply to the
Shares in the hands of such Proposed Transferee. If the Shares described in the
Notice are not transferred to the Proposed Transferee within such period, a new
Notice shall be given to the Company, and the Company and/or its assignees shall
again be offered the Right of First Refusal before any Shares held by the Holder
may be sold or otherwise transferred.
(vi) Exception for Certain Family Transfers. Anything to the
--------------------------------------
contrary contained in this Section notwithstanding, the transfer of any or all
of the Shares during the Purchaser's lifetime or on the Purchaser's death by
will or intestacy to the Purchaser's immediate family or a trust for the benefit
of the Purchaser's immediate family shall be exempt from the provisions of this
Section. "Immediate Family" as used herein shall mean spouse, lineal descendant
or antecedent, father, mother, brother or sister. In such case, the transferee
or other recipient shall receive and hold the Shares so transferred subject to
the provisions of this Section, and there shall be no further transfer of such
Shares except in accordance with the terms of this Section.
(vii) Termination of Right of First Refusal. The Right of First
-------------------------------------
Refusal shall terminate as to any Shares 90 days after the (i) first sale of
Common Stock of the Company to the general public pursuant to a registration
statement filed with and declared effective by the Securities and Exchange
Commission under the Securities Act of 1933, as amended, or (ii) a merger of the
Company with a corporation whose stock is publicly traded on a national
exchange.
5. Transfer of Shares; Escrow.
--------------------------
(a) Purchaser hereby authorizes and directs the Secretary of the
Company, or such other person designated by the Company, to transfer any
Unvested Shares as to which the Repurchase Option has been exercised from
Purchaser to the Company.
(b) To ensure the availability for delivery of Purchaser's Unvested
Shares upon repurchase by the Company pursuant to the Repurchase Option under
Section 4(a), Purchaser hereby appoints Katrina A. Garnett of the Company, or
any other person designated by the Company, as escrow agent (the "Escrow Agent")
------------
and as Purchaser's attorney-in-fact to sell, assign and transfer unto the
Company such Unvested Shares, if any, as may be repurchased by the Company
pursuant to the Repurchase Option and shall, upon execution of this Agreement,
deliver and deposit with the Escrow Agent the share certificates representing
the Unvested Shares, together with two stock assignments duly endorsed in blank
and in the form attached hereto as Attachment A . The Unvested Shares and stock
------------
assignment shall be held by the Escrow Agent in escrow pursuant to Joint Escrow
Instructions in the form attached hereto as Attachment B , until (i) the Company
------------
exercises its Repurchase Option as provided in Section 4(a), (ii) such Unvested
Shares become Vested Shares, or (iii) such time as this Agreement no longer is
in effect. Upon vesting of the Unvested Shares, the Escrow Agent shall promptly
deliver to Purchaser the certificate or certificates representing such Shares in
the Escrow Agent's
<PAGE>
possession belonging to Purchaser, and the Escrow Agent shall be discharged of
all further obligations hereunder. Notwithstanding any of the foregoing,
however, the Escrow Agent shall nevertheless retain such certificate or
certificates as Escrow Agent if so required pursuant to other restriction
imposed pursuant to this Agreement.
(c) The Escrow Agent shall not be liable for any act it may do or omit
to do with respect to holding the Shares in escrow and while acting in good
faith and in the exercise of its judgment.
(d) Transfer or sale of the Shares is subject to restrictions on
transfer imposed by any applicable state and federal securities laws. Any
transferee shall hold such Shares subject to all the provisions hereof and shall
acknowledge the same by signing a copy of this Agreement.
(e) No Shares may be sold, pledged, hypothecated or otherwise
transferred by Purchaser until such Shares have become Vested Shares and are no
longer subject to any security agreement for the benefit of the Company.
6. Ownership, Voting Rights, Duties. This Agreement shall not affect in
--------------------------------
any way the ownership, voting rights or other rights or duties of Purchaser,
except as specifically provided herein. Purchaser shall enjoy rights as a
stockholder until such time as Purchaser disposes of the Shares or the Company
and/or its assignee(s) exercises either the Repurchase Option or the Right of
First Refusal hereunder. Upon any such exercise, Purchaser shall have no
further rights as a holder of the Shares so purchased except the right to
receive payment for the Shares so purchased in accordance with the provisions of
this Agreement, and Purchaser or the Escrow Agent, as the case may be, shall
forthwith cause the certificate(s) evidencing the Shares so purchased to be
surrendered to the Company for transfer or cancellation.
7. Tax Consultation. Purchaser understands that Purchaser may suffer
----------------
adverse tax consequences as a result of Purchaser's purchase or disposition of
the Shares. Purchaser represents that Purchaser has consulted with any tax
consultants Purchaser deems advisable in connection with the purchase or
disposition of the Shares and that Purchaser is not relying on the Company for
any tax advice.
8. Restrictive Legends; Stop-Transfer Orders; Market Standoff
----------------------------------------------------------
(a) Legends. Purchaser understands and agrees that the Company shall
-------
cause the legends set forth below or legends substantially equivalent thereto,
to be placed upon any certificate(s) evidencing ownership of the Shares together
with any other legends that may be required by the Company or by state or
federal securities laws:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED,
SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND
UNTIL REGISTERED UNDER THE ACT OR, IN THE OPINION OF COMPANY
COUNSEL SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH
OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE
THEREWITH.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON TRANSFER AND A RIGHT OF FIRST REFUSAL HELD BY THE
ISSUER OR ITS ASSIGNEE(S) AS SET FORTH IN AN AGREEMENT BETWEEN THE
ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH
MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH
TRANSFER RESTRICTIONS AND RIGHT OF FIRST REFUSAL ARE BINDING ON
TRANSFEREES OF THESE SHARES.
(b) Stop-Transfer Notices. Purchaser agrees that, in order to ensure
---------------------
compliance with the restrictions referred to herein, the Company may issue
appropriate "stop transfer" instructions to its transfer agent, if any, and
that, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
(c) Market Standoff. Purchaser hereby agrees that if so requested by
---------------
the Company or any representative of the underwriters in connection with any
registration of the offering of any securities of the Company under the
Securities Act of 1933, as amended (the "Securities Act"), neither Purchaser nor
--------------
Purchaser shall sell or otherwise transfer any Shares or other securities of the
Company during such period as the Company and the representatives of the
underwriters may request (not to exceed 180 days) following the effective date
of any registration statement of the Company filed under the Securities Act for
an underwritten public offering. The Company may impose stop-transfer
instructions with respect to Shares subject to the foregoing restrictions until
the end of such market standoff period.
(d) Refusal to Transfer. The Company shall not be required (i) to
-------------------
transfer on its books any Shares that have been sold or otherwise transferred in
violation of any of the provisions of this Agreement or (ii) to treat as owner
of such Shares or to accord the right to vote or pay dividends to any purchaser
or other transferee to whom such Shares shall have been so transferred.
9. Section 83(b) Election. Purchaser understands that Section 83(a) of
----------------------
the Internal Revenue Code of 1986, as amended (the
<PAGE>
"Code"), taxes as ordinary income for a [Nonstatutory] [Incentive] Stock Option
the difference between the amount paid for the Shares and the Fair Market Value
of the Shares as of the date any restrictions on the Shares lapse. In this
context, "restriction" means the right of the Company to buy back the Shares
-----------
pursuant to the Repurchase Option set forth in Section 4(a) of this Agreement.
Purchaser understands that Purchaser may elect to be taxed at the time the
Shares are purchased, rather than when and as the Repurchase Option expires, by
filing an election under Section 83(b) (an "83(b) Election") of the Code with
--------------
the Internal Revenue Service within 30 days from the date of purchase. Even if
the Fair Market Value of the Shares at the time of the execution of this
Agreement equals the amount paid for the Shares, the election must be made to
avoid income tax treatment under Section 83(a) in the future. Purchaser
acknowledge that it is Purchaser's sole responsibility and not the Company's to
timely file the 83(b) Election, even if Purchaser requests the Company or its
representative to make this filing on Purchaser's behalf. Purchaser understands
that failure to file such an election in a timely manner may result in adverse
tax consequences for Purchaser. Purchaser further understands that an additional
copy of such election form should be filed with his or her federal income tax
return for the calendar year in which the date of this Agreement falls.
Purchaser acknowledges that the foregoing is only a summary of the effect of
United States federal income taxation with respect to purchase of the Shares
hereunder, and does not purport to be complete. Purchaser further acknowledges
that the Company has directed Purchaser to seek independent advice regarding the
applicable provisions of the Code, the income tax laws of any municipality,
state or foreign country in which Purchaser may reside, and the tax consequences
of Purchaser's death.
Purchaser agrees that he or she will execute and deliver to the
Company with this executed Agreement a copy of the Acknowledgment and Statement
of Decision Regarding Section 83(b) Election (the "Acknowledgment") attached
--------------
hereto as Attachment C. Purchaser further agrees that he or she will execute
------------
and submit with the Acknowledgment a copy of the 83(b) Election attached hereto
as Attachment D (for tax purposes in connection with the early exercise of an
------------
option) if Purchaser has indicated in the Acknowledgment his or her decision to
make such an election.
10. Notices. All notices and other communications required or permitted
-------
hereunder shall be in writing, shall be effective when given, and shall in any
event be deemed to be given (a) five (5) days after the deposit with the U.S.
Postal Service, if delivered by first class mail, postage prepaid (b) upon
delivery, if delivered by hand, or (c) one business day after the business day
of deposit with Federal Express or similar overnight courier, freight prepaid,
and shall be addressed (i) if to Purchaser, at Purchaser's address as set forth
beneath Purchaser's signature to this Agreement, or at such other address as
Purchaser shall have furnished to the Company in writing, (ii) if to the
Company, to CrossWorlds Software, Inc., with copy to Venture Law Group, 2775
Sand Hill Road, Menlo Park, California 94025, Attention: Jon E. Gavenman, Esq.,
or Katrina A. Garnett, at CrossWorlds Software, Inc., or at such other address
as the Escrow Agent shall have furnished to the parties.
11. Successors and Assigns. The Company may assign any of its rights
----------------------
under this Agreement to single or multiple assignees, and this Agreement shall
inure to the benefit of the successors and assigns of the Company. Subject to
the restrictions on transfer herein set forth, this Agreement shall be binding
upon Purchaser and his or her heirs, executors, administrators, successors and
assigns.
12. Interpretation. Any dispute regarding the interpretation of this
--------------
Agreement shall be submitted by Purchaser or by the Company forthwith to the
Company's Board of Directors or the committee thereof that administers the Plan,
which shall review such dispute at its next regular meeting. The resolution of
such a dispute by the Board or committee shall be final and binding on the
Company and on Purchaser.
13. Governing Law; Severability. This Agreement shall be governed by and
---------------------------
construed in accordance with the laws of the State of California excluding that
body of law pertaining to conflicts of law. Should any provision of this
Agreement be determined by a court of law to be illegal or unenforceable, the
other provisions shall nevertheless remain effective and shall remain
enforceable.
14. Notices. Any notice required or permitted hereunder shall be given in
-------
writing and shall be deemed effectively given upon personal delivery or upon
deposit in the United States mail by certified mail, with postage and fees
prepaid, addressed to the other party at its address as shown below beneath its
signature, or to such other address as such party may designate in writing from
time to time to the other party.
15. Further Instruments. The parties agree to execute such further
-------------------
instruments and to take such further action as may be reasonably necessary to
carry out the purposes and intent of this Agreement.
16. Delivery of Payment. Purchaser herewith delivers to the Company the
-------------------
full Exercise Price for the Shares.
<PAGE>
17. Entire Agreement. The Plan and Notice of Grant/Option Agreement are
----------------
incorporated herein by reference. This Agreement, the Plan, the Option
Agreement and the Investment Representation Statement constitute the entire
agreement of the parties with respect to the subject matter hereof and supersede
in their entirety all prior undertakings and agreements of the Company and
Purchaser with respect to the subject matter hereof, and may not be modified
adversely to the Purchaser's interest except by means of a writing signed by the
Company and Purchaser.
Submitted by: Accepted by:
PURCHASER: CROSSWORLDS SOFTWARE, INC.
By:_________________________________ By:_________________________________
Name:_______________________________ Its:________________________________
Address: Address:
- ------- -------
____________________________________ 577 Airport Boulevard, Suite 800
____________________________________ Burlingame, CA 94010-2024
<PAGE>
ATTACHMENT A
------------
ASSIGNMENT SEPARATE FROM CERTIFICATE
------------------------------------
FOR VALUE RECEIVED and pursuant to that certain Early Exercise Notice
and Restricted Stock Purchase Agreement between the undersigned ("Purchaser")
--------
and CrossWorlds Software, Inc. (the "Company") dated _____________, ____ (the
-------
"Agreement"), Purchaser hereby sells, assigns and transfers unto
- ----------
_______________________________ (________) shares of the Common Stock of the
Company, standing in Purchaser's name on the books of the Company and
represented by Certificate No. ___, and hereby irrevocably appoints
_____________________________ to transfer said stock on the books of the Company
with full power of substitution in the premises. THIS ASSIGNMENT MAY ONLY BE
USED AS AUTHORIZED BY THE AGREEMENT AND THE ATTACHMENTS THERETO.
Dated: _________________
Signature:
_______________________________________
Purchaser
_______________________________________
Spouse of Purchaser (if applicable)
Instruction: Please do not fill in any blanks other than the signature line.
The purpose of this assignment is to enable the Company to exercise its
Repurchase Option set forth in the Agreement without requiring additional
signatures on the part of Purchaser.
<PAGE>
ATTACHMENT B
------------
JOINT ESCROW INSTRUCTIONS
-------------------------
_______________, ____
Katrina A. Garnett
CrossWorlds Software, Inc.
577 Airport Boulevard, Suite 800
Burlingame, CA 94010
As Escrow Agent for both CrossWorlds Software, Inc., a Delaware
corporation (the "Company"), and the undersigned purchaser of stock of the
-------
Company ("Purchaser"), you are hereby authorized and directed to hold the
---------
documents delivered to you pursuant to the terms of that certain Early Exercise
Notice and Restricted Stock Purchase Agreement ("Agreement"), dated as of
---------
__________ __, 19__, between the Company and the undersigned, in accordance with
the following instructions:
1. In the event that the Company and/or any assignee of the Company
(referred to collectively for convenience herein as the ("Company") exercises
-------
the Company's repurchase option set forth in the Agreement, the Company shall
give to Purchaser and you a written notice specifying the number of shares of
stock to be purchased, the purchase price, and the time for a closing hereunder
at the principal office of the Company. Purchaser and the Company hereby
irrevocably authorize and direct you to close the transaction contemplated by
such notice in accordance with the terms of said notice.
2. At the closing, you are directed (a) to date the stock assignments
necessary for the transfer in question, (b) to fill in the number of shares
being transferred, and (c) to deliver same, together with the certificate
evidencing the shares of stock to be transferred, to the Company or its
assignee, against the simultaneous delivery to you of the purchase price (by
cash, a check, or some combination thereof) for the number of shares of stock
being purchased pursuant to the exercise of the Company's repurchase option.
3. Purchaser irrevocably authorizes the Company to deposit with you
any certificates evidencing shares of stock to be held by you hereunder and any
additions and substitutions to said shares as defined in the Agreement.
Purchaser does hereby irrevocably constitute and appoint you as Purchaser's
attorney-in-fact and agent for the term of this escrow to execute with respect
to such securities all documents necessary or appropriate to make such
securities negotiable and to complete any transaction herein contemplated,
including but not limited to the filing with any applicable state blue sky
authority of any required applications for consent to, or notice of transfer of,
the securities. Subject to the provisions of this paragraph 3, Purchaser shall
exercise all rights and privileges of a shareholder of the Company while the
stock is held by you.
4. Upon written request of Purchaser, but no more than once per
calendar year, unless the Company's repurchase option has been exercised, you
will deliver to Purchaser a certificate or certificates representing so many
shares of stock as are not then subject to the Company's repurchase option.
Within sixty (60) days after cessation of Purchaser's continuous employment by
or services to the Company, or any parent or subsidiary of the Company, you will
deliver to Purchaser a certificate or certificates representing the aggregate
number of shares held or issued pursuant to the Agreement and not purchased by
the Company or its assignees pursuant to exercise of the Company's repurchase
option.
5. If at the time of termination of this escrow you should have in
your possession any documents, securities, or other property belonging to
Purchaser, you shall deliver all of the same to Purchaser and shall be
discharged of all further obligations hereunder.
6. Your duties hereunder may be altered, amended, modified or revoked
only by a writing signed by all of the parties hereto.
7. You shall be obligated only for the performance of such duties as
are specifically set forth herein and may rely and shall be protected in relying
or refraining from acting on any instrument reasonably believed by you to be
genuine and to have been signed or presented by the proper party or parties.
You shall not be personally liable for any act you may do or omit to do
hereunder as Escrow Agent or as attorney-in-fact for Purchaser while acting in
good faith, and any act done or omitted by you pursuant to the advice of your
own attorneys shall be conclusive evidence of such good faith.
8. You are hereby expressly authorized to disregard any and all
warnings given by any of the parties hereto or by any other person or
corporation, excepting only orders or process of courts of law and are hereby
expressly authorized to comply with and obey orders, judgments or decrees of any
court. In case you obey or comply with any such order, judgment or
<PAGE>
decree, you shall not be liable to any of the parties hereto or to any other
person, firm or corporation by reason of such compliance, notwithstanding any
such order, judgment or decree being subsequently reversed, modified, annulled,
set aside, vacated or found to have been entered without jurisdiction.
9. You shall not be liable in any respect on account of the
identity, authorities or rights of the parties executing or delivering or
purporting to execute or deliver the Agreement or any documents or papers
deposited or called for hereunder .
10. You shall not be liable for the outlawing of any rights under the
Statute of Limitations with respect to these Joint Escrow Instructions or any
documents deposited with you.
11. You shall be entitled to employ such legal counsel and other
experts as you may deem necessary properly to advise you in connection with your
obligations hereunder, may rely upon the advice of such counsel, and may pay
such counsel reasonable compensation therefor.
12. Your responsibilities as Escrow Agent hereunder shall terminate
if you shall cease to be an officer or agent of the Company or if you shall
resign by written notice to each party. In the event of any such termination,
the Company shall appoint a successor Escrow Agent.
13. If you reasonably require other or further instruments in
connection with these Joint Escrow Instructions or obligations in respect
hereto, the necessary parties hereto shall join in furnishing such instruments.
14. It is understood and agreed that should any dispute arise with
respect to the delivery and/or ownership or right of possession of the
securities held by you hereunder, you are authorized and directed to retain in
your possession without liability to anyone all or any part of said securities
until such disputes shall have been settled either by mutual written agreement
of the parties concerned or by a final order, decree or judgment of a court of
competent jurisdiction after the time for appeal has expired and no appeal has
been perfected, but you shall be under no duty whatsoever to institute or defend
any such proceedings.
15. All notices and other communications required or permitted
hereunder shall be in writing, shall be effective when given, and shall in any
event be deemed to be given (a) five (5) days after deposit with the U.S. Postal
Service, if delivered by first class mail, postage prepaid, (b) upon delivery,
if delivered by hand, or (c) one business day after the business day of deposit
with Federal Express or similar overnight courier, freight prepaid, and shall be
addressed to each of the other parties thereunto entitled at the following
addresses or at such other addresses as a party may designate by ten days
advance written notice to each of the other parties hereto.
COMPANY: CrossWorlds Software, Inc.
577 Airport Boulevard, Suite 800
Burlingame, CA 94010
Attn: Controller
PURCHASER:
ESCROW AGENT: Katrina A. Garnett
CrossWorlds Software, Inc.
577 Airport Boulevard, Suite 800
Burlingame, CA 94010
16. By signing these Joint Escrow Instructions, you become a party
hereto only for the purpose of said Joint Escrow Instructions; you do not become
a party to the Agreement.
17. This instrument shall be binding upon and inure to the benefit of
the parties hereto, and their respective successors and permitted assigns.
<PAGE>
18. These Joint Escrow Instructions shall be governed by, and
construed and enforced in accordance with, the laws of the State of California
as they apply to contracts entered into and wholly to be performed within such
state.
Very truly yours,
CROSSWORLDS SOFTWARE, INC.
____________________________________
Katrina A. Garnett
PURCHASER:
____________________________________
Purchaser
ESCROW AGENT:
____________________________________
Katrina A. Garnett
<PAGE>
ATTACHMENT C
------------
ACKNOWLEDGMENT AND STATEMENT OF DECISION
----------------------------------------
REGARDING SECTION 83(b) ELECTION
--------------------------------
The undersigned (which term includes the undersigned's spouse), a purchaser
of ___________ shares of Common Stock of CrossWorlds Software, Inc., a
California corporation (the "Company") by exercise of an option (the "Option")
------- ------
granted pursuant to the Company's 1999 Executive Stock Plan (the "Plan"), hereby
----
states as follows:
1. The undersigned acknowledges receipt of a copy of the Plan relating to
the offering of such shares. The undersigned has carefully reviewed the Plan and
the option agreement pursuant to which the Option was granted.
2. The undersigned either [check and complete as applicable]:
(a) ____ has consulted, and has been fully advised by, the
undersigned's own tax advisor,
_____________________________________, whose business address is
______________________________, regarding the federal, state and
local tax consequences of purchasing shares under the Plan, and
particularly regarding the advisability of making elections
pursuant to Section 83(b) of the Internal Revenue Code of 1986,
as amended (the "Code") and pursuant to the corresponding
----
provisions, if any, of applicable state law; or
(b) ____ has knowingly chosen not to consult such a tax advisor.
3. The undersigned hereby states that the undersigned has decided [check
as applicable]:
(a) ____ to make an election pursuant to Section 83(b) of the Code,
and is submitting to the Company, together with the undersigned's
executed Early Exercise Notice and Stock Purchase Agreement, an
executed form entitled "Election Under Section 83(b) of the
Internal Revenue Code of 1986;" or
(b) ____ not to make an election pursuant to Section 83(b) of the
Code.
4. Neither the Company nor any subsidiary or representative of the
Company has made any warranty or representation to the undersigned with respect
to the tax consequences of the undersigned's purchase of shares under the Plan
or of the making or failure to make an election pursuant to Section 83(b) of the
Code or the corresponding provisions, if any, of applicable state law.
Date:___________________________ _________________________________
Purchaser
Date:___________________________ _________________________________
Spouse of Purchaser (if applicable)
<PAGE>
ATTACHMENT D
------------
ELECTION UNDER SECTION 83(b)
----------------------------
OF THE INTERNAL REVENUE CODE OF 1986
------------------------------------
The undersigned taxpayer hereby elects, pursuant to Section 83(b) of the
Internal Revenue Code, to include in taxpayer's gross income for the current
taxable year, the amount of any income that may be taxable to taxpayer in
connection with taxpayer's receipt of the property described below:
1. The name, address, taxpayer identification number and taxable year of the
undersigned are as follows:
NAME OF TAXPAYER: ________________
NAME OF SPOUSE: ________________
ADDRESS:
IDENTIFICATION NO. OF TAXPAYER: _______________
IDENTIFICATION NO. OF SPOUSE: _______________
TAXABLE YEAR: __________
2. The property with respect to which the election is made is described as
follows:
______________ shares of the Common Stock $.001 par value, of CrossWorlds
Software, Inc., a California corporation (the "Company").
-------
3. The date on which the property was transferred is: _______________
4. The property is subject to the following restrictions:
Repurchase option at cost in favor of the Company upon termination of
taxpayer's employment or consulting relationship.
5. The Fair Market Value at the time of transfer, determined without regard to
any restriction other than a restriction which by its terms will never
lapse, of such property is: $____________
6. The amount (if any) paid for such property: $____________
The undersigned has submitted a copy of this statement to the person for whom
the services were performed in connection with the undersigned's receipt of the
above-described property. The transferee of such property is the person
performing the services in connection with the transfer of said property.
The undersigned understands that the foregoing election may not be revoked
- --------------------------------------------------------------------------
except with the consent of the Commissioner.
- -------------------------------------------
Dated:_______________________ ___________________________________
Purchaser
Dated:_______________________ ___________________________________
Spouse of Purchaser (if applicable)
<PAGE>
EXHIBIT B
---------
CROSSWORLDS SOFTWARE, INC.
1999 EXECUTIVE STOCK PLAN
EXERCISE AGREEMENT
CrossWorlds Software, Inc.
577 Airport Boulevard, Suite 800
Burlingame, CA 94010-2024
Attention: Stock Administrator
1. Exercise of Option. Effective as of today, ___________, 1999, the
------------------
undersigned ("Purchaser") __________________ hereby elects to exercise
Purchaser's option to purchase _________ shares of the Common Stock (the
"Shares") of CrossWorlds Software, Inc. (the "Company") under and pursuant to
the CrossWorlds Software , Inc., 1999 Executive Stock Plan, as amended (the
"Plan") and the Incentive Agreement dated _____________________________ (the
"Option Agreement").
2. Representations of Purchaser. Purchaser acknowledges that Purchaser
----------------------------
has received, read and understood the Plan and the Option Agreement and agrees
to abide by and be bound by their terms and conditions.
3. Rights as Stockholder. Until the stock certificate evidencing such
---------------------
Shares is issued (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company), no right to vote
or receive dividends or any other rights as a stockholder shall exist with
respect to the Optioned Stock, notwithstanding the exercise of the Option. The
Company shall issue (or cause to be issued) such stock certificate promptly
after the Option is exercised. No adjustment will be made for a dividend or
other right for which the record date is prior to the date the stock certificate
is issued, except as provided in Section 12 of the Plan.
Purchaser shall enjoy rights as a stockholder until such time as
Purchaser disposes of the Shares or the Company and/or its assignee(s) exercises
the Right of First Refusal hereunder. Upon such exercise, Purchaser shall have
no further rights as a holder of the Shares so purchased except the right to
receive payment for the Shares so purchased in accordance with the provisions of
this Agreement, and Purchaser shall forthwith cause the certificate(s)
evidencing the Shares so purchased to be surrendered to the Company for transfer
or cancellation.
4. Company's Right of First Refusal. Before any Shares held by Purchaser
--------------------------------
or any transferee (either being sometimes referred to herein as the "Holder")
may be sold or otherwise transferred (including transfer by gift or operation of
law), the Company or its assignee(s) shall have a right of first refusal to
purchase the Shares on the terms and conditions set forth in this Section (the
"Right of First Refusal").
(a) Notice of Proposed Transfer. The Holder of the Shares shall
---------------------------
deliver to the Company a written notice (the "Notice") stating: (i) the
Holder's bona fide intention to sell or otherwise transfer such Shares; (ii) the
name of each proposed purchaser or other transferee ("Proposed Transferee");
(iii) the number of Shares to be transferred to each Proposed Transferee; and
(iv) the bona fide cash price or other consideration for which the Holder
proposes to transfer the Shares (the "Offered Price"), and the Holder shall
offer the Shares at the Offered Price to the Company or its assignee(s).
(b) Exercise of Right of First Refusal. At any time within thirty
----------------------------------
(30) days after receipt of the Notice, the Company and/or its assignee(s) may,
by giving written notice to the Holder, elect to purchase all, but not less than
all, of the Shares proposed to be transferred to any one or more of the Proposed
Transferees, at the purchase price determined in accordance with subsection (c)
below.
(c) Purchase Price. The purchase price ("Purchase Price") for the
--------------
Shares purchased by the Company or its assignee(s) under this Section shall be
the Offered Price. If the Offered Price includes consideration other than cash,
the cash equivalent value of the non-cash consideration shall be determined by
the Board of Directors of the Company in good faith.
(d) Payment. Payment of the Purchase Price shall be made, at the
-------
option of the Company or its assignee(s), in cash (by check), by cancellation of
all or a portion of any outstanding indebtedness of the Holder to the Company
(or, in the case of repurchase by an assignee, to the assignee), or by any
combination thereof within 30 days after receipt of the Notice or in the manner
and at the times set forth in the Notice.
(e) Holder's Right to Transfer. If all of the Shares proposed in the
--------------------------
Notice to be transferred to a given Proposed Transferee are not purchased by the
Company and/or its assignee(s) as provided in this Section, then the Holder may
sell or otherwise transfer such Shares to that Proposed Transferee at the
Offered Price or at a higher price, provided that such sale or other transfer is
consummated within 120 days after the date of the Notice and provided further
that any such sale or other transfer is effected in accordance with any
applicable securities laws and the Proposed Transferee agrees in writing that
the provisions of this Section shall continue to apply to the Shares in the
hands of such Proposed Transferee. If the Shares described in the Notice are
not transferred to the Proposed Transferee within such period, a new Notice
shall be given to the Company, and the Company and/or its assignees shall again
be offered the Right of First Refusal before any Shares held by the Holder may
be sold or otherwise transferred.
(f) Exception for Certain Family Transfers. Anything to the contrary
--------------------------------------
contained in this Section notwithstanding, the transfer of any or all of the
Shares during the Purchaser's lifetime or on the Purchaser's death by will or
intestacy to the Purchaser's immediate family or a trust for the benefit of the
Purchaser's immediate family shall be exempt from the provisions of this
Section. "Immediate Family" as used herein shall mean spouse, lineal descendant
or antecedent, father, mother, brother or sister. In such case, the transferee
or other recipient shall receive and hold the Shares so transferred subject to
the provisions of this Section, and there shall be no further transfer of such
Shares except in accordance with the terms of this Section.
(g) Termination of Right of First Refusal. The Right of First Refusal
-------------------------------------
shall terminate as to any Shares 90 days after the (i) first sale of Common
Stock of the Company to the general public pursuant to a registration statement
filed with and declared effective by the Securities and Exchange Commission
under the Securities Act of 1933, as amended, or (ii) a merger of the Company
with a corporation whose stock is publicly traded on a national exchange.
<PAGE>
5. Tax Consultation. Purchaser understands that Purchaser may suffer
----------------
adverse tax consequences as a result of Purchaser's purchase or disposition of
the Shares. Purchaser represents that Purchaser has consulted with any tax
consultants Purchaser deems advisable in connection with the purchase or
disposition of the Shares and that Purchaser is not relying on the Company for
any tax advice.
6. Restrictive Legends; Stop-Transfer Orders; Market Standoff.
----------------------------------------------------------
(a) Legends. Purchaser understands and agrees that the Company shall
-------
cause the legends set forth below or legends substantially equivalent thereto,
to be placed upon any certificate(s) evidencing ownership of the Shares together
with any other legends that may be required by the Company or by state or
federal securities laws:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED, SOLD
OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL
REGISTERED UNDER THE ACT OR, IN THE OPINION OF COMPANY COUNSEL
SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR
TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE THEREWITH.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON TRANSFER AND A RIGHT OF FIRST REFUSAL HELD BY THE
ISSUER OR ITS ASSIGNEE(S) AS SET FORTH IN AN AGREEMENT BETWEEN THE
ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY
BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH TRANSFER
RESTRICTIONS AND RIGHT OF FIRST REFUSAL ARE BINDING ON TRANSFEREES
OF THESE SHARES.
(b) Stop-Transfer Notices. Purchaser agrees that, in order to
---------------------
ensure compliance with the restrictions referred to herein, the Company may
issue appropriate "stop transfer" instructions to its transfer agent, if any,
and that, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
(c) Market Standoff. Purchaser hereby agrees that if so requested
---------------
by the Company or any representative of the underwriters in connection with any
registration of the offering of any securities of the Company under the
Securities Act of 1933, as amended (the "Securities Act"), neither Purchaser nor
--------------
Purchaser shall sell or otherwise transfer any Shares or other securities of the
Company during such period as the Company and the representatives of the
underwriters may request (not to exceed 180 days) following the effective date
of any registration statement of the Company filed under the Securities Act for
an underwritten public offering. The Company may impose stop-transfer
instructions with respect to Shares subject to the foregoing restrictions until
the end of such market standoff period.
(d) Refusal to Transfer. The Company shall not be required (i) to
-------------------
transfer on its books any Shares that have been sold or otherwise transferred in
violation of any of the provisions of this Agreement or (ii) to treat as owner
of such Shares or to accord the right to vote or pay dividends to any purchaser
or other transferee to whom such Shares shall have been so transferred.
7. Successors and Assigns. The Company may assign any of its rights under
----------------------
this Agreement to single or multiple assignees, and this Agreement shall inure
to the benefit of the successors and assigns of the Company. Subject to the
restrictions on transfer herein set forth, this Agreement shall be binding upon
Purchaser and his or her heirs, executors, administrators, successors and
assigns.
8. Interpretation. Any dispute regarding the interpretation of this
--------------
Agreement shall be submitted by Purchaser or by the Company forthwith to the
Company's Board of Directors or the committee thereof that administers the Plan,
which shall review such dispute at its next regular meeting. The resolution of
such a dispute by the Board or committee shall be final and binding on the
Company and on Purchaser.
9. Governing Law; Severability. This Agreement shall be governed by and
---------------------------
construed in accordance with the laws of the State of California excluding that
body of law pertaining to conflicts of law. Should any provision of this
Agreement be determined by a court of law to be illegal or unenforceable, the
other provisions shall nevertheless remain effective and shall remain
enforceable.
10. Notices. Any notice required or permitted hereunder shall be given in
-------
writing and shall be deemed effectively given upon personal delivery or upon
deposit in the United States mail by certified mail, with postage and fees
prepaid, addressed to the other party at its address as shown below beneath its
signature, or to such other address as such party may designate in writing from
time to time to the other party.
11. Further Instruments. The parties agree to execute such further
-------------------
instruments and to take such further action as may be reasonably necessary to
carry out the purposes and intent of this Agreement.
12. Delivery of Payment. Purchaser herewith delivers to the Company the
-------------------
full Exercise Price for the Shares.
13. Entire Agreement. The Plan and Notice of Grant/Option Agreement are
----------------
incorporated herein by reference. This Agreement, the Plan, the Option
Agreement and the Investment Representation Statement constitute the entire
agreement of the parties with respect to the subject matter hereof and supersede
in their entirety all prior undertakings and agreements of the Company and
Purchaser with respect to the subject matter hereof, and may not be modified
adversely to
<PAGE>
the Purchaser's interest except by means of a writing signed by the Company and
Purchaser.
Submitted by: Accepted by:
PURCHASER:
CROSSWORLDS SOFTWARE, INC.
By:_______________________________ By:______________________________
Name:_____________________________ Its:_____________________________
Address: Address:
- ------- -------
__________________________________ 577 Airport Boulevard, Suite 800
__________________________________ Burlingame, CA 94010-2024
<PAGE>
EXHIBIT C
---------
INVESTMENT REPRESENTATION STATEMENT
PURCHASER: _____________________
COMPANY: CROSSWORLDS SOFTWARE, INC.
SECURITY: ___________ shares of Common Stock
AMOUNT: __________________________________
DATE: __________________________________
In connection with the purchase of the above-listed Securities, the
undersigned Purchaser represents to the Company the following:
(a) Purchaser is aware of the Company's business affairs and financial
condition and has acquired sufficient information about the Company to reach an
informed and knowledgeable decision to acquire the Securities. Purchaser is
acquiring these Securities for investment for Purchaser's own account only and
not with a view to, or for resale in connection with, any "distribution" thereof
within the meaning of the Securities Act of 1933, as amended (the "Securities
Act").
(b) Purchaser acknowledges and understands that the Securities constitute
"restricted securities" under the Securities Act and have not been registered
under the Securities Act in reliance upon a specific exemption therefrom, which
exemption depends upon, among other things, the bona fide nature of Purchaser's
investment intent as expressed herein. In this connection, Purchaser
understands that, in the view of the Securities and Exchange Commission, the
statutory basis for such exemption may be unavailable if Purchaser's
representation was predicated solely upon a present intention to hold these
Securities for the minimum capital gains period specified under tax statutes,
for a deferred sale, for or until an increase or decrease in the market price of
the Securities, or for a period of one year or any other fixed period in the
future. Purchaser further understands that the Securities must be held
indefinitely unless they are subsequently registered under the Securities Act or
an exemption from such registration is available. Purchaser further
acknowledges and understands that the Company is under no obligation to register
the Securities. Purchaser understands that the certificate evidencing the
Securities will be imprinted with a legend which prohibits the transfer of the
Securities unless they are registered or such registration is not required in
the opinion of counsel satisfactory to the Company and any other legend required
under applicable state securities laws.
(c) Purchaser is familiar with the provisions of Rule 701 and Rule 144,
each promulgated under the Securities Act, which, in substance, permit limited
public resale of "restricted securities" acquired, directly or indirectly from
the issuer thereof, in a non-public offering subject to the satisfaction of
certain conditions. Rule 701 provides that if the issuer qualifies under Rule
701 at the time of the grant of the Option to the Purchaser, the exercise will
be exempt from registration under the Securities Act. In the event the Company
becomes subject to the reporting requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, ninety (90) days thereafter (or such longer
period as any market stand-off agreement may require) the Securities exempt
under Rule 701 may be resold, subject to the satisfaction of certain of the
conditions specified by Rule 144, including: (1) the resale being made through
a broker in an unsolicited "broker's transaction" or in transactions directly
with a market maker (as said term is defined under the Securities Exchange Act
of 1934); and, in the case of an affiliate, (2) the availability of certain
public information about the Company, (3) the amount of Securities being sold
during any three month period not exceeding the limitations specified in Rule
144(e), and (4) the timely filing of a Form 144, if applicable.
In the event that the Company does not qualify under Rule 701 at the time
of grant of the Option, then the Securities may be resold in certain limited
circumstances subject to the provisions of Rule 144, which requires the resale
to occur not less than one year after the later of the date the Securities were
sold by the Company or the date the Securities were sold by an affiliate of the
Company, within the meaning of Rule 144; and, in the case of acquisition of the
Securities by an affiliate, or by a non-affiliate who subsequently holds the
Securities less than two years, the satisfaction of the conditions set forth in
sections (1), (2), (3) and (4) of the paragraph immediately above.
(d) Purchaser hereby agrees that if so requested by the Company or any
representative of the underwriters in connection with any registration of the
offering of any securities of the Company under the Securities Act, Purchaser
shall not sell or otherwise transfer any Shares or other securities of the
Company during the 180-day period following the effective date of a registration
statement of the Company filed under the Securities Act; provided, however, that
such restriction shall only apply to the first registration statement of the
Company to become effective under the Securities Act which include securities to
be sold on behalf of the Company to the public in an underwritten public
offering under the Securities Act. The Company may impose stop-transfer
instructions with respect to securities subject to the foregoing restrictions
until the end of such 180-day period.
<PAGE>
(e) Purchaser further understands that in the event all of the applicable
requirements of Rule 701 or 144 are not satisfied, registration under the
Securities Act, compliance with Regulation A, or some other registration
exemption will be required; and that, notwithstanding the fact that Rules 144
and 701 are not exclusive, the Staff of the Securities and Exchange Commission
has expressed its opinion that persons proposing to sell private placement
securities other than in a registered offering and otherwise than pursuant to
Rules 144 or 701 will have a substantial burden of proof in establishing that an
exemption from registration is available for such offers or sales, and that such
persons and their respective brokers who participate in such transactions do so
at their own risk. Purchaser understands that no assurances can be given that
any such other registration exemption will be available in such event.
Signature of Purchaser:
______________________________
Date:___________________, 19__
<PAGE>
EXHIBIT B
---------
Employee Agreement
CROSSWORLDS SOFTWARE, INC.
Employment, Confidential Information and Invention Assignment Agreement
As a condition of my employment with CrossWorlds Software, Inc., its
subsidiaries, affiliates, successors or assigns (together the "Company"), and in
-------
consideration of my employment with the Company and my receipt of the
compensation now and hereafter paid to me by Company, I agree to the following:
1. Employment.
----------
(a) I understand and acknowledge that my employment with the Company
is for an unspecified duration and constitutes `at-will' employment. I
acknowledge that this employment relationship may be terminated at any time,
with or without good cause or for any or no cause, at the option either of the
Company or myself, with or without notice.
(b) I agree that, during the term of my employment with the Company, I
will not engage in any other employment, occupation, consulting or other
business activity directly related to the business in which the Company is now
involved or becomes involved during the term of my employment, nor will I engage
in any other activities that conflict with my obligations to the Company.
(c) I agree to adhere to the Company's Conflict of Interest Guidelines
attached as Exhibit A hereto.
---------
2. Confidential Information.
---------------------------
(a) Company Information. I agree at all times during the term of my
-------------------
employment and thereafter to hold in strictest confidence, and not to use except
for the benefit of the Company or to disclose to any person, firm or corporation
without written authorization of the Board of Directors of the Company, any
Confidential Information of the Company. I understand that "Confidential
------------
Information" means any Company proprietary information, technical data, trade
- -----------
secrets or know-how, including, but not limited to, research, product plans,
products, services, customer lists and customers (including, but not limited to,
customers of the Company on whom I called or with whom I became acquainted
during the term of my employment), markets, software, developments, inventions,
processes, formulas, technology, designs, drawings, engineering, hardware
configuration information, marketing, finances or other business information
disclosed to me by the Company either directly or indirectly in writing, orally
or by drawings or observation of parts or equipment. I further understand that
Confidential Information does not include any of the foregoing items which has
become publicly known and
<PAGE>
made generally available through no wrongful act of mine or of others who were
under confidentiality obligations as to the item or items involved.
(b) Former Employer Information. I agree that I will not, during my
---------------------------
employment with the Company, improperly use or disclose any proprietary
information or trade secrets of any former or concurrent employer or other
person or entity and that I will not bring onto the premises of the Company any
unpublished document or proprietary information belonging to any such employer,
person or entity unless consented to in writing by such employer, person or
entity.
(c) Third Party Information. I recognize that the Company has
-----------------------
received and in the future will receive from third parties their confidential or
proprietary information subject to a duty on the Company's part to maintain the
confidentiality of such information and to use it only for certain limited
purposes. I agree to hold all such confidential or proprietary information in
the strictest confidence and not to disclose it to any person, firm or
corporation or to use it except as necessary in carrying out my work for the
Company consistent with the Company's agreement with such third party.
3. Inventions.
-------------
(a) Assignment of Inventions. I agree that I will promptly make full
------------------------
written disclosure to the Company, will hold in trust for the sole right and
benefit of the Company, and hereby assign to the Company, or its designee, all
my right, title, and interest in and to any and all inventions, original works
of authorship, developments, concepts, improvements or trade secrets, whether or
not patentable or registrable under copyright or similar laws, which I may
solely or jointly conceive or develop or reduce to practice, or cause to be
conceived or developed or reduced to practice, during the period of time I am in
the employ of the Company (collectively referred to as "Inventions") and which
----------
(i) are developed using the equipment, supplies, facilities or Confidential
Information of the Company, (ii) result from or are suggested by work performed
by me for the Company, or (iii) relate (or, for employees in Kansas, Minnesota
or Washington only, which directly relate) to the business, or to the actual or
demonstrably anticipated research or development of the Company will be the sole
and exclusive property of the Company, and I will and hereby do assign all my
right, title and interest in such Inventions to the Company, except as provided
in Section 3(f). I further acknowledge that all original works of authorship
which are made by me (solely or jointly with others) within the scope of and
during the period of my employment with the Company and which are protectible by
copyright are `works made for hire,' as that term is defined in the United
States Copyright Act.
(b) Patent and Copyright Registrations. I agree to assist the
----------------------------------
Company, or its designee, at the Company's expense, in every proper way to
secure the Company's rights in the Inventions and any copyrights, patents, mask
work rights or other intellectual property rights relating thereto in any and
all countries, including the disclosure to the Company of all pertinent
information and data with respect thereto, the execution of all applications,
specifications, oaths, assignments and all other instruments which the Company
shall deem necessary in order to apply for and obtain such rights and in order
to assign and convey to the Company, its successors,
-2-
<PAGE>
assigns, and nominees the sole and exclusive rights, title and interest in and
to such Inventions, and any copyrights, patents, mask work rights or other
intellectual property rights relating thereto. I further agree that my
obligation to execute or cause to be executed, when it is in my power to do
so, any such instrument or papers shall continue after the termination of this
Agreement. If the Company is unable because of my mental or physical
incapacity or for any other reason to secure my signature to apply for or to
pursue any application for any United States or foreign patents or copyright
registrations covering Inventions or original works of authorship assigned to
the Company as above, then I hereby irrevocably designate and appoint the
Company and its duly authorized officers and agents as my agent and attorney
in fact, to act for and in my behalf and stead to execute and file any such
applications and to do all other lawfully permitted acts to further the
prosecution and issuance of letters patent or copyright registrations thereon
with the same legal force and effect as if executed by me.
(c) Maintenance of Records. I agree to keep and maintain adequate and
----------------------
current written records of all Inventions made by me (solely or jointly with
others) during the term of my employment with the Company. The records will be
in the form of notes, sketches, drawings, and any other format that may be
specified by the Company. The records will be available to and remain the sole
property of the Company at all times.
(d) Inventions Assigned to the United States. I agree to assign to
----------------------------------------
the United States government all my right, title, and interest in and to any and
all Inventions whenever such full title is required to be in the United States
by a contract between the Company and the United States or any of its agencies.
(e) Inventions Retained and Licensed. I provide below a list of all
--------------------------------
inventions, original works of authorship, developments, improvements, and trade
secrets which were made by me prior to my employment with the Company
(collectively referred to as "Prior Inventions"), which belong to me, which
----------------
relate to the Company's proposed business, products or research and development,
and which are not assigned to the Company hereunder; or, if no such list is
attached, I represent that there are no such Prior Inventions. If in the course
of my employment with the Company, I incorporate into a Company product, process
or machine a Prior Invention owned by me or in which I have an interest, the
Company is hereby granted and shall have a nonexclusive, royalty-free,
irrevocable, perpetual, worldwide license to make, have made, modify, use and
sell such Prior Invention as part of or in connection with such product, process
or machine.
Prior Inventions:
Identifying Number
Title Date or Brief Description
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
-3-
<PAGE>
(f) Exception to Assignments. I understand that the provisions of
------------------------
this Agreement requiring assignment of Inventions to the Company do not apply to
any invention that (i) I develop entirely on my own time; and (ii) I develop
without using Company equipment, supplies, facilities, or trade secret
information; and (iii) do not result from any work performed by me for the
Company; and (iv) do not relate (or, for employees in Kansas, Minnesota or
Washington only, do not directly relate) at the time of conception or reduction
--------
to practice to the Company's business, or to its actual or demonstrably
anticipated research or development. Any such invention will be owned entirely
by me, even if developed by me during the time period in which I am employed by
the Company./1/ I will advise the Company promptly in writing of any inventions
that I believe meet the criteria for exclusion set forth herein and are not
otherwise disclosed pursuant to Section 3(e) above.
(g) Return of Company Documents. I agree that, at the time of leaving
---------------------------
the employ of the Company, I will deliver to the Company (and will not keep in
my possession, recreate or deliver to anyone else) any and all devices, records,
data, notes, reports, proposals, lists, correspondence, specifications, drawings
blueprints, sketches, materials, equipment, other documents or property, or
reproductions of any aforementioned items developed by me pursuant to my
employment with the Company or otherwise belonging to the Company, its
successors or assigns. In the event of the termination of my employment, I
agree to sign and deliver the `Termination Certificate' attached hereto as
-------------------------
Exhibit B.
- ---------
4. Notification of New Employer. In the event that I leave the employ of
----------------------------
the Company, I hereby grant consent to notification by the Company to my new
employer or consulting client about my rights and obligations under this
Agreement.
5. No Solicitation of Employees. In consideration for my employment by
----------------------------
the Company and other valuable consideration, receipt of which is hereby
acknowledged, I agree that during the period of my association with the
Company as an employee, officer and/or director and a period of twelve (12)
months thereafter, I shall not solicit the employment of any person
- -----------------
/1/ For employees in California only, the Company acknowledges the applicability
of Section 2870 of the California Labor Code, which provides: "Any provision in
an employment agreement which provides that an employee shall assign, or offer
to assign, any of his or her rights in an invention to his or her employer shall
not apply to an invention that the employee developed entirely on his or her own
time without using the employer's equipment, supplies, facilities, or trade
secret information except for those inventions that either: (i) relate at the
time of conception or reduction to practice of the invention to the employer's
business, or actual or demonstrably anticipated research or development of the
employer and (ii) result from any work performed by the employee for the
employer. To the extent a provision in an employment agreement purports to
require an employee to assign an invention otherwise excluded from being
required to be assigned under subdivision (a), the provision is against the
public policy of this state and is unenforceable."
-4-
<PAGE>
who shall then be employed by the Company (as an employee or consultant) or
who shall have been employed by the Company (as an employee or consultant)
within the prior twelve (12) month period, on behalf of myself or any other
person, firm, corporation, association or other entity, directly or
indirectly.
6. Representations. I represent that my performance of all the terms of
---------------
this Agreement will not breach any agreement to keep in confidence propriety
information acquired by me in confidence or in trust prior to my employment by
the Company. I have not entered into, and I agree I will not enter into, any
oral or written agreement in conflict herewith. I agree to execute any proper
oath or verify any proper document required to carry out the terms of this
Agreement.
7. Arbitration and Equitable Relief.
--------------------------------
(a) Arbitration. Except as provided in Section 7(b) below, I agree
-----------
that any dispute or controversy arising out of or relating to any
interpretation, construction, performance or breach of this Agreement, shall be
settled by arbitration to be held in San Mateo County, California, in accordance
with the rules then in effect of the American Arbitration Association. The
arbitrator may grant injunctions or other relief in such dispute or controversy.
The decision of the arbitrator shall be final, conclusive and binding on the
parties to the arbitration. Judgment may be entered on the arbitrator's
decision in any court having jurisdiction. The Company and I shall each pay
one-half of the costs and expenses of such arbitration, and each of us shall
separately pay our counsel fees and expenses.
(b) Equitable Remedies. I agree that it would be impossible or
------------------
inadequate to measure and calculate the Company's damages from any breach of the
covenants set forth in Sections 2, 3 and 5 herein. Accordingly, I agree that if
I breach any such Section, the Company will have available, in addition to any
other right or remedy available, the right to obtain an injunction from a court
of competent jurisdiction restraining such breach or threatened breach and to
specific performance of any such provision of this Agreement. I further agree
that no bond or other security shall be required in obtaining such equitable
relief and I hereby consent to the issuance of such injunction and to the
ordering of specific performance.
8. General Provisions.
------------------
(a) Governing Law; Consent to Personal Jurisdiction. This Agreement
-----------------------------------------------
will be governed by the laws of the State of California as they apply to
contracts entered into and wholly to be performed within such State. I hereby
expressly consent to the nonexclusive personal jurisdiction and venue of the
state and federal courts located in the federal Northern District of California
for any lawsuit filed there against me by the Company arising from or relating
to this Agreement.
(b) Entire Agreement. This Agreement sets forth the entire agreement
----------------
and understanding between the Company and me relating to the subject matter
herein and merges all prior discussions between us. No modification of or
amendment to this Agreement, nor any
-5-
<PAGE>
waiver of any rights under this Agreement, will be effective unless in writing
signed by the party to be charged. Any subsequent change or changes in my
duties, salary or compensation will not affect the validity or scope of this
Agreement.
(b) Severability. If one or more of the provisions in this Agreement
------------
are deemed void by law, then the remaining provisions will continue in full
force and effect.
-6-
<PAGE>
(c) Successors and Assigns. This Agreement will be binding upon my
----------------------
heirs, executors, administrators and other legal representatives and will be for
the benefit of the Company, its successors, and its assigns.
Date: _______________, 199__
----------------------------------------
Signature
----------------------------------------
Witness
Name (Print)
-7-
<PAGE>
EXHIBIT A
---------
CROSSWORLDS SOFTWARE, INC.
Conflict of Interest Guidelines
It is the policy of CrossWorlds Software, Inc. and its subsidiaries and
affiliates (together, the "Company") to conduct its affairs in strict compliance
-------
with the letter and spirit of the law and to adhere to the highest principles of
business ethics. Accordingly, all officers, employees and independent
contractors must avoid activities which are in conflict, or give the appearance
of being in conflict, with these principles and with the interests of the
Company. The following are potentially compromising situations which must be
avoided. Any exceptions must be reported to the President and written approval
for continuation must be obtained.
1. Revealing confidential information to outsiders or misusing
confidential information. Unauthorized divulging of information is a violation
of this policy whether or not for personal gain and whether or not harm to the
Company is intended. (The Employment, Confidential Information and Invention
Assignment Agreement elaborates on this principle and is a binding agreement.)
2. Accepting or offering substantial gifts, excessive entertainment,
favors or payments which may be deemed to constitute undue influence or
otherwise be improper or embarrassing to the Company.
3. Participating in civic or professional organizations that might involve
divulging confidential information of the Company.
4. Initiating or approving any form of personal or social harassment of
employees.
5. Investing or holding outside directorship in suppliers, customers, or
competing companies, including financial speculations, where such investment or
directorship might influence in any manner a decision or course of action of the
Company.
6. Borrowing from or lending to employees, customers or suppliers.
7. Acquiring real estate of interest to the Company.
8. Improperly using or disclosing to the Company any proprietary
information or trade secrets of any former or concurrent employer or other
person or entity with whom obligations of confidentiality exist.
9. Unlawfully discussing prices, costs, customers, sales or markets with
competing companies or their employees.
10. Making any unlawful agreement with distributors with respect to
prices.
<PAGE>
11. Improperly using or authorizing the use of any inventions which are
the subject of patent claims of any other person or entity.
12. Engaging in any conduct which is not in the best interest of the
Company.
Each officer, employee and independent contractor must take every necessary
action to ensure compliance with these guidelines and to bring problem areas to
the attention of higher management for review. Violations of this conflict of
interest policy may result in discharge without warning.
-9-
<PAGE>
EXHIBIT B
---------
CROSSWORLDS SOFTWARE, INC.
Termination Certificate
This is to certify that I do not have in my possession, nor have I failed
to return, any devices, records, data, notes, reports, proposals, lists,
correspondence, specifications, drawings, blueprints, sketches, materials,
equipment, other documents or property, or reproductions of any aforementioned
items belonging to CrossWorlds Software, Inc., its subsidiaries, affiliates,
successors or assigns (together, the "Company").
-------
I further certify that I have complied with all the terms of the Company's
Employment, Confidential Information and Invention Assignment Agreement signed
by me (the "Employee Agreement"), including the reporting of any inventions and
------------------
original works of authorship (as defined therein) conceived or made by me
(solely or jointly with others) covered by the Employee Agreement.
I further agree that, in compliance with the Employment Agreement, I will
preserve as confidential all trade secrets, confidential knowledge, data or
other proprietary information relating to products, processes, know-how,
designs, formulas, developmental or experimental work, computer programs, data
bases, other original works of authorship, customer lists, business plans,
financial information or other subject matter pertaining to any business of the
Company or any of its employees, clients, consultants or licensees.
I further agree that for twelve (12) months from this date, I shall not
solicit the employment of any person who shall then be employed by the Company
(as an employee or consultant) or who shall have been employed by the Company
(as an employee or consultant) within the prior twelve (12) month period, on
behalf of myself or any other person, firm, corporation, association or other
entity, directly or indirectly, all as provided more fully with the Employee
Agreement.
Date: ___________________, 199__
----------------------------------------
Signature
----------------------------------------
Name (Print)
<PAGE>
EXHIBIT 10.11
CROSSWORLDS SOFTWARE, INC.
SECURED LOAN AGREEMENT
----------------------
This Secured Loan Agreement (this "Agreement") is made as of November 15,
---------
1999 by and between CROSSWORLDS SOFTWARE, INC., a Delaware corporation (the
"Company"), and BARTON S. FOSTER and KATHERINE A. FOSTER (each individually, a
-------
"Borrower" and collectively, "Borrowers").
-------- ---------
BACKGROUND
----------
Borrowers desire to borrow from the Company, and the Company desires to
lend to Borrowers, an aggregate of $150,000 (the "Borrowed Amount"). The
---------------
parties desire that such loan shall be secured pursuant to a Security Agreement
of even date herewith (the "Security Agreement") by a third deed of trust on
------------------
Borrowers' principal residence located at 829 Crescent Avenue, San Mateo, CA
94401 ("Principal Residence") on the terms and conditions contained herein and
in the Security Agreement (the "Third Deed of Trust").
-------------------
AGREEMENT
---------
In consideration of the foregoing, and for other good and valuable
consideration, the receipt of which is hereby acknowledged, the parties agree as
follows:
1. Agreement to Lend. Subject to the terms and conditions contained in
-----------------
this Agreement and upon execution of this Agreement, the Company agrees to issue
to Borrowers or for Borrowers' account, at the Company's option, a check or
other readily available funds in the Borrowed Amount (the "Loan") upon the date
----
of this Agreement.
2. Promissory Note. In consideration of the Company's delivery of the
---------------
Borrowed Amount, Borrowers will execute a secured promissory note in the form
attached hereto as Exhibit A (the "Note"), in the principal amount of such
--------- ----
Borrowed Amount and bearing interest at a rate of 5.49% per annum, compounded
semiannually.
3. Repayment of Loan. Borrowers jointly and severally agree to repay in
-----------------
full the principal amount of the Loan on the terms and conditions specified in
the Note.
4. Borrower Covenants. Borrowers hereby covenant and agree for the
------------------
duration of this Agreement, the Loan and the Note to indemnify and hold the
Company harmless against any and all expenses (including attorneys' fees) and
all other costs, expenses and obligations arising from any liability related to
the Principal Residence.
5. Security Agreement. Borrowers will additionally execute the Security
------------------
Agreement in the form attached hereto as Exhibit B as security for Borrowers'
---------
obligation to
<PAGE>
repay the Borrowed Amount, and will deliver, or cause to be delivered, until the
termination of this Agreement, the Security Agreement and the Note, together
with such other documents of assignment and other documents as may be reasonably
requested by the Company. Borrowers shall also deliver, or cause to be
delivered, to the Company the Third Deed of Trust, each executed by Borrowers,
to be recorded by the Company (if it so elects) with the official records of the
county in which the Principal Residence is located in accordance with the terms
of the Security Agreement.
6. No Employment Rights. Nothing in this Agreement or the Note is
--------------------
intended or shall be construed to confer upon either Borrower any right to
employment or continued employment with the Company, or shall alter in any way
the nature of either Borrower's employment with the Company.
7. Miscellaneous.
-------------
(a) Successors and Assigns. The terms and conditions of this
----------------------
Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties. This Agreement may not be assigned by
Borrowers without the prior written consent of the Company. Nothing in this
Agreement, express or implied, is intended to confer upon any party other than
the parties hereto or their respective successors and assigns any rights,
remedies, obligations or liabilities under or by reason of this Agreement,
except as expressly provided in this Agreement.
(b) Governing Law. This Agreement and all acts and transactions
-------------
pursuant hereto and the rights and obligations of the parties hereto shall be
governed, construed and interpreted in accordance with the laws of the State of
California, without giving effect to the principles of conflicts of law of such
state.
(c) Severability. If one or more provisions of this Agreement are
------------
held to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith. In the event that the parties cannot reach a
mutually agreeable and enforceable replacement for such provision, then (i) such
provision shall be excluded from this Agreement, (ii) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (iii)
the balance of the Agreement shall be enforceable in accordance with its terms.
(d) Advice of Legal Counsel. Each party acknowledges and represents
-----------------------
that, in executing this Agreement, it has had the opportunity to seek advice as
to its legal rights from legal counsel and that the person signing on its behalf
has read and understood all of the terms and provisions of this Agreement. This
Agreement shall not be construed against any party by reason of the drafting or
preparation thereof.
(e) Counterparts. This Agreement may be executed in counterparts,
------------
each of which shall be deemed to be an original and all of which taken together
shall constitute one and the same instrument.
-2-
<PAGE>
The parties hereto have executed this Secured Loan Agreement as of the day
and year first above written.
CROSSWORLDS SOFTWARE, INC.
By: /s/ Mark R. Kent
_____________________________________
Name: Mark R. Kent
___________________________________
Title: SUP and CFO
__________________________________
Address: 577 Airport Boulevard
Suite 800
Burlingame, CA 94010
/s/ Barton Foster
_________________________________________
BARTON FOSTER
/s/ Katherine Foster
_________________________________________
KATHERINE FOSTER
Address: 829 Crescent Avenue
San Mateo, CA 94401
-3-
<PAGE>
EXHIBIT A
SECURED PROMISSORY NOTE
-----------------------
$150,000 November 15, 1999
Burlingame, California
FOR VALUE RECEIVED, BARTON S. FOSTER and KATHERINE A. FOSTER (each, a "Borrower"
--------
and collectively, "Borrowers") jointly and severally promise to pay to the order
---------
of CROSSWORLDS SOFTWARE, INC. (the "Company"), at its principal offices at 577
-------
Airport Boulevard, Suite 800, Burlingame, CA 94010, the principal sum of One
Hundred and Fifty Thousand Dollars ($150,000),with interest from the date hereof
at a rate of 5.49% per annum, compounded semiannually, on the unpaid balance of
such principal sum, upon the terms and conditions specified below. Capitalized
terms used but not otherwise defined herein shall have the meanings given to
such terms in that certain Secured Loan Agreement, dated as of November 15,
1999, by and between the Company and the Borrowers (the "Loan Agreement").
--------------
1. Payment. Borrowers jointly and severally promise to repay the
-------
principal and interest balance of this Note within ten days following the
earliest to occur of (A) the sale, conveyance, assignment, alienation or any
other form of transfer of the Borrowers' principal residence located at 829
Crescent Avenue, San Mateo, CA 94401, (B) the sale, conveyance, assignment,
alienation or any other form of transfer of any shares of the Company's Common
Stock purchased by Borrower pursuant to the exercise of stock options issued by
the Company (excluding transfers to family members or trusts that agree to be
bound by the term of this note and the Loan Agreement), provided however that
Borrowers' repayment obligation under this subsection (B) is limited to the
proceeds or value realized by Borrowers on the sale, conveyance, assignment,
alienation or other form of transfer of the Common Stock, (C) termination of Mr.
Foster's employment with the Company, or (D) November 15, 2001.
Any payment to be made on a date that is not a business day may be made
on the next business day thereafter. The records of the Company shall be
conclusive evidence of the unpaid principal balance hereof, and of all payments
made in respect thereof, absent manifest error.
2. Application of Payments. Each payment shall be made in lawful tender
-----------------------
of the United States. Prepayment of principal may be made at any time without
penalty. Borrowers agree that if payment becomes due as a result of termination
of Mr. Foster's employment with the Company, the Company shall offset from
Borrowers' salary, bonus, vacation pay or other amounts due to Borrowers from
the Company, any amount due and payable by Borrowers. Borrowers further agree
to execute the documentation prepared by the Company to effect any such offset.
-4-
<PAGE>
3. Events of Acceleration. The entire unpaid principal sum and accrued
----------------------
but unpaid interest of this Note shall become immediately due and payable upon
one or more of the following events:
A. the failure of Borrowers to make any payment of any amount due
hereunder and the continuation of such default for a period of ten (10) days or
more;
B. the insolvency of either Borrower, the commission of any act of
bankruptcy by a Borrower, the execution by a Borrower of a general assignment
for the benefit of creditors, the filing by or against a Borrower of any
petition in bankruptcy or any petition for relief under the provisions of the
federal bankruptcy act or any other state or federal law for the relief of
debtors and the continuation of such petition without dismissal for a period of
thirty (30) days or more, the appointment of a receiver or trustee to take
possession of any property or assets of a Borrower, or the attachment of or
execution against any property or assets of a Borrower;
C. the sale, transfer, mortgage, assignment, further encumbrance or
lease, whether voluntarily or involuntarily or by operation of law or otherwise
of the Principal Residence covered by the Third Deed of Trust, or any portion
thereof or interest therein, without the prior written consent of the Company;
D. the occurrence of any event of default under the Security
Agreement or the Third Deed of Trust securing this Note or any obligation
secured thereby; or
E. Borrowers are unable to provide additional collateral if required
by Section 2 of the Security Agreement.
4. Employment Requirement. The benefits of the interest arrangement under
----------------------
this Note are not transferable by Borrowers and are conditioned on the future
performance of substantial services by Mr. Foster. For purposes of applying the
provisions of this Note, Mr. Foster shall be considered to provide substantial
services to the Company for so long as he renders services as a full-time
employee of the Company or one or more of its subsidiaries.
5. Security. Payment of this Note shall be secured by the Third Deed of
--------
Trust on the Principal Residence under the terms of the Security Agreement and
is subject to all the provisions thereof. Borrowers, however, shall remain
personally liable for payment of this Note, and all of the assets of Borrowers
(including, but not limited to, shares of the Company's Common Stock), in
addition to the collateral under the Third Deed of Trust may be applied to the
satisfaction of Borrower's obligations hereunder. This Note is also subject to
the terms of the Loan Agreement.
6. Collection. If Borrowers fail to pay this Note as and when required
----------
hereunder, Borrowers promise to pay all costs and expenses (including reasonable
attorney fees) incurred in connection with any proceedings to collect such
amounts in default whether or not an action is instituted.
-5-
<PAGE>
7. Waiver. No previous waiver and no failure or delay by the Company in
------
acting with respect to the terms of this Note, the Third Deed of Trust or the
Loan Agreement shall constitute a waiver of any breach, default, or failure of
condition under this Note, the Third Deed of Trust, the Loan Agreement or the
obligations secured thereby. A waiver of any term of this Note, the Third Deed
of Trust, the Loan Agreement or of any of the obligations secured thereby must
be made in writing and shall be limited to the express terms of such waiver.
BORROWERS WAIVE PRESENTMENT; DEMAND; NOTICE OF DISHONOR; NOTICE OF DEFAULT OR
DELINQUENCY; NOTICE OF ACCELERATION; NOTICE OF PROTEST AND NONPAYMENT; NOTICE OF
COSTS, EXPENSES OR LOSSES AND INTEREST THEREON; NOTICE OF INTEREST ON INTEREST;
AND DILIGENCE IN TAKING ANY ACTION TO COLLECT ANY SUMS OWING UNDER THIS NOTE OR
IN PROCEEDING AGAINST ANY OF THE RIGHTS OR INTERESTS IN OR TO PROPERTIES
SECURING PAYMENT OF THIS NOTE.
9. Conflicting Agreements. In the event of any inconsistencies between
----------------------
the terms of this Note and the terms of any other document related to the loan
evidenced by the Note, the terms of this Note shall prevail.
10. Governing Law. This Note shall be construed in accordance with the
-------------
laws of the State of California, without giving effect to the principles of
conflicts of law of such state.
/s/ Barton Foster
___________________________________
Borrower: Barton Foster
/s/ Katherine Foster
___________________________________
Borrower: Katherine Foster
Address: 829 Crescent Avenue
San Mateo, CA 94401
-6-
<PAGE>
EXHIBIT B
---------
SECURITY AGREEMENT
------------------
This Security Agreement (this "Agreement") is made as of November 15, 1999
---------
by and between CROSSWORLDS SOFTWARE, INC., a California corporation (the
"Company"), and BARTON S. FOSTER and KATHERINE A. FOSTER (each individually, a
-------
"Borrower" and collectively, "Borrowers").
-------- ---------
RECITALS
--------
The Company has loaned or will loan to Borrowers, and Borrowers have
borrowed or will borrow from the Company, an aggregate of $150,000 (the
"Borrowed Amount"), which loan is or shall be evidenced by a promissory note
---------------
(the "Note") and is to be secured by a third deed of trust on Borrowers'
----
principal residence (the "Third Deed of Trust"). The form of Note and the
-------------------
obligations thereunder are as set forth in Exhibit A to the Secured Loan
---------
Agreement between the Company and Borrowers, dated the date hereof (the "Loan
----
Agreement").
- ---------
AGREEMENT
---------
In consideration of the foregoing, and for other good and valuable
consideration, the receipt of which is hereby acknowledged, the parties to this
Agreement agree as follows (all capitalized terms used herein but not otherwise
defined shall have the meaning assigned to such terms in the Loan Agreement):
1. Deed of Trust.
-------------
(a) In consideration of the Loan to Borrowers under the Loan
Agreement, and to secure the Borrowed Amount, Borrowers are delivering herewith
the Third Deed of Trust in form and substance approved by the Company and duly
executed by Borrowers and properly notarized. The Company may, if the Company
so elects, but without obligation to do so, at any time record the Third Deed of
Trust against Borrowers' principal residence, located at 829 Crescent Avenue,
San Mateo, CA 94401 (the "Principal Residence"), in the official records of the
-------------------
county in which the Principal Residence is located. Within five (5) days after
written demand, Borrowers shall furnish written evidence reasonably satisfactory
to the Company that (i) Borrowers hold good and marketable title to the
Principal Residence; (ii) there is no loan, deed of trust, mortgage or
encumbrance against the Principal Residence other than the first and second
deeds of trust held by Chase Manhattan Bank in the principal amounts of $620,000
and $75,000, respectively, (the "First and Second Deeds of Trust"); and (iii)
Borrowers are not in default under such First and Second Deeds of Trust or
related loan documents. Upon the sale, conveyance, assignment, alienation,
encumbrance or any other form of transfer of the Principal Residence, the Note
shall be immediately due and payable in full.
-7-
<PAGE>
2. Borrowers' Representations, Warranties and Covenants. To induce the
----------------------------------------------------
Company to enter into this Agreement, Borrowers represent, warrant and covenant
to the Company, its successors and assigns, as follows:
(a) Borrowers will jointly and severally pay the principal sum of the
Note secured hereby, together with interest thereon, and perform all other
obligations required of the Borrowers under the Loan Agreement at the time and
in the manner provided therein.
(b) Borrowers have good and marketable title to the Principal
Residence free and clear of all security interests, liens, encumbrances and
rights of others other than the First and Second Deeds of Trust constituting
first and second liens against the Principal Residence and the Third Deed of
Trust. When duly executed, delivered and recorded in the official land records
of the county in which the Principal Residence is located, the Third Deed of
Trust will constitute a valid, perfected security interest in the Principal
Residence, prior to all monetary liens or encumbrances other than the First and
Second Deeds of Trust.
(c) The consent of no other party or entity is required to grant the
security interest in the Principal Residence (the "Existing Property") as
-----------------
provided for in this Agreement. The creation of the security interest
referenced herein, and performance of the obligations of Borrowers hereunder,
will not violate or cause a conflict with any other agreement to which Borrowers
are parties, or to which the Principal Residence is subject. Borrowers will
perform all obligations of Borrowers in connection with the First and Second
Deeds of Trust (and related documents), and a default thereunder will constitute
a default hereunder.
(d) Other than the First and Second Deeds of Trust and the Third Deed
of Trust, there are no security interests or liens on the Existing Property that
could be perfected or obtained by filing a financing statement or notice with
any state filing office.
(e) There are no actions, proceedings, claims or disputes pending or,
to Borrowers' knowledge, threatened against or affecting Borrowers or the
Existing Property except as disclosed to the Company in writing prior to the
date of this Agreement.
(f) Borrowers shall not sell, convey, assign, alienate, further
encumber or otherwise transfer the Principal Residence, or enter into any
contract or other agreement to sell, convey, assign, alienate, encumber or
otherwise transfer the Principal Residence or any interest therein without the
prior written consent of the Company.
3. Default. Borrowers shall be deemed to be in default of the Note and
-------
of this Agreement in the event:
(a) Payment of principal or interest on the Note shall be delinquent
for a period of 10 days or more; or
(b) Borrowers fail to perform any of the covenants contained in the
Loan Agreement (including exhibits thereto) for a period of 10 days after
written notice thereof from the Company; or
-8-
<PAGE>
(c) Borrowers' representations and warranties to the Company contained
in this Agreement or the Third Deed of Trust were untrue or incorrect as of the
date of funding of the Loan Agreement; or
(d) Any default under the First and Second Deeds of Trust.
4. Remedies in the Event of Default. In the case of an event of
--------------------------------
default, as set forth above, the Company shall have the right to accelerate
payment of the Note upon notice to Borrowers, and shall thereafter be entitled
to pursue any or all of its remedies under applicable law, including, without
limitation, (a) offsetting from Borrowers' salary, bonuses, vacation pay or
other amounts due to Borrowers from the Company, any amount due and payable by
Borrowers under the Note, and/or (b) proceeding against the Principal Residence
under the Third Deed of Trust.
5. Insolvency. Borrowers agree that if a bankruptcy or insolvency
----------
proceeding is instituted by or against either Borrower, or if a receiver is
appointed for the property of either Borrower, or if either Borrower makes an
assignment for the benefit of creditors, the entire amount unpaid on the Note
shall become immediately due and payable, and the Company may proceed as
provided in the case of default.
6. Miscellaneous.
-------------
(a) Successors and Assigns. The terms and conditions of this
----------------------
Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties. Nothing in this Agreement, express or
implied, is intended to confer upon any party other than the parties hereto or
their respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
(b) Governing Law. This Agreement and all acts and transactions
-------------
pursuant hereto and the rights and obligations of the parties hereto shall be
governed, construed and interpreted in accordance with the laws of the State of
California, without giving effect to principles of conflicts of law.
(c) Notices. Any notice required or permitted by this Agreement shall
-------
be in writing and shall be deemed sufficient upon receipt, when delivered
personally or by a nationally-recognized delivery service (such as Federal
Express or UPS) or confirmed facsimile, or forty-eight (48) hours after being
deposited in the U.S. mail as certified or registered mail with postage prepaid,
if such notice is addressed to the party to be notified at such party's address
or facsimile number as set forth below, or as subsequently modified by written
notice.
(d) Severability. If one or more provisions of this Agreement are
------------
held to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith. In the event that the parties cannot reach a
mutually agreeable and enforceable replacement for such provision, then (i) such
provision shall be excluded from this Agreement, (ii) the balance of
-9-
<PAGE>
the Agreement shall be interpreted as if such provision were so excluded and
(iii) the balance of the Agreement shall be enforceable in accordance with its
terms.
(e) Advice of Legal Counsel. Each party acknowledges and represents
-----------------------
that, in executing this Agreement, it has had the opportunity to seek advice as
to its legal rights from legal counsel and that the person signing on its behalf
has read and understood all of the terms and provisions of this Agreement. This
Agreement shall not be construed against any party by reason of the drafting or
preparation thereof.
The parties hereto have executed this Security Agreement as of the day and
year first above written.
BARTON S. FOSTER
/s/ Barton Foster
_________________________________________
(Signature)
KATHERINE A. FOSTER
/s/ Katherine Foster
_________________________________________
(Signature)
Address: 829 Crescent Avenue
Burlingame, CA 94401
CROSSWORLDS SOFTWARE, INC.
By: /s/ Mark R. Kent
_____________________________________
Title: SVP and CFO
----------------------------------
-10-
<PAGE>
ADDENDUM TO SECURED PROMISSORY NOTE
The following shall constitute an Addendum to the Secured Promissory Note
executed by Barton S. Foster and Katherine A. Foster (collectively, "Borrowers")
on November 15, 1999.
RECITALS
A. On November 15, 1999, Borrowers executed a Secured Promissory Note in
the amount of $150,000.00 payable to the order of CrossWorlds Software, Inc.
(the "Company"), a copy of which is attached as Exhibit A to this Addendum (the
---------
"Note").
B. On January 27, 2000, the Board of the Directors of the Company approved
the amendment of certain terms of the Note pertaining to forgiveness of
principal and accrued over the course of Barton Foster's continued employment
with the Company. In connection with this amendment and in accordance with
applicable tax law, the interest rate on the Note shall increase to 5.88%,
compounded annually. All other provisions of the Note that are not modified by
this Addendum remain in full force and effect.
NOW, THEREFORE, pursuant to the terms of the Note, and in consideration of
the mutual promises, covenants and conditions hereinafter set forth, the parties
hereto mutually agree as follows:
1. Subsection 1 of the Note is hereby amended such that Section 1 now
provides in its entirety as follows:
"Payment. Borrowers jointly and severally promise to repay the principal
-------
and interest balance of this Note within ten days following the earliest to
occur of (A) the sale, conveyance, assignment, alienation or any other form of
transfer of the Borrowers' principal residence located at 829 Crescent Avenue,
San Mateo, CA 94401, (B) the sale, conveyance, assignment, alienation or any
other form of transfer of any shares of the Company's Common Stock purchased by
Borrower pursuant to the exercise of stock options issued by the Company
(excluding transfers to family members or trusts that agree to be bound by the
term of this note and the Loan Agreement), provided however that Borrowers'
repayment obligation under this subsection (B) is limited to the proceeds or
value realized by Borrowers on the sale, conveyance, assignment, alienation or
other form of transfer of the Common Stock, (C) termination of Mr. Foster's
employment with the Company, or (D) November 15, 2001. So long as Mr. Foster
remains an employee of the Company, the Company shall forgive the principal and
accrued interest of this Note over the course of two (2) years, according to the
following schedule: 1/24 of the principal and accrued interest on the first day
of each month, commencing February 1, 2000. In the event of a Change of Control
of the Company (as defined below) prior to February 1, 2002, the Company shall
accelerate the forgiveness of the then remaining unpaid balance owing on this
Note so that this Note is forgiven in full as of the effective date of the
transaction. For purposes of this Note, a Change of Control shall mean a sale
of all or substantially all of the Company's assets, or a merger, consolidation
or other capital reorganization of the Company with or into another corporation,
or any other transaction or series of related transactions in which the
1
<PAGE>
Company's stockholders immediately prior thereto own less than 50% of the voting
stock of the Company (or its successor or parent) immediately thereafter.
Any payment to be made on a date that is not a business day may be made on
the next business day thereafter. The records of the Company shall be
conclusive evidence of the unpaid principal balance hereof, and of all payments
made in respect thereof, absent manifest error."
2. Entire Agreement. Section 1 of the Note is modified by the provisions
----------------
of this Addendum and the interest rate accruing on the Note is increased to
5.88%, compounded annually. Except as so modified, the Note shall remain in
full force and effect. In the event of any conflict between this Addendum and
the Note, this Addendum shall govern. This Addendum and the Note (together with
the Secured Loan Agreement and Security Agreement executed by Borrowers in
connection with the Note, both of which are part of Exhibit A attached hereto)
---------
constitute the entire agreement between Borrowers and the Company regarding the
subject matter hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Addendum to be duly
executed as of the day and year written below.
CROSSWORLDS SOFTWARE, INC.
By: /s/ Alfred J. Amoroso
_______________________________
Title: Chief Executive Officer
____________________________
Date: January 27, 2000
_____________________________
Barton S. Foster
/s/ Barton Foster
___________________________________
Borrower: Barton Foster
Katherine A. Foster
/s/ Katherine Foster
_______________________________
Borrower: Katherine Foster
Date: January 27, 2000
2
<PAGE>
EXHIBIT A
SECURED PROMISSORY NOTE
-----------------------
$150,000 November 15, 1999
Burlingame, California
FOR VALUE RECEIVED, BARTON S. FOSTER and KATHERINE A. FOSTER (each, a "Borrower"
--------
and collectively, "Borrowers") jointly and severally promise to pay to the order
---------
of CROSSWORLDS SOFTWARE, INC. (the "Company"), at its principal offices at 577
-------
Airport Boulevard, Suite 800, Burlingame, CA 94010, the principal sum of One
Hundred and Fifty Thousand Dollars ($150,000),with interest from the date hereof
at a rate of 5.49% per annum, compounded semiannually, on the unpaid balance of
such principal sum, upon the terms and conditions specified below. Capitalized
terms used but not otherwise defined herein shall have the meanings given to
such terms in that certain Secured Loan Agreement, dated as of November 15,
1999, by and between the Company and the Borrowers (the "Loan Agreement").
--------------
1. Payment. Borrowers jointly and severally promise to repay the
-------
principal and interest balance of this Note within ten days following the
earliest to occur of (A) the sale, conveyance, assignment, alienation or any
other form of transfer of the Borrowers' principal residence located at 829
Crescent Avenue, San Mateo, CA 94401, (B) the sale, conveyance, assignment,
alienation or any other form of transfer of any shares of the Company's Common
Stock purchased by Borrower pursuant to the exercise of stock options issued by
the Company (excluding transfers to family members or trusts that agree to be
bound by the term of this note and the Loan Agreement), provided however that
Borrowers' repayment obligation under this subsection (B) is limited to the
proceeds or value realized by Borrowers on the sale, conveyance, assignment,
alienation or other form of transfer of the Common Stock, (C) termination of Mr.
Foster's employment with the Company, or (D) November 15, 2001.
Any payment to be made on a date that is not a business day may be made
on the next business day thereafter. The records of the Company shall be
conclusive evidence of the unpaid principal balance hereof, and of all payments
made in respect thereof, absent manifest error.
2. Application of Payments. Each payment shall be made in lawful tender
-----------------------
of the United States. Prepayment of principal may be made at any time without
penalty. Borrowers agree that if payment becomes due as a result of termination
of Mr. Foster's employment with the Company, the Company shall offset from
Borrowers' salary, bonus, vacation pay or other amounts due to Borrowers from
the Company, any amount due and payable by Borrowers. Borrowers further agree
to execute the documentation prepared by the Company to effect any such offset.
<PAGE>
3. Events of Acceleration. The entire unpaid principal sum and accrued
----------------------
but unpaid interest of this Note shall become immediately due and payable upon
one or more of the following events:
A. the failure of Borrowers to make any payment of any amount due
hereunder and the continuation of such default for a period of ten (10) days or
more;
B. the insolvency of either Borrower, the commission of any act of
bankruptcy by a Borrower, the execution by a Borrower of a general assignment
for the benefit of creditors, the filing by or against a Borrower of any
petition in bankruptcy or any petition for relief under the provisions of the
federal bankruptcy act or any other state or federal law for the relief of
debtors and the continuation of such petition without dismissal for a period of
thirty (30) days or more, the appointment of a receiver or trustee to take
possession of any property or assets of a Borrower, or the attachment of or
execution against any property or assets of a Borrower;
C. the sale, transfer, mortgage, assignment, further encumbrance or
lease, whether voluntarily or involuntarily or by operation of law or otherwise
of the Principal Residence covered by the Third Deed of Trust, or any portion
thereof or interest therein, without the prior written consent of the Company;
D. the occurrence of any event of default under the Security
Agreement or the Third Deed of Trust securing this Note or any obligation
secured thereby; or
E. Borrowers are unable to provide additional collateral if required
by Section 2 of the Security Agreement.
4. Employment Requirement. The benefits of the interest arrangement under
----------------------
this Note are not transferable by Borrowers and are conditioned on the future
performance of substantial services by Mr. Foster. For purposes of applying the
provisions of this Note, Mr. Foster shall be considered to provide substantial
services to the Company for so long as he renders services as a full-time
employee of the Company or one or more of its subsidiaries.
5. Security. Payment of this Note shall be secured by the Third Deed of
--------
Trust on the Principal Residence under the terms of the Security Agreement and
is subject to all the provisions thereof. Borrowers, however, shall remain
personally liable for payment of this Note, and all of the assets of Borrowers
(including, but not limited to, shares of the Company's Common Stock), in
addition to the collateral under the Third Deed of Trust may be applied to the
satisfaction of Borrower's obligations hereunder. This Note is also subject to
the terms of the Loan Agreement.
6. Collection. If Borrowers fail to pay this Note as and when required
----------
hereunder, Borrowers promise to pay all costs and expenses (including reasonable
attorney fees) incurred in connection with any proceedings to collect such
amounts in default whether or not an action is instituted.
<PAGE>
7. Waiver. No previous waiver and no failure or delay by the Company in
------
acting with respect to the terms of this Note, the Third Deed of Trust or the
Loan Agreement shall constitute a waiver of any breach, default, or failure of
condition under this Note, the Third Deed of Trust, the Loan Agreement or the
obligations secured thereby. A waiver of any term of this Note, the Third Deed
of Trust, the Loan Agreement or of any of the obligations secured thereby must
be made in writing and shall be limited to the express terms of such waiver.
BORROWERS WAIVE PRESENTMENT; DEMAND; NOTICE OF DISHONOR; NOTICE OF DEFAULT OR
DELINQUENCY; NOTICE OF ACCELERATION; NOTICE OF PROTEST AND NONPAYMENT; NOTICE OF
COSTS, EXPENSES OR LOSSES AND INTEREST THEREON; NOTICE OF INTEREST ON INTEREST;
AND DILIGENCE IN TAKING ANY ACTION TO COLLECT ANY SUMS OWING UNDER THIS NOTE OR
IN PROCEEDING AGAINST ANY OF THE RIGHTS OR INTERESTS IN OR TO PROPERTIES
SECURING PAYMENT OF THIS NOTE.
9. Conflicting Agreements. In the event of any inconsistencies between
----------------------
the terms of this Note and the terms of any other document related to the loan
evidenced by the Note, the terms of this Note shall prevail.
10. Governing Law. This Note shall be construed in accordance with the
-------------
laws of the State of California, without giving effect to the principles of
conflicts of law of such state.
/s/ Barton Foster
___________________________________
Borrower: Barton Foster
/s/ Katherine Foster
___________________________________
Borrower: Katherine Foster
Address: 829 Crescent Avenue
San Mateo, CA 94401
<PAGE>
Exhibit 10.15
LEASE AGREEMENT
between
BAY PARK PLAZA ASSOCIATES, L.P.
as "Landlord"
and
CROSSROADS SOFTWARE, INC.
as "Tenant"
<PAGE>
TABLE OF CONTENTS
SECTION PAGE
- ------- ----
1. PREMISES ............................................................. 4
2. TERM; POSSESSION ..................................................... 4
3. RENT ................................................................. 4
4. SECURITY DEPOSIT ..................................................... 8
5. USE AND COMPLIANCE WITH LAWS ......................................... 8
6. ALTERATIONS .......................................................... 11
7. MAINTENANCE AND REPAIRS .............................................. 12
8. TENANT'S TAXES ....................................................... 13
9. UTILITIES AND SERVICES ............................................... 14
10. EXCULPATION AND INDEMNIFICATION ...................................... 15
11. INSURANCE ............................................................ 15
12. DAMAGE OR DESTRUCTION ................................................ 17
13. CONDEMNATION ......................................................... 19
14. ASSIGNMENT AND SUBLETTING ............................................ 20
15. DEFAULT AND REMEDIES ................................................. 23
16. LATE CHARGE AND INTEREST ............................................. 24
17. WAIVER ............................................................... 25
18. ENTRY, INSPECTION AND CLOSURE ........................................ 25
19. SURRENDER AND HOLDING OVER ........................................... 26
20. ENCUMBRANCES ......................................................... 26
21. ESTOPPEL CERTIFICATES AND FINANCIAL STATEMENTS ....................... 27
22. NOTICES .............................................................. 28
23. ATTORNEY'S FEES ...................................................... 28
24. QUIET POSSESSION...................................................... 28
25. SECURITY MEASURES .................................................... 28
26. FORCE MAJEURE ........................................................ 29
27. RULES AND REGULATIONS ................................................ 29
28. LANDLORD'S LIABILITY ................................................. 29
29. CONSENTS AND APPROVALS ............................................... 29
30. BROKERS .............................................................. 30
32. ENTIRE AGREEMENT ..................................................... 30
33. MISCELLANEOUS ........................................................ 31
34. AUTHORITY ............................................................ 31
35. CONDITION ............................................................ 31
i
<PAGE>
INDEX OF DEFINED TERMS
Additional Rent .............................................................7
Alterations ................................................................11
Award ...................................................................19
Base Operating Costs ........................................................5
Base Taxes ..................................................................5
Broker .....................................................................30
Building ....................................................................4
Building Rules .............................................................29
Building Systems ............................................................9
Business Days ..............................................................14
Business Hours .............................................................14
Claims ...................................................................15
Commencement Date ...........................................................4
Condemnation ...............................................................19
Condemnor ..................................................................19
Construction Rider ..................................................Exhibit B
Controls ...................................................................13
Date of Condemnation .......................................................19
Encumbrance ................................................................26
Environmental Losses ........................................................9
Environmental Requirements ..................................................9
Event of Default ...........................................................23
Expiration Date .............................................................4
Handled by Tenant ...........................................................9
Handling by Tenant ..........................................................9
Hazardous Materials .........................................................9
HVAC ........................................................................9
Interest Rate ..............................................................25
Land ........................................................................4
Landlord ....................................................................4
Laws ........................................................................5
Lease Year ..................................................................4
Mortgagee ................................................................20.2
Operating Costs .............................................................5
Parking Facility ............................................................4
Permitted Hazardous Materials ..............................................10
Premises ....................................................................4
Project .....................................................................4
Property ....................................................................4
Property Manager ...........................................................16
Rental Tax ..................................................................3
Representatives .............................................................9
Scheduled Commencement Date .................................................4
ii
<PAGE>
Service Failure ...........................................................14
Taxes ......................................................................6
Tenant .....................................................................4
Tenant Improvements ................................................Exhibit B
Tenant's Share .............................................................6
Tenant's Taxes ............................................................13
Term .......................................................................4
Trade Fixtures ............................................................12
Transfer ..................................................................20
Transferee ................................................................20
Visitors ...................................................................9
iii
<PAGE>
EXHIBIT 10.15
BASIC LEASE INFORMATION
Lease Date: For identification purposes only, the date of this
Lease is December 6, 1996.
Landlord: Bay Park Plaza Associates, L.P., a California limited
partnership
Tenant: CrossRoads Software, Inc., a Delaware corporation
Project: Bay Park Plaza
Building: 577 Airport Boulevard, Burlingame, CA 94010
Rentable Area of
Building: 139,900
Premises: Floor: 8th
Suite Number: 800
Rentable area: 17,927 square feet
Term: 60 Months (plus any partial month at the beginning of
the Term)
Scheduled
Commencement Date: February 1, 1997
Expiration Date: January 31, 2002
Base Rent: Months Monthly Rent $/rsf/month
------ ------------ -----------
1-12 $43,024.80 $2.40/rsf/mo.
13-24 $44,817.50 $2.50/rsf/mo.
25-36 $46,610.20 $2.60/rsf/mo.
37-48 $48,402.90 $2.70/rsf/mo.
49-60 $50,195.60 $2.80/rsf/mo.
Base Year: The calendar year 1997
Tenant's Share: 12.81%
Security Deposit: Forty Six Thousand, Six Hundred and Ten Dollars
($46,610.00)
1
<PAGE>
Landlord's Address Bay Park Plaza Associates, L.P.
for Payment of Rent: c/o William Wilson & Associates
File 72845
P.O. Box 61000
San Francisco, CA 94160-2968
with a copy to:
Bay Park Plaza Associates, L.P.
c/o William Wilson & Associates
577 Airport Boulevard, Suite 150
Burlingame, CA 94010
Business Hours: 8:00 a.m. to 7:00 p.m., Monday - Friday, holidays
excluded
Standard Electrical
Usage: .6 kilowatt-hours per rentable square foot per month
during Business Hours as defined above
Landlord's Address Bay Park Plaza Associates L.P.
for Notices: c/o William Wilson & Associates
1350 Old Bayshore
Burlingame, CA 94010
with a copy to:
Bay Park Plaza Associates L.P.
c/o William Wilson & Associates
2929 Campus Drive, Suite 450
San Mateo, CA 94403
Tenant's Address 577 Airport Boulevard, Suite 800
for Notices: Burlingame, CA 94010
Broker(s): Cornish & Carey Commercial
Guarantor(s): n/a
Property Manager: William Wilson & Associates
2
<PAGE>
Additional Provisions: Parking
Letter of Credit
Warrants
Renewal Option
Exhibits:
- --------
Exhibit A: The Premises
Exhibit B: Construction Rider
Exhibit C: Building Rules
Exhibit D: Additional Provisions
The Basic Lease Information set forth above is part of the Lease and
capitalized terms shall be defined terms in the Lease. In the event of any
conflict between any Basic Lease Information and the Lease, the Lease shall
control.
3
<PAGE>
THIS LEASE is made as of the Lease Date set forth in the Basic Lease
Information, by and between the Landlord identified in the Basic Lease
Information ("Landlord"), and the Tenant identified in the Basic Lease
Information ("Tenant"). Landlord and Tenant hereby agree as follows:
1. PREMISES. Landlord hereby leases to Tenant, and Tenant hereby leases from
Landlord, upon the terms and subject to the conditions of this Lease, the office
space identified in the Basic Lease Information (the "Premises"), in the
Building identified in the Basic Lease Information (the "Building"). The
approximate configuration and location of the Premises is shown on Exhibit A.
---------
Landlord and Tenant agree that the rentable area of the Premises for all
purposes under this Lease shall be the Rentable Area specified in the Basic
Lease Information. The Project identified in the Basic Lease Information (the
"Project") includes the Building, the parking facilities serving the Building
(the "Parking Facility"), and the parcel(s) of Land on which the Building and
the Parking Facility are situated (the "Land"). The Building, the Parking
Facility and the Land are sometimes collectively referred to in this Lease as
the Property.
2. TERM; POSSESSION. The term of this Lease (the "Term") shall commence on the
Commencement Date as described below and, unless sooner terminated, shall expire
on the Expiration Date set forth in the Basic Lease Information (the "Expiration
Date"). The "Commencement Date" shall be the earlier of (a) February 1, 1997 or
(b) any earlier date upon which Tenant, with Landlord's written permission,
actually occupies and conducts business in any portion of the Premises. The
parties anticipate that the Commencement Date will occur on or about the
Scheduled Commencement Date set forth in the Basic Lease Information (the
"Scheduled Commencement Date"). When the Commencement Date has been established,
Landlord and Tenant shall confirm the Commencement Date and Expiration Date in
writing. As used in this Lease, the first "Lease Year" shall be the period from
(and including) the Commencement Date through (and including) the last day of
the calendar month in which the first anniversary of the Commencement Date
falls, and each period of twelve full consecutive calendar months thereafter
shall be a subsequent Lease Year.
3. RENT.
3.1 Base Rent. Tenant agrees to pay to Landlord the Base Rent set forth in
---------
the Basic Lease Information, without prior notice or demand, on the first day of
each and every calendar month during the Term, except that Base Rent for the
first full calendar month in which Base Rent is payable shall be paid upon
execution of this Lease and Base Rent for any partial month at the beginning of
the Term shall be paid on the Commencement Date. Base Rent for any partial month
at the beginning or end of the Term shall be prorated based on the actual number
of days in the month.
4
<PAGE>
3.2 Additional Rent: Increases in Operating Costs and Taxes.
--------------------------------------------------------
(a) Definitions.
------------
(1) "Base Operating Costs" means Operating Costs for the calendar
year specified as the Base Year in the Basic Lease Information (excluding
therefrom, however, any Operating Costs of a nature that would not ordinarily be
incurred on an annual, recurring basis).
(2) "Base Taxes" means Taxes for the calendar year specified as the
Base Year in the Basic Lease Information.
(3) "Operating Costs" means all costs of managing, operating,
maintaining and repairing the Property, including all costs, expenditures, fees
and charges for: (A) operation, maintenance and repair of the Property
(including maintenance, repair and replacement of glass, the roof coveting or
membrane, and landscaping); (B) utilities and services (including
telecommunications facilities and equipment, recycling programs and trash
removal), and associated supplies and materials; (C) compensation (including
employment taxes and fringe benefits) for persons (below the level of building
manager) who perform duties in connection with the operation, maintenance and
repair of the Building, such compensation to be appropriately allocated for
persons who also perform duties unrelated to the Building; (D) property
(including coverage for earthquake and flood if carded by Landlord), liability,
rental income and other insurance relating to the Property, and expenditures for
deductible amounts paid under such insurance, which shall be charged in the
manner set forth in clause (G) below if the cost incurred is one which would
normally be capitalized; (E) licenses, permits and inspections; (F) complying
with the requirements of any law, statute, ordinance or governmental rule or
regulation or any orders pursuant thereto (collectively "Laws") which shall be
charged in the manner set forth in clause (G) below if the cost incurred is one
which would normally be capitalized; (G) amortization of capital improvements or
repairs which would normally be capitalized under generally accepted accounting
practices required to comply with Laws, or which are intended to reduce
Operating Costs or improve the utility, efficiency or capacity of any Building
System, with interest on the unamortized balance at the rate paid by Landlord on
funds borrowed to finance such capital improvements (or, if Landlord finances
such improvements out of Landlord's funds without borrowing, the rate that
Landlord would have paid to borrow such funds, as reasonably determined by
Landlord), over such useful life as Landlord shall reasonably determine; (H) an
office in the Project for the management of the Property, including expenses of
furnishing and equipping such office and the rental value of any space occupied
for such purposes; (I) property management fees which shall not exceed those
commercially reasonable fees which would be charged by a reputable third party
property manager; (J) accounting, legal and other professional services incurred
in connection with the operation of the Property which benefit the Premises
and/or the common areas and the calculation of Operating Costs and Taxes; (K) a
reasonable allowance for depreciation on machinery and equipment used to
maintain the Property and on other personal property owned by Landlord in the
Property (including window coverings and carpeting in common areas), provided
that such machinery, equipment and/or personal property benefit the Premises
and/or the common areas; (L) contesting the validity or applicability of any
Laws that may affect the Premises and/or the common areas; (M) the Building's
share of any shared or common area maintenance fees and expenses; and (N) any
other expense or charge, whether or not hereinbefore described, which in
accordance with generally
5
<PAGE>
accepted property management practices would be considered an expense of
managing, operating, maintaining and repairing the Property. Operating Costs for
any year (including, without limitation the Base Year) during which average
occupancy of the Building is less than one hundred percent (100%) shall be
calculated based upon the Operating Costs that would have been incurred if the
Building had an average occupancy of one hundred percent (100%) during the
entire calendar year.
Operating Costs shall not include (i) capital improvements (except as
otherwise provided above); (ii) costs of special services rendered to individual
tenants (including Tenant) for which a special charge is made; (iii) interest
and principal payments on loans or indebtedness secured by the Building; (iv)
costs of improvements for Tenant or other tenants of the Building; (v) costs of
services or other benefits of a type which are not available to Tenant but which
are available to other tenants or occupants, and costs for which Landlord is
reimbursed by other tenants of the Building other than through payment of
tenants' shares of increases in Operating Costs and Taxes; (vi) leasing
commissions, attorneys' fees and other expenses incurred in connection with
leasing space in the Building or enforcing such leases; (vii) depreciation or
amortization, other than as specifically enumerated in the definition of
Operating Costs above; (viii) costs, fines or penalties incurred due to
Landlord's violation of any Law; and (ix) any costs or expenses incurred with
respect to Hazardous Materials, except to the extent the presence of such
Hazardous Materials in, on, under or about the Premises or Property was caused
by Tenant or Tenant's employees, agents, contractors or invitees.
(4) "Taxes" means: all real property taxes and general, special or
district assessments or other governmental impositions, of whatever kind, nature
or origin, imposed on or by reason of the ownership or use of the Property;
governmental charges, fees or assessments for transit or traffic mitigation
(including area-wide traffic improvement assessments and transportation system
management fees), housing, police, fire or other governmental service or
purported benefits to the Property; personal property taxes assessed on the
personal property of Landlord used in the operation of the Property; service
payments in lieu of taxes and taxes and assessments of every kind and nature
whatsoever levied or assessed in addition to, in lieu of or in substitution for
existing or additional real or personal property taxes on the Property or the
personal property described above; any increases in the foregoing caused by
changes in assessed valuation, tax rate or other factors or circumstances; and
the reasonable cost of contesting by appropriate proceedings the amount or
validity of any taxes, assessments or charges described above. To the extent
paid by Tenant or other tenants as "Tenant's Taxes" (as defined in Section 8 -
Tenant's Taxes), "Tenant's Taxes" shall be excluded from Taxes. The term "Taxes"
shall not include any inheritance taxes or federal or state income taxes of
Landlord.
(5) "Tenant's Share" means the Rentable Area of the Premises
divided by the total Rentable Area of the Building, as set forth in the Basic
Lease Information. If the Rentable Area of the Building is changed or the
Rentable Area of the Premises is changed by Tenant's leasing of additional space
hereunder or for any other reason, Tenant's Share shall be adjusted accordingly.
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(b) Additional Rent.
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(1) Tenant shall pay Landlord as "Additional Rent" for each
calendar year or portion thereof during the Term Tenant's Share of the sum of
(x) the amount (if any) by which Operating Costs for the period exceed Base
Operating Costs, and (y) the amount (if any) by which Taxes for such period
exceed Base Taxes.
(2) Prior to the end of the Base Year and each calendar year
thereafter, Landlord shall notify Tenant of Landlord's estimate of Operating
Costs, Taxes and Tenant's Additional Rent for the following calendar year.
Commencing on the first day of January of each calendar year and continuing on
the first day of every month thereafter in such year, Tenant shall pay to
Landlord one-twelfth (1/12th) of the estimated Additional Rent. If Landlord
thereafter estimates that Operating Costs or Taxes for such year will vary from
Landlord's prior estimate, Landlord may, by notice to Tenant, revise the
estimate for such year (and Additional Rent shall thereafter be payable based on
the revised estimate).
(3) As soon as reasonably practicable after the end of the Base
Year and each calendar year thereafter, Landlord shall furnish Tenant a
statement with respect to such year, showing Operating Costs, Taxes and
Additional Rent for the year, and the total payments made by Tenant with respect
thereto. Unless Tenant raises any objections to Landlord's statement within
ninety (90) days after receipt of the same, such statement shall conclusively be
deemed correct and Tenant shall have no right thereafter to dispute such
statement or any item therein or the computation of Additional Rent based
thereon. If Tenant does object to such statement, Landlord shall provide Tenant
with reasonable verification of the figures shown on the statement and the
parties shall negotiate in good faith to resolve any disputes. Any objection of
Tenant to Landlord's statement and resolution of any dispute shall not postpone
the time for payment of any amounts due Tenant or Landlord based on Landlord's
statement, nor shall any failure of Landlord to deliver Landlord's statement in
a timely manner relieve Tenant of Tenant's obligation to pay any amounts due
Landlord based on Landlord's statement.
(4) If Tenant's Additional Rent as finally determined for the year
exceeds the total payments made by Tenant on account thereof, Tenant shall pay
Landlord the deficiency within ten (10) days of Tenant's receipt of Landlord's
statement. If the total payments made by Tenant on account thereof exceed
Tenant's Additional Rent as finally determined for the year, Tenant's excess
payment shall be credited toward the rent next due from Tenant under this Lease.
For any partial calendar year at the beginning or end of the Term, Additional
Rent shall be prorated on the basis of a 365-day year by computing Tenant's
Share of the increases in Operating-Costs and Taxes for the entire year and then
prorating such amount for the number of days during such year included in the
Tenn. Notwithstanding the termination of this Lease, Landlord shall pay to
Tenant or Tenant shall pay to Landlord, as the case may be, within ten (10) days
after Tenant's receipt of Landlord's final statement for the calendar year in
which this Lease terminates, the difference between Tenant's Additional Rent for
that year, as finally determined by Landlord, and the total amount previously
paid by Tenant on account thereof.
If for any reason Base Taxes or Taxes for any year during the Term are
reduced, refunded or otherwise changed, Tenant's Additional Rent shall be
adjusted accordingly. If Taxes are
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temporarily reduced as a result of space in the Building being leased to a
tenant that is entitled to an exemption from property taxes or other taxes, then
for purposes of determining Additional Rent for each year in which Taxes are
reduced by any such exemption, Taxes for such year shall be calculated on the
basis of the amount the Taxes for the year would have been in the absence of the
exemption. The obligations of Landlord to refund any overpayment of Additional
Rent and of Tenant to pay any Additional Rent not previously paid shall survive
the expiration of the Term. Notwithstanding anything to the contrary in this
Lease, if there is at any time a decrease in Taxes below the amount of the Taxes
for the Base Year, then for purposes of calculating Additional Rent for the year
in which such decrease occurs and all subsequent periods, Base Taxes shall be
reduced to equal the Taxes for the year in which the decrease occurs.
3.3 Payment of Rent. All amounts payable or reimbursable by Tenant under
---------------
this Lease, including late charges and interest, shall constitute rent and shall
be payable and recoverable as rent in the manner provided in this Lease. All
sums payable to Landlord on demand under the terms of this Lease shall be
payable within ten (10) days after notice from Landlord of the amounts due. All
rent shall be paid without offset, recoupment or deduction in lawful money of
the United States of America to Landlord at Landlord's Address for Payment of
Rent as set forth in the Basic Lease Information, or to such other person or at
such other place as Landlord may from time to time designate.
4. SECURITY DEPOSIT. On execution of this Lease, Tenant shall deposit with
Landlord the sum set forth in the Basic Lease Information, in cash, as security
for the performance of Tenant's obligations under this Lease. Landlord may (but
shall have no obligation to) use the security deposit or any portion thereof to
cure any Event of Default under this Lease or to compensate Landlord for any
damage Landlord incurs as a result of Tenant's failure to perform any of
Tenant's obligations hereunder. In such event Tenant shall immediately pay to
Landlord an amount sufficient to replenish the security deposit to the sum
initially deposited with Landlord. At the expiration or termination of this
Lease, Landlord shall return to Tenant such portion of the security deposit or
the balance thereof then held by Landlord and not applied as provided above.
Landlord may commingle the security deposit with Landlord's general and other
funds, and Landlord shall not be required to pay interest on the security
deposit to Tenant. The immediately preceding sentence shall not apply to any
amounts drawn down under the Letter of Credit (defined in Paragraph 2 of the
Additional Provisions Rider attached hereto as Exhibit D).
5. USE AND COMPLIANCE WITH LAWS.
5.1 Use. The Premises shall be used for general business office purposes
---
and for no other use or purpose. Tenant shall comply with all present and future
Laws relating to Tenant's use or occupancy of the Premises (and make any
repairs, alterations or improvements as required to comply with all such Laws),
and shall observe the "Building Rules" (as defined in Section 27 -Rules and
Regulations). Tenant shall not be required to construct or pay the cost of
complying with any covenants, conditions, restrictions and encumbrances,
underwriter's requirements or rules regulations, statutes, ordinances, laws and
building codes requiting construction of improvements in the Premises which are
properly capitalized under general accounting principles, unless such compliance
is necessitated solely because of Tenant's particular use of the Premises.
Tenant shall not do, bring, keep or sell anything in or about the Premises that
is prohibited by, or that will cause
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a cancellation of or an increase in the existing premium for, any insurance
policy coveting the Property or any part thereof. Tenant shall not permit the
Premises to be occupied or used in any manner that will constitute waste or a
nuisance, or disturb the quiet enjoyment of or otherwise annoy other tenants in
the Building. Without limiting the foregoing, the Premises shall not be used for
educational activities, practice of medicine or any of the healing arts,
providing social services, or for any governmental use (including embassy or
consulate use). Tenant shall not, without the prior consent of Landlord, (i)
bring into the Building or the Premises anything that may cause substantial
noise, odor or vibration, overload the floors in the Premises or the Building or
any of the heating, ventilating and air-conditioning ("HVAC"), mechanical,
elevator, plumbing, electrical, fire protection, life safety, security or other
systems in the Building ("Building Systems"), or jeopardize the structural
integrity of the Building or any part thereof; (ii) connect to the utility
systems of the Building any apparatus, machinery or other equipment other than
typical office equipment; or (iii) connect (directly, or indirectly through use
of intermediate devices, electrified strip molding, or otherwise) to any
electrical circuit in the Premises any equipment or other load with aggregate
electrical power requirements in excess of 80% of the rated capacity of the
circuit.
5.2 Hazardous Materials.
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(a) Definitions.
-----------
(1) "Hazardous Materials" shall mean any substance: (A) that now or
in the future is regulated or governed by, requires investigation or remediation
under, or is defined as a hazardous waste, hazardous substance, pollutant or
contaminant under any governmental statute, code, ordinance, regulation, role or
order, and any amendment thereto, including for example only the Comprehensive
Environmental Response Compensation and Liability Act, 42 U.S.C. ss.39601 et
seq., and the Resource Conservation and Recovery Act, 42 U.S.C. ss.6901 et seq.,
or (B) that is toxic, explosive, corrosive, flammable, radioactive,
carcinogenic, dangerous or otherwise hazardous, including gasoline, diesel fuel,
petroleum hydrocarbons, polychlorinated biphenyls (PCBs), asbestos, radon and
urea formaldehyde foam insulation.
(2) "Environmental Requirements" shall mean all present and future
Laws, orders, permits, licenses, approvals, authorizations and other
requirements of any kind applicable to Hazardous Materials.
(3) "Handled by Tenant" and "Handling by Tenant" shall mean and
refer to any installation, handling, generation, storage, use, disposal,
discharge, release, abatement, removal, transportation, or any other activity of
any type by Tenant or its agents, employees, contractors, licensees, assignees,
sublessees, transferees or representatives (collectively, "Representatives") or
its guests, customers, invitees, or visitors (collectively, "Visitors"), at or
about the Premises in connection with or involving Hazardous Materials.
(4) "Environmental Losses" shall mean all costs and expenses of any
kind, damages, including foreseeable and unforeseeable consequential damages,
fines and penalties incurred in connection with any violation of and compliance
with Environmental Requirements and all losses of any kind attributable to the
diminution of value, loss of use or adverse effects on marketability or use of
any portion of the Premises or Property.
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(b) Tenant's Covenants. No Hazardous Materials shall be Handled by
------------------
Tenant at or about the Premises or Property without Landlord's prior written
consent, which consent may be granted, denied, or conditioned upon compliance
with Landlord's requirements, all in Landlord's absolute discretion.
Notwithstanding the foregoing, normal quantities and use of those Hazardous
Materials customarily used in the conduct of general office activities, such as
copier fluids and cleaning supplies ("Permitted Hazardous Materials"), may be
used and stored at the Premises without Landlord's prior written consent,
provided that Tenant's activities at or about the Premises and Property and the
Handling by Tenant of all Hazardous Materials shall comply at all times with all
Environmental Requirements. At the expiration or termination of the Lease,
Tenant shall promptly remove from the Premises and Property all Hazardous
Materials Handled by Tenant at the Premises or the Property. Tenant shall keep
Landlord fully and promptly informed of all Handling by Tenant of Hazardous
Materials other than Permitted Hazardous Materials. Tenant shall be responsible
and liable for the compliance with all of the provisions of this Section by all
of Tenant's Representatives and Visitors, and all of Tenant's obligations under
this Section (including its indemnification obligations under paragraph (e)
below) shall survive the expiration or termination of this Lease.
(c) Compliance. Tenant shall at Tenant's expense promptly take all
----------
actions required by any governmental agency or entity in connection with or as a
result of the Handling by Tenant of Hazardous Materials at or about the Premises
or Property, including inspection and testing, performing all cleanup, removal
and remediation work required with respect to those Hazardous Materials,
complying with all closure requirements and post-closure monitoring, and filing
all required reports or plans. All of the foregoing work and all Handling by
Tenant of all Hazardous Materials shall be performed in a good, safe and
workmanlike manner by consultants qualified and licensed to undertake such work
and in a manner that will not interfere with any other tenant's quiet enjoyment
of the Property or Landlord's use, operation, leasing and sale of the Property.
Tenant shall deliver to Landlord prior to delivery to any governmental agency,
or promptly after receipt from any such agency, copies of all permits,
manifests, closure or remedial action plans, notices, and all other documents
relating to the Handling by Tenant of Hazardous Materials at or about the
Premises or Property. If any lien attaches to the Premises or the Property in
connection with or as a result of the Handling by Tenant of Hazardous Materials,
and Tenant does not cause the same to be released, by payment, bonding or
otherwise, within ten (10) days after the attachment thereof, Landlord shall
have the right but not the obligation to cause the same to be released and any
sums expended by Landlord in connection therewith shall be payable by Tenant on
demand.
(d) Landlord's Rights. Landlord shall have the right, but not the
-----------------
obligation, to enter the Premises at any reasonable time upon reasonable notice,
except that in the case of an emergency notice shall not be required, (i) to
confirm Tenant's compliance with the provisions of this Section, and (ii) to
perform Tenant's obligations under this Section if Tenant has failed to do so
after reasonable notice to Tenant. Landlord shall also have the right to engage
qualified Hazardous Materials consultants to inspect the Premises and review the
Handling by Tenant of Hazardous Materials, including review of all permits,
reports, plans, and other documents regarding same. Tenant shall pay to Landlord
on demand the costs of Landlord's consultants' fees and all costs incurred by
Landlord in performing Tenant's obligations under this Section. Landlord shall
use
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reasonable efforts to minimize any interference with Tenant's business caused by
Landlord's entry into the Premises, but Landlord shall not be responsible for
any interference caused thereby.
(e) Tenant's Indemnification. Tenant agrees to indemnify, defend
------------------------
and hold harmless Landlord and its partners or members and its or their
partners, members, directors, officers, shareholders, employees and agents from
all Environmental Losses and all other claims, actions, losses, damages,
liabilities, costs and expenses of every kind, including reasonable attorneys',
experts' and consultants' fees and costs, incurred at any time and arising from
or in connection with the Handling by Tenant of Hazardous Materials at or about
the Property or Tenant's failure to comply in full with all Environmental
Requirements with respect to the Premises.
6. ALTERATIONS.
6.1 Tenant shall not make any alterations, improvements or changes to the
Premises (including installation of any security system or telephone or data
communication wiring), other than the Tenant Improvements ("Alterations"),
without Landlord's prior Written consent (provided, however, that Tenant shall
not be required to obtain Landlord's prior approval for minor, non-structural
Alterations that do not affect any of the Building Systems, are not visible from
the exterior of the Premises, and cost less than Ten Thousand Dollars
($10,000.00), so long as Tenant gives Landlord notice of the proposed
Alterations at least ten (10) days prior to commencement of the Alterations and
complies with all of the following provisions, except that Tenant shall not e
required to obtain Landlord's approval of any plans or specifications therefor).
Any such Alterations shall be completed by Tenant at Tenant's sole cost and
expense: (i) with due diligence, in a good and workmanlike manner, using new
materials; (ii) in compliance with plans and specifications approved (which
approval shall not be unreasonably withheld or delayed) by Landlord; (iii) in
compliance with the construction roles and regulations promulgated by Landlord
from time to time; (iv) in accordance with all applicable Laws (including all
work, whether structural or non-structural, inside or outside the Premises,
required to comply fully with all applicable Laws and necessitated by Tenant's
work); and (v) subject to all conditions which Landlord may in Landlord's
discretion impose. Such conditions may include requirements for Tenant to: (i)
provide payment or performance bonds or additional insurance (from Tenant or
Tenant's contractors, subcontractors or design professionals); (ii) use
contractors or subcontractors designated by Landlord; and (iii) remove all or
part of the Alterations prior to or upon expiration or termination of the Term,
as designated by Landlord. If any work outside the Premises, or any work on or
adjustment to any of the Building Systems, is required in connection with or as
a result of Tenant's work, such work shall be performed at Tenant's expense by
contractors designated by Landlord. Landlord's right to review and approve (or
withhold approval of) Tenant's plans, drawings, specifications, contractor(s)
and other aspects of construction work proposed by Tenant is intended solely to
protect Landlord, the Property and Landlord's interests. No approval or consent
by Landlord shall be deemed or construed to be a representation or warranty by
Landlord as to the adequacy, sufficiency, fitness or suitability thereof or
compliance thereof with applicable Laws or other requirements. Except as
otherwise provided in Landlord's consent, all Alterations shall upon
installation become part of the realty and be the property of Landlord.
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6.2 Before making any Alterations, Tenant shall submit to Landlord for
Landlord's prior approval reasonably detailed final plans and specifications
prepared by a licensed architect or engineer, a copy of the construction
contract, including the name of the contractor and all subcontractors proposed
by Tenant to make the Alterations and a copy of the contractor's license. Tenant
shall reimburse Landlord upon demand for any expenses incurred by Landlord in
connection with any Alterations made by Tenant, including reasonable fees
charged by Landlord's contractors or consultants to review plans and
specifications prepared by Tenant and to update the existing as-built plans and
specifications of the Building to reflect the Alterations. Tenant shall obtain
all applicable permits, authorizations and governmental approvals and deliver
copies of the same to Landlord before commencement of any Alterations.
6.3 Tenant shall keep the Premises and the Property free and clear of all
liens arising out of any work performed, materials furnished or obligations
incurred by Tenant. If any such lien attaches to the Premises or the Property,
and Tenant does not cause the same to be released by payment, bonding or
otherwise within ten (10) days after the attachment thereof, Landlord shall have
the right but not the obligation to cause the same to be released, and any sums
expended by Landlord in connection therewith shall be payable by Tenant on
demand with interest thereon from the date of expenditure by Landlord at the
Interest Rate (as defined in Section 15.2 - Interest). Tenant shall give
Landlord at least ten (10) days' notice prior to the commencement of any
Alterations and cooperate with Landlord in posting and maintaining notices of
non-responsibility in connection therewith.
6.4 Subject to the provisions of Section 5 - Use and Compliance with Laws
and the foregoing provisions of this Section, Tenant may install and maintain
furnishings, equipment, movable partitions, business equipment and other trade
fixtures ("Trade Fixtures") in the Premises, provided that the Trade Fixtures do
not become an integral part of the Premises or the Building. Tenant shall
promptly repair any damage to the Premises or the Building caused by any
installation or removal of such Trade Fixtures.
7. MAINTENANCE AND REPAIRS.
7.1 By taking possession of the Premises Tenant agrees that the Premises
are then in a good and tenantable condition. During the Term, Tenant at Tenant's
expense but under the direction of Landlord, shall repair and maintain the
Premises, including the interior walls, floor coverings, ceiling (ceiling tiles
and grid), Tenant Improvements, Alterations, fire extinguishers, outlets and
fixtures, and any appliances (including dishwashers, hot water heaters and
garbage disposers) in the Premises, in reasonably good order, and keep the
Premises in a clean, safe and orderly condition.
7.2 Landlord shall maintain or cause to be maintained in reasonably good
order, condition and repair, the structural portions of the roof, foundations,
floors and exterior walls of the Building, the Building Systems, all structural
parts of the Building and the public and common areas of the Property, such as
elevators, stairs, corridors and restrooms; provided, however, that Tenant shall
pay the cost of repairs for damage occasioned by Tenant's use of the Premises or
the Property or any act or omission of Tenant or Tenant's Representatives or
Visitors. Landlord shall be under no obligation to inspect the Premises. Tenant
shall promptly report in writing to Landlord
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any defective condition known to Tenant which Landlord is required to repair. As
a material part of the consideration for this Lease, Tenant hereby waives any
benefits of any applicable existing or future Law, including the provisions of
California Civil Code Sections 1932(1), 1941 and 1942, that allows a tenant to
make repairs at its landlord's expense.
7.3 Provided that Tenant's rights and benefits are not materially,
adversely affected thereby, Landlord hereby reserves the right, at any time and
from time to time, without liability to Tenant, and without constituting an
eviction, constructive or otherwise, or entitling Tenant to any abatement of
rent or to terminate this Lease or otherwise releasing Tenant from any of
Tenant's obligations under this Lease:
(a) To make alterations, additions, repairs, improvements to or in or
to decrease the size of area of, all or any part of the Building, the fixtures
and equipment therein, and the Building Systems (provided, however, that
Landlord shall not decrease the size of area of the Premises except to the
extent required to comply with applicable legal requirements or regulations, and
then only to the minimum extent necessary);
(b) To change the Building's name or street address;
(c) To install and maintain any and all signs on the exterior and
interior of the Building;
(d) To reduce, increase, enclose or otherwise change at any time and
from time to time the size, number, location, lay-out and nature of the common
areas and other tenancies and premises in the Property and to create additional
rentable areas through use or enclosure of common areas; and
(e) If any governmental authority promulgates or revises any Law or
imposes mandatory or voluntary controls or guidelines on Landlord or the
Property relating to the use or conservation of energy or utilities or the
reduction of automobile or other emissions or reduction or management of traffic
or parking on the Property (collectively "Controls"), to comply with such
Controls, whether mandatory or voluntary, or make any alterations to the
Property related thereto.
8. TENANT'S TAXES. "Tenant's Taxes" shall mean (a) all taxes, assessments,
license fees and other governmental charges or impositions levied or assessed
against or with respect to Tenant's personal property or Trade Fixtures in the
Premises, whether any such imposition is levied directly against Tenant or
levied against Landlord or the Property, (b) all rental, excise, sales or
transaction privilege taxes arising out of this Lease (excluding, however, state
and federal personal or corporate income taxes measured by the income of
Landlord from all sources and excluding inheritance taxes) imposed by any taxing
authority upon Landlord or upon Landlord's receipt of any rent payable by Tenant
pursuant to the terms of this Lease ("Rental Tax"), and (c) any increase in
Taxes attributable to inclusion of a value placed on Tenant's personal property,
Trade Fixtures or Alterations. Tenant shall pay any Rental Tax to Landlord in
addition to and at the same time as Base Rent is payable under this Lease, and
shall pay all other Tenant's Taxes before delinquency (and, at Landlord's
request, shall finish Landlord satisfactory evidence thereof). If Landlord pays
Tenant's Taxes or any portion thereof, Tenant shall reimburse Landlord upon
demand for the
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amount of such payment, together with interest at the Interest Rate from the
date of Landlord's payment to the date of Tenant's reimbursement.
9. UTILITIES AND SERVICES.
9.1 Description of Services. Landlord shall furnish to the Premises
-----------------------
reasonable amounts of electricity, water, heat and air-conditioning, and
janitorial service for the uses contemplated hereunder. Landlord shall also
furnish normal fluorescent tube replacement, window washing, elevator service,
and common area toilet room supplies. Landlord shall furnish heat, ventilation
and air-conditioning during the Business Hours specified in the Basic Lease
Information ("Business Hours") on weekdays except public holidays ("Business
Days"). Any additional utilities or services that Landlord may agree to provide
(including lamp or tube replacement for other than Building Standard lighting
fixtures) shall be at Tenant's sole expense.
9.2 Payment for Additional Utilities and Services.
---------------------------------------------
(a) Upon request by Tenant in accordance with the procedures
established by Landlord from time to time for furnishing HVAC service at times
other than Business Hours on Business Days, Landlord shall furnish such service
to Tenant and Tenant shall pay for such services on an hourly basis at the then
prevailing rate established for the Building by Landlord.
(b) If the temperature otherwise maintained in any portion of the
Premises by the HVAC systems of the Building is affected as a result of (i) any
lights, machines or equipment used by Tenant in the Premises, or (ii) the
occupancy of the Premises by more than one person per 150 square feet of
rentable area, then Landlord shall, following reasonable notice to Tenant and
thirty (30) days for Tenant to correct the situation, have the right to install
any machinery or equipment reasonably necessary to restore the temperature,
including modifications to the standard air-conditioning equipment. The cost of
any such equipment and modifications, including the cost of installation and any
additional cost of operation and maintenance of the same, shall be paid by
Tenant to Landlord upon demand.
(c) If Tenant's usage of electricity exceeds the Building's Standard
Electrical Usage as set forth in the Basic Lease Information, Landlord may
determine the amount of such excess use by any reasonable means (including the
installation, following reasonable notice to Tenant and thirty (30) days for
Tenant to correct the situation, at Landlord's request but at Tenant's expense
of a separate meter or other measuring device) and charge Tenant for the cost of
such excess usage. In addition, Landlord may impose a reasonable charge for the
use of any additional or unusual janitorial services required by Tenant because
of any unusual Tenant Improvements or Alterations, the carelessness of Tenant or
the nature of Tenant's business (including hours of operation).
9.3 Interruption of Services. In the event of an interruption in or failure
------------------------
or inability to provide any services or utilities to the Premises or Building
for any reason (a "Service Failure"), such Service Failure shall not, regardless
of its duration, impose upon Landlord any liability whatsoever, constitute an
eviction of Tenant, constructive or otherwise, entitle Tenant to an abatement of
rent or to terminate this Lease or otherwise release Tenant from any of Tenant's
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obligations under this Lease. Tenant hereby waives any benefits of any
applicable existing or future Law, including the provisions of California Civil
Code Section 1932(1), permitting the termination of this Lease due to such
interruption, failure or inability.
10. EXCULPATION AND INDEMNIFICATION.
10.1 Except to the extent caused by the negligence or breach of this Lease
by Landlord or its employees, agents, contractors or invitees, Landlord shall
not be liable to Tenant for any loss, injury or other damage to any person or
property (including Tenant or Tenant's property) in or about the Premises or the
Property from any cause (including defects in the Property or in any equipment
in the Property; fire, explosion or other casualty; bursting, rapture, leakage
or overflow of any plumbing or other pipes or lines, sprinklers, tanks, drains,
drinking fountains or washstands in, above, or about the Premises or the
Property; or acts of other tenants in the Property). Tenant hereby waives all
claims against Landlord for such damage and the cost and expense of defending
against claims relating to such damage, except that Landlord shall indemnify,
defend and hold Tenant harmless from and against any claims, actions,
liabilities, damages, costs or expenses, including reasonable attorneys' fees
and costs incurred in defending against the same ("Claims") for such damages, to
the extent the same are caused by the willful or negligent acts or omissions of
Landlord or its employees, agents, contractors, invitees or authorized
representatives. In no event, however, shall Landlord be liable to Tenant for
any punitive or consequential damages or damages for loss of business by Tenant.
10.2 Tenant shall indemnify, defend and hold Landlord harmless from and
against Claims arising from (a) the acts or omissions of Tenant or Tenant's
Representatives or Visitors in or about the Property, or (b) any construction or
other work undertaken by Tenant on the Premises (including any design defects),
or (c) any breach or default under this Lease by Tenant, or (d) any accident,
injury or damage, howsoever and by whomsoever caused, to any person or property,
occurring in or about the Premises during the Term; excepting only such Claims
for any accident, injury or damage to the extent they are caused by the
negligent or willful acts or omissions of Landlord or its employees, agents,
contractors, invitees or authorized representatives.
10.3 The obligations of the parties under this Section 10 shall survive the
expiration or termination of this Lease.
11. INSURANCE.
11.1 Tenant's Insurance.
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(a) Tenant shall maintain in full force throughout the Term,
commercial general liability insurance providing coverage on an occurrence form
basis with limits of not less than Two Million Dollars ($2,000,000.00) each
occurrence for bodily injury and property damage combined, Two Million Dollars
($2,000,000.00) annual general aggregate, and Two Million Dollars
($2,000,000.00) products and completed operations annual aggregate. Tenant's
liability insurance policy or policies shall: (i) include premises and
operations liability coverage, products and completed operations liability
coverage, broad form property damage coverage including completed operations,
blanket contractual liability coverage including, to the maximum extent
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possible, coverage for the indemnification obligations of Tenant under this
Lease, and personal and advertising injury coverage; (ii) provide that the
insurance company has the duty to defend all insureds under the policy; (iii)
provide that defense costs are paid in addition to and do not deplete any of the
policy limits; (iv) cover liabilities arising out of or incurred in connection
with Tenant's use or occupancy of the Premises or the Property; and (v) emend
coverage to cover liability for the actions of Tenant's Representatives and
Visitors.
(b) Tenant shall at all times maintain in effect with respect to any
Alterations and Tenant's Trade Fixtures and personal property, commercial
property insurance providing coverage, at a minimum, for "broad form" perils, to
the extent of 80% of the full replacement cost of covered property. Tenant may
carry such insurance under a blanket policy, provided that such policy provides
equivalent coverage to a separate policy. During the Term, the proceeds from any
such policies of insurance shall be used for the repair or replacement of the
Alterations, Trade Fixtures and personal property so insured. Landlord shall be
provided coverage under such insurance to the extent of its insurable interest
and, if requested by Landlord, both Landlord and Tenant shall sign all documents
reasonably necessary or proper in connection with the settlement of any claim or
loss under such insurance. Landlord will have no obligation to carry insurance
on any Alterations or on Tenant's Trade Fixtures or personal property.
(c) Each policy of insurance required under this Section shall: (i) be in a
form, and written by an insurer, reasonably acceptable to Landlord, (ii) be
maintained at Tenant's sole cost and expense, and (iii) require at least thirty
(30) days' written notice to Landlord prior to any cancellation, nonrenewal or
modification of insurance coverage. Insurance companies issuing such policies
shall have rating classifications of "A" or better and financial size category
ratings of "VII" or better according to the latest edition of the A.M. Best Key
Rating Guide. All insurance companies issuing such policies shall be licensed to
do business in the state where the Property is located. Any deductible amount
under such insurance shall not exceed $5,000. Tenant shall provide to Landlord,
upon request, evidence that the insurance required to be carried by Tenant
pursuant to this Section, including any endorsement effecting the additional
insured status, is in full force and effect and that premiums therefor have been
paid.
(d) Tenant shall increase the mounts of insurance as required by any
Mortgagee, and, not more frequently than once every three (3) years, as
recommended by Landlord's insurance broker, if, in the reasonable opinion of
either of them, the amount of insurance then required under this Lease is not
adequate. Any limits set forth in this Lease on the amount or type of coverage
required by Tenant's insurance shall not limit the liability of Tenant under
this Lease.
(e) Each policy of liability insurance required by this Section shall: (i)
contain a cross liability endorsement or separation of insureds clause; (ii)
provide that any waiver of subrogation rights or release prior to a loss does
not void coverage; (iii) provide that it is primary to and not contributing
with, any policy of insurance carried by Landlord covering the same loss; (iv)
provide that any failure to comply with the reporting provisions shall not
affect coverage provided to Landlord, its partners, property managers and
Mortgagees; and (v) name Landlord, its partners, the Property Manager identified
in the Basic Lease Information (the "Property Manager"), and such other parties
in interest as Landlord may from time to time reasonably designate to Tenant in
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writing, as additional insureds. Such additional insureds shall be provided the
same extent of coverage as provided to Tenant under such policies. All
endorsements effecting such additional insured status shall be acceptable to
Landlord and shall be at least as broad as additional insured endorsement form
number CG 20 11 11 85 promulgated by the Insurance Services Office.
(f) Prior to occupancy of the Premises by Tenant, and not less than
thirty (30) days prior to expiration of any policy thereafter, Tenant shall
furnish to Landlord a certificate of insurance reflecting that the insurance
required by this Section is in force, accompanied by an endorsement showing the
required additional insureds satisfactory to Owner in substance and form.
Notwithstanding the requirements of this paragraph, Tenant shall at Landlord's
request provide to Landlord a certified copy of each insurance policy required
to be in force at any time pursuant to the requirements of this Lease or its
Exhibits.
11.2 Landlord's Insurance. During the Term, Landlord shall maintain in
--------------------
effect insurance on the Building against "broad form" perils (to the extent such
coverages are available), with responsible insurers, insuring the Building and
the Tenant Improvements in an amount equal to at least eighty percent (80%) of
the replacement cost thereof, excluding land, foundations, footings and
underground installations. Landlord may, but shall not be obligated to, carry
insurance against additional perils and/or in greater amounts.
11.3 Waiver of Subrogation. Notwithstanding any provisions to the contrary
---------------------
in this Lease, Landlord and Tenant each hereby waive any right of recovery
against the other and the partners, members, shareholders, officers, directors
and authorized representatives of the other for any loss or damage that is
covered by any policy of property insurance maintained by either party (or would
normally be covered by any policy of insurance required by this Lease to be
maintained) with respect to the Premises or the Property or any operation
therein. If any such policy of insurance relating to this Lease or to the
Premises or the Property does not permit the foregoing waiver or if the coverage
under any such policy would be invalidated as a result of such waiver, the party
maintaining such policy shall obtain from the insurer under such policy a waiver
of all right of recovery by way of subrogation against either party in
connection with any claim, loss or damage covered by such policy.
12. DAMAGE OR DESTRUCTION.
12.1 Landlord's Duty to Repair.
-------------------------
(a) If all or a substantial part of the Premises are rendered
untenantable or inaccessible by damage to all or any part of the Property from
fire or other casualty then, unless either party is entitled to and elects to
terminate this Lease pursuant to Sections 12.2 - Landlord's Right to Terminate
and 12.3 - Tenant's Right to Terminate, Landlord shall, at its expense, use
reasonable efforts to repair and restore the Premises and/or the Property, as
the case may be, to substantially their former condition to the extent permitted
by then applicable Laws; provided, however, that in no event shall Landlord have
any obligation for repair or restoration beyond the extent of insurance proceeds
received by Landlord for such repair or restoration (plus any deductible
amount), or for any of Tenant's personal property, Trade Fixtures or
Alterations.
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(b) If Landlord is required or elects to repair damage to the Premises
and/or the Property, this Lease shall continue in effect. Tenant's Base Rent and
Additional Rent from the date of the casualty through the date of substantial
completion of the repair (or termination of this Lease pursuant to this Article
12) shall be abated with regard to any portion of the Premises that Tenant is
prevented from using by reason of such damage or its repair. In no event shall
Landlord be liable to Tenant by reason of any injury to or interference with
Tenant's business or property arising from fire or other casualty or by reason
of any repairs to any part of the Property necessitated by such casualty.
12.2 Landlord's Right to Terminate. Landlord may elect to terminate this
-----------------------------
Lease following damage by fire or other casualty under the following
circumstances:
(a) If, in the reasonable judgement of Landlord, the Premises and the
Property cannot be substantially repaired and restored under applicable Laws
within one (1) year from the date of the casualty;
(b) If, in the reasonable judgment of Landlord, adequate proceeds
(with the addition of any deductible amount) are not, for any reason, made
available to Landlord from Landlord's insurance policies (and/or from Landlord's
funds made available for such purpose, at Landlord's sole option) to make the
required repairs;
(c) If the Building is damaged or destroyed to the extent that, in the
reasonable judgment of Landlord, the cost to repair and restore the Building
would exceed twenty-five percent (25%) of the full replacement cost of the
Building, whether or not the Premises are at all damaged or destroyed; or
(d) If the fire or other casualty occurs during the last year of the
Term.
If any of the circumstances described in subparagraphs (a), (b), (c) or (d) of
this Section 12.2 occur or arise, Landlord shall notify Tenant in writing of
that fact as soon as reasonably practicable, but in all events within one
hundred and twenty (120) days after the date of the casualty and in such notice
Landlord shall also advise Tenant whether Landlord has elected to terminate this
Lease as provided above.
12.3 Tenant's Right to Terminate. If all or a substantial part of the
---------------------------
Premises are rendered untenantable or inaccessible by damage to all or any part
of the Property from fire or other casualty, then Tenant's Base Rent and
Additional Rent from the date of the casualty through the date of substantial
completion of the repair or termination of this Lease pursuant to this Article
12, and Tenant may elect to terminate this Lease under the following
circumstances:
(a) Where Landlord fails to commence the required repair within one
hundred and twenty (120) days after the date of the casualty, in which event
Tenant may elect to terminate this Lease upon notice to Landlord given within
ten (10) days after such one hundred and twenty (120)-day period.
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(b) In the circumstance described in Subsection 12.2(a) above; in
which event Tenant may elect to terminate this Lease by giving Landlord notice
of such election to terminate within thirty (30) days after Landlord's notice to
Tenant pursuant to Section 12.2 - Landlord's Right to Terminate.
12.4 Waiver. Landlord and Tenant each hereby waive the provisions of
------
California Civil Code Sections 1932(2), 1933(4) and any other applicable
existing or future Law permitting the termination of a lease agreement in the
event of damage or destruction under any circumstances other than as provided in
Sections 12.2 - Landlord's Right to Terminate and 12.3 - Tenant's Right to
Terminate.
13. CONDEMNATION.
13.1 Definitions.
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(a) "Award" shall mean all compensation, sums, or anything of value
awarded, paid or received on a total or partial Condemnation.
(b) "Condemnation" shall mean (i) a permanent taking (or a temporary
taking for a period extending beyond the end of the Term) pursuant to the
exercise of the power of condemnation or eminent domain by any public or
quasi-public authority, private corporation or individual having such power
("Condemnor"), whether by legal proceedings or otherwise, or (ii) a voluntary
sale or transfer by Landlord to any such authority, either under threat of
condemnation or while legal proceedings for condemnation are pending.
(c) "Date of Condemnation" shall mean the earlier of the date that
title to the property taken is vested in the Condemnor or the date the Condemnor
has the right to possession of the property being condemned.
13.2 Effect on Lease.
---------------
(a) If the Premises are totally taken by Condemnation, this Lease
shall terminate as of the Date of Condemnation. If a portion but not all of the
Premises is taken by Condemnation, this Lease shall remain in effect; provided,
however, that if the portion of the Premises remaining after the Condemnation
will be unsuitable for Tenant's continued use, then upon notice to Landlord
within thirty (30) days after Landlord notifies Tenant of the Condemnation,
Tenant may terminate this Lease effective as of the Date of Condemnation.
(b) If twenty-five percent (25%) or more of the Land or of the Parking
Facility or of the floor area in the Building is taken by Condemnation, or if as
a result of any Condemnation the Building is no longer reasonably suitable for
use as an office building, whether or not any portion of the Premises is taken,
Landlord may elect to terminate this Lease, effective as of the Date of
Condemnation, by notice to Tenant within thirty (30) days after the Date of
Condemnation.
(c) If all or a portion of the Premises is temporarily taken by a
Condemnor for a period not extending beyond the end of the Term, this Lease
shall remain in full force and effect.
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13.3 Restoration. If this Lease is not terminated as provided in Section
-----------
13.2 - Effect on Lease, Landlord, at its expense, shall diligently proceed to
repair and restore the Premises to substantially its former condition (to the
extent permitted by then applicable Laws) and/or repair and restore the Building
to an architecturally complete office building; provided, however, that
Landlord's obligations to so repair and restore shall be limited to the amount
of any Award received by Landlord and not required to be paid to any Mortgagee
(as defined in Section 20.2 below). In no event shall Landlord have any
obligation to repair or replace any improvements in the Premises beyond the
amount of any Award received by Landlord for such repair or to repair or replace
any of Tenant's personal property, Trade Fixtures, or Alterations.
13.4 Abatement and Reduction of Rent. If any portion of the Premises is
-------------------------------
taken in a Condemnation or is rendered permanently untenantable by repairs
necessitated by the Condemnation, and this Lease is not terminated, the Base
Rent and Additional Rent payable under this Lease shall be proportionally
reduced as of the Date of Condemnation based upon the percentage of rentable
square feet in the Premises so taken or rendered permanently untenantable. In
addition, if this Lease remains in effect following a Condemnation and Landlord
proceeds to repair and restore the Premises, the Base Rent and Additional Rent
payable under this Lease shall be abated during the period of such repair or
restoration to the extent such repairs prevent Tenant's use of the Premises.
13.5 Awards. Any Award made shall be paid to Landlord, and Tenant hereby
------
assigns to Landlord, and waives all interest in or claim to, any such Award,
including any claim for the value of the unexpired Term; provided, however, that
Tenant shall be entitled to receive, or to prosecute a separate claim for, an
Award for a temporary taking of the Premises or a portion thereof by a Condemnor
where this Lease is not terminated (to the extent such Award relates to the
unexpired Term), or an Award or portion thereof separately designated for
relocation expenses or the interruption of or damage to Tenant's business or as
compensation for Tenant's personal property, Trade Fixtures or Alterations.
13.6 Waiver. Landlord and Tenant each hereby waive the provisions of
------
California Code of Civil Procedure Section 1265.130 and any other applicable
existing or future Law allowing either party to petition for a termination of
this Lease upon a partial taking of the Premises and/or the Property.
14. ASSIGNMENT AND SUBLETTING.
14.1 Landlord's Consent Required. Tenant shall not assign, mortgage,
---------------------------
pledge, hypothecate or encumber this Lease or any interest therein, or sublet or
license or permit the use or occupancy of the Premises or any part thereof by or
for the benefit of anyone other than Tenant, or in any other manner transfer all
or any part of Tenant's interests under this Lease (each and all a "Transfer"),
without the prior written consent of Landlord (except as provided in Section
14.9 below), which (subject to the other provisions of this Section 14) shall
not be unreasonably withheld. If Tenant is a business entity, any direct or
indirect transfer of fifty percent (50%) or more of the ownership interest of
the entity (whether in a single transaction or in the aggregate through more
than one transaction) shall be deemed a Transfer. Notwithstanding any provision
in
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this Lease to the contrary, Tenant shall not mortgage, pledge, hypothecate or
otherwise encumber all or any portion of Tenant's interest under this Lease.
14.2 Reasonable Consent.
------------------
(a) If Tenant complies with the following conditions, Landlord shall
not unreasonably withhold or delay its consent to the subletting of the Premises
or any portion thereof or the assignment of this Lease. Prior to any proposed
Transfer, Tenant shall submit in writing to Landlord (i) the name and legal
composition of the proposed assignee, subtenant, user or other transferee (each
a "Transferee"); (ii) the nature of the business proposed to be carried on in
the Premises; (iii) a current balance sheet, income statements for the last two
years and such other reasonable financial and other information concerning the
proposed Transferee as Landlord may request; and (iv) a copy of the proposed
assignment, sublease or other agreement governing the proposed Transfer. Within
fifteen (15) Business Days after Landlord receives all such information it shall
notify Tenant whether it approves or disapproves such Transfer or if it elects
to proceed under Section 14.7 - Landlord's Right to Space.
(b) The parties hereto agree and acknowledge that, among other
circumstances for which Landlord could reasonably withhold consent to a proposed
Transfer, it shall be reasonable for Landlord to withhold consent where (i) the
proposed Transferee does not intend itself to occupy the entire portion of the
Premises assigned or sublet, (ii) Landlord reasonably disapproves of the
Transferee's business operating ability or history, reputation or
creditworthiness or the character of the business to be conducted by the
Transferee at the Premises, (iii) the Transferee is a governmental agency or
unit or an existing tenant in the Project, (iv) the proposed Transfer would
violate any "exclusive" rights of any tenants in the Project, (v) the rental and
other consideration payable by the Transferee is less than that currently being
paid by tenants under new leases of comparable space in the Building, or (vi)
Landlord otherwise determines that the proposed Transfer would have the effect
of decreasing the value of the Building or increasing the expenses associated
with operating, maintaining and repairing the Property. In no event may Tenant
publicly offer or advertise all or any portion of the Premises for assignment or
sublease at a rental less than that then sought by Landlord for a direct lease
(non-sublease) of comparable space in the Project.
14.3 Excess Consideration. If Landlord consents to the Transfer, Tenant
--------------------
shall pay to Landlord as additional rent, within ten (10) days after receipt by
Tenant, seventy-five percent (75%) of any consideration paid by the Transferee
for the Transfer, including, in the case of a sublease, the excess of the rent
and other consideration paid the subtenant over the amount of Base Rent and
Additional Rent payable hereunder applicable to the subleased space.
14.4 No Release Of Tenant. No consent by Landlord to any Transfer shall
--------------------
relieve Tenant of any obligation to be performed by Tenant under this Lease,
whether occurring before or after such consent, assignment, subletting or other
Transfer. Each Transferee shall be jointly and severally liable with Tenant (and
Tenant shall be jointly and severally liable with each Transferee) for the
payment of rent (or, in the case of a sublease, rent in the amount set forth in
the sublease) and for the performance of all other terms and provisions of this
Lease. The consent by Landlord to any Transfer shall not relieve Tenant or any
such Transferee from the obligation to obtain Landlord's express prior written
consent to any subsequent Transfer by Tenant or any Transferee.
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The acceptance of rent by Landlord from any other person shall not be deemed to
be a waiver by Landlord of any provision of this Lease or to be a consent to any
Transfer.
14.5 Expenses and Attorneys' Fees. Tenant shall pay to Landlord on demand
----------------------------
all costs and expenses (including reasonable attorneys' fees) incurred by
Landlord in connection with reviewing or consenting to any proposed Transfer
(including any request for consent to, or any waiver of Landlord's rights in
connection with, any security interest in any of Tenant's property at the
Premises).
14.6 Effectiveness of Transfer. Prior to the date on which any permitted
-------------------------
Transfer (whether or not requiting Landlord's consent) becomes effective, Tenant
shall deliver to Landlord a counterpart of the fully executed Transfer document
and Landlord's standard form of Consent to Assignment or Consent to Sublease
executed by Tenant and the Transferee in which each of Tenant and the Transferee
confirms its obligations pursuant to this Lease. Failure or refusal of a
Transferee to execute any such instrument shall not release or discharge the
Transferee from liability as provided herein. The voluntary, involuntary or
other surrender of this Lease by Tenant, or a mutual cancellation by Landlord
and Tenant, shall not work a merger, and any such surrender or cancellation
shall, at the option of Landlord, either terminate all or any existing subleases
or operate as an assignment to Landlord of any or all of such subleases.
14.7 Landlord's Right to Space. Notwithstanding any of the above provisions
-------------------------
of this Section to the contrary, if Tenant notifies Landlord that it desires to
enter into a Transfer, Landlord, in lieu of consenting to such Transfer, may
elect (x) in the case of an assignment or a sublease of the entire Premises, to
terminate this Lease in its entirety, or (y) in the case of a sublease of less
than the entire Premises for a term substantially equal to the remaining Term of
this Lease, to terminate this Lease as it relates to the space proposed to be
subleased by Tenant. In such event, this Lease will terminate (or the space
proposed to be subleased will be removed from the Premises subject to this Lease
and the Base Rent and Tenant's Share under this Lease shall be proportionately
reduced) on the date the Transfer was proposed to be effective, and Landlord may
lease such space to any party, including the prospective Transferee identified
by Tenant.
14.8 Assignment of Sublease Rents. Tenant hereby absolutely and irrevocably
----------------------------
assigns to Landlord any and all rights to receive rent and other consideration
from any sublease and agrees that Landlord, as assignee or as attorney-in-fact
for Tenant for purposes hereof, or a receiver for Tenant appointed on Landlord's
application may (but shall not be obligated to) collect such rents and other
consideration and apply the same toward Tenant's obligations to Landlord under
this Lease; provided, however, that Landlord grants to Tenant at all times prior
to occurrence of any breach or default by Tenant a revocable license to collect
such rents (which license shall automatically and without notice be and be
deemed to have been revoked and terminated immediately upon any Event of
Default).
14.9 Transfer to Affiliate. Tenant may assign this Lease or sublet the
---------------------
Premises or any portion thereof, without Landlord's consent, to any corporation
or other entity that controls, is controlled by, or is under common control with
Tenant, or to any corporation or other entity resulting from a merger or
consolidation with Tenant, or to any person or entity that acquires
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substantially all the assets of Tenant as a going concern (collectively, an
"Affiliate"), provided that the Affiliate assumes in writing all of Tenant's
obligations under this Lease.
15. DEFAULT AND REMEDIES.
15.1 Events of Default. The occurrence of any of the following shall
-----------------
constitute an "Event of Default" by Tenant:
(a) Tenant fails to make any payment of rent when due, or any amount
required to replenish the security deposit as provided in Section 4 above, if
payment in full is not received by Landlord within three (3) business days after
written notice that it is due.
(b) Tenant abandons the Premises and fails to pay rent.
(c) Tenant fails to deliver any estoppel certificate requested by
Landlord within the period described in subsection 21.1 below.
(d) Tenant violates the restrictions on Transfer set forth in Section
14 -Assignment and Subletting.
(e) Tenant ceases doing business as a going concern; makes an
assignment for the benefit of creditors; is adjudicated an insolvent, files a
petition (or files an answer admitting the material allegations of a petition)
seeking relief under any under any state or federal bankruptcy or other statute,
law or regulation affecting creditors' rights; all or substantially all of
Tenant's assets are subject to judicial seizure or attachment and are not
released within 30 days, or Tenant consents to or acquiesces in the appointment
of a trustee, receiver or liquidator for Tenant or for all or any substantial
part of Tenant's assets.
(f) Tenant fails, within ninety (90) days after the commencement of
any proceedings against Tenant seeking relief under any state or federal
bankruptcy or other statute, law or regulation affecting creditors' rights, to
have such proceedings dismissed, or Tenant fails, within ninety (90) days after
an appointment, without Tenant's consent or acquiescence, of any trustee,
receiver or liquidator for Tenant or for all or any substantial part of Tenant's
assets, to have such appointment vacated.
(g) Tenant fails to perform or comply with any provision of this Lease
other than those described in (a) through (f) above, and does not fully cure
such failure within fifteen (15) days after notice to Tenant or, if such failure
cannot be cured within such fifteen (15)-day period, Tenant fails within such
fifteen (15)-day period to commence, and thereafter diligently proceed with, all
actions necessary to cure such failure as soon as reasonably possible but in all
events within ninety (90) days after such notice; provided, however, that if
Landlord in Landlord's reasonable judgment determines that such failure cannot
or will not be cured by Tenant within such ninety (90) days, then such failure
shall constitute an Event of Default immediately upon such notice to Tenant.
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15.2 Remedies. Upon the occurrence of an Event of Default, Landlord shall
--------
have the following remedies, which shall not be exclusive but shall be
cumulative and shall be in addition to any other remedies now or hereafter
allowed by law:
(a) Landlord may terminate Tenant's right to possession of the
Premises at any time by written notice to Tenant, and such termination of
Tenant's right to possession shall terminate the Lease. Tenant expressly
acknowledges that in the absence of such written notice from Landlord, no other
act of Landlord, including re-entry into the Premises, efforts to relet the
Premises, reletting of the Premises for Tenant's account, storage of Tenant's
personal property and Trade Fixtures, acceptance of keys to the Premises from
Tenant or exercise of any other rights and remedies under this Section, shall
constitute an acceptance of Tenant's surrender of the Premises or constitute a
termination of this Lease or of Tenant's right to possession of the Premises.
Upon such termination in writing of Tenant's right to possession of the
Premises, as herein provided, this Lease shall terminate and Landlord shall be
entitled to recover damages from Tenant as provided in California Civil Code
Section 1951.2 and any other applicable existing or future Law providing for
recovery of damages for such breach, including the worth at the time of award of
the amount by which the rent which would be payable by Tenant hereunder for the
remainder of the Term after the date of the award of damages, including
Additional Rent as reasonably estimated by Landlord, exceeds the amount of such
rental loss as Tenant proves could have been reasonably avoided, discounted at
the discount rate published by the Federal Reserve Bank of San Francisco for
member banks at the time of the award plus one percent (1%).
(b) Landlord shall have the remedy described in California Civil Code
Section 1951.4 so long as Landlord does not terminate Tenant's right to
possession.. (Landlord may continue this Lease in effect after Tenant's breach
and abandonment and recover rent as it becomes due, if Tenant has the right to
sublet or assign, subject only to reasonable limitations).
(c) Landlord may cure the Event of Default at Tenant's expense. If
Landlord pays any sum or incurs any expense in curing the Event of Default,
Tenant shall reimburse Landlord upon demand for the amount of such payment or
expense with interest at the Interest Rate from the date the sum is paid or the
expense is incurred until Landlord is reimbursed by Tenant.
(d) Landlord may remove all Tenant's property from the Premises, and
such property may be stored by Landlord in a public warehouse or elsewhere at
the sole cost and for the account of Tenant. If Landlord does not elect to store
any or all of Tenant's property left in the Premises, Landlord may consider such
property to be abandoned by Tenant, and Landlord may thereupon dispose of such
property in any manner deemed appropriate by Landlord. Any proceeds realized by
Landlord on the disposal of any such property shall be applied first to offset
all expenses of storage and sale, then credited against Tenant's outstanding
obligations to Landlord under this Lease, and any balance remaining after
satisfaction of all obligations of Tenant under this Lease shall be delivered to
Tenant.
16. LATE CHARGE AND INTEREST.
16.1 Late Charge. If any payment of rent is not received by Landlord when
-----------
due, Tenant shall pay to Landlord on demand as a late charge an additional
amount equal to four percent (4%)
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of the overdue payment. A late charge shall not be imposed more than once on any
particular installment not paid when due, but imposition of a late charge on any
payment not made when due does not eliminate or supersede late charges imposed
on other (prior) payments not made when due or preclude imposition of a late
charge on other installments or payments not made when due.
16.2 Interest. In addition to the late charges referred to above, which are
--------
intended to defray Landlord's costs resulting from late payments, any payment
from Tenant to Landlord not paid when due shall at Landlord's option bear
interest from the date due until paid to Landlord by Tenant at the rate of
fifteen percent (15%) per annum or the maximum lawful rate that Landlord may
charge to Tenant under applicable laws, whichever is less (the "Interest Rate").
Acceptance of any late charge and/or interest shall not constitute a waiver of
Tenant's default with respect to the overdue sum or prevent Landlord from
exercising any of its other rights and remedies under this Lease.
17. WAIVER. No provisions of this Lease shall be deemed waived by either party
unless such waiver is in a writing signed by the waiving party. The waiver by
either party of any breach of any provision of this Lease shall not be deemed a
waiver of such provision or of any subsequent breach of the same or any other
provision of this Lease. No delay or omission in the exercise of any right or
remedy of one party upon any default by the other party shall impair such right
or remedy or be construed as a waiver. Landlord's acceptance of any payments of
rent due under this Lease shall not be deemed a waiver of any default by Tenant
under this Lease (including Tenant's recurrent failure to timely pay rent) other
than Tenant's nonpayment of the accepted sums, and no endorsement or statement
on any check or accompanying any check or payment shall be deemed an accord and
satisfaction. The consent to or approval of any act requiring consent or
approval of the other party shall not be deemed to waive or render unnecessary
consent to or approval of any subsequent act requiting consent.
18. ENTRY, INSPECTION AND CLOSURE. Upon reasonable oral or written notice to
Tenant (and without notice in emergencies), Landlord and its authorized
representatives may enter the Premises at all reasonable times to determine
whether the Premises are in good condition, to determine whether Tenant is
complying with its obligations under this Lease, to perform any maintenance or
repair of the Premises or the Building that Landlord has the right or obligation
to perform, to install or repair improvements for other tenants where access to
the Premises is required for such installation or repair, to serve, post or keep
posted any notices required or allowed under the provisions of this Lease, to
show the Premises to prospective brokers, agents, buyers, transferees,
Mortgagees or tenants, or to do any other act or thing necessary for the safety
or preservation of the Premises or the Building. When reasonably necessary
Landlord may temporarily close entrances, doors, corridors, elevators or other
facilities in the Building without liability to Tenant by reason of such
closure. Landlord shall conduct its activities under this Section in a manner
that will minimize inconvenience to Tenant without incurring additional expense
to Landlord. In no event shall Tenant be entitled to an abatement of rent on
account of any entry by Landlord, and Landlord shall not be liable in any manner
for any inconvenience, loss of business or other damage to Tenant or other
persons arising out of Landlord's entry on the Premises in accordance with this
Section. No action by Landlord pursuant to this paragraph shall constitute an
eviction of Tenant, constructive or otherwise, entitle Tenant to an abatement of
rent or to terminate this Lease or otherwise release Tenant from any of Tenant's
obligations under this Lease.
25
<PAGE>
19. SURRENDER AND HOLDING OVER.
19.1 Surrender. Upon the expiration or termination of this Lease, Tenant
---------
shall surrender the Premises and all Tenant Improvements and Alterations to
Landlord broom-clean and in their original condition, except for reasonable wear
and tear, damage from casualty or condemnation and any changes resulting from
approved Alterations; provided, however, that prior to the expiration or
termination of this Lease Tenant shall remove all telephone and other cabling
installed in the Building by Tenant and remove from the Premises all Tenant's
personal property, Trade Fixtures and Alterations that Tenant has the right or
is required by Landlord to remove under the provisions of this Lease, and repair
any damage caused by such removal. If such removal is not completed before the
expiration or termination of the Term, Landlord shall have the right (but no
obligation) to remove the same, and Tenant shall pay Landlord on demand for all
costs of removal and storage thereof and for the rental value of the Premises
for the period from the end of the Term through the end of the time reasonably
required for such removal. Landlord shall also have the right to retain or
dispose of all or any portion of such property if Tenant does not pay all such
costs and retrieve the property within ten (10) days after receipt of notice
from Landlord (in which event title to all such property described in Landlord's
notice shall be transferred to and vest in Landlord). Tenant waives all Claims
against Landlord for any damage or loss to Tenant resulting from Landlord's
removal, storage, retention, or disposition of any such property. Upon
expiration or termination of this Lease or of Tenant's possession, whichever is
earliest, Tenant shall surrender all keys to the Premises or any other part of
the Building and shall deliver to Landlord all keys for or make known to
Landlord the combination of locks on all safes, cabinets and vaults that may be
located in the Premises. Tenant's obligations under this Section shall survive
the expiration or termination of this Lease.
19.2 Holding Over. If Tenant (directly or through any Transferee or other
------------
successor-in-interest of Tenant) remains in possession of the Premises after the
expiration or termination of this Lease, Tenant's continued possession shall be
on the basis of a tenancy at the sufferance of Landlord. In such event, Tenant
shall continue to comply with or perform all the terms and obligations of Tenant
under this Lease, except that the monthly Base Rent during Tenant's holding over
shall be twice the Base Rent payable in the last full month prior to the
termination hereof. Acceptance by Landlord of rent after such termination shall
not constitute a renewal of this Lease; and nothing contained in this provision
shall be deemed to waive Landlord's right of re-entry or any other right
hereunder or at law. Tenant shall indemnify, defend and hold Landlord harmless
from and against all Claims arising or resulting directly or indirectly from
Tenant's failure to timely surrender the Premises, including (i) any rent
payable by or any loss, cost, or damages claimed by any prospective tenant of
the Premises, and (ii) Landlord's damages as a result of such prospective-tenant
rescinding or refusing to enter into the prospective lease of the Premises by
reason of such failure to timely surrender the Premises.
20. ENCUMBRANCES.
20.1 Subordination. This Lease is expressly made subject and subordinate to
-------------
any mortgage, deed of trust, ground lease, underlying lease or like encumbrance
affecting any part of the Property or any interest of Landlord therein which is
now existing or hereafter executed or recorded ("Encumbrance"); provided,
however, that such subordination shall only be effective, as
26
<PAGE>
to future Encumbrances, if the holder of the Encumbrance agrees that this Lease
shall survive the termination of the Encumbrance by lapse of time, foreclosure
or otherwise so long as Tenant is not in default under this Lease. Provided the
conditions of the preceding sentence are satisfied, Tenant shall execute and
deliver to Landlord, within ten (10) days after written request therefor by
Landlord and in a form reasonably requested by Landlord, any additional
documents evidencing the subordination of this Lease with respect to any such
Encumbrance and the nondisturbance agreement of the holder of any such
Encumbrance. If the interest of Landlord in the Property is transferred pursuant
to or in lieu of proceedings for enforcement of any Encumbrance, Tenant shall
immediately and automatically attorn to the new owner, and this Lease shall
continue in full force and effect as a direct lease between the Purchaser and
Tenant on the terms and conditions set forth in this Lease. Landlord agrees to
use reasonable efforts to obtain, at Tenant's sole cost and expense, a
non-disturbance agreement from the holder of any existing Encumbrance under
which the holder of the Encumbrance shall agree that this lease shall survive
the termination of the "Encumbrance by lapse of time, foreclosure, or otherwise
so long as Tenant is not in default under this lease beyond any applicable cure
period.
20.2 Mortgagee Protection. Tenant agrees to give any holder of any
--------------------
Encumbrance covering any part of the Property ("Mortgagee"), by registered mail,
a copy of any notice of default served upon Landlord, provided that prior to
such notice Tenant has been notified in writing (by way of notice of assignment
of rents and leases, or otherwise) of the address of such Mortgagee. If Landlord
shall have failed to cure such default within thirty (30) days from the
effective date of such notice of default, then the Mortgagee shall have an
additional thirty (30) days within which to cure such default or if such default
cannot be cured within that time, then such additional time as may be necessary
to cure such default (including the time necessary to foreclose or otherwise
terminate its Encumbrance, if necessary to effect such cure), and this Lease
shall not be terminated so long as such remedies are being diligently pursued.
21. ESTOPPEL CERTIFICATES AND FINANCIAL STATEMENTS.
21.1 Estoppel Certificates. Within twenty (20) days after written request
---------------------
therefor, Tenant shall execute and deliver to Landlord, in a form provided by or
reasonably satisfactory to Landlord, a certificate stating, to the extent tree,
that this Lease is in full force and effect, describing any amendments or
modifications hereto, acknowledging that this Lease is subordinate or prior, as
the case may be, to any Encumbrance and stating any other information Landlord
may reasonably request, including the Term, the monthly Base Rent, the date to
which Rent has been paid, the amount of any security deposit or prepaid rent,
whether either party hereto is in default under the terms of the Lease, and
whether Landlord has completed its construction obligations hereunder (if-any).
Any person or entity purchasing, acquiring an interest in or extending financing
with respect to the Property shall be entitled to rely upon any such
certificate. If Tenant fails to deliver such certificate within twenty (20) days
after Landlord's second written request therefor, Tenant shall be liable to
Landlord for any damages incurred by Landlord including any profits or other
benefits from any financing of the Property or any interest therein which are
lost or made unavailable as a result, directly or indirectly, of Tenant's
failure or refusal to timely execute or deliver such estoppel certificate.
27
<PAGE>
21.2 Financial Statements. Upon request by Landlord, not more than once a
--------------------
year, Tenant shall deliver to Landlord a copy of Tenant's financial statements
(including at least a year end balance sheet and a statement of profit and loss)
for each of the three most recently completed years, prepared in accordance with
generally accepted accounting principles (and, if such is Tenant's normal
practice, audited by an independent certified public accountant), all then
available subsequent interim statements, and such other financial information as
may reasonably be requested by Landlord or required by any Mortgagee.
22. NOTICES. Any notice, demand, request, consent or approval that either party
desires or is required to give to the other party under this Lease shall be in
writing and shall be served personally, delivered by messenger or courier
service, or sent by U.S. certified mail, return receipt requested, postage
prepaid, addressed to the other party at the party's address for notices set
forth in the Basic Lease Information. Notices delivered personally will be
effective immediately upon receipt (or refusal of delivery or receipt); notices
sent by independent messenger or courier service will be effective one (1) day
after acceptance by the independent service for delivery; notices sent by mail
in accordance with this Section will be effective upon the date certified by the
U.S. Post Office for delivery or refusal to accept delivery. Either party may
change its address for notices hereunder by a notice to the other party
complying with this Section. If Tenant sublets the Premises, notices from
Landlord shall be effective on the subtenant when given to Tenant pursuant to
this Section.
23. ATTORNEYS' FEES.
23.1 Disputes between Landlord and Tenant. In the event of any litigation
------------------------------------
or arbitration regarding any rights and obligations under this Lease, the
prevailing party shall be entitled to recover reasonable attorneys' fees and
court costs in addition to any other relief which may be granted. The
"prevailing party" shall mean the party receiving substantially the relief
desired, whether by settlement, dismissal, summary judgment, judgment, or
otherwise.
23.2 Other Litigation. If Landlord, without fault on Landlord's part, is
----------------
made a party to any litigation instituted by Tenant or by any third party
against Tenant, or by or against any Transferee or other occupant of the
Premises or otherwise arising out of or resulting from any act or transaction of
Tenant or of any such Transferee or occupant, Tenant shall hold Landlord
harmless from any judgment rendered against Landlord or the Premises or any part
thereof, and reimburse Landlord upon demand for all costs and expenses,
including reasonable attorneys' fees, incurred by Landlord in or in connection
with such litigation.
24. QUIET POSSESSION. Subject to Tenant's full and timely performance of all of
Tenant's obligations under this Lease and subject to the terms of this Lease,
including Section 20 -Encumbrances, Tenant shall have the quiet possession of
the Premises throughout the Term as against any persons or entities lawfully
claiming by, through or under Landlord.
25. SECURITY MEASURES. Landlord may, but shall be under no obligation to,
implement security measures for the Property, such as the registration or search
of all persons entering or leaving the Building, requiting identification for
access to the Building, evacuation of the Building for cause, suspected cause,
or for drill purposes, the issuance of magnetic pass cards or keys for
28
<PAGE>
Building or elevator access and other actions that Landlord deems necessary or
appropriate to prevent any threat of property loss or damage, bodily injury or
business interruption; provided, however, that such measures shall be
implemented in a way as not to inconvenience tenants of the Building
unreasonably. Landlord shall at all times have the right to change, alter or
reduce any such security services or measures. Tenant shall cooperate and comply
with, and cause Tenant's Representatives and Visitors to cooperate and comply
with, such security measures. Landlord, its agents and employees shall have no
liability to Tenant or its Representatives or Visitors for the implementation or
exercise of, or the failure to implement or exercise, any such security measures
or for any resulting disturbance of Tenant's use or enjoyment of the Premises.
26. FORCE MAJEURE. If Landlord is delayed, interrupted or prevented from
performing any of its obligations under this Lease, including its obligations
under the Construction Rider (if any), and such delay, interruption or
prevention is due to fire, act of God, governmental act or failure to act, labor
dispute, unavailability of materials or any cause outside the reasonable control
of Landlord, then the time for performance of the affected obligations of
Landlord shall be extended for a period equivalent to the period of such delay,
interruption or prevention.
27. RULES AND REGULATIONS. Tenant shall be bound by and shall comply with the
roles and regulations attached to and made a part of this Lease as Exhibit C to
---------
the extent those roles and regulations are not in conflict with the terms of
this Lease, as well as any reasonable roles and regulations hereafter adopted by
Landlord for all tenants of the Building, upon notice to Tenant thereof
(collectively, the "Building Rules"). Landlord shall not be responsible to
Tenant or to any other person for any violation of, or failure to observe, the
Building Rules by any other tenant or other person.
28. LANDLORD'S LIABILITY. The term "Landlord," as used in this Lease, shall
mean only the owner or owners of the Building at the time in question. In the
event of any conveyance of title to the Building, then from and after the date
of such conveyance, the transferor Landlord shall be relieved of all liability
with respect to Landlord's obligations to be performed under this Lease after
the date of such conveyance, except that the transferor Landlord will not be
relieved of its obligation under this Lease to return any security deposit to
Tenant unless and until the transferor Landlord shall have transferred any such
security deposit to the successor Landlord. Notwithstanding any other term or
provision of this Lease, the liability of Landlord for its obligations under
this Lease is limited solely to Landlord's interest in the Building, including
insurance proceeds, as the same may from time to time be encumbered, and no
personal liability shall at any time be asserted or enforceable against any
other assets of Landlord or against Landlord's partners or members or its or
their respective partners, shareholders, members, directors, officers or
managers on account of any of Landlord's obligations or actions under this
Lease.
29. CONSENTS AND APPROVALS.
29.1 Determination in Good Faith. Wherever the consent, approval, judgment
---------------------------
or determination of Landlord is required or permitted under this Lease, Landlord
may exercise its good faith business judgment in granting or withholding such
consent or approval or in making such judgment or determination without
reference to any extrinsic standard of reasonableness, unless the provision
providing for such consent, approval, judgment or determination specifies that
29
<PAGE>
Landlord's consent or approval is not to be unreasonably withheld, or that such
judgment or determination is to be reasonable, or otherwise specifies the
standards under which Landlord may withhold its consent. If it is determined
that Landlord failed to give its consent where it was required to do so under
this Lease, Tenant shall be entitled to injunctive relief but shall not to be
entitled to monetary damages or to terminate this Lease for such failure.
29.2 No Liability Imposed on Landlord. The review and/or approval by
--------------------------------
Landlord of any item or matter to be reviewed or approved by Landlord under the
terms of this Lease or any Exhibits or Addenda hereto shall not impose upon
Landlord any liability for the accuracy or sufficiency of any such item or
matter or the quality or suitability of such item for its intended use. Any such
review or approval is for the sole purpose of protecting Landlord's interest in
the Property, and no third parties, including Tenant or the Representatives and
Visitors of Tenant or any person or entity claiming by, through or under Tenant,
shall have any rights as a consequence thereof.
30. BROKERS. Landlord shall pay the fee or commission of the broker or brokers
identified in the Basic Lease Information (the "Broker") in accordance with
Landlord's separate written agreement with the Broker, if any. Each party
warrants and represents to Landlord the other that in the negotiating or making
of this Lease neither party nor anyone acting on the behalf of the other party
has dealt with any broker or finder who might be entitled to a fee or commission
for this Lease other than the Broker. Each party shall indemnify and hold the
other harmless from any claim or claims, including costs, expenses and
attorney's fees incurred by the other party asserted by any other broker or
finder for a fee or commission based on any dealings with or statements made by
the indemnifying party.
32. ENTIRE AGREEMENT. This Lease, including the Exhibits and any Addenda
attached hereto, and the documents referred to herein, if any, constitute the
entire agreement between
30
<PAGE>
Landlord and Tenant with respect to the leasing of space by Tenant in the
Building, and supersede all prior or contemporaneous agreements, understandings,
proposals and other representations by or between Landlord and Tenant, whether
written or oral. Neither Landlord nor Landlord's agents have made any
representations or warranties with respect to the Premises, the Building, the
Project or this Lease except as expressly set forth herein, and no rights,
easements or licenses shall be acquired by Tenant by implication or otherwise
unless expressly set forth herein. The submission of this Lease for examination
does not constitute an option for the Premises and this Lease shall become
effective as a binding agreement only upon execution and delivery thereof by
Landlord to Tenant.
33. MISCELLANEOUS. This Lease may not be amended or modified except by a writing
signed by Landlord and Tenant. Subject to Section 14 - Assignment and Subletting
and Section 28 - Landlord's Liability, this Lease shall be binding on and shall
inure to the benefit of the parties and their respective successors, assigns and
legal representatives. The determination that any provisions hereof may be void,
invalid, illegal or unenforceable shall not impair any other provisions hereof
and all such other provisions of this Lease shall remain in full force and
effect. The unenforceability, invalidity or illegality of any provision of this
Lease under particular circumstances shall not render unenforceable, invalid or
illegal other provisions of this Lease, or the same provisions under other
circumstances. This Lease shall be construed and interpreted in accordance with
the laws (excluding conflict of laws principles) of the State in which the
Building is located. The provisions of this Lease shall be construed in
accordance with the fair meaning of the language used and shall not be strictly
construed against either party. When required by the context of this Lease, the
singular includes the plural. Wherever the term "including" is used in this
Lease, it shall be interpreted as meaning "including, but not limited to" the
matter or matters thereafter enumerated. The captions contained in this Lease
are for purposes of convenience only and are not to be used to interpret or
construe this Lease. If more than one person or entity is identified as Tenant
hereunder, the obligations of each and all of them under this Lease shall be
joint and several. Time is of the essence with respect to this Lease, except as
to the conditions relating to the delivery of possession of the Premises to
Tenant. Neither Landlord nor Tenant shall record this Lease.
34. AUTHORITY. If Tenant is a corporation, partnership, limited liability
company or other form of business entity, each of the persons executing this
Lease on behalf of Tenant warrants and represents that Tenant is a duly
organized and validly existing entity, that Tenant has full right and authority
to enter into this Lease and that the persons signing on behalf of Tenant are
authorized to do so and have the power to bind Tenant to this Lease. Tenant
shall provide Landlord upon request with evidence reasonably satisfactory to
Landlord confirming the foregoing representations.
35. CONDITION. The provisions of this Lease are subject to, conditioned upon and
shall not be effective unless and until Landlord and Easton Sports execute a
lease termination agreement by December 31, 1996. In the event the Easton Sports
termination has not been executed on or before December 31, 1996, then this
Lease shall be void and of no further force and effect. If the Easton Sports
termination is duly executed by December 31, 1996, Landlord shall confirm the
same in writing to Tenant.
31
<PAGE>
IN WITNESS WHEREOF, Landlord and Tenant have entered into this Lease as of
the date first above written.
TENANT: LANDLORD:
CROSSROADS SOFTWARE INC., BAY PARK PLAZA ASSOCIATES, L.P.,
a Delaware corporation a California limited partnership
By: Office Capital Partners, L.P.,
By: /s/ K.A. Garnett a California limited partnership
-------------------------------- its general Partner
Name: Katrina Garnett
--------------------------
Title: Pres. & CEO
-------------------------
By: Office Opportunity Corporation,
a California corporation,
its General Partner
By: /s/ John Hamilton
----------------------------------
Name: John Hamilton
--------------------------------
Title: EVP
-------------------------------
By: /s/ R. Matthew Moran
----------------------------------
Name: R. Matthew Moran
--------------------------------
Title: CFO
-------------------------------
32
<PAGE>
EXHIBIT A
---------
ATTACHED TO AND FORMING A PART OF
LEASE AGREEMENT
DATED AS OF DECEMBER 6, 1996
BETWEEN
BAY PARK PLAZA ASSOCIATES, L.P., AS LANDLORD,
AND
CROSSROADS SOFTWARE INC., AS TENANT ("LEASE")
THE PREMISES
------------
Tenant K.G.
-----
Landlord JH
-----
Suite 800, 17,927 rsf
[A blueprint like sketch depicting the floor plan
of the eighth floor Bay Park Plaza, showing interior and exterior
walls, doorways, windows, staircases and elevators]
Eighth Floor
- --------------------------------------------------------------------------------
BAY PARK PLAZA
<PAGE>
EXHIBIT B
ATTACHED TO AND FORMING A PART OF
LEASE AGREEMENT
DATED AS OF DECEMBER 6, 1996
BETWEEN
BAY PARK PLAZA ASSOCIATES, L.P., AS LANDLORD,
AND
CROSSROADS SOFTWARE INC., AS TENANT ("LEASE")
CONSTRUCTION RIDER
------------------
1. Delivery of Premises. The Premises shall be delivered to Tenant AS
--------------------
IS. (except that Landlord shall shampoo the existing carpet, replace carpet in
the elevator lobby only where former tenant's name appears and repair any wall
surfaces where former tenant's name appears and subject to any obligations of
Landlord specifically set forth in the Lease with respect to the Premises). All
improvements to the Premises (the "Tenant Improvements") shall be the
responsibility of Tenant in accordance with the provisions of Section 2 below.
2. Tenant Improvements. Tenant shall be responsible for designing,
-------------------
constructing, and installing at its sole cost and expense, all Tenant
Improvements in the Premises. All such work shall be subject to the provisions
of Section 6 - Alterations of the Lease. All plans and specifications for the
Tenant Improvements ("Tenant's Plans"), including space plans and architectural,
mechanical and electrical drawings, shall be prepared by a licensed architect or
engineer reasonably approved by Landlord. Tenant may retain its own interior
design or decorating firm for advice on design, color, furnishing and
decoration, but these items shall be subject to Landlord's reasonable approval.
All Tenant's Plans shall be (a) consistent with the design and construction of
the Building, (b) sufficient to secure all required approvals from governmental
authorities, and (c) otherwise subject to Landlord's reasonable approval.
Landlord shall approve or disapprove any Tenant's Plans as promptly as is
reasonably possible, but in no event later than ten (10) business days after
receipt of the Plans and such other information as is required to make a
reasonable decision with respect to the same. If Landlord disapproves any
Tenant's Plans, Landlord shall notify Tenant thereof and of any revisions that
Landlord reasonably requires in order to obtain Landlord's approval.
Tenant shall contract directly with Landlord's contractor for the
construction and installation of the Tenant Improvements.
Tenant agrees that Landlord shall not be liable in any way for any injury,
loss or damage which may occur to any of Tenant's property placed upon or
installed in the Premises prior to the Commencement Date, the same being at
Tenant's sole risk.
During the course of construction of the Tenant Improvements, Tenant, at
its expense, shall maintain (i) a policy or policies of public liability and
property damage insurance of the
<PAGE>
type and amount specified in Section 11.1 - Tenant's Insurance of the Lease,
which shall also insure against all liability of Tenant and its Representatives
arising out of or incurred in connection with the construction and installation
of the Tenant Improvements, and (ii) workers' compensation insurance as required
by law. The policy or policies for such insurance shall be subject to all the
provisions of Section 11.1 - Tenant's Insurance of the Lease.
3. Ownership of Tenant Improvements. All Tenant Improvements, whether
---------------------------------
installed by Landlord or Tenant, shall become a part of the Premises, shall be
the property of Landlord and, shall be surrendered by Tenant with the Premises,
on the Lease Termination, subject to the provisions of Section 19.1 - Surrender
of the Lease.
Tenant KG
-----
Landlord JH
-----
2
<PAGE>
EXHIBIT C
ATTACHED TO AND FORMING A PART OF
LEASE AGREEMENT
DATED AS OF DECEMBER 6, 1996
BETWEEN
BAY PARK PLAZA ASSOCIATES, L.P., AS LANDLORD,
AND
CROSSROADS SOFTWARE INC., AS TENANT ("LEASE")
BUILDING RULES
--------------
The following Building Rules are additional provisions of the foregoing
Lease to which they are attached. The capitalized terms used herein have the
same meanings as these terms are given in the Lease.
1. Use of Common Areas. Tenant will not obstruct the sidewalks, halls,
passages, exits, entrances, elevators or stairways of the Building ("Common
Areas"), and Tenant will not use the Common Areas for any purpose other than
ingress and egress to and from the Premises. The Common Areas, except for the
sidewalks, are not open to the general public and Landlord reserves the right to
control and prevent access to the Common Areas of any person whose presence, in
Landlord's opinion, would be prejudicial to the safety, reputation and interests
of the Building and its tenants.
2. No Access to Roof. Tenant has no right of access to the roof of the
Building and will not install, repair or replace any antenna, aerial, aerial
wires, fan, air-conditioner or other device on the roof of the Building, without
the prior written consent of Landlord. Any such device installed without such
written consent is subject to removal at Tenant's expense without notice at any
time. In any event Tenant will be liable for any damages or repairs incurred or
required as a result of its installation, use, repair, maintenance or removal of
such devices on the roof and agrees to indemnify and hold harmless Landlord from
any liability, loss, damage, cost or expense, including reasonable attorneys'
fees, arising from any activities of Tenant or of Tenant's Representatives on
the roof of the Building.
3. Signage. No sign, placard, picture, name, advertisement or notice
visible from the exterior of the Premises will be inscribed, painted, affixed or
otherwise displayed by Tenant on or in any part of the Building without the
prior written consent of Landlord. Landlord reserves the right to adopt and
furnish Tenant with general guidelines relating to signs in or on the Building.
All approved signage will be inscribed, painted or affixed at Tenant's expense
by a person approved by Landlord, which approval will not be unreasonably
withheld.
4. Prohibited Uses. The Premises will not be used for manufacturing, for
the storage of merchandise held for sale to the general public, for lodging or
for the sale of goods to the general public. Tenant will not permit any food
preparation on the Premises except that Tenant may use Underwriters' Laboratory
approved equipment for brewing coffee, tea, hot chocolate and
<PAGE>
similar beverages so long as such use is in accordance with all applicable
federal, state and city laws, codes, ordinances, roles and regulations. Tenant
may also use microwave ovens.
5. Janitorial Services. Tenant will not employ any person for the
purpose of cleaning the Premises or permit any person to enter the Building for
such purpose other than Landlord's janitorial service, except with Landlord's
prior written consent. Tenant will not necessitate, and will be liable for the
cost of, any undue amount of janitorial labor by reason of Tenant's carelessness
in or indifference to the preservation of good order and cleanliness in the
Premises. Janitorial service will not be furnished to areas in the Premises on
nights when such areas are occupied after 9:30 p.m., unless such service is
extended by written agreement to a later hour in specifically designated areas
of the Premises.
6. Keys and Locks. Landlord will furnish Tenant, free of charge, two
keys to each door or lock in the Premises along with an access code for each
employee of Tenant for after hours access to the Building and for access into
the Building's Fitness Center. Landlord may make a reasonable charge for any
additional or replacement keys. Tenant will not duplicate any keys, alter any
locks or install any new or additional lock or bolt on any door of its Premises
or on any other part of the Building without the prior written consent of
Landlord and, in any event, Tenant will provide Landlord with a key for any such
lock. On the termination of the Lease, Tenant will deliver to Landlord all keys
to any locks or doors in the Building which have been obtained by Tenant.
7. Freight. Upon not less than twenty-four hours prior notice to
Landlord, which notice may be oral, an elevator will be made available for
Tenant's use for transportation of freight, subject to such scheduling as
Landlord in its discretion deems appropriate. Tenant shall not transport freight
in loads exceeding the weight limitations of such elevator. Landlord reserves
the right to prescribe the weight, size and position of all equipment,
materials, furniture or other property brought into the Building, and no
property will be received in the Building or carried up or down the freight
elevator or stairs except during such hours and along such routes and by such
persons as may be designated by Landlord. Landlord reserves the right to require
that heavy objects will stand on wood strips of such length and thickness as is
necessary to properly distribute the weight. Landlord will not be responsible
for loss of or damage to any such property from any cause, and Tenant will be
liable for all damage or injuries caused by moving or maintaining such property.
8. Nuisances and Dangerous Substances. Tenant will not conduct itself or
permit Tenant's Representatives or Visitors to conduct themselves, in the
Premises or anywhere on or in the Property in a manner which is offensive or
unduly annoying to any other Tenant or Landlord's property managers. Tenant will
not install or operate any phonograph, radio receiver, musical instrument, or
television or other similar device in any part of the Common Areas and shall not
operate any such device installed in the Premises in such manner as to disturb
or annoy other tenants of the Building. Tenant will not use or keep in the
Premises or the Property any kerosene, gasoline or other combustible fluid or
material other than limited quantities thereof reasonably necessary for the
maintenance of office equipment, or, without Landlord's prior written approval,
use any method of heating or air conditioning other than that supplied by
Landlord. Tenant will not use or keep any foul or noxious gas or substance in
the Premises or
2
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permit or suffer the Premises to be occupied or used in a manner offensive or
objectionable to Landlord or other occupants of the Building by reason of noise,
odors or vibrations, or interfere in any way with other tenants or those having
business therein. Tenant will not bring or keep any animals in or about the
Premises or the Property.
9. Building Name and Address. Without Landlord's prior written consent,
Tenant will not use the name of the Building in connection with or in promoting
or advertising Tenant's business except as Tenant's address.
10. Building Directory. A directory for the Building will be provided for
the display of the name and location of tenants. Landlord reserves the right to
approve any additional names Tenant desires to place in the directory and, if so
approved, Landlord may assess a reasonable charge for adding such additional
names.
11. Window Coverings. No curtains, draperies, blinds, shutters, shades,
awnings, screens or other coverings, window ventilators, hangings, decorations
or similar equipment shall be attached to, hung or placed in, or used in or with
any window of the Building without the prior written consent of Landlord, and
Landlord shall have the right to control all lighting within the Premises that
may be visible from the exterior of the Building.
12. Floor Coverings. Tenant will not lay or otherwise affix linoleum,
tile, carpet or any other floor covering to the floor of the Premises in any
manner except as approved in writing by Landlord. Tenant will be liable for the
cost of repair of any damage resulting from the violation of this rule or the
removal of any floor covering by Tenant or its contractors, employees or
invitees.
13. Wiring and Cabling Installations. Landlord will direct Tenant's
electricians and other vendors as to where and how data, telephone, and
electrical wires and cables are to be installed. No boring or cutting for wires
or cables will be allowed without the prior written consent of Landlord. The
location of burglar alarms, smoke detectors, telephones, call boxes and other
office equipment affixed to the Premises shall be subject to the written
approval of Landlord.
14. Office Closing Procedures. Tenant will see that the doors of the
Premises are closed and locked and that all water faucets, water apparatus and
utilities are shut off before Tenant or its employees leave the Premises, so as
to prevent waste or damage. Tenant will be liable for all damage or injuries
sustained by other tenants or occupants of the Building or Landlord resulting
from Tenant's carelessness in this regard or violation of this role. Tenant will
keep the doors to the Building corridors closed at all times except for ingress
and egress.
15. Plumbing Facilities. The toilet rooms, toilets, urinals, wash bowls
and other apparatus shall not be used for any purpose other than that for which
they were constructed and no foreign substance of any kind whatsoever shall be
disposed of therein. Tenant will be liable for any breakage, stoppage or damage
resulting from the violation of this rule by Tenant, its employees or invitees.
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16. Use of Hand Trucks. Tenant will not use or permit to be used in the
Premises or in the Common Areas any hand trucks, carts or dollies except those
equipped with rubber tires and side guards or such other equipment as Landlord
may approve.
17. Refuse. Tenant shall store all Tenant's trash and garbage within the
Premises or in other facilities designated By Landlord for such purpose. Tenant
shall not place in any trash box or receptacle any material which cannot be
disposed of in the ordinary and customary manner of removing and disposing of
trash and garbage in the city in which the Building is located without being in
violation of any law or ordinance governing such disposal. All trash and garbage
removal shall be made in accordance with directions issued from time to time by
Landlord, only through such Common Areas provided for such purposes and at such
times as Landlord may designate. Tenant shall comply with the requirements of
any recycling program adopted by Landlord for the Building.
18. Soliciting. Canvassing, peddling, soliciting and distribution of
handbills or any other written materials in the Building are prohibited, and
Tenant will cooperate to prevent the same.
19. Parking. Tenant will use, and cause Tenant's Representatives and
Visitors to use, the parking spaces to which Tenant is entitled under the Lease
in a manner consistent with Landlord's directional signs and markings in the
Parking Facility. Specifically, but without limitation, Tenant will not park, or
permit Tenant's Representatives or Visitors to park, in a manner that impedes
access to and from the Building or the Parking Facility or that violates space
reservations for handicapped drivers registered as such with the California
Department of Motor Vehicles. Landlord may use such reasonable means as may be
necessary to enforce the directional signs and markings in the Parking Facility,
including but not limited to towing services, and Landlord will not be liable
for any damage to vehicles towed as a result of noncompliance with such parking
regulations.
20. Fire, Security and Safety Regulations. Tenant will comply with all
safety, security, fire protection and evacuation measures and procedures
established by Landlord or any governmental agency.
21. Responsibility for Theft. Tenant assumes any and all responsibility
for protecting the Premises from theft, robbery and pilferage, which includes
keeping doors locked and other means of entry to the Premises closed.
22. Sales and Auctions. Tenant will not conduct or permit to be conducted
any sale by auction in, upon or from the Premises or elsewhere in the Property,
whether said auction be voluntary, involuntary, pursuant to any assignment for
the payment of creditors or pursuant to any bankruptcy or other insolvency
proceeding.
23. Waiver of Rules. Landlord may waive any one or more of these Building
Rules for the benefit of any particular tenant or tenants, but no such waiver by
Landlord will be construed as a waiver of such Building Rules in favor of any
other tenant or tenants nor prevent
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Landlord from thereafter enforcing these Building Rules against any or all of
the tenants of the Building.
24. Effect on Lease. These Building Rules are in addition to, and shall
not be construed to in any way modify or amend, in whole or in part, the terms,
covenants, agreements and conditions of the Lease. Violation of these Building
Rules constitutes a failure to fully perform the provisions of the Lease, as
referred to in Section 15.1 - "Events of Default".
25. Non-Discriminatory Enforcement. Subject to the provisions of the
Lease (and the provisions of other leases with respect to other tenants),
Landlord shall use reasonable efforts to enforce these Building Rules in a non-
discriminatory manner, but in no event shall Landlord have any liability for any
failure or refusal to do so (and Tenant's sole and exclusive remedy for any such
failure or refusal shall be injunctive relief preventing Landlord from enforcing
any of the Building Rules against Tenant in a manner that discriminates against
Tenant.
26. Additional and Amended Rules. Landlord reserves the right to rescind
or amend these Building Rules and/or adopt any other and reasonable rules and
regulations as in its judgment may from time to time be needed for the safety,
care and cleanliness of the Building and for the preservation of good order
therein.
Tenant KG
-----
Landlord JH
-----
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Exhibit D
---------
ATTACHED TO AND FORMING A PART OF
LEASE AGREEMENT
DATED AS OF DECEMBER 6, 1996
BETWEEN
BAY PARK PLAZA ASSOCIATES, L.P., AS LANDLORD,
AND
CROSSROADS SOFTWARE INC., AS TENANT ("LEASE")
ADDITIONAL PROVISIONS RIDER
----------------------------
1. Parking.
-------
(a) Landlord shall provide Tenant, on an unassigned, non-exclusive and
unlabelled basis, sixty (60) parking spaces in the Parking Facility during
the initial Term; provided, however, that ten percent (10%) of such spaces
may be designated by Landlord as Building visitors' parking. If Tenant
leases additional office space pursuant to this Lease, Landlord shall
provide Tenant, also on an unassigned, non-exclusive and unlabelled basis,
one (1) additional parking space in the Parking Facility for each three
hundred (300) rentable square feet of additional office space leased to
Tenant. Up to ten percent (10%) of such additional parking spaces may also
be designated by Landlord as Building visitors' parking.
(b) The parking spaces to be made available to Tenant hereunder may
contain a reasonable mix of spaces for compact cars. Landlord shall take
reasonable actions to ensure the availability of the parking spaces leased
by Tenant, but Landlord does not guarantee the availability of those spaces
at all times against the actions of other tenants of the Building and users
of the Parking Facility. Access to the Parking Facility may, at Landlord's
option, be regulated by card, pass, bumper sticker, decal or other
appropriate identification issued by Landlord.
(c) Assignment and Subletting. Notwithstanding the provisions of
-------------------------
Section 14 - "Assignment and Subletting" hereof, Tenant shall not assign
its rights to the parking spaces or any interest therein, or sublease or
otherwise allow the use of all or any part of the parking spaces to or by
any other person, except with Landlord's prior-written consent, which may
be granted or withheld by Landlord in its sole discretion or in connection
with an assignment or subletting permitted under Section 14 of the Lease.
In the event of any separate assignment or sublease of parking space rights
that is approved by Landlord, Landlord shall be entitled to receive, as
Additional Rent hereunder, one hundred percent (100%) of any profit
received by Tenant in connection with such assignment or sublease.
(d) Condemnation, Damage or Destruction. In the event the Parking
-----------------------------------
Facility is the subject of a Condemnation, or is damaged or destroyed, and
this Lease is
<PAGE>
not terminated, and if in such event the available number of parking spaces
in the Parking Facility is permanently reduced, then Tenant's rights to use
parking spaces hereunder may, at the election of Landlord, thereafter be
reduced in proportion to the reduction of the total number of parking
spaces in the Parking Facility. In such event, Landlord reserves the right
to reduce the number of parking spaces to which Tenant is entitled or to
relocate some or all of the parking spaces to which Tenant is entitled to
other areas in the Parking Facility.
2. Letter of Credit.
----------------
Upon execution of this Lease, Tenant shall deliver to Landlord an
irrevocable standby letter of credit (the "Letter of Credit") in form, and
issued by a financial institution ("Issuer"), reasonably satisfactory to
Landlord. The Letter of Credit shall be in the amount of Three Hundred and
Thirty Two Thousand Dollars ($332,000.00), name Landlord as the beneficiary
thereunder, permit partial draws, and provide that draws thereunder will be
honored upon receipt by Issuer of a written statement signed by Landlord
specifying the amount to be paid by Issuer to Landlord and certifying that (i)
there exists an Event of Default as that term is defined in the Lease, (ii)
Landlord is entitled under the terms and conditions of the Lease to the payment
by Tenant of the amount specified, (iii) Landlord has applied the Security
Deposit held by Landlord identified in the Basic Lease Information in accordance
with Section 4 of the Lease and Tenant has not paid to Landlord the amount
required to replenish the Security Deposit as required by Section 4 of the
Lease. Landlord shall be entitled to draw the entire amount under the Letter of
Credit if Tenant does not deliver to Landlord an extension or replacement for
the Letter of Credit in substantially the form of the initial Letter of Credit
and in the amount then required under this Lease no later than one month before
the expiration date of the then existing Letter of Credit. Upon delivery of any
such replacement letter of credit, Landlord shall return to Tenant the original
Letter of Credit. Landlord shall be entitled to draw amounts under the Letter of
Credit required from time to time to cure any Event of Default under this Lease
or to compensate Landlord for any damage Landlord incurs as a result of Tenant's
failure to perform any of Tenant's obligations hereunder. If Landlord draws down
the entire amount of the Letter of Credit as set forth immediately above, then
Landlord shall hold such amount in a separate interest bearing account, as a
security deposit, subject to the provisions of Section 4 of this Lease (other
than the last sentence of Section 4) concerning the use and return of funds held
as a Security Deposit. All interest earned on such funds shall be maintained in
such interest bearing account and shall be paid to Tenant at the expiration or
sooner termination of this Lease. At Tenant's option, Tenant may instruct
Landlord to invest such funds in a conservative manner selected by Tenant which
will allow Landlord reasonable access to such funds, but will provide a higher
rate of return than an interest bearing account. All of the provisions herein
concerning relief from the obligation to maintain the Letter of Credit and to
reduce the amount of the Letter of Credit shall apply to such funds held by
Landlord. If the requirement of the Letter of Credit would be waived, Landlord
shall return such funds and all interest earned thereon to Tenant. If the
requirement for the amount of the Letter of Credit would be reduced, Landlord
shall return that portion of the funds to Tenant which is equal to the amount of
such reduction each time such reduction would occur.
Landlord shall release the Letter of Credit at the end of the sixtieth
(60th) month of the Term if, as of such date, no Event of Default on the part of
Tenant then exists and no event or
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condition then exists which, with notice or the passage of time, would become an
Event of Default on the part of Tenant. Promptly following Tenant's cure of any
such Event of Default or default of which Landlord has given Tenant written
notice, Landlord shall release the Letter of Credit. The amount of the Letter of
Credit shall be reduced on the second (2nd) anniversary of the Commencement Date
by the amount of Sixty-Six Thousand Four Hundred Dollars ($66,400), provided
that on the anniversary date in question there exists neither an Event of
Default or an event or condition which, with notice or the passage of time,
would become an Event of Default on the part of Tenant.
3. Warrants. As additional consideration for Landlord's execution of this
--------
Lease, Tenant has agreed to issue to Landlord, promptly following the execution
of this Lease, warrants to purchase shares of Tenant's common stock, exercisable
by Landlord at any time during the Term of this Lease. This Lease shall not be
effective as a binding agreement between Landlord and Tenant unless and until a
Stock Purchase Warrant satisfactory to Landlord, in Landlord's sole and absolute
discretion, shall have been properly authorized and issued by Tenant to Landlord
and accepted by Landlord. If no such Stock Purchase Warrant shall have been so
issued and accepted by 5:00 p.m. on December 13, 1996, this Lease shall
automatically be null and void.
4. Extension Option
----------------
Provided that Tenant has not assigned this Lease or sublet any or all of
the Premises (it being intended that all rights pursuant to this provision are
and shall be personal to the original Tenant under this Lease and shall not be
transferable or exercisable for the benefit of any Transferee), and provided
Tenant is not in default under this Lease at the time of exercise or at any
other time thereafter until the beginning of any such extension of the Term,
Tenant shall have the option (the "Extension Option") to extend the Term for one
additional consecutive period of five (5) years ("Extension Period"), by giving
written notice to Landlord of the exercise of any such Extension Option at least
twelve (12) months prior to the expiration of the initial Term. The exercise of
any Extension Option by Tenant shall be irrevocable and shall cover the entire
Premises then leased by Tenant pursuant to this Lease. Upon such exercise,
Landlord shall have the right to review and approve, in Landlord's sole
discretion, Tenant's financial condition and creditworthiness at such time. If
Landlord approves Tenant's financial condition and creditworthiness, Landlord
shall so notify Tenant, and the Term of the Lease shall be extended for the
applicable Extension Period without the execution of any further instrument by
the parties; provided that Landlord and Tenant shall, if requested by either
party, execute and acknowledge and instrument confirming the exercise of the
Extension Option. Any Extension Option shall terminate if not exercised
precisely in the manner provided herein. Any extension of the Term shall be upon
all the terms and conditions set forth in this Lease and all Exhibits thereto,
except that:(i) Tenant shall have no further option to extend the Term of the
Lease, other than as specifically set forth herein; (ii) Landlord shall not be
obligated to contribute funds toward the cost of any remodeling, renovation,
alteration or improvement work in the Premises; and (iii) Base Rent for any such
Extension Period shall be 100% of the then "Fair Market Base Rental" (as defined
below) for the Premises for the space and term involved, which shall be
determined as set forth below.
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(a) "Fair Market Base Rental" shall mean the "fair market" Base Rent at the
time or times in question for the applicable space, based on the prevailing
rentals then being charged to new tenants in the Building and new tenants in
other office buildings in the general vicinity of the Building of comparable
size, location, quality and age as the Building for leases with terms equal to
the Extension Period, taking into account the then-condition of the Premises,
the amount of any leasing commission payable with respect to the Option Period,
the creditworthiness and financial strength of the tenant, the financial
guaranties provided the tenant (if any), the value of market concessions
(including the value of construction, renovations, moving and other allowances
or rent credits), the desirability, location in the building, size and quality
of the space, tenant finish and/or improvement allowance and/or tenant
improvements, included services, operating expenses, and tax and expense stops
or other escalation clauses, for the space in the Building for which Fair Market
Base Rental is being determined and for comparable space in the buildings which
are being used for comparison. Fair Market Base Rental shall also reflect the
then prevailing rental structure of comparable office buildings in the general
vicinity of the Property, so that if, for example, at the time Fair Market Base
Rental is being determined the prevailing rental structure of comparable space
and for comparable lease terms includes periodic rental adjustments or
escalations, Fair Market Base Rental shall reflect such rental structure.
(b) Landlord and Tenant shall endeavor to agree upon the Fair Market Base
Rental. If they are unable to so agree within thirty (30) days after receipt by
Landlord of Tenant's notice of exercise of the Extension Option, Landlord and
Tenant shall mutually select a licensed real estate broker who is active in the
leasing of office space in the general vicinity of the Property. Landlord shall
submit Landlord's determination of Fair Market Base Rental and Tenant shall
submit Tenant's determination of Fair Market Base Rental to such broker, at such
time or times and in such manner as Landlord and Tenant shall agree (or as
directed by the broker if Landlord and Tenant do not promptly agree). The broker
shall select either Landlord's or Tenant's determination as the Fair Market Base
Rental, and such determination shall be binding on Landlord and Tenant. If
Tenant's determination is selected as the Fair Market Base Rental, then Landlord
shall bear all of the broker's cost and fees. If Landlord's determination is
selected as the Fair Market Base Rental, then Tenant shall bear all of the
broker's cost and fees.
(c) In the event the Fair Market Base Rental for any Extension Period has
not been determined at such time as Tenant is obligated to pay Base Rent for
such Extension Period, Tenant shall pay as Base Rent pending such determination,
the Base Rent in effect for such space immediately prior to the Extension
Period; provided, that upon the determination of the applicable Fair Market Base
Rental, any shortage of Base Rent paid, together with interest at the rate
specified in the Lease, shall be paid to Landlord by Tenant.
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<PAGE>
(d) In no event shall the Base Rent during any Extension Period be less
than the Base Rent in effect immediately prior to such Extension Period.
(e) The term of this Lease, whether consisting of the Initial Term alone or
the Initial Term as extended by any Extension Period (if any Extension Option is
exercised), is referred to in this Lease as the "Term".
Tenant KG
-----
Landlord JH
-----
5
<PAGE>
FIRST AMENDMENT OF LEASE
This First Amendment of Lease (the "Agreement") is made and entered into
this the 13th day of November, 1997, by and between BAY PARK PLAZA ASSOCIATES,
L. P., a California limited partnership ("Landlord") and CROSSROADS SOFTWARE,
INC., a Delaware corporation (the "Tenant").
Recitals:
---------
A. Landlord and Tenant entered into that Lease Agreement dated December 6,
1996 (the "Lease"), under the terms of which Lease Landlord leased to Tenant and
Tenant leased from Landlord certain premises known as Suite 800 containing
approximately 17,927 square feet of Rentable Area (hereinafter sometimes
referred to as the "Existing Premises") situated on the 8th floor of an office
building known as Bay Park Plaza I (the "Building") located at 577 Airport
Boulevard, Burlingame, California 94010.
B. Landlord and Tenant desire that Tenant lease from Landlord two (2)
different spaces (in addition to the Existing Premises) in the Building pursuant
to the provisions of the Lease, as amended by this Agreement, such spaces being
identified as (i) Suite 500 (the "First Expansion Premises") containing
approximately 17,783 square feet of Rentable Area, and (ii) Suite 600 (the
"Second. Expansion Premises") containing approximately 4,814 square feet of
Rentable Area. Together, the First Expansion Premises and the Second Expansion
Premises are sometimes herein referred to the "Expansion Premises." The
approximate size and location of the First Expansion Premises is shown on
Exhibit A (a) and the approximate size and location of the Second Expansion
Premises is shown on Exhibit A (b) attached hereto.
D. Tenant acknowledges that it has been informed by Landlord that the First
Expansion Premises is currently leased by a tenant pursuant to a lease which
expires April 23, 1998; and that the Second Expansion Premises is currently
leased by a tenant pursuant to a lease which expires June 30, 1998 and that the
tenant leasing the Second Expansion Premises has vacated the Second Expansion
Premises.
E. The Term of the Lease is scheduled to expire January 31, 2002, and in
connection with Tenant leasing the Expansion Premises pursuant to the provisions
of this Agreement, Landlord and Tenant desire to extend the Term of the Lease,
and to make certain other changes, all as more specifically contained
hereinbelow.
NOW THEREFORE, in consideration of the above recitals, the mutual promises
contained herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1) All capitalized terms not defined herein shall have the meaning set forth
in the Lease.
1
<PAGE>
2) Landlord agrees to use its good faith efforts to enter into early lease
termination agreements with the tenant leasing the First Expansion Premises
and the tenant leasing the Second Expansion Premises, to terminate such
leases prior to their existing expiration dates; provided, however, nothing
contained herein shall obligate Landlord to pay any sum to either of such
existing tenants to terminate their leases prior to the existing expiration
dates. If, despite Landlord's good faith efforts, Landlord is not able to
enter into early lease termination agreements with the tenants leasing the
First Expansion Premises and the Second Expansion Premises to terminate
such leases prior to their respective existing expiration dates, Landlord
shall not be liable to Tenant for any such failure to terminate such leases
prior to their existing expiration dates.
3) Landlord hereby leases to Tenant, and Tenant leases from Landlord,
commencing upon the First Expansion Premises Commencement Date (as
hereinafter defined) and continuing through the Term (as hereinafter
extended) the First Expansion Premises. Landlord hereby leases to Tenant,
and Tenant leases from Landlord, commencing upon the Second Expansion
Premises Commencement Date (as hereinafter defined) and continuing through
the Term (as hereinafter extended) the Second Expansion Premises. Landlord
agrees to give Tenant possession of the First Expansion Premises when the
First Expansion Premises has been vacated after the earlier to occur of (a)
the expiration of the lease with the tenant currently leasing the First
Expansion Premises, or (b) the complete execution of any early termination
agreement terminating the lease with such tenant currently leasing the
First Expansion Premises. Landlord agrees to give Tenant possession of the
Second Expansion Premises after the earlier to occur of (a) the expiration
of the lease with the tenant currently leasing the Second Expansion
Premises, or (b) the complete execution of any early termination agreement
terminating the lease with such tenant currently leasing the Second
Expansion Premises.
4) Tenant has inspected the First Expansion Premises and the Second Expansion
Premises and shall take both Expansion Premises in their existing "AS IS"
condition, without any obligation by Landlord to construct any Tenant
Improvements in the Expansion Premises or for Landlord to contribute to the
costs of Tenant Improvements in the Expansion Premises, except for the
payment of an Allowance in connection with Tenant constructing Tenant
Improvements in the First Expansion Premises, as specifically contained in
the next succeeding paragraph.
5) Tenant shall be responsible for designing, constructing and installing all
Tenant Improvements in the Expansion Premises in accordance with the
provisions of Paragraph 2 of Exhibit B to the Lease and Section 6 of the
Lease. Tenant shall contract directly with Commercial Interior Contractors
("CIC") for construction of Tenant Improvements in the Expansion Premises.
Tenant acknowledges that CIC is an affiliate of Landlord. Landlord shall
contribute up to $5.00 per square foot of Rentable Area in the First
Expansion Premises (the "Allowance") toward the cost of the design
(including preparation of space plans and Construction Documents),
construction and
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<PAGE>
installation of the Tenant Improvements in the First Expansion Premises,
such Allowance to be paid upon Tenant completing the Tenant Improvements in
the First Expansion Premises. The balance, if any, of the cost of the
Tenant Improvements, including, but not limited to, usual markups for
overhead, supervision and profit, shall be paid by Tenant to CIC pursuant
to Tenant's contract with CIC.
6) The First Expansion Premises Commencement Date shall be the earlier of (a)
sixty (60) days after the date Landlord delivers possession of the First
Expansion Premises to Tenant (which date may be prior to the date of the
Second Expansion Premises Commencement Date) after the tenant currently
occupying the First Expansion Premises has vacated the First Expansion
Premises pursuant to the provisions of Paragraph 2 above, or (b) any
earlier date upon which Tenant, with Landlord's written permission,
actually occupies and conducts business in any portion of the First
Expansion Premises.
7) The Second Expansion Premises Commencement Date shall be the date Landlord
delivers possession of the Second Expansion Premises to Tenant (which date
may be prior to the date of the First Expansion Premises Date) after the
tenant currently occupying the Second Expansion Premises has vacated the
Second Expansion Premises pursuant to the provisions of Paragraph 2 above.
8) The Term of the Lease shall be extended to be one hundred twenty (120) full
calendar months (plus any partial month of the Term) following the First
Expansion Premises Commencement Date; and the Term shall expire on the last
day of the one hundred twentieth (120th) full calendar month following the
First Expansion Premises Commencement Date.
9) Base Rent for the Expansion Premises. Reference is hereby made to Article 3
------------------------------------
of the Lease. In addition to the Base Rent payable by Tenant for the
Existing Premises pursuant to the provisions of the Lease in effect prior
to the date of this Agreement, from and after the First Expansion Premises
Commencement Date (with respect to the First Expansion Premises), and the
Second Expansion Premises Commencement Date (with respect to the Second
Expansion Premises) and continuing through the remainder of the Term
(subject to annual increases in accordance with the provisions of Paragraph
10 below), Tenant shall pay to Landlord, in accordance with the provisions
of Section 3.1 of the Lease, $2.75 per month per square foot of Rentable
Area in the Expansion Premises as Base Rent for the Expansion Premises.
Base Rent for any partial month following the respective Expansion Premises
Commencement Date shall be prorated based on the actual number of days in
the month.
10) The following new provision is hereby added to the Lease:
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<PAGE>
COST OF LIVING ADJUSTMENTS.
(a) Subject to the restriction on increases in Base Rent for the
Existing Premises prior to January 31, 2002 contained in Paragraph 11
below, the Base Rent per month per square foot of Rentable Area shall be
increased effective on each anniversary of the First Expansion Premises
Commencement Date (each anniversary being an "Adjustment Date"), to reflect
increases in the cost of living. The adjustment shall be calculated by
multiplying the average Base Rent per month per square foot of Rentable
Area for the twelve (12) month period immediately preceding the Adjustment
Date (the "Prior Period") by the percentage increase in the Consumer Price
Index, measured from (i) the last calendar month for which the Consumer
Price Index was published at least one hundred twenty (120) days
immediately before the commencement of the Prior Period to (ii) the same
calendar month immediately prior to the end of the Prior Period; provided,
however, that on each Adjustment Date the Base Rent per month per square
foot of Rentable Area shall be increased by a minimum of three percent (3%)
per annum, cumulative, from the First Expansion Premises Commencement Date
or the prior Adjustment Date, as applicable, and by a maximum of six
percent (6%) per annum, cumulative, from the First Expansion Premises
Commencement Date or the prior Adjustment Date, as applicable. The Base
Rent per month per square foot of Rentable Area for each twelve (12) month
period after the first Adjustment Date shall be the Base Rent per month per
square foot of Rentable Area for the Prior Period plus the increase
calculated in accordance with the preceding sentence. In no event shall the
Base Rent per month per square foot of Rentable Area following any such
adjustment be less than the Base Rent per month per square foot of Rentable
Area in effect immediately prior to such adjustment.
(b) The term "Consumer Price Index" means the United States Department
of Labor's Bureau of Labor Statistics' Consumer Price Index, All Urban
Consumers, All Items, San Francisco-Oakland-San Jose, California
(1982-84=100), or the successor of such index.
(c) If the Consumer Price Index is not published by the Bureau of
Labor Statistics or another governmental agency for any month for which an
adjustment in the Consumer Price Index is to be measured, then the
foregoing calculations shall be made using the most closely comparable
statistics on the purchasing power of the consumer dollar as published by a
responsible financial authority selected by Landlord.
(d) If the adjustment provided for in this Section has not been made
by any Adjustment Date, Tenant shall continue to pay monthly Base Rent at
the rate applicable to the Prior Period. Within fifteen (15) days after
Tenant receives Landlord's written notice of the adjusted Base Rent for the
then-current Adjustment Date, Tenant shall pay to Landlord the shortfall
between the old Base Rent, as paid by Tenant to date for the then-current
Lease period, and the new Base Rent payable from the beginning of
4
<PAGE>
the then-current Lease period through the date of Landlord's notice.
Thereafter during such Lease period, Tenant shall pay the Base Rent per
month per square foot of Rentable Area at the new rate set forth in
Landlord's notice.
11) Base Rent for the Existing Premises. Continuing through January 31, 2002
-----------------------------------
Tenant shall continue to pay Base Rent for the Existing Premises in
accordance with the provisions of the Lease in effect prior to the date of
this Agreement (without any increase pursuant to the provisions of
Paragraph 10 above prior to January 31, 2002). Commencing February 1, 2002,
Tenant shall pay to Landlord for the Existing Premises the same Base Rent
per month per square foot of Rentable Area contained in the Existing
Premises as Tenant is required to pay per month per square foot of Rentable
Area in the Expansion Premises effective February 1, 2002 pursuant to the
provisions of Paragraph 9 above, as increased pursuant to the provisions of
Paragraph 10 above. Thereafter, Base Rent for the Existing Premises shall
increase on the same date, and in the same manner, as Base Rent for the
Expansion Premises increases pursuant to the provisions of Paragraph 10
above.
12) Reference is hereby made to Section 4.01 of the Lease. The Base Year for
the entire Premises, including the Existing Premises, shall be calendar
year 1998.
13) If the First Expansion Premises Commencement Date occurs prior to the
Second Expansion Premises Commencement Date, then upon the First Expansion
Premises Commencement Date, Tenant's Share shall be 25.53%. If the Second
Expansion Premises Commencement Date occurs prior to the First Expansion
Premises Commencement Date, then upon the Second Expansion Premises
Commencement Date, Tenant's Share shall be 16.26%. Tenant's Share shall be
28.97% upon such date both the First Expansion Premises Commencement Date
and the First Expansion Premises Commencement Date has occurred, whichever
is later.
14) Letter of Credit. Within fifteen (15) days after Tenant executes this
----------------
Agreement Tenant shall deliver to Landlord, subject to the provisions of
Paragraph 2 of the Additional Provisions Rider to the Lease, either (a) an
amendment to the existing Letter of Credit increasing the amount of the
existing Letter of Credit by Ninety Thousand and 00/100 Dollars
($90,000.00), or (b) in addition to the existing Letter of Credit, a new
Letter of Credit in the amount of Ninety Thousand and 00/100 Dollars
($90,000.00).
15) Tenant warrants and represents to Landlord that in the negotiating or
making of this Agreement neither Tenant nor anyone acting on Tenant's
behalf has dealt with any broker or finder who might be entitled to a fee
or commission for this Agreement. Tenant shall indemnify and hold Landlord
harmless from any claim or claims, including costs, expenses and attorney's
fees incurred by Landlord asserted by any other broker or finder for a fee
or commission based upon any dealings with or statements made by Tenant or
Tenant's Representatives.
5
<PAGE>
Except as herein amended, the Lease remains unchanged and is in full force
and effect in accordance with the terms and provisions contained therein.
This First Amendment is hereby executed and delivered in multiple
counterparts, each of which shall have the force and effect of an original.
TENANT: LANDLORD:
CROSSROADS SOFTWARE, INC. BAY PARK PLAZA ASSOCIATES, LP
a Delaware corporation a California limited partnership
By: /s/ K.A. Garnett By: Opportunity Capital Partners, L.P.
------------------------------ a California limited partnership
Print Name: KATRINA GARNETT General Partner
----------------------
Title: President & CEO By: Office Opportunity Corporation
--------------------------- a California corporation General
Partner
By: /s/ Stephen J. Pilch
-------------------------------
Name: Stephen J. Pilch
-------------------------
Manager
By:
-------------------------------
Name:
-------------------------
Manager
6
<PAGE>
EXHIBIT A (a)
-------------
ATTACHED TO AND FORMING A PART OF THE LEASE AGREEMENT
DATED AS OF NOVEMBER 13, 1997
BETWEEN
BAY PARK PLAZA ASSOCIATES, L.P.
AND
CROSSROADS SOFTWARE, INC.
[A blueprint like diagram depicting the floor plan of
the 5th floor of Bay Park Plaza, showing square footage, interior and exterior
walls, doorways, windows, staircases and elevators and showing the expansion
of Crossworlds' premises under the amendment to the lease]
577 Airport Blvd., Burlingame, CA 94010
INITIALS:
LANDLORD: [INITIALS]
TENANT: [INITIALS]
<PAGE>
EXHIBIT A (b)
-------------
ATTACHED TO AND FORMING A PART OF THE LEASE AGREEMENT
DATED AS OF NOVEMBER 13, 1997
BETWEEN
BAY PARK PLAZA ASSOCIATES, L.P.
AND
CROSSROADS SOFTWARE, INC.
[A blueprint like diagram depicting the floor plan of
the 6th floor of Bay Park Plaza, showing square footage, interior and exterior
walls, doorways, windows, staircases and elevators and showing the expansion
of Crossworlds' premises under the amendment to the lease]
INITIALS:
LANDLORD: [INITIALS]
TENANT: [INITIALS]
<PAGE>
SECOND AMENDMENT OF LEASE
This Second Amendment of Lease (the "Agreement") is made and entered into
this the 16th day of March, 1998, by and between BAY PARK PLAZA ASSOCIATES, L.
P., a California limited partnership ("Landlord") and CROSSWORLDS SOFTWARE,
INC., a Delaware corporation, formerly known as Crossroads Software, Inc. (the
"Tenant").
Recitals:
---------
A. Landlord and Tenant entered into that Lease Agreement dated December 6,
1996 (the "Original Lease"), under the terms of which Original Lease Landlord
leased to Tenant and Tenant leased from Landlord certain premises known as Suite
800 containing approximately 17,927 square feet of Rentable Area (hereinafter
sometimes referred to as the "Initial Premises") situated on the 8th floor of an
office building known as Bay Park Plaza I (the "Building") located at 577
Airport Boulevard, Burlingame, California 94010. The Original Lease was amended
by a First Amendment of Lease dated November 13, 1997 (the "First Amendment"),
under the terms of which First Amendment Landlord leased to Tenant two (2)
spaces (the "Expansion Premises") containing a total of approximately 22,597
square feet of Rentable Area. The Initial Premises and Expansion Premises are
hereinafter together called the Existing Premises; and the Original Lease and
First Amendment are hereinafter together called the Lease.
B. Landlord and Tenant desire that Tenant lease from Landlord three (3)
additional spaces (in addition to the Existing Premises) in the Building
pursuant to the provisions of the Lease, as amended by this Agreement, such
spaces being identified as (i) a portion of Suite 210 (the "Third Expansion
Premises") containing approximately 1,156 square feet of Rentable Area located
on the second floor, (ii) Suite 230 (the "Fourth Expansion Premises") containing
approximately 2,812 square feet of Rentable Area located on the second floor,
and (iii) Suite 620 (the "Fifth Expansion Premises") containing approximately
3,365 square feet of Rentable Area located on the sixth floor. Collectively, the
Third Expansion Premises, Fourth Expansion Premises and the Fifth Expansion
Premises are sometimes herein referred to the "Additional Expansion Premises."
The approximate size and location of the Third Expansion Premises is shown on
Exhibit A (a), the approximate size and location of the Fourth Expansion
Premises is shown on Exhibit A (b) attached hereto, and the approximate size and
location of the Fifth Expansion Premises is shown on Exhibit A (c) attached
hereto.
D. Tenant acknowledges that it has been informed by Landlord that the
Fourth Expansion Premises is currently leased by a tenant pursuant to a lease
which is scheduled to expire on March 31, 1998; and that the Fifth Expansion
Premises is currently leased by a tenant pursuant to a lease which is scheduled
to expire on earlier of (i) January 31, 1999, or (ii) the commencement date of
another lease between landlord and tenant for larger space in the project.
E. The Term of the Lease is scheduled to expire April 30, 2008.
1
<PAGE>
F. In connection with Tenant leasing the Additional Expansion Premises
pursuant to the provisions of this Agreement, Landlord and Tenant desire to make
certain changes in the Lease, all as more specifically contained hereinbelow.
NOW THEREFORE, in consideration of the above recitals, the mutual promises
contained herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows'
1) All capitalized terms not defined herein shall have the meaning set forth
in the Lease.
2) Landlord agrees to use its good faith efforts to cause the tenant leasing
the Fourth Expansion Premises and the tenant leasing the Fifth Expansion
Premises to vacate their respective premises upon expiration of their
existing leases. If, despite Landlord's good faith efforts, the tenants
leasing the Fourth Expansion Premises and the Fifth Expansion Premises do
not vacate their respective premises upon expiration of their respective
existing leases, Landlord shall not be liable to Tenant for any such
failure to vacate their premises upon expiration of their existing leases.
3) Landlord hereby leases to Tenant, and Tenant leases from Landlord, the
Third Expansion Premises, commencing upon the Third Expansion Premises
Commencement Date (as hereinafter defined) mid continuing through the Term.
Landlord hereby leases to Tenant, and Tenant leases from Landlord, the
Fourth Expansion Premises, commencing upon the Fourth Expansion Premises
Commencement Date (as hereinafter defined) and continuing through the Term.
Landlord hereby leases to Tenant, and Tenant leases from Landlord, the
Fifth Expansion Premises, commencing upon the Fifth Expansion Premises
Commencement Date (as hereinafter defined) and continuing through the Tenn.
Landlord agrees to give Tenant possession of the Fourth Expansion Premises
when the tenant leasing the Fourth Expansion Premises has vacated the
Fourth Expansion Premises after expiration of its lease. Landlord agrees to
give Tenant possession of the Fifth Expansion Premises when the tenant
leasing the Fifth Expansion Premises has vacated the Fifth Expansion
Premises after expiration of its lease.
4) Tenant has inspected the Third Expansion Premises, the Fourth Expansion
Premises and the Fifth Expansion Premises and shall take all Additional
Expansion Premises in their existing "AS IS" condition, without any
obligation by Landlord to construct any Tenant Improvements in the
Additional Expansion Premises or for Landlord to contribute to the costs of
Tenant Improvements in the Additional Expansion Premises, except for the
payment of an Allowance in connection with Tenant constructing Tenant
Improvements in the Third Expansion Premises, as specifically contained in
the second succeeding paragraph.
2
<PAGE>
5) Tenant shall be responsible for designing, constructing and installing all
Tenant Improvements in the Additional Expansion Premises in accordance with
the provisions of Paragraph 2 of Exhibit B to the Original Lease and
Section 6 of the Original Lease. Tenant shall contract directly with
Commercial Interior Contractors ("CIC") for construction of Tenant
Improvements in the Additional Expansion Premises. Tenant acknowledges that
CIC is an affiliate of Landlord.
6) Landlord shall pay the cost of one space plan and one revision for the
Third Expansion Premises. In addition, Landlord shall contribute up to
$4,624.00 (the "Allowance"), which is based upon $4.00 per square foot of
Rentable Area in the Third Expansion Premises, toward the cost of the
design (including preparation of additional space plans and Construction
Documents), construction and installation of the Tenant Improvements in the
Third Expansion Premises, such Allowance to be paid upon Tenant completing
the Tenant Improvements in the Third Expansion Premises. The balance, if
any, of the cost of the Tenant Improvements, including, but not limited to,
usual markups for overhead, supervision and profit, shall be paid by Tenant
to CIC pursuant to Tenant's contract with CIC.
7) The Third Expansion Premises Commencement Date shall be April 1, 1998.
8) The Fourth Expansion Premises Commencement Date shall be the later of (a)
March 21, 1998, or (b) the date Landlord delivers possession of the Fourth
Expansion Premises to Tenant, after the tenant currently occupying the
Fourth Expansion Premises has vacated the Fourth Expansion Premises
pursuant to the provisions of Paragraph 2 above.
9) The Fifth Expansion Premises Commencement Date shall be the date Landlord
delivers possession of the Fifth Expansion Premises to Tenant, after the
tenant currently occupying the Fifth Expansion Premises has vacated the
Fifth Expansion Premises pursuant to the provisions of Paragraph 2 above.
10) Base Rent for the Additional Expansion Premises. Reference is hereby made
------------------------------------------------
to Article 3 of the Lease. In addition to the Base Rent payable by Tenant
for the Existing Premises pursuant to the provisions of the Lease in effect
prior to the date of this Agreement, from and after the Third Expansion
Premises Commencement Date (with respect to the Third Expansion Premises),
Fourth Expansion Premises Commencement Date (with respect to the Fourth
Expansion Premises), and the Fifth Expansion Premises Commencement Date
(with respect to the Fifth Expansion Premises) and continuing through the
remainder of the Term (subject to annual increases on the same date as
increases in Base Rent for the Expansion Premises in accordance with the
provisions entitled "Cost of Living Adjustments" contained in Paragraph 10
of the First Amendment), Tenant shall pay to Landlord, in accordance with
the provisions of
3
<PAGE>
Section 3.1 of the Lease, $2.75 per month per square foot of Rentable Area
in the Additional Expansion Premises as Base Rent for the Additional
Expansion Premises.
Base Rent for any partial month following the respective Additional
Expansion Premises Commencement Date shall be prorated based on the actual
number of days in the month.
11) Base Rent for the Existing Premises. Tenant shall continue to pay Base Rent
------------------------------------
for the Existing Premises in accordance with the provisions of the Lease in
effect prior to the date of this Agreement.
12) Reference is hereby made to Section 4.01 of the Lease. The Base Year for
the entire Additional Expansion Premises shall be calendar year 1998.
13) Upon the Third Expansion Premises Commencement Date, Tenant's Share shall
be increased by 0.83%. Upon the Fourth Expansion Premises Commencement
Date, Tenant's Share shall be increased by 2.01%. Upon the Fifth Expansion
Premises Commencement Date, Tenant's Share shall be increased by 2.41%.
14) Additional Security Deposit. Within ten (10) days after Tenant executes
----------------------------
this Agreement Tenant shall deliver to Landlord the sum of Twenty Thousand
and 00/100 Dollars ($20,000.00) as an additional Security Deposit to be
held by Landlord in accordance with the Security Deposit provisions of the
Lease.
15) Tenant warrants and represents to Landlord that in the negotiating or
making of this Agreement neither Tenant nor anyone acting on Tenant's
behalf has dealt with any broker or finder who might be entitled to a fee
or commission for this Agreement. Tenant shall indemnify and hold Landlord
harmless from any claim or claims, including costs, expenses and attorney's
fees incurred by Landlord asserted by any other broker or finder for a fee
or commission based upon any dealings with or statements made by Tenant or
Tenant's Representatives.
Except as herein amended, the Lease remains unchanged and is in full force
and effect in accordance with the terms and provisions contained therein.
This Second Amendment is hereby executed and delivered in multiple
counterparts, each of which shall have the force and effect of an original.
4
<PAGE>
TENANT: LANDLORD:
CROSSWORLDS SOFTWARE, INC. BAY PARK PLAZA ASSOCIATES, LP
a Delaware corporation a California limited partnership
By: /s/ Jeffrey C. Smurthwaite By: Opportunity Capital Partners, L.P.
--------------------------------- a California limited partnership
Print Name: Jeffrey C. Smurthwaite General Partner
-------------------------
Title: Controller By: Office Opportunity Corporation
------------------------------ a California corporation General
Partner
By: /s/ Gregory Fogg
------------------------------
Name: Gregory Fogg
------------------------
Manager
By:
------------------------------
Name:
------------------------
Manager
5
<PAGE>
EXHIBIT A (a)
-------------
ATTACHED TO AND FORMING A PART OF THE SECOND AMENDMENT TO LEASE
AS OF MARCH 16, 1998
BETWEEN
BAY PARK PLAZA ASSOCIATES, L.P.
AND
CROSSWORLDS SOFTWARE, INC.
1,156 RSF
[A blueprint like diagram depicting the floor plan of
the 2nd floor of Bay Park Plaza, showing square footage, interior and exterior
walls, doorways, windows, staircases and elevators and showing the expansion
of Crossworlds' premises under the amendment to the lease]
INITIALS:
---------
LANDLORD: [INITIALS]
TENANT: [INITIALS]
<PAGE>
EXHIBIT A (b)
-------------
ATTACHED TO AND FORMING A PART OF THE SECOND AMENDMENT TO LEASE
AS OF MARCH 16, 1998
BETWEEN
BAY PARK PLAZA ASSOCIATES, L.P.
AND
CROSSWORLDS SOFTWARE, INC.
2,812 RSF
[A blueprint like diagram depicting the floor plan of
the 2nd floor of Bay Park Plaza, showing square footage, interior and exterior
walls, doorways, windows, staircases and elevators and showing the expansion
of Crossworlds' premises under the amendment to the lease]
INITIALS:
---------
LANDLORD: [INITIALS]
TENANT: [INITIALS]
<PAGE>
EXHIBIT A (c)
-------------
ATTACHED TO AND FORMING A PART OF THE SECOND AMENDMENT TO LEASE
AS OF MARCH 16, 1998
BETWEEN
BAY PARK PLAZA ASSOCIATES, L.P.
AND
CROSSWORLDS SOFTWARE, INC.
3,365 RSF
[A blueprint like diagram depicting the floor plan of
the 6th floor of Bay Park Plaza, showing square footage, interior and exterior
walls, doorways, windows, staircases and elevators and showing the expansion
of Crossworlds' premises under the amendment to the lease]
INITIALS:
---------
LANDLORD:[INITIALS]
TENANT: [INITIALS]
<PAGE>
CONDITIONAL PARTIAL LEASE TERMINATION AGREEMENT
-----------------------------------------------
THIS CONDITIONAL PARTIAL LEASE TERMINATION AGREEMENT ("Agreement") is
made as of March 29, 1999 by and between BAY PARK PLAZA ASSOCIATES, LLC, a
California limited liability company ("Landlord"), and CROSSWORLDS SOFTWARE,
INC., a Delaware corporation ("Tenant").
RECITALS
A. Landlord and Tenant entered into a Lease Agreement dated December 6,
1996 (as amended by a First Amendment of Lease dated November 13, 1997 and a
Second Amendment of Lease dated March 16, 1998, as so amended, the "Lease"),
under the terms of which Lease Landlord leased to Tenant and Tenant leased from
Landlord certain premises (the "Premises") consisting of approximately 47,857
rentable square feet of office space on the 2nd, 5th, 6th and 8th floors of the
building commonly known as Bay Park Plaza (the "Building"), located at 577
Airport Boulevard, Burlingame, CA 94010.
B. The term of the Lease is scheduled to expire on April 30, 2008.
C. Subject to, and conditioned upon (i) Landlord entering into leases with
one or more replacement tenants for all portions of the Termination Space (as
hereinafter defined), and (ii) Tenant paying to Landlord the Early Termination
Fee (as hereinafter defined) within the time and in accordance with the
provisions contained herein, Landlord and Tenant desire mutually to partially
terminate the Lease only with respect to the Termination Space, such partial
termination being effective, if at all, as of April 1, 1999 (the "Early
Termination Date"), upon and subject to the terms and conditions of this
Agreement.
D. The Termination Space shall consist of Suite 620 containing
approximately 3,365 rentable square feet in the Building. The approximate
location and configuration of the Termination Space is shown on Exhibit A
attached hereto and made a part hereof.
NOW, THEREFORE, in consideration of the foregoing Recitals and the mutual
covenants contained herein, and subject to the condition set forth in Paragraph
3 herein, Landlord and Tenant hereby agree as follows:
1. CONDITIONAL PARTIAL TERMINATION OF LEASE. Provided that (i) Landlord has
entered into leases with one or more replacement tenants for the entire
Termination Space on or before April 15, 1999 and (ii) Tenant has paid to
Landlord the Early Termination Fee on or before the date contained in Paragraph
3 below, the Lease shall terminate only with respect to the Termination Space on
the Early Termination Date. Notwithstanding any partial termination of the Lease
with respect to the Termination Space in accordance with the provisions of this
Agreement, the Lease shall remain in full force and effect in accordance with
its terms for the remaining portion of the Premises not terminated in accordance
with the terms of this Agreement. Upon any such partial termination of the Lease
Tenant shall vacate and surrender the Termination Space no later than the Early
Termination Date in accordance with the terms of the Lease and warrant that
1
<PAGE>
any and all subtenants or co-occupants of the Termination Space shall vacate and
surrender the Termination Space no later than the Early Termination Date in
accordance with the terms of the Lease. Notwithstanding any partial termination
of the Lease in accordance with this Agreement, Tenant shall remain liable for
all obligations of Tenant accruing under the Lease through the later of (x) the
Early Termination Date, or (y) the date Tenant, and all subtenants actually
vacate the Termination Space.
2. REMEDIES. Upon Landlord notifying Tenant that Landlord has entered into
one or more leases with replacement tenants for the entire Termination Space on
or before April 15, 1999, if Tenant, and all subtenants of the Termination
Space, fail to vacate and surrender the Termination Space by the Early
Termination Date:(i) Landlord shall have all of the rights and remedies provided
in the Lease for failure to vacate and surrender the Premises upon expiration or
termination of the Lease, and Tenant shall be liable to and shall indemnify
Landlord as provided in the Lease; or (ii) Landlord, at Landlord's sole option,
by written notice to Tenant, may rescind the Conditional Partial Termination of
the Lease, whereupon the Lease with respect to the Termination Space shall be
reinstated and Tenant shall remain responsible for all of Tenant's obligations
thereunder, including those obligations that would have accrued during the
period from the Early Termination Date to the date of the reinstatement of the
Lease with respect to the Termination Space. In addition, if Tenant (directly or
through any Transferee or other successor-in-interest of Tenant) remains in
possession of the Termination Space after the Early Termination Date, Tenant's
continued possession shall be on the basis of a tenancy at the sufferance of
Landlord. No act or omission by Landlord, other than its specific written
consent, shall constitute permission for Tenant to continue in possession of the
Termination Space, and if such consent is given or declared to have been given
by a court judgment, Landlord may terminate Tenant's holdover tenancy in the
Termination Space at any time upon seven (7) days written notice. In such event,
Tenant shall continue to comply with or perform all the terms and obligations of
Tenant under the Lease, except that the monthly Base Rent during Tenant's
holding over in the Termination Space shall be twice the Base Rent payable in
the last full month prior to the partial termination of the Lease with respect
to the Termination Space. Acceptance by Landlord of rent after such termination
shall not constitute a renewal or extension of the Lease with respect to the
Termination Space; and nothing contained in this provision shall be deemed to
waive Landlord's right of re-entry or any other right hereunder or at law.
Tenant shall indemnify, defend and hold Landlord harmless from and against all
claims arising or resulting directly or indirectly from the failure of Tenant
and the sublessees to timely surrender the Termination Space, including (i) any
rent payable by or any loss, cost, or damages claimed by any prospective tenant
of the Termination Space, and (ii) Landlord's damages as a result of such
prospective tenant rescinding or refusing to enter into the prospective lease of
the Termination Space by reason of such failure to timely surrender the
Termination Space.
3. ADDITIONAL CONDITION TO PARTIAL LEASE TERMINATION. Within ten (10) days
after the date Landlord has notified Tenant that Landlord has entered into one
or more leases with replacement tenants for the entire Termination Space Tenant
shall pay to Landlord the sum of Thirty-three Thousand Six Hundred Fifty and
00/100 Dollars ($33,650.00) as an "Early Termination Fee" for the partial
termination of the Lease with
2
<PAGE>
respect to the Termination Space. The provisions of Paragraph 1 (Termination)
are subject to, conditioned upon and shall not be effective unless and until
Tenant has paid to Landlord the Early Termination Fee.
4. SUBLEASE/ASSIGNMENT. Except for Tenant's subleasing of the Termination
Space which Tenant has disclosed in writing to Landlord prior to the date of
this Agreement, each party represents to the other that it has not made any
assignment, sublease, transfer, conveyance, or other disposition of the Lease or
any interest in the Lease or the Termination Space.
5. GENERAL PROVISIONS. This Agreement shall be governed by the laws of the
State of California, without regard to conflict of laws principles. In the event
a dispute arises concerning the enforcement or interpretation of this Agreement,
the prevailing party in such dispute will be entitled to recover from the
opposing party all costs and expenses incurred by the prevailing party,
including court or arbitration costs and reasonable attorney's fees. The
"prevailing party" will be the party that the court or arbitrator hearing the
dispute determines to have prevailed, based upon assessing which party's major
arguments could fairly be said to have prevailed over the other party's major
arguments on major disputed issues. This Agreement will be binding upon and
inure to the benefit of the heirs, representatives, successors in interest and
assigns of the respective parties to this Agreement. Each party agrees to
cooperate with each other and to execute and deliver all such further written
instruments and documents and do all such further acts and things that such
party may be reasonably requested to do from time to time by the other party in
order to carry out the provisions and objectives of this Agreement.
6. ENTIRE AGREEMENT. This Agreement contains the entire agreement between
Landlord and Tenant relating to the partial termination of the Lease with
respect to the Termination Space, and may be modified only by a writing signed
by Landlord and Tenant.
IN WITNESS WHEREOF, Landlord and Tenant have entered in this Agreement as
of the date first above written.
TENANT: LANDLORD:
CROSSWORLDS SOFTWARE, INC. BAY PARK PLAZA ASSOCIATES, LP
a Delaware corporation a California limited partnership
By: /s/ Mark R. Kent By: Cornerstone Holdings, LLC a Delaware
------------------------ limited liability company General
Name: Mark R. Kent Partner
------------------
Title: SVP & CFO By: /s/ James Arce
------------------ ---------------------------
Name: James Arce
By: ----------------------
------------------------ Title: Authorized Signatory
Name:
------------------
Title:
------------------
3
<PAGE>
EXHIBIT A
---------
ATTACHED TO AND FORMING A PART OF
CONDITIONAL PARTIAL LEASE TERMINATION AGREEMENT
DATED AS OF MARCH 29 1999
BETWEEN
BAY PARK PLAZA ASSOCIATES, LLC AS LANDLORD,
AND
CROSSWORLDS SOFTWARE, INC. AS TENANT ("AGREEMENT")
THE TERMINATION SPACE
---------------------
[Blueprint like sketch depicting floor plan of the 6th floor of
Bay Park Plaza and showing the space vacated by CrossWorlds under the
partial termination of the lease]
BAYPARK PLAZA 1
577 AIRPORT BLVD.
SUITE 620
BURLINGAME, CA.
WILSON - CORNERSTONE
3,365 RSF
INITIALS:
---------
LANDLORD: [INITIALS]
TENANT: [INITIALS]
Exhibit A, Page 1
<PAGE>
[LETTERHEAD OF WILSON CORNERSTONE]
April 21, 1999
Ms. Katrina Garnett
CrossWorlds Software
577 Airport Boulevard, Suite 800
Burlingame, CA 94010
RE: Lease Termination Agreement
Bay Park Plaza, Suite 620
Dear Katrina:
Enclosed you will find the fully executed Conditional Partial Lease Termination
Agreement between Bay Park Plaza Associates and CrossWorlds Software, Inc. for
the above referenced location.
Should you have any questions, please do not hesitate to contact me. I can be
reached at 650-952-2256.
Very truly yours,
Wilson Cornerstone Properties
/s/ Becky Selna
Becky Selna
Leasing Manager
BS/sw
cc: Carol Knorp, WCP
Jill Collins, WCP
<PAGE>
THIRD AMENDMENT OF LEASE
This Third Amendment of Lease (the "Amendment") is made and entered into
this the 28th day of January, 2000, by and between BAY PARK PLAZA ASSOCIATES, L.
P., a California limited partnership ("Landlord") and CROSSWORLDS SOFTWARE,
INC., a Delaware corporation, formerly known as Crossroads Software, Inc.
("Tenant").
Recitals:
---------
A. Landlord and Tenant entered into that Lease Agreement dated December 6,
1996 (the "Original Lease"), under the terms of which Original Lease Landlord
leased to Tenant and Tenant leased from Landlord Suite 800 containing
approximately 17,927 square feet of Rentable Area (hereinafter sometimes
referred to as the "Initial Premises") situated on the 8th floor of ma office
building known as Bay Park Plaza I (the "Building") located at 577 Airport
Boulevard, Burlingame, California 94010. The Original Lease was amended by a
First Amendment of Lease dated November 13, 1997 (the "First Amendment"), under
the terms of which First Amendment Landlord leased to Tenant two (2) spaces,
consisting of (i) Suite 500 (the "First Expansion Premises") containing
approximately 17,783 square feet of Rentable Area, and (ii) Suite 600 (the
"Second Expansion Premises") containing approximately 4,814 square feet of
Rentable Area; and a Second Amendment of Lease dated March 16, 1998 (the "Second
Amendment"), under the terms of which Second Amendment Landlord leased to Tenant
three (3) spaces consisting of (iii) a portion of Suite 210 (the "Third
Expansion Premises") containing approximately 1,156 square feet of Rentable
Area, (iv) Suite 230 (the "Fourth Expansion Premises") containing approximately
2,812 square feet of Rentable Area, and (v) Suite 620 (the "Fifth Expansion
Premises") containing approximately 3,365 square feet of Rentable Area. The
Initial Lease as amended by the First Amendment and the Second Amendment is
herein called the "Revised Lease". In accordance with the terms of a Conditional
Partial Lease Termination Agreement dated as of March 29, 1999 ("Termination
Agreement"), Landlord and Tenant partially terminated the Revised Lease with
respect to Suite 620 (the Termination Space") containing approximately 3,365
square feet of Rentable Area. The Revised Lease, as modified by the Termination
Agreement, is herein called the "Lease". As of the date of this Amendment,
Landlord leases to Tenant, in accordance with the provisions of the Lease,
approximately 44,492 square feet of Rentable Area (the "Premises") in the
Building, consisting of the First Expansion Premises, the Second Expansion
Premises, the Third Expansion Premises, and the Fourth Expansion Premises.
C. The Term of the Lease is scheduled to expire April 30, 2008.
D. Tenant desires to install two (2) signs on the side of the exterior of
the Building. The elevation schematic showing the signs and their location on
the Building is attached hereto as Exhibit A.
---------
1
<PAGE>
NOW THEREFORE, in consideration of the above recitals, the mutual promises
contained herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the panics hereto agree as
follows:
1) Capitalized Terms. All capitalized terms not defined herein shall have the
-----------------
meaning set forth in the Lease.
2) Tenant's Signs. Provided that (i) Crossworlds Software, Inc. has not
--------------
assigned the Lease or sublet more than 15,000 square feet of Rentable Area
of the Premises (it being intended that all rights pursuant to this
provision are and shall be personal to the original Tenant under this
Amendment and shall not be transferable or exercisable for the benefit of
any Transferee), (ii) Tenant actually occupies and uses at least 25,000
square feet of Rentable Area in the Premises, and (iii) Tenant is not in
default reader the Lease beyond any applicable notice and cure periods, and
in further consideration of Tenant paying to Landlord the sign space rent
("Sign Space Rent") as contained in Paragraph 3 of this Amendment, Tenant
shall be permitted to rent space on the exterior of the Building, and
install two (2) "back-lit" metal identification sirens ("Tenant's Signs")
showing only the name and logo of Tenant, on the parapet level of the
southern and western exterior sides of the Building facing Highway 101, as
shown on Exhibit A attached hereto, subject to the provisions of the Lease,
and to this Amendment, and to the following terms and conditions:
(a) Tenant shall be responsible, at Tenant's sole cost and expense
(including, without Imitation, the cost of obtaining all permits and
other governmental approval), to (i) install Tenant's Signs (including
electrical wiring and all related equipment), (ii) maintain Tenant's
Signs from the date of installation of Tenant's Signs and continuing
throughout the Term (including any electrical wiring and all related
equipment serving Tenant's Sign's), (iii) remove Tenant's Signs at the
expiration or termination of the Term of the Lease, and (iv) in
accordance with the provisions of (g) below, upon removal of Tenant's
Signs, repair any damage to the facade of the Building resulting from
the installation or operation of either or both of Tenant's Signs.
(b) The same name and logo shall be shown on each of Tenant's Signs.
(c) Tenant shall not install Tenant's Signs until Tenant receives the
prior written approval of Landlord and the City of Burlingame,
California, which approval has been obtained by Tenant as of the date
of this Lease.
(d) Tenant has submitted to Landlord proposed plans and specifications for
Tenant's Signs. Landlord shall have the right to approve the size,
shape, design, location, material, colors, illumination, method of
attachment to
2
<PAGE>
Landlord's overhead) to perform the work described in Landlord's Sign
Notice.
(i) Within fifteen (15) days after the expiration or termination of this
Lease Tenant agrees, at Tenant's sole cost and expense, to (a) remove
Tenant's Signs from the exterior of the Building using a contractor
approved contractor, and (b) repair any damage to the exterior of the
Building caused by the installation or removal of Tenant's Signs. If
Tenant fails to remove Tenant's Signs from the exterior of the
Building, and to repair any damage to the exterior of the Building,
within fifteen (15) days after the expiration or termination of this
Lease, then Landlord shall have the right to do so at Tenant's
expense, and Tenant agrees to pay to Landlord the costs of such
removal and repair (together with Landlord's overhead) within thirty
(30) days after Landlord invoices Tenant therefor.
3) Sign Space Rent. Commencing on the date Tenant first installs Tenant's
---------------
Signs on the Building, and continuing until the earlier of (a) the end of
the Term of the Lease, or (b) the date Tenant actually removes Tenant's
Signs as a result of (i) Tenant actually using and occupying at least
25,000 square feet of Rentable Area in the Premises, or (ii) Tenant losing
the right to Tenant's Sign pursuant to the provisions of this Amendment,
Tenant shall pay to Landlord, as additional rent, in accordance with the
provisions of the Lease, the sum of $2,500.00 per month for each of
Tenant's Signs (being $5,000.00 per month for both of Tenant's Signs) for
the right to place and install Tenant's Signs on the exterior of the
Building.
4) Tenant's Indemnity. Notwithstanding the provisions of Section 11.3 of the
------------------
Original Lease, Tenant shall indemnify, protect, defend and hold Landlord
harmless from and against any claims, actions, liabilities, damages, costs
or expenses, including reasonable attorneys' fees and costs incurred in
defending against the same ("Claims") arising from (a) Tenant's Signs, or
(b) any construction or other work undertaken by Tenant in connection with
Tenant's Signs (including any design defects), or (c) any loss, injury or
damage, howsoever and by whomsoever caused, to any person or property,
including the Building and Landlord's property as a result of Tenant's
Signs.
5) Tenant's Insurance. Subject to the provisions of Article 11 of the Original
------------------
Lease, Tenant's commercial general liability insurance required under
Section 11.1 (a) of the Original Lease shall be endorsed to cover Tenant's
Signs.
6) Ratification of Lease. Except as expressly amended by this Amendment, the
---------------------
Lease remains in full force and effect without modification. The Lease and
this Amendment are fully integrated and each reference to any provision of
the Lease shall be deemed to refer to such provision of the Lease as it may
be amended in this Amendment. The Lease and this Amendment constitute the
entire agreement between Landlord and
4
<PAGE>
Tenant regarding the subject matters contained herein, and supersedes all
prior or contemporaneous agreements, understandings, proposals and other
representations by or between Landlord and Tenant, whether written or oral,
all of which are merged herein. This Amendment shall become effective as a
binding agreement only if and when Amendment executes this Amendment
following execution by Tenant and delivers a fully executed copy to Tenant.
7) Authority. Each of the persons executing this Amendment on behalf of Tenant
---------
warrants and represents that Tenant is a duly organized and validly
existing entity, that Tenant has full right and authority to enter into
this Amendment and that the persons signing on behalf of Tenant are
authorized to do so and have the power to bind Tenant to this Amendment.
This Third Amendment is hereby executed and delivered in multiple
counterparts, each of which shall have the force and effect of an original.
TENANT: LANDLORD:
CROSSWORLDS SOFTWARE, INC. BAY PARK PLAZA ASSOCIATES, LP
a Delaware corporation a California limited partnership
By: /s/ Mark R. Kent By: Cornerstone Holdings, LLC
--------------------- a Delaware limited liability company
Print Name: Mark R. Kent general partner
--------------
Title: SVP & CFO By: /s/ Robert Paratte
------------------- -------------------
Name: Robert Paratte
-------------------
By: /s/ Stacey Giamalis Title: Authorized Signatory
--------------------- ---------------------
Print Name: Stacey Giamalis
--------------
Title: VP & Secretary
-------------------
(For corporate entities, signature by TWO corporate officers is required: one by
(x) the chairman of the board, the president, or any vice president; and the
other by (y) the secretary, any assistant secretary, the chief financial
officer, or any assistant treasurer.)
LEGAL OK
[INITIALS]
5
<PAGE>
EXHIBIT A
---------
ATTACHED TO AND FORMING A PART OF
THIRD AMENDMENT OF LEASE
DATED AS OF JANUARY 28, 2000
BETWEEN
BAY PARK PLAZA ASSOCIATES, L. P., AS LANDLORD,
AND
CROSSWORLDS SOFTWARE, INC., AS TENANT ("AMENDMENT")
TENANT'S SIGNS
--------------
[Elevation schematic showing location
and configuration of Tenant's Signs
to be inserted.]
INITIALS:
Landlord:_____
Tenant: _____
Exhibit A, Page 1
<PAGE>
EXHIBIT 10.16
- --------------------------------------------------------------------------------
CROSSROADS SOFTWARE, INC.
LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
1. DEFINITIONS AND CONSTRUCTION.................................. 1
1.1 Definitions.............................................. 1
1.2 Accounting Terms......................................... 6
2. LOAN AND TERMS OF PAYMENT..................................... 7
2.1 Equipment and Letter of Credit Facilities................ 7
2.1.1 Equipment Facility................................ 7
2.1.2 Letter of Credit Facility......................... 7
2.2 Interest Rates, Payments, and Calculations............... 8
2.3 Crediting Payments....................................... 8
2.4 Fees..................................................... 8
2.5 Additional Costs......................................... 9
2.6 Term..................................................... 9
3. CONDITIONS OF LOANS........................................... 10
3.1 Conditions Precedent to Initial Advance.................. 10
3.1 Conditions Precedent to All Advances..................... 10
4. CREATION OF SECURITY INTEREST................................. 10
4.1 Grant of Security Interest............................... 10
4.2 Delivery of Additional Document Required................. 11
4.3 Right to Inspect......................................... 11
5. REPRESENTATIONS AND WARRANTIES................................ 11
5.1 Due Organization and Qualification....................... 11
5.2 Due Authorization; No Conflict........................... 11
5.3 No Prior Encumbrances.................................... 11
5.4 Bona Fide Accounts....................................... 11
5.5 Merchantable Inventory................................... 11
5.6 Name; Location of Chief Executive Office................. 11
5.7 Litigation............................................... 11
5.8 No Material Adverse Change in Financial Statements....... 11
5.9 Solvency................................................. 12
5.10 Regulatory Compliance.................................... 12
5.11 Environmental Condition.................................. 12
5.12 Taxes.................................................... 12
5.13 Subsidiaries............................................. 12
5.14 Government Consents...................................... 12
5.15 Full Disclosure.......................................... 12
6. AFFIRMATIVE COVENANTS......................................... 13
6.1 Good Standing............................................ 13
6.2 Government Compliance.................................... 13
6.3 Financial Statements, Reports, Certificates.............. 13
6.4 Inventory; Returns....................................... 13
6.5 Taxes.................................................... 13
6.6 Insurance................................................ 14
6.7 Principal Depository..................................... 14
6.8 Quick Ratio.............................................. 14
6.9 Liquidity................................................ 14
</TABLE>
<PAGE>
This LOAN AND SECURITY AGREEMENT is entered into as of December 10, 1996 by
and between SILICON VALLEY BANK ("Bank") and CROSSROADS SOFTWARE, INC,
("Borrower").
RECITALS
--------
Borrower wishes to obtain credit from time to time from Bank, and Bank
desires to extend credit to Borrower. This Agreement sets forth the terms on
which Bank will advance credit to Borrower, and Borrower will repay the amounts
owing to Bank.
AGREEMENT
---------
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION
----------------------------
1.1. Definitions. As used in this Agreement, the following terms shall
-----------
have the following definitions:
"Accounts" means all presently existing and hereafter arising
accounts, contract rights, and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods (including, without limitation, the
licensing of software and other technology) or the rendering of services by
Borrower, whether or not earned, by performance, and any and all credit
insurance, guaranties, and other security therefor, as well as all merchandise
returned to or reclaimed by Borrower and Borrower's Books relating to any of the
foregoing
"Advance" or "Advances" means a cash advance or cash advances
under the Equipment Facility [illegible]^^
"Affiliate" means, with respect to any Person, any Person that
owns or controls directly or indirectly such Person, any Person that controls or
is controlled by or is under common control with such Person, and each of such
Person's senior executive officers, directors and partners.
"Bank Expenses" means all: reasonable costs or expenses
(including reasonable attorneys' fees and expenses) incurred in connection with
the preparation, negotiation, administration, and enforcement of the Loan
Documents; and Bank's reasonable attorneys' fees and expenses incurred in
amending, enforcing or defending the Loan Documents, whether or not suit is
brought.
"Borrower's Books" means all of Borrower's books and records
including: ledgers; records concerning Borrower's assets or liabilities, the
Collateral, business operations or financial condition; and all computer
programs, or tape files, and the equipment, containing such information, if such
equipment is necessary for review of such information.
"Business Day" means any day that is not a Saturday, Sunday, or
other day on which banks in the State of California are authorized or required
to close.
"Closing Date" means the date the conditions precedent set forth
in Section 3 are satisfied.
"Code" means the California Uniform Commercial Code.
"Collateral" means the property, described on Exhibit A attached
---------
hereto.
<PAGE>
"Committed Loan Amount" means Three Hundred Fifty Thousand
Dollars ($350,000).
"Contingent Obligation" means, as applied to any Person, any
direct or indirect liability, contingent or otherwise, of that Person with
respect to (i) any indebtedness, lease, dividend, letter of credit or other
obligation of another, including, without limitation, any such obligation
directly or indirectly guaranteed, endorsed, co-made or discounted or sold with
recourse by that Person, or in respect of which that Person is otherwise
directly or indirectly liable; (ii) any obligations with respect to undrawn
letters of credit issued for the account of that Person; and (iii) all
obligations arising under any interest rate, currency or commodity swap
agreement, interest rate cap agreement, interest rate collar agreement, or other
agreement or arrangement designated to protect a Person against fluctuation in
interest rates, currency exchange rates or commodity prices; provided, however,
that the term "Contingent Obligation" shall not include endorsements for
collection or deposit in the ordinary course of business. The amount of any
Contingent Obligation shall be deemed to be an amount equal to the stated or
determined amount of the primary obligation in respect of which such Contingent
Obligation is made or, if not stated or determinable, the maximum reasonably
anticipated liability in respect thereof as determined by such Person in good
faith; provided, however, that such amount shall not in any event exceed the
maximum amount of the obligations under the guarantee or other support
arrangement.
"Current Liabilities" means, as of any applicable date, all
amounts that should, in accordance with GAAP, be included as current liabilities
on the consolidated balance sheet of Borrower and its Subsidiaries, as at such
date, plus, to the extent not already included therein, all outstanding Advances
made under this Agreement, including all Indebtedness that is payable upon
demand or within one year from the date of determination thereof unless such
Indebtedness renewable or extendable at the option of Borrower or any Subsidiary
to a date more than one year from the date of determination, but excluding
Subordinated Debt.
"Daily Balance" means the amount of the Obligations owed at the
end of a given day.
"Eligible Equipment" means computer equipment, office equipment
and other machines, equipment and software licenses as approved by Bank in its
sole discretion (i) in which the Bank has a valid perfected first priority
security interest and (ii) delivered to Borrower by the manufacturer or vendor
after or upon June 30, 1996, which equipment is new and has not previously been
used by any Person.
"Equipment" means all present and future machinery, equipment,
tenant improvements, furniture, fixtures, vehicles, tools, parts and attachments
in which Borrower has any interest.
"Equipment Availability Date" means September 9, 1997.
"Equipment Facility" means the facility under which Borrower may
request Bank to issue cash advances, as specified in Section 2.1.1 hereof.
"Equipment Facility Maturity Date" means the date immediately
preceding the third anniversary of the Equipment Availability Date.
"ERISA" means the Employment Retirement Income Security Act of
1974, as amended, and the regulations thereunder.
<PAGE>
"GAAP" means generally accepted accounting principles as in
effect from time to time.
"Indebtedness" means (a) all indebtedness for borrowed money or
the deferred purchase price of property or services including without limitation
reimbursement and other obligations with respect to surety bonds and letters of
credit, (b) all obligations evidenced by notes, bonds, debentures or similar
instruments, (c) all capital lease obligations and (d) all Contingent
Obligations.
"Insolvency Proceeding" means any proceeding commenced by or
against any person or entity under any provision of the United States Bankruptcy
Code, as amended, or under any other bankruptcy or insolvency law, including
assignments for the benefit of creditors, formal or informal moratoria,
compositions, extension generally with its creditors, or proceedings seeking
reorganization, arrangement, or other relief.
"Inventory" means all present and future inventory in which
Borrower has any interest, including merchandise, raw materials, parts,
supplies, packing and shipping materials, work in process and finished products
intended for sale or lease or to be furnished under a contract of service, of
every kind and description now or at any time hereafter owned by or in the
custody or possession, actual or constructive, of Borrower, including such
inventory as is temporarily out of its custody or possession or in transit and
including any returns upon any accounts or other proceeds, including insurance
proceeds, resulting from the sale or disposition of any of the foregoing and any
documents of title representing any of the above, and Borrower's Books relating
to any of the foregoing.
"Investment" means any beneficial ownership of (including stock,
partnership interest or other securities) any Person, or any loan, advance or
capital contribution to any Person.
"IRC" means the Internal Revenue Code of 1986, as amended, and
the regulations thereunder.
"Letter of Credit" has the meaning set forth in Section 2.1.2
herein.
"Letter of Credit Facility" means the facility under which
Borrower may request Bank to issue a standby letter of credit, as specified in
Section 2.1.2 hereof.
"Letter of Credit Facility Maturity Date" means the date
immediately proceeding the first anniversary of the Closing Date.
"Lien" means any mortgage, lien, deed of trust, charge, pledge,
security interest or other encumbrance.
"Loan Documents" means, collectively, this Agreement, any note or
notes executed by Borrower, and any other agreement entered into between
Borrower and Bank in connection with this Agreement, all as amended or extended
from time to time.
"Material Adverse Effect" means a material adverse effect on (i)
the business operations or condition (financial or otherwise) of Borrower and
its Subsidiaries taken as a whole or (ii) the ability of Borrower to repay the
Obligations or otherwise perform its obligations under the Loan Documents.
"Negotiable Collateral" means all of Borrower's present and
future letters of credit of which it is a beneficiary, notes, drafts,
instruments, securities, documents of title, and chattel paper, and Borrower's
Books relating to any of the foregoing.
<PAGE>
"Obligations" means all debt, principal, interest, Bank Expenses
and other amounts owed to Bank by Borrower pursuant to this Agreement or any
other agreement, whether absolute or contingent, due or to become due, now
existing or hereafter arising, including any interest that accrues after the
commencement of an Insolvency Proceeding and including any debt, liability, or
obligation owing from Borrower to others that Bank may have obtained by
assignment or otherwise.
"Periodic Payments" means all Installments or similar recurring
payments that Borrower may now or hereafter become obligated to pay to Bank
pursuant to the terms and provisions of any instrument, or agreement now or
hereafter in existence between Borrower and Bank.
"Permitted Indebtedness" means:
(a) Indebtedness of Borrower in favor of Bank arising under this
Agreement or any other Loan Document;
(b) Indebtedness existing on the date of this Agreement and
disclosed in the Schedule;
(c) Indebtedness to trade creditors incurred in the ordinary
course of business;
(d) Subordinated Debt;
(e) Other Indebtedness, including capital leases, in an
aggregate amount not to exceed $50,000 at any time outstanding and
(f) Indebtedness of Borrower to or from any Subsidiary, and
Indebtedness of any Subsidiary to or from another Subsidiary.
"Permitted Investment" means:
(a) Investments existing on the date of this Agreement disclosed
in the Schedule;
(b) (i) marketable direct obligations issued or unconditionally
guaranteed by the United States of America or any agency or any State thereof
maturing within one (1) year from the date of acquisition thereof, (ii)
commercial paper maturing no more than one (1) year from the date of creation
thereof and currently having the highest rating obtainable from either Standard
& Poor's Corporation or Moody's Investors Service, Inc., and (iii) certificates
of deposit maturing no more than one (1) year from the date of investment
therein issued by Bank;
(c) Investments consisting of the endorsement of negotiable
instruments for deposit or collection or any similar transaction in the
ordinary, course of business;
(d) Investments (whether consisting of the purchase of
securities, loans, capital contributions or otherwise) of Subsidiaries in and to
other Subsidiaries or in Borrower;
(e) Investments consisting of (i) compensation of employees,
officers and directors of Borrower or its Subsidiaries, (ii) travel advances,
employee relocation loans and other employee, officer or director loans and
advances in the ordinary course of business, and (iii) loans to employees,
officers or directors relating to the purchase of equity securities of Borrower
or its Subsidiaries pursuant to employee stock purchase plans or agreements
approved by Borrower's Board of Directors;
<PAGE>
(f) Investments consisting of notes receivable or prepaid
royalties and other credit extensions to customers and suppliers who are not
Affiliates in the ordinary course of business; and
(g) Deposit accounts of Borrower and its Subsidiaries maintained
in the ordinary course of business.
"Permitted Liens" means the following:
(a) Any Liens existing on the date of this Agreement and
disclosed in the Schedule or arising under this Agreement or the other Loan
Documents;
(b) Liens for taxes, fees, assessments or other governmental
charges or levies, either not delinquent or being contested in good faith by
appropriate proceedings, provided the same have no priority over any of Bank's
--------
security interests;
(c) Liens (i) upon or in any Equipment acquired or held by
Borrower or any of its Subsidiaries to secure the purchase price of such
Equipment or indebtedness incurred solely for the purpose of financing the
acquisition of such Equipment, or (ii) existing on such Equipment at the time of
its acquisition, provided that the Lien is confined solely to the property so
--------
acquired and improvements thereon, and the proceeds of such equipment; provided
--------
further that such Equipment is not Equipment financed under this Agreement;
- -------
(d) Liens to secure payment of worker's compensation, employment
insurance, old-age pensions or other social security obligations of Borrower in
the ordinary course of business;
(e) Liens on equipment leased by Borrower or any Subsidiary
pursuant to an operating or capital lease in the ordinary course of business
(including proceeds thereof and accessions thereto) incurred solely for the
purpose of financing the lease of such equipment;
(f) Lease and subleases, and licenses and sublicenses, granted
to others in the ordinary course of Borrower's business not interfering in any
material respect with the business of Borrower and its Subsidiaries taken as a
whole, any interest or title of a lessor, licensor or under any lease or
license;
(g) Liens on assets (including the proceeds thereof and
accessions thereto) that existed at the time such assets were acquired by
Borrower or any Subsidiary (including Liens on assets of any corporation that
existed at the time it became or becomes a Subsidiary); provided that such Liens
are not granted in contemplation of or in connection with the acquisition of
such asset by Borrower or a Subsidiary;
(h) Liens arising from judgments, decrees or attachments in
circumstances not constituting an Event of Default under Section 8.8;
(i) Easements, reservations, rights-of-way, restrictions, minor
defects or irregularities in title and other similar charges or encumbrances
affecting real property not constituting a Material Adverse Effect;
(j) Liens in favor of customs and revenue authorities arising as
a matter of law to secure payments of customs duties in connection with the
importation of goods;
(k) Liens which constitute rights of set-off of a customary,
nature or banker's Liens with respect to amounts on deposit, whether arising by
operation of law or by contract,
<PAGE>
in connection with arrangements entered into with banks in the ordinary course
of business provided such Liens shall not be prior to the Lien of Bank; and
(l) Liens incurred in connection with the extension, renewal or
refinancing of the indebtedness secured by Liens of the type described in
clauses (a) and (b) above, provided that any extension, renewal or replacement
--------
Lien shall be limited to the property encumbered by the existing Lien and the
principal amount of the indebtedness being extended, renewed or refinanced does
not increase.
"Person" means any individual, sole proprietorship, partnership,
limited liability company, joint venture, trust, unincorporated organization,
association, corporation, institution, public benefit corporation, firm, joint
stock company, estate, entity or governmental agency.
"Prime Rate" means the variable rate of interest, per annum, most
recently announced by Bank, as its "prime rate," whether or not such announced
rate is the lowest rate available from Bank.
"Quick Assets" means, at any date as of which the amount thereof
shall be determined, the consolidated cash, cash-equivalents, accounts
receivable and investments, with maturities not to exceed 90 days, of Borrower
and its Subsidiaries determined in accordance with GAAP.
"Responsible Officer" means each of the Chief Executive Officer,
the Chief Financial Officer and the Controller of Borrower.
"Schedule" means the schedule of exceptions attached hereto, if
any.
"Subordinated Debt" means any debt incurred by Borrower that is
subordinated to the debt owing by Borrower to Bank on terms acceptable to Bank
(and identified as being such by Borrower and Bank).
"Subsidiary" means any corporation or partnership in which (i)
any general partnership interest or (ii) more than 50% of the stock of which by
the terms thereof ordinary, voting power to elect the Board of Directors,
managers or trustees of the entity shall, at the time as of which any
determination is being made, be owned by Borrower, either directly or through an
Affiliate.
"Tangible Net Worth" means at any date as of which the amount
thereof shall be determined, the consolidated total assets of Borrower and its
Subsidiaries minus, without duplication, (i) the sum of any amounts attributable
-----
to (a) goodwill, (b) intangible items such as unamortized debt discount and
expense, patents, trade and service marks and names, copyrights and research and
development expenses except prepaid expenses, and (c) all reserves not already
deducted from assets, and (ii) Total Liabilities.
---
"Total Liabilities" means at any date as of which the amount
thereof shall be determined, all obligations that should, in accordance with
GAAP be classified as liabilities on the consolidated balance sheet of Borrower,
including in any event all Indebtedness, but specifically excluding Subordinated
Debt.
1.2. Accounting Terms. All accounting terms not specifically defined
----------------
herein shall be construed in accordance with GAAP and all calculations made
hereunder shall be made in accordance with GAAP. When used hereto, the terms
"financial statements" shall include the notes and schedules thereto.
<PAGE>
2. LOAN AND TERMS OF PAYMENT
-------------------------
2.1 Equipment and Letter of Credit Facilities.
-----------------------------------------
2.1.1 Equipment Facility.
------------------
(a) Subject to and upon the terms and conditions of this
Agreement, Bank agrees at any time from the date hereof through the Equipment
Availability Date, to make Advances under the Equipment Facility to Borrower in
an aggregate principal amount of up to the Committed Loan Amount. On the date of
each such Advance, Borrower shall provide invoices and other documents as
requested by Bank, in form and content satisfactory to Bank, demonstrating that
the Advances then outstanding under the Equipment Facility (A) shall be used to
finance or refinance, as the case may be, Eligible Equipment, and (B) (i) shall
not exceed one hundred percent (100%) of the cost of such Eligible Equipment,
excluding any and all installation, freight or warranty expenses or sales taxes
and (ii) that no more than twenty-five percent (25%) of the value of such
Eligible Equipment for each such Advance is comprised of software licenses,
leasehold improvements or other soft costs. Amounts borrower pursuant to this
Section 2.1.1 may not be reborrowed once repaid.
(b) Interest shall accrue from the date of each Advance
made hereunder at the rate specified in Section 2.2(a), and shall be payable
monthly on the ninth calendar day of the month for each month through the month
in which the Equipment Availability Date falls. All Advances made hereunder that
are outstanding on the Equipment Availability Date will be payable in thirty-six
(36) equal monthly installments of principal, plus accrued interest, beginning
on October 9, 1997. All amounts outstanding under the Equipment Facility shall
be paid in full on the Equipment Facility Maturity Date.
(c) When Borrower desires to obtain an Advance under the
Equipment Facility, Borrower shall notify Bank (which notice shall be
irrevocable) by facsimile transmission or telephone received no later than 3:00
p.m. California time one (1) Business Day before the day on which the Advance is
requested to be made. Such notification shall be promptly confirmed by a
Payment/Advance Form in substantially the form of Exhibit B hereto. Bank shall
---------
be entitled to rely on any telephonic notice given by a person who Bank
reasonably believes to be a Responsible Officer, and Borrower shall indemnify
and hold Bank harmless for any damages or loss suffered by Bank as a result of
such reliance. Bank will credit the amount of the Advance to Borrower's deposit
account. The confirming written notice shall be signed by a Responsible Officer
and include a copy of the invoice for the Eligible Equipment to be financed.
2.1.2 Letter of Credit Facility.
-------------------------
(a) Subject to the terms and conditions of this
Agreement, Bank agrees to issue or cause to be issued a letter of credit for the
account of Borrower (the "Letter of Credit") in face amount not to exceed Three
Hundred Thirty Two Thousand Dollars ($332,000). The Letter of Credit shall have
an expiry date no later than the Letter of Credit Facility Maturity Date. The
Letter of Credit shall be, in form and substance, acceptable to Bank in its sole
discretion and shall be subject to the terms and conditions of Bank's form of
application and letter of credit agreement. All amounts actually paid by Bank in
respect of the Letter of Credit shall, when paid, constitute an Advance under
this Agreement.
(b) Borrower shall immediately reimburse bank for any
drawings made under the Letter of Credit. The obligation of Borrower to
immediately reimburse Bank for drawings made under the Letter of Credit shall be
absolute, unconditional and irrevocable, and shall be performed strictly in
accordance with the terms of this Agreement and such Letter of Credit, under all
circumstances whatsoever. Borrower shall indemnify, defend and hold Bank
harmless from any
<PAGE>
loss, cost, expense or liability, including, without limitation, reasonable
attorneys' fees, arising out of or in connection with the Letter of Credit.
(c) When Borrower desires the issuance of the Letter of
Credit under the Letter of Credit Facility, Borrower shall notify Bank (which
notice shall be irrevocably) by facsimile transmission or telephone received no
later than 3:00 p.m. California time two (2) Business Days before the day on
which the issuance is requested to be made. Such notification shall be promptly
confirmed by a Payment/Advance Form in substantially the form of Exhibit B
---------
hereto. Bank shall be entitled to rely on any telephonic notice given by a
person who Bank reasonably believes to be a Responsible Officer, and Borrower
shall indemnify and hold Bank harmless for any damages or loss suffered by Bank
as a result of such reliance.
2.2. Interest Rates, Payments, and Calculations.
------------------------------------------
(a) Interest Rate. Except as set forth in Section 2.2(b),
-------------
Advances under the Equipment Facility shall bear interest, on the average daily
balance thereof, at a rate equal to three-quarters (3/4) of a percentage point
above the Prime Rate. Except as set forth in Section 2.2(b), Advances under the
Letter of Credit Facility shall bear interest, on the average daily balance
thereof, at a rate equal to the then standard rate charged by the Bank for
drawings under letters of credit.
(b) Default Rate. At Bank's option and upon notice to Borrower,
------------
all Obligations shall bear interest, from and after the occurrence and during
the continuance of an Event of Default, at a rate equal to five (5) percentage
points above the interest rate applicable immediately prior to the occurrence of
the Event of Default.
(c) Payments. Interest hereunder shall be due and payable on the
--------
ninth calendar day of each month during the term hereof. Bank shall, at its
option, charge such interest, all Bank Expenses, and all Periodic Payments
against any of Borrower's deposit accounts in which case those amounts shall
thereafter accrue interest at the rate then applicable hereunder. Any interest
not paid when due shall be compounded by becoming a part of the Obligations, and
such interest shall thereafter accrue interest at the rate then applicable
hereunder.
(d) Computation. In the event the Prime Rate is changed from
-----------
time to time hereafter, the applicable rate of interest hereunder shall be
increased or decreased effective as of 12:01 a.m. on the day the Prime Rate is
changed, by an amount equal to such change in the Prime Rate. All interest
changeable under the Loan Documents shall be computer on the basis of a three
hundred sixty (360) day year for the actual number of days elapsed.
2.3. Crediting Payments. Prior to the occurrence of an Event of
------------------
Default, Bank shall credit a wire transfer of funds, check or other item of
payment to such deposit account or Obligation as Borrower specifies. After the
occurrence of an Event of Default, the receipt by Bank of any wire transfer of
funds, check, or other item of payment shall be immediately applied to
conditionally reduce Obligations, but shall not be considered a payment on
account unless such payment is of immediately available federal funds or unless
and until such check or other item of payment is honored when presented for
payment. Notwithstanding anything to the contrary contained herein, any wire
transfer or payment received by Bank after 12:00 noon California time shall be
deemed to have been received by Bank as of the opening of business on the
immediately following Business Day. Whenever any payment to Bank under the Loan
Documents would otherwise be due (except by reason of acceleration) on a date
that is not a Business Day, such payment shall instead be due on the next
Business Day, and additional fees or interest, as the case may be, shall accrue
and be payable for the period of such extension.
2.4 Fees. Borrower shall pay to Bank the following:
----
<PAGE>
(a) Facility Fee. A Facility Fee equal to One Thousand Dollars
------------
($1,000), which fee shall be due on the date of this Agreement and shall be
fully earned and non-refundable;
(b) Financial Examination and Appraisal Fees. Bank's customary
----------------------------------------
fees and out-of-pocket expenses for each appraisal of Collateral and financial
analysis and examination of Borrower performed from time to time by Bank or its
agents;
(c) Letter of Credit Fees. Bank's customary fees and out-of-
---------------------
pocket expenses for the issuance, maintenance and administration of the Letter
of Credit, as set forth in any applications or agreements between Borrower and
Bank with respect to the Letter of Credit; and
(d) Bank Expenses. Upon the date hereof, all Bank Expenses
-------------
incurred through the Closing Date, including reasonable attorney's fees and
expenses, and, after the date hereof, all Bank Expenses, including reasonable
attorneys' fees and expenses, as and when they become due.
2.5. Additional Costs. In case any change in any law, regulation,
----------------
treaty or official directive or the interpretation or application thereof by any
court or any governmental authority charged with the administration thereof or
the compliance with any guideline or request of any central bank or other
governmental authority (whether or not having the force of law), in each case
after the date of this Agreement:
(a) subjects Bank to any tax with respect to payments of
principal or interest or any other amounts payable hereunder by Borrower or
otherwise with respect to the transactions contemplated hereby (except for taxes
on the overall net income of Bank imposed by the United States of America or any
political subdivision thereof);
(b) imposes, modifies or deems applicable any deposit insurance,
reserve, special deposit or similar requirement against assets held by, or
deposits in or for the account of, or loans by, Bank; or
(c) imposes upon Bank any other condition with respect to its
performance under this Agreement, and the result of any of the foregoing is to
increase the cost to Bank, reduce the income receivable by Bank or impose any
expense upon Bank with respect to any loans, Bank shall notify Borrower thereof.
Borrower agrees to pay to Bank the amount of such increase in cost, reduction in
income or additional expense as and when such cost, reduction or expense is
incurred or determined, upon presentation by Bank of a statement of the amount
and setting forth Bank's calculation thereof, all in reasonable detail which
statement shall be deemed true and correct absent manifest error, provided that
Borrower shall not be liable for any such amount attributable to any period
prior to 180 days prior to the date of such statement.
2.6. Term. This Agreement shall become effective on the Closing Date
----
and, subject to Section 12.7, shall continue in full force and effect for a term
ending on the Equipment Facility Maturity Date. Notwithstanding the foregoing,
Bank shall have the right to terminate its obligation to make Advances under
this Agreement immediately and without notice upon the occurrence and during the
continuance of an Event of Default. Notwithstanding termination, Bank's Lien on
the Collateral shall remain in effect for so long as any Obligations remain
unpaid (excluding Obligations under Section 2.5 and 12.2 to the extent they
remain inchoate at the time all other outstanding obligations are paid in full).
<PAGE>
3. CONDITIONS OF LOANS
-------------------
3.1. Conditions Precedent to Initial Advance. The obligation of Bank
---------------------------------------
to make the initial Advance or issue the Letter of Credit is subject to the
conditions precedent that Bank shall have received, in form and substance
satisfactory to Bank, the following:
(a) this Agreement;
(b) a certificate of the Secretary of Borrower with respect to
incumbency and resolutions authorizing the execution and delivery of this
Agreement;
(c) a duly executed original negative pledge agreement in
substantially the form of Exhibit D hereto;
---------
(d) financing statements (Forms UCC-1);
(e) insurance certificate;
(f) payment of the fees and Bank Expenses then due specified in
Section 2.4 hereof; and
(g) such other documents, and completion of such other matters,
as Bank may reasonably deem necessary or appropriate.
3.2. Conditions Precedent to All Advances. The obligation of Bank to
------------------------------------
make each Advance or issuance of the Letter of Credit, including the initial
Advance, is further subject to the following conditions:
(a) timely receipt of the Payment/Advance Form as provided in
Section 2.1.1. or 2.1.2;
(b) in the case of Advances, timely receipt of the invoices
and/or other documents specified in Section 2.1.1 hereof; and
(c) the representations and warranties contained in Section 5
shall be true and correct in all material respects on and as of the date of the
Payment/Advance Form and on the effective date of the Advance or issuance of the
Letter of Credit (in each case, except to the extent they specifically relate to
an earlier date), and no Event of Default shall have occurred and be continuing,
or would result from the Advance or issuance of the Letter of Credit. The making
of the Advance or issuance of the Letter of Credit shall be deemed to be a
representation and warranty by Borrower on the date of the Advance or issuance
of the Letter of Credit as to the accuracy of the facts referred to in this
Section 3.2(c).
4. CREATION OF SECURITY INTEREST
-----------------------------
4.1. Grant of Security Interest. Borrower grants and pledges to Bank a
--------------------------
continuing security interest in all presently existing and hereafter acquired or
arising Collateral in order to secure prompt repayment of any and all
Obligations and in order to secure prompt performance by Borrower of each of its
covenants and duties under the Loan Documents. Except as set forth in the
Schedule, such security interest constitutes a valid, first priority security
interest in the presently existing Collateral, and will constitute a valid,
first priority security interest in Collateral acquired after the date hereof,
in each case, to the extent that a security interest in such Collateral can be
perfected by filing a financing statement.
<PAGE>
4.2. Delivery of Additional Documentation Required. Borrower shall
---------------------------------------------
from time to time execute and deliver to Bank, at the request of Bank, all
Negotiable Collateral, all financing statements and other documents that Bank
may reasonably request, in form satisfactory to Bank, to perfect and continue
perfected Bank's security interests in the Collateral and in order to fully
consummate all of the transactions contemplated under the Loan Documents.
4.3. Right to Inspect. Bank (through any of its officers, employees,
----------------
or agents) shall have the right, upon reasonable prior notice, from time to time
during Borrower's usual business hours, to inspect Borrower's Books and to make
copies thereof and to check, test, and appraise the Collateral in order to
verify Borrower's financial condition or the amount, condition of, or any other
matter relating to, the Collateral.
5. REPRESENTATIONS AND WARRANTIES
------------------------------
Borrower represents and warrants as follows:
5.1. Due Organization and Qualification. Borrower and each Subsidiary
----------------------------------
is a corporation duly existing and in good standing under the laws of its state
of incorporation and qualified and licensed to do business in, and is in good
standing in, any state in which the conduct of its business or its ownership of
property requires that it be so qualified, except for states in which failure
to qualify would not reasonably be expected to have a Material Adverse Effect.
5.2. Due Authorization: No Conflict. The execution, delivery, and
------------------------------
performance of the Loan Documents are within Borrower's powers, have been duly
authorized, and are not in conflict with nor constitute a breach of any
provision contained in Borrower's Articles of Incorporation or Bylaws, nor will
they constitute an event of default under any material agreement to which
Borrower is a party or by which Borrower is bound. Borrower is not in default
under any agreement to which it is a party or by which it is bound, which
default would reasonably be expected to have a Material Adverse Effect.
5.3. No Prior Encumbrances. Borrower has good and indefeasible title
---------------------
to the Collateral, free and clear of Liens, except for Permitted Liens.
5.4. Bona Fide Accounts. The Accounts are bona fide existing
------------------
obligations. The property giving rise to such Accounts has been delivered to the
account debtor or to the account debtor's agent for immediate shipment to and
unconditional acceptance by the account debtor. Except as disclosed to Bank in
writing, Borrower has not received notice of actual or imminent Insolvency
Proceeding of any account debtor.
5.5. Merchantable Inventory. All Inventory is in all material respects
----------------------
of good and marketable quality, free from all material defects.
5.6. Name; Location of Chief Executive Office. Except as disclosed in
----------------------------------------
the Schedule, Borrower has not done business under any name other than that
specified on the signature page hereof. The chief executive office of Borrower
is located at the address indicated in Section 10 hereof.
5.7. Litigation. Except as set forth in the Schedule, there are no
----------
actions or proceedings pending by or against Borrower or any Subsidiary before
any court or administrative agency in which a likely adverse decision would
reasonably be expected to have a Material Adverse Effect or a material adverse
effect on Borrower's interest or Bank's security interest in the Collateral.
Borrower does not have knowledge of any such pending or threatened actions or
proceedings.
5.8. No Material Adverse Change in Financial Statements. All
--------------------------------------------------
consolidated financial statements related to Borrower and any Subsidiary that
have been delivered by Borrower to
<PAGE>
Bank fairly present in all material respects Borrower's consolidated financial
condition as of the date thereof and Borrower's consolidated results of
operations for the period then ended. There has not been a material adverse
change in the consolidated financial condition of Borrower since the date of the
most recent of such financial statements submitted to Bank.
5.9. Solvency. Borrower is solvent and able to pay its debts
--------
(including trade debts) as they mature. "Solvent" means that the fair saleable
value of Borrower's assets (including goodwill) exceeds the fair value of its
liabilities.
5.10. Regulatory Compliance. Borrower and each Subsidiary has met the
---------------------
minimum funding requirements of ERISA with respect to any employee benefit plans
subject to ERISA. No event has occurred resulting from Borrower's failure to
comply with ERISA that is reasonably likely to result in Borrower's incurring
any liability that would reasonably be expected to have a Material Adverse
Effect. Borrower is not an "investment company" or a company "controlled" by an
"investment company" within the meaning of the Investment Company Act of 1940.
Borrower is not engaged principally, or as one of the important activities, in
the business of extending credit for the purpose of purchasing or carrying
margin stock (within the meaning of Regulations G, T and U of the Board of
Governors of the Federal Reserve System). Borrower has complied with all the
provisions of the Federal Fair Labor Standards Act. Borrower has not violated
any statutes, laws, ordinances or rules applicable to it, violation of which
could have a Material Adverse Effect.
5.11. Environmental Condition. None of Borrower's or any Subsidiary's
-----------------------
properties or assets has ever been used by Borrower or any Subsidiary or, to the
best of Borrower's knowledge, by previous owners or operators, in the disposal
of, or to produce, store, handle, treat, release, or transport, any hazardous
waste or hazardous substance other than in accordance with applicable law; to
the best of Borrower's knowledge, none of Borrower's properties or assets has
ever been designated or identified in any manner pursuant to any environmental
protection statute as a hazardous waste or hazardous substance disposal site, or
a candidate for closure pursuant to any environmental protection statute; no
lien arising under any environmental protection statute has attached to any
revenues or to any real or personal property owned by Borrower or any
Subsidiary; and neither Borrower nor any Subsidiary has received a summons,
citation, notice, or directive from the Environmental Protection Agency or any
other federal, state or other governmental agency concerning any action or
omission by Borrower or any Subsidiary resulting in the releasing, or otherwise
disposing of hazardous waste or hazardous substances into the environment.
5.12. Taxes. Borrower and each Subsidiary has filed or caused to be
-----
filed all material tax returns required to be filed, and has paid, or has made
adequate provision for the payment of, all taxes reflected therein.
5.13. Subsidiaries. Borrower does not own any stock, partnership
------------
interest or other equity securities of any Person, except for Permitted
Investments.
5.14. Government Consents. Borrower and each Subsidiary, has obtained
-------------------
all consents, approvals and authorizations of, made all declarations or filings
with, and given all notices to, all governmental authorities that are necessary
for the continued operation of Borrower's business as currently conducted,
except where the failure to do so would not reasonably be expected to have a
Material Adverse Effect.
5.15. Full Disclosure. No representation, warranty, or other
---------------
statement made by Borrower in any certificate or written statement furnished to
Bank in connection with the transactions contemplated by this Agreement contains
any untrue statement of a material fact or omits to state a material fact
necessary in order to make the statements contained in such certificates or
statements not misleading. Bank acknowledges that any projections or forecasts
provided by Borrower are not to be viewed as facts, and that Borrower's actual
results may differ from such projections or forecasts.
<PAGE>
6. AFFIRMATIVE COVENANTS
---------------------
Borrower covenants and agrees that, until payment in full of all
outstanding Obligations, and for so long as Bank may have any commitment to make
an Advance hereunder, Borrower shall do all of the following:
6.1. Good Standing. Borrower shall maintain its and each of its
-------------
Subsidiaries' corporate existence and good standing in its jurisdiction of
incorporation and maintain qualification in each jurisdiction in which the
failure to so qualify would reasonably be expected to have a Material Adverse
Effect. Borrower shall maintain, and shall cause each of its Subsidiaries to
maintain, to the extent consistent with prudent management of Borrower's
business, in force all licenses, approvals and agreements, the loss of which
would reasonably be expected to have a Material Adverse Effect.
6.2. Government Compliance. Borrower shall meet, and shall cause each
---------------------
Subsidiary to meet, the minimum funding requirements of ERISA with respect to
any employee benefit plans subject to ERISA. Borrower shall comply, and shall
cause each Subsidiary to comply, with all statutes, laws, ordinances and
government rules and regulations to which it is subject, noncompliance with
which could have a Material Adverse Effect or a material adverse effect on the
Collateral or the priority of Bank's Lien on the Collateral.
6.3. Financial Statements, Reports, Certificates.
-------------------------------------------
(a) Borrower shall deliver to Bank: (i) as soon as available, but
in any event within thirty (30) days after the end of each month, a company
prepared consolidated balance sheet and income statement covering Borrower's
consolidated operations during such period, certified by a Responsible Officer;
(ii) as soon as available, but in any event within ninety (90) days after the
end of Borrower's fiscal year, audited consolidated financial statements of
Borrower prepared in accordance with GAAP, consistently applied, together with
an unqualified opinion on such financial statements of an independent certified
public accounting firm reasonably acceptable to Bank; (iii) within five (5) days
upon becoming available, copies of all statements, reports and notices sent or
made available generally by Borrower to its security, holders or to any holders
of Subordinated Debt and all reports on Form 10-K and 10-Q (without exhibits)
filed with the Securities and Exchange Commission; (iv) promptly upon receipt of
notice thereof, a report of any legal actions pending or threatened against
Borrower or any Subsidiary that could result in damages or costs to Borrower or
any Subsidiary of One Hundred Thousand Dollars ($100,000) or more; and (v) such
budgets, sales projections, operating plans or other financial information as
Bank may reasonably request from time to time.
(b) Borrower shall deliver to Bank with the monthly financial
statements a Compliance Certificate signed by a Responsible Officer in
substantially the form of Exhibit C hereto.
---------
6.4. Inventory Returns. Borrower shall keep all Inventory in good and
------------------
marketable condition, free from all material defects. Returns and allowances, if
any, as between Borrower and its account debtors shall be on the same basis and
in accordance with the usual customary practices of Borrower, as they exist at
the time of the execution and delivery of this Agreement. Borrower shall
promptly notify Bank of all returns and recoveries and of all disputes and
claims, where the return, recovery, dispute or claim involves more than Fifty
Thousand Dollars ($50,000).
6.5. Taxes. Borrower shall make, and shall cause each Subsidiary, to
-----
make, due and timely payment or deposit of all material federal, state, and
local taxes, assessments, or contributions required of it by law, and will
execute and deliver to Bank, on demand, appropriate certificates attesting to
the payment or deposit thereof; and Borrower will make, and will cause each
Subsidiary, to make, timely payment or deposit of all material tax payments and
withholding taxes required of it by applicable laws, including, but not limited
to, those laws concerning F.I.C.A., F.U.T.A., state disability,
<PAGE>
and local, state, and federal income taxes, and will, upon request, furnish Bank
with proof satisfactory to Bank indicating that Borrower or a Subsidiary, has
made such payments or deposits; provided that Borrower or a Subsidiary need not
make any payment if the amount or validity of such payment is contested in good
faith by appropriate proceedings and is reserved against (to the extant required
by GAAP) by Borrower.
6.6. Insurance.
---------
(a) Borrower, at its expense, shall keep the Collateral insured
against loss or damage by fire, theft, explosion, sprinklers, and all other
hazards and risks, and in such amounts, as ordinarily insured against by other
owners in similar businesses conducted in the locations where Borrower's
business is conducted on the date hereof. Borrower shall also maintain insurance
relating to Borrower's ownership and use of the Collateral in amounts and of a
type that are customary to businesses similar to Borrower's.
(b) All such policies of insurance shall be in such form, with
such companies and in such amounts as reasonably satisfactory to Bank. All such
policies of property insurance shall contain a lender's loss payable
endorsement, in a form satisfactory to Bank, showing Bank as an additional loss
payee thereof and all liability insurance policies shall show the Bank as an
additional insured, and shall specify that the insurer must give at least twenty
(20) days notice to Bank before canceling its policy for any reason. Upon Bank's
request, Borrower shall deliver to Bank certified copies of such policies of
insurance and evidence of the payments of all premiums therefor. So long as no
Event of Default has occurred and is continuing, Borrower shall have the option
to apply the proceeds of any casualty policy to the replacement or repair of
destroyed or damaged property; provided, that after the occurrence and during
the continuance of an Event of Default, all proceeds payable under any such
casualty policy shall, at the option of Bank, be payable to Bank for application
to the Obligations.
6.7. Principal Depository. Borrower shall maintain its principal
--------------------
depository and operating accounts with Bank.
6.8. Quick Ratio. Borrower shall maintain, as of the last day of each
-----------
calendar month, a ratio of Quick Assets to Current Liabilities of at least 1.50
to 1.00.
6.9. Liquidity. Borrower shall maintain, as of the last day of each
---------
calendar month, except for the months ending January 31, February 28 and March
31 of 1997, a ratio of (a) the sum of cash and cash equivalents to (b) the
aggregate outstanding amount of all Advances under the Equipment Facility of at
least 1.50 to 1.00.
6.10. Tangible Net Worth. Borrower shall maintain, as of the last day
------------------
of each calendar month, a Tangible Net Worth of not less than Seven Hundred
Thousand Dollars ($700,000).
6.11. Further Assurances. At any time and from time to time Borrower
------------------
shall execute and deliver such further instruments and take such further action
as may reasonably be requested by Bank to effect the purposes of this Agreement.
7. NEGATIVE COVENANTS
------------------
Borrower covenants and agrees that, so long as any credit hereunder
shall be available and until payment in full of the outstanding Obligations or
for so long as Bank may have any commitment to make an Advance, Borrower will
not do any of the following:
7.1. Dispositions. Convey, sell, lease, transfer or otherwise dispose
------------
of (collectively, a "Transfer"), or permit any of its Subsidiaries to Transfer,
all or any part of its business or property,
<PAGE>
other than: (i) Transfers of Inventory in the ordinary course of business; (ii)
Transfers of non-exclusive licenses and similar arrangements for the use of the
property of Borrower or its Subsidiaries; or (iii) Transfers which constitute
liquidation of Investments permitted under Section 7.7, and (iv) transfers of
worn out or obsolete assets (other than Eligible Equipment financed with the
proceeds of Advances).
7.2. Change in Business. Engage in any business, or permit any of its
------------------
Subsidiaries to engage in any business, other than the businesses currently
engaged in by Borrower and any business substantially similar or related thereto
(or incidental thereto). Borrower will not, without thirty (30) days prior
written notification to Bank, relocate its chief executive office.
7.3. Mergers or Acquisitions. Merge or consolidate, or permit any of
-----------------------
its Subsidiaries to merge or consolidate, with or into any other business
organization, or acquire, or permit any of its Subsidiaries to acquire, all or
substantially all of the capital stock or property of another Person; provided
--------
that this Section 7.3 shall not apply to transactions among Subsidiaries or
among Borrower and its Subsidiaries in which Borrower is the surviving entity.
7.4. Indebtedness. Create, incur, assume or be or remain liable with
------------
respect to any Indebtedness, or permit any Subsidiary so to do, other than
Permitted Indebtedness.
7.5. Encumbrances. Create, incur, assume or suffer to exist any Lien
------------
with respect to any of its property, or assign or otherwise convey any right to
receive income, including the sale of any Accounts, or permit any of its
Subsidiaries so to do, except for Permitted Liens.
7.6. Distributions. Pay any dividends or make any other distribution
-------------
or payment on account of or in redemption, retirement or purchase of any capital
stock, except payments not in excess of Two Hundred Fifty Thousand Dollars
($250,000) in the aggregate in any fiscal year of Borrower that are made to
repurchase shares of Borrower's common stock that is owned by Borrower's
employees. Notwithstanding the foregoing, Borrower may convert any of its
convertible securities into other securities pursuant to the terms of such
convertible securities or otherwise in exchange therefor.
7.7. Investments. Directly or indirectly acquire or own, or make any
-----------
Investment in or to any Person, or permit any of its Subsidiaries so to do,
other than Permitted Investments.
7.8. Transactions with Affiliates. Directly or indirectly enter into
----------------------------
or permit to exist any material transaction with any Affiliate of Borrower
except for transactions that are in the ordinary course of Borrower's business,
upon fair and reasonable terms that are no less favorable to Borrower than would
be obtained in an arm's length transaction with a nonaffiliated Person and
except for transactions with a Subsidiary that are upon fair and reasonable
terms and transactions constituting Permitted Investments.
7.9. Subordinated Debt. Make any payment in respect of any
-----------------
Subordinated Debt, or permit any of its Subsidiaries to make any such payment,
except in compliance with the terms of such Subordinated Debt, or amend any
provision contained in any documentation relating to the Subordinated Debt
without Bank's prior written consent.
7.10. Inventory. Store the Inventory with a bailee, warehouseman, or
---------
similar party unless Bank has received a pledge of the warehouse receipt
covering such Inventory. Except for Inventory sold in the ordinary course of
business and except for such other locations as Bank may approve in writing,
Borrower shall keep the Inventory only at the location set forth in Section 10
hereof and such other locations of which Borrower gives Bank prior written
notice and as to which Borrower signs and files a financing statement where
needed to perfect Bank's security interest. For
<PAGE>
purposes of this Section 7.10, "Inventory" shall not include any assets of
Borrower that are not considered inventory in accordance with GAAP.
7.11. Compliance. Become an "investment company" controlled by an
----------
"investment company," within the meaning of the Investment Company Act of 1940,
or become principally engaged in, or undertake as one of its important
activities, the business of extending credit for the purpose of purchasing or
carrying margin stock, or use the proceeds of any Advance for such purpose. Fail
to meet the minimum funding requirements of ERISA, permit a Reportable Event or
Prohibited Transaction, as defined in ERISA, to occur, fail to comply with the
Federal Fair Labor Standards Act or violate any law or regulation, which
violation could have a Material Adverse Effect or a material adverse effect on
the Collateral or the priority of Bank's Lien on the Collateral, or permit any
of its Subsidiaries to do any of the foregoing.
8. EVENTS OF DEFAULT
-----------------
Any one or more of the following events shall constitute an Event of
Default by Borrower under this Agreement:
8.1. Payment Default. If Borrower fails to pay the principal of, or
---------------
any interest on, the Advance when due and payable; or fails to pay any portion
of any other Obligations not constituting such principal or interest, including
without limitation Bank Expenses, within thirty (30) days of receipt by Borrower
of an invoice for such other Obligations;
8.2. Covenant Default. If Borrower fails to perform any obligation
----------------
under Section 6.7, 6.8, 6.9 or 6.10 or violates any of the covenants contained
in Article 7 of this Agreement, or fails or neglects to perform, keep, or
observe any other material term, provision, condition, covenant, or agreement
contained in this Agreement, in any of the Loan Documents, or in any other
present or future agreement between Borrower and Bank and as to any default
under such other term, provision, condition, covenant or agreement that can be
cured, has failed to cure such default within thirty (30) days after Borrower
receives notice thereof or any Responsible Officer becomes aware thereof;
provided, however, that if the default cannot by its nature be cured within the
thirty (30) day period or cannot after diligent attempts by Borrower be cured
within such thirty (30) day period, and such default is likely to be cured
within a reasonable time, then Borrower shall have an additional reasonable
period (which shall not in any case exceed thirty (30) days) to attempt to cure
such default, and within such reasonable time period the failure to have cured
such default shall not be deemed an Event of Default (provided that no Advance
will be required to be made during such cure period);
8.3. Material Adverse Change. If there occurs a material adverse
-----------------------
change in Borrower's business or financial condition, or if there is a material
impairment of the prospect of repayment of any portion of the Obligations or a
material impairment of the value or priority of Bank's security interests in the
Collateral;
8.4. Attachment. If any material portion of Borrower's assets is
----------
attached, seized, subjected to a writ or distress warrant, or is levied upon, or
comes into the possession of any trustee, receiver or person acting in a similar
capacity and such attachment, seizure, writ or distress warrant or levy has not
been removed, discharged or rescinded within thirty (30) days, or if Borrower is
enjoined, restrained, or in any way prevented by court order from continuing to
conduct all or any material part of its business affairs, or if a judgement or
other claim becomes a lien or encumbrance upon any material portion of
Borrower's assets, or if a notice of lien, levy, or assessment is filed of
record with respect to any of Borrower's assets by the United States Government,
or any department, agency, or instrumentality thereof, or by any state, county,
municipal, or governmental agency, and the same is not paid within thirty (30)
days after Borrower receives notice thereof, provided that none of the foregoing
shall constitute an Event of Default where such action or event is stayed or an
adequate
<PAGE>
bond has been posted pending a good faith contest by Borrower (provided that no
Advance will be required to be made during such cure period);
8.5 Insolvency. If Borrower becomes insolvent, or if an Insolvency
----------
Proceeding is commenced by Borrower, or if an insolvency Proceeding is commenced
against Borrower and is not dismissed or stayed within thirty (30) days
(provided that no Advance will be made prior to the dismissal of such
Insolvency Proceeding);
8.6. Other Agreements. If there is a default in any agreement to which
----------------
Borrower is a party with a third party or parties resulting in a right by such
third party or parties, whether or not exercised, to accelerate the maturity of
any Indebtedness in an amount in excess of One Hundred Thousand Dollars
($100,000) or that would reasonably be expected to have a Material Adverse
Effect;
8.7. Subordinated Debt. If Borrower makes any payment on account of
-----------------
Subordinated Debt, except to the extent such payment is allowed under any
subordination agreement entered into with Bank;
8.8. Judgments. If a judgment or judgments for the payment of money in
---------
an amount, individually or in the aggregate, of at least One Hundred Thousand
Dollars ($100,000) shall be rendered against Borrower and shall remain
unsatisfied and unstayed for a period of thirty (30) days (provided that no
Advance will be made prior to the satisfaction or stay of such judgment); or
8.9. Misrepresentations. If any material misrepresentation or material
------------------
misstatement exists now or hereafter in any warranty or representation set forth
herein or in any certificate delivered to Bank by any Responsible Officer
pursuant to this Agreement or to induce Bank to enter into this Agreement or any
other Loan Document.
9. BANK'S RIGHTS AND REMEDIES
--------------------------
9.1. Rights and Remedies. Upon the occurrence and during the
-------------------
continuance of an Event of Default, Bank may, at its election, without notice of
its election and without demand, do any one or more of the following, all of
which are authorized by Borrower:
(a) Declare all Obligations, whether evidenced by this Agreement,
by any of the other Loan Documents, or otherwise, immediately due and payable
(provided that upon the occurrence of an Event of Default described in Section
8.5 all Obligations shall become immediately due and payable without any action
by Bank);
(b) Cease advancing money or extending credit to or for the
benefit of Borrower under this Agreement or under any other agreement between
Borrower and Bank;
(c) Settle or adjust disputes and claims directly with account
debtors for amounts, upon terms and in whatever order that Bank reasonably
considers advisable;
(d) Without notice to or demand upon Borrower, make such payments
and do such acts as Bank considers necessary or reasonable to protect its
security interest in the Collateral. Borrower agrees to assemble the Collateral
if Bank so requires, and to make the Collateral available to Bank as Bank may
designate. Borrower authorizes Bank to enter the premises where the Collateral
is located, to take and maintain possession of the Collateral, or any part of
it, and to pay, purchase, contest, or compromise any encumbrance, charge, or
lien which in Bank's determination appears to be prior or superior to its
security interest and to pay all expenses incurred in connection therewith. With
respect to any of Borrower's owned premises, Borrower hereby grants Bank a
license to enter into possession of such premises and to occupy the same,
without charge, for up to one
<PAGE>
hundred twenty (120) days in order to exercise any of Bank's rights or remedies
provided hereto, at law, in equity, or otherwise;
(e) Without notice to Borrower set off and apply to the
Obligations any and all (i) balances and deposits of Borrower held by Bank, or
(ii) indebtedness at any time owing, to or for the credit or the account of
Borrower held by Bank;
(f) Ship, reclaim, recover, store, finish, maintain, repair,
prepare for sale, advertise for sale, and sell (in the manner provided for
herein) the Collateral. Bank is hereby granted a license or other right, solely
pursuant to the provisions of this Section 9.1, to use, without charge,
Borrower's labels, patents, copyright, rights of use of any name, trade secrets,
trade names, trademarks, service marks, and advertising matter, or any property
of a similar nature, as it pertains to the Collateral, in completing production
of, advertising for sale, and selling any Collateral and, in connection with
Bank's exercise of its rights under this Section 9.1, Borrower's rights under
all licenses and all franchise agreements shall inure to Bank's benefit;
(g) Sell the Collateral at either a public or private sale, or
both, by way of one or more contracts or transactions, for cash or on terms, in
such manner and at such places (including Borrower's premises) as Bank
determines is commercially reasonable, and apply any proceeds to the Obligations
in whatever manner or order Bank deems appropriate;
(h) Bank may credit bid and purchase at any public sale; and
(i) Any deficiency that exists after disposition of the
Collateral as provided above will be paid immediately by Borrower.
9.2. Power of Attorney. Effective only upon the occurrence and during
-----------------
the continuance of an Event of Default, Borrower hereby irrevocably appoints
Bank (and any of Bank's designated officers, or employees) as Borrower's true
and lawful attorney to: (a) send requests for verification of Accounts or notify
account debtors of Bank's security interest in the Accounts; (b) endorse
Borrower's name on any checks or other forms of payment or security that may
come into Bank's possession; (c) sign Borrower's name on any invoice or bill of
lading relating to any Account, drafts against account debtors, schedules and
assignments of Accounts, verifications of Accounts, and notices to account
debtors; (d) make, settle, and adjust all claims under and decisions with
respect to Borrower's policies of insurance; and (e) settle and adjust disputes
and claims respecting the accounts directly with account debtors, for amounts
and upon terms which Bank determines to be reasonable; provided Bank may
exercise such power of attorney to sign the name of Borrower on any of the
documents described in Section 4.2 regardless of whether an Event of Default has
occurred. The appointment of Bank as Borrower's attorney in fact, and each and
every one of Bank's rights and powers, being coupled with an interest, is
irrevocable until all of the Obligations have been fully repaid and performed
and Bank's obligation to provide advances hereunder is terminated.
9.3. Accounts Collection. Upon the occurrence and during the
------------------
continuance of an Event of Default, Bank may notify any Person owing funds to
Borrower of Bank's security interest in such funds and verify the amount of such
Account. Borrower shall collect all amounts owing to Borrower for Bank, receive
in trust all payments as Bank's trustee, and immediately deliver such payments
to Bank in their original form as received from the account debtor, with proper
endorsements for deposit.
9.4. Bank Expenses. If Borrower fails to pay any amounts or furnish
-------------
any required proof of payment due to third persons or entities, as required
under the terms of this Agreement, then Bank may do any or all of the following
(a) make payment of the same or any part thereof; (b) set up such reserves under
the Revolving Facility as Bank deems necessary to protect Bank from the exposure
created by such failure; or (c) obtain and maintain insurance policies of the
type discussed in
<PAGE>
Section 6.6 of this Agreement, and take any action with respect to such policies
as Bank deems prudent. Any amounts so paid or deposited by Bank shall constitute
Bank Expenses, shall be immediately due and payable, and shall bear interest at
the then applicable rate hereinabove provided, and shall be secured by the
Collateral. Any payments made by Bank shall not constitute an agreement by Bank
to make similar payments in the future or a waiver by Bank of any Event of
Default under this Agreement.
9.5. Bank's Liability for Collateral. So long as Bank complies with
-------------------------------
Section 9207 of the Code, Bank shall not in any way or manner be liable or
responsible for: (a) the safekeeping of the Collateral; (b) any loss or damage
thereto occurring or arising in any manner or fashion from any cause; (c) any
diminution in the value thereof: or (d) any act or default of any carrier,
warehouseman, bailee, forwarding agency, or other person whomsoever. Subject to
the foregoing, all risk of loss, damage or destruction of the Collateral shall
be borne by Borrower.
9.6. Remedies Cumulative. Bank's rights and remedies under this
-------------------
Agreement, the Loan Documents, and all other agreements shall be cumulative.
Bank shall have all other rights and remedies not inconsistent herewith as
provided under the Code, by law, or in equity. No exercise by Bank of one right
or remedy shall be deemed an election, and no waiver by Bank of any Event of
Default on Borrower's part shall be deemed a continuing waiver. No delay by Bank
shall constitute a waiver, election, or acquiescence by it. No waiver by Bank
shall be effective unless made in a written document signed on behalf of Bank
and then shall be effective only in the specific instance and for the specific
purpose for which it was given.
9.7. Demand: Protest. Borrower waives demand, protest, notice of
---------------
protest, notice of dishonor, notice of payment and nonpayment, notice of any
default, nonpayment at maturity, release, compromise, settlement, extension, or-
renewal of accounts, documents, instruments, chattel paper, and guarantees at
any time held by Bank on which Borrower may in any way be liable.
10. NOTICES
-------
Unless otherwise provided in this Agreement, all notices or demands by
any party relating to this Agreement or any other agreement entered into in
connection herewith shall be in writing and (except for financial statements and
other informational documents which may be sent by first-class mail, postage
prepaid) shall be personally delivered or sent by a recognized overnight
delivery service, certified mail, postage prepaid, return receipt requested, or
by telefacsimile to Borrower or to Bank, as the case may be, at its addresses
set forth below:
If to Borrower: Crossroads Software, Inc.
1825 S. Grant Street, Suite 520
San Mateo, CA 94402
Attn: Ms. Katrina Garnett
FAX: (415) 372-1418
If to Bank: Silicon Valley Bank
1731 Embarcadero Road, Suite 220
Palo Alto, CA 94303
Attn: Ms. Kathleen Borie
FAX: (415) 812-0640
The parties hereto may change the address at which they are to receive
notices hereunder, by notice in writing in the foregoing manner given to the
other.
<PAGE>
11. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER
------------------------------------------
This Agreement shall be governed by, and construed in accordance with,
the internal laws of the State of California, without regard to principles of
conflicts of law. Each of Borrower and Bank hereby submits to the exclusive
jurisdiction of the state and Federal courts located in the County of Santa
Clara, State of California. BORROWER AND BANK EACH HEREBY WAIVE THEIR RESPECTIVE
RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT
OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN,
INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER
COMMON LAW OR STATUTORY CLAIMS. EACH PARTY RECOGNIZES AND AGREES THAT THE
FOREGOING WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR IT TO ENTER INTO THIS
AGREEMENT. EACH PARTY REPRESENTS AND WARRANTS THAT IT HAS REVIEWED THIS WAIVER
WITH ITS LEGAL COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY
TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL.
12. GENERAL PROVISIONS
------------------
12.1. Successors and Assigns. This Agreement shall bind and inure to
----------------------
the benefit of the respective successors and permitted assigns of each of the
parties; provided, however, that neither this Agreement nor any rights hereunder
-------- -------
may be assigned by Borrower without Bank's prior written consent, which consent
may be granted or withheld in Bank's sole discretion. Bank shall have the right
without the consent of or notice to Borrower to sell, transfer, negotiate, or
grant participation in all or any part of, or any interest in, Bank's
obligations, rights and benefits hereunder.
12.2. Indemnification. Borrower shall defend, indemnify and hold
---------------
harmless Bank and its officers, employees, and agents against: (a) all
obligations, demands, claims, and liabilities claimed or asserted by any other
party in connection with the transactions contemplated by this Agreement; and
(b) all losses or Bank Expenses in any way suffered, incurred, or paid by Bank
as a result of or in any way arising out of, following, or consequential to
transactions between Bank and Borrower whether under this Agreement, or
otherwise (including without limitation reasonable attorneys fees and expenses),
except for losses caused by Bank's gross negligence or willful misconduct.
12.3. Time of Essence. Time is of the essence for the performance of
---------------
all obligations set forth in this Agreement.
12.4. Severability of Provisions. Each provision of this Agreement
--------------------------
shall be severable from every other provision of this Agreement for the purpose
of determining the legal enforceability of any specific provision.
12.5. Amendments in Writing Integration. This Agreement cannot be
---------------------------------
amended or terminated orally. All prior agreements, understandings,
representations, warranties, and negotiations between the parties hereto with
respect to the subject matter of this Agreement, if any, are merged into this
Agreement and the Loan Documents.
12.6. Counterparts. This Agreement may be executed in any number of
------------
counterparts and by different parties on separate counterparts, each of which,
when executed and delivered, shall be deemed to be an original, and all of
which, when taken together, shall constitute but one and the same Agreement.
12.7. Survival. All covenants, representations and warranties made in
--------
this Agreement shall continue in full force and effect so long as any
Obligations (excluding Obligations under Sections 12.2 and 2.5 to the extent
they remain inchoate at the time all other Obligations are
<PAGE>
repaid) remain outstanding. The obligations of Borrower to indemnify Bank with
respect to the expenses, damages, losses, costs and liabilities described in
Section 12.2 shall survive until all applicable statute of limitations periods
with respect to actions that may be brought against Bank have run.
12.8. Confidentiality. In handling any confidential information Bank
---------------
shall exercise the same degree of care that it exercises with respect to its own
proprietary information of the same types to maintain the confidentiality of any
non-public information thereby received or received pursuant to this Agreement
except that disclosure of such information may be made (i) to the subsidiaries
or affiliates of Bank in connection with their present or prospective business
relations with Borrower, (ii) to prospective transferees or purchasers of any
interest in the Loans, provided that they have entered into a comparable
confidentiality agreement in favor of Borrower and have delivered a copy to
Borrower, (iii) as required by law, regulations, rule or order, subpoena,
judicial order or similar order, (iv) as may be required in connection with the
examination, audit or similar investigation of Bank and (v) as Bank may
determine in connection with the enforcement of any remedies hereunder.
Confidential information hereunder shall not include information that either:
(a) is in the public domain or in the knowledge or possession of Bank when
disclosed to Bank, or becomes part of the public domain after disclosure to Bank
through no fault of Bank; or (b) is disclosed to Bank by a third party, provided
Bank does not have actual knowledge that such third party is prohibited from
disclosing such information. Notwithstanding any provision of this Agreement to
the contrary, neither Borrower nor any of its Subsidiaries will be required to
disclose, permit the inspection, examination, copying or making extracts of, or
discussions of: any document, information or other matter (i) prior to the
occurrence of an Event of Default that constitutes non-financial trade secrets
or non-financial proprietary information (provided that the terms of agreements
that generate Accounts shall not be deemed to be "non-financial trade secrets or
non-financial proprietary information"), or (ii) in respect to which disclosure
to Bank (or designated representative) is then prohibited by law.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
CROSSROADS SOFTWARE, INC.
By: /s/ K. A. Garnett
------------------------
Title: PRES/CEO
---------------------
SILICON VALLEY BANK
By: /s/
________________________
Title: Senior Vice President
______________________
<PAGE>
EXHIBIT A
---------
The Collateral shall consist of all right, title and interest of Borrower
in and to the following:
(a) All goods and equipment now owned or hereafter acquired, including,
without limitation, all machinery, fixtures, vehicles (including motor vehicles
and trailers), and any interest in any of the foregoing, and all attachments,
accessories, replacements, substitutions, additions, and improvements to any of
the foregoing, wherever located;
(b) All inventory, now owned or hereafter acquired, including, without
limitation, all merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products including such
inventory as is temporarily out of Borrower's custody or possession or in
transit and including any returns upon any accounts or other proceeds, including
insurance proceeds, resulting from the sale or disposition of any of the
foregoing and any documents of title representing any of the above, and
Borrower's Books relating to any of the foregoing;
(c) All contract rights and general intangibles now owned or hereafter
acquired, including, without limitation, goodwill, trademarks, servicemarks,
trade styles, trade names, patents, patent applications, leases, license
agreements, franchise agreements, blueprints, drawings, purchase orders,
customer lists, route lists, infringements, claims, computer programs, computer
discs, computer tapes, literature, reports, catalogs, design rights, income tax
refunds, payments of insurance and rights to payment of any kind;
(d) All now existing and hereafter arising accounts, contract rights,
royalties, license rights and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods, the licensing of technology or the
rendering of services by Borrower, whether or not earned by performance, and any
and all credit insurance, guaranties, and other security therefor, as well as
all merchandise returned to or reclaimed by Borrower and Borrower's Books
relating to any of the foregoing;
(e) All documents, cash, deposit accounts, securities, letters of credit,
certificates of deposit, instruments and chattel paper now owned or hereafter
acquired and Borrower's Books relating to the foregoing;
(f) All copyright rights, copyright applications, copyright registrations
and like protections in each work of authorship and derivative work thereof,
whether published or unpublished, now owned or hereafter acquired; all trade
secret rights, including all rights to unpatented inventions, know-how,
operating manuals, license rights and agreements and confidential information,
now owned or hereafter acquired; all mask work or similar rights available for
the protection of semiconductor chips, now owned or hereafter acquired; all
claims for damages by way of any past, present and future infringement of any of
the foregoing; and
(g) Any and all claims, rights and interests in any of the above and all
substitutions for, additions and accessions to and proceeds thereof.
<PAGE>
EXHIBIT 10.18
SECOND AMENDMENT
----------------
TO
--
LOAN AND SECURITY AGREEMENT
---------------------------
This Second Amendment to Loan and Security Agreement (this "Amendment") is
entered into as of October 28, 1998, by and between SILICON VALLEY BANK ("Bank")
and CROSSWORLDS SOFTWARE, INC., formerly known as CROSSROADS SOFTWARE, INC.
("Borrower").
RECITALS
--------
Borrower and Bank are parties to that certain Loan and Security Agreement
dated as of December 10, 1996, as amended from time to time, including, without
limitation, the First Amendment to Loan and Security Agreement, dated as of
September 29, 1997 (the "Loan Agreement"). The parties desire to amend the Loan
Agreement in accordance with the terms of this Amendment.
NOW, THEREFORE, the parties agree as follows:
1. Certain defined terms in Section 1.1 of the Loan Agreement are hereby
added or amended as follows:
"Copyrights" means any and all copyright rights, copyright
applications, copyright registrations and like protections in each work or
authorship and derivative work thereof, whether published or unpublished and
whether or not the same also constitutes a trade secret, now or hereafter
existing, created, acquired or held, add definition of "Current Liabilities"
from the Loan and Security Agreement of 12/10/96, with last clause to read "but
specifically excluding Subordinated Debt and deterred revenue."
"Eligible Foreign Accounts" means Accounts with respect to which the
account debtor does not have its principal place of business in the United
States and that are: (1) covered by credit insurance in form and amount, and by
an insurer satisfactory to Bank less the amount of any deductible(s) which may
be or become owing thereon; or (2) supported by one or more letters of credit in
favor of Bank as beneficiary, in an amount and of a tenor, and issued by a
financial institution, acceptable to Bank; or (3) that Bank approves on a case-
by-case basis not to exceed twenty-five percent (25%) of gross Eligible
Accounts.
"Intellectual Properly Collateral" means any and all right, title and
interest of Borrower in the following:
(a) Copyrights, Trademarks and Patents;
(b) Any and all trade secrets, and any and all intellectual property
rights in computer software and computer software products now or hereafter
existing, created, acquired or held;
1
<PAGE>
(c) Any and all design rights which may be available to Borrower now
or hereafter existing, created, acquired or held;
(d) Any and all claims for damages by way of past, present and future
infringement of any of the rights included above, with the right, but not the
obligation, to sue for and collect such damages for said use or infringement of
the intellectual property rights identified above;
(e) All licenses or other rights to use any of the Copyrights, Patents
or Trademarks, and all license fees and royalties arising from such use to the
extent permitted by such license or rights;
(f) All amendments, renewals and extensions of any of the Copyrights,
Trademarks or Patents; and
(g) All proceeds and products of the foregoing, including without
limitation all payments under insurance or any indemnity or warranty payable in
respect of any of the foregoing.
"Patents" means all patents, patent applications and like protections
including without limitation improvements, divisions, continuations, renewals,
reissues, extensions and continuations-in-part of the same.
"Quick Assets" means, as of any applicable date, the unrestricted
cash; unrestricted cash-equivalents; billed accounts receivable net of bad debt
reserve; and investments with maturities of less than one year of Borrower
determined in accordance with GAAP.
"Revolving Committed Line" means Ten Million Dollars ($10,000,000).
"Revolving Maturity Date" means October 28, 1999.
"Tangible Net Worth" means as of the applicable date, the consolidated
total assets of Borrower plus fifty percent of deferred revenue minus, without
---- -----
duplication, (i) the sum of any amounts attributable to (a) goodwill, (b)
intangible items such as unamortized debt discount and expense, patents, trade
and service marks and names, copyrights and research and development expenses
except prepaid expenses, and (c) all reserves not already deducted from assets,
and (ii) Total Liabilities.
- ---
"Total Liabilities" means as of the applicable date, all obligations
that should, in accordance with GAAP be classified as liabilities on the
consolidated balance sheet of Borrower, including in any event all Indebtedness,
but specifically excluding Subordinated Debt and deferred revenue.
"Trademarks" means any trademark and servicemark rights, whether
registered or not, applications to register and registrations of the same and
like protections, and the entire goodwill of the business of Assignor connected
with and symbolized by such trademarks.
2. Section 2.1.2(a) is hereby amended and replaced in its entirety as
follows:
"2.1.2 Revolving Facility.
------------------
2
<PAGE>
(a) Advances. Subject to and upon the terms and conditions of
--------
this Agreement, Bank agrees to make Revolving Advances to Borrower in an
aggregate amount not to exceed the lesser of the Revolving Committed Line or the
Borrowing Base, minus the sum of the following outstanding amounts: (i) the face
-----
amount of all outstanding Letters of Credit over $1,250,000(including drawn but
unreimbursed Letters of Credit), (ii) the Foreign Exchange Reserve over
$1,250,000 and (iii) amounts outstanding for Cash Management Services over
$1,250,000. For purposes of this Agreement, "Borrowing Base" shall mean an
amount equal to seventy percent (70%) of Eligible Accounts. Subject to the terms
and conditions of this Agreement, amounts borrowed pursuant to this Section
2.1.2 may be repaid and reborrowed at any time prior to the Revolving Maturity
Date. Notwithstanding the foregoing, any Revolving, Advances requested by
Borrower pursuant to Sections 2.1.2.1, 2.1.2.2, and 2.1.2.3 below shall not be
subject to the Borrowing Base."
3. Section 2.1.2. l(a) is hereby amended and replaced in its entirety as
follows:
"2.1.2.1 Letters of Credit.
-----------------
(a) Subject to the terms and conditions of this Agreement, Bank
agrees to issue or cause to be issued letters of credit (each a "Letter of
Credit," collectively, the "Letters of Credit") for the account of Borrower in
an aggregate outstanding face amount not to exceed the Revolving Committed Line,
minus the sum of the following outstanding amounts: (i) the then outstanding
- -----
principal balance of the Advances (including drawn but unreimbursed Letters of
Credit), minus (ii) the Foreign Exchange Reserve, minus (iii) outstanding
----- -----
amounts for Cash Management Services; provided that the aggregate face amount of
--------
outstanding Letters of Credit (including drawn but unreimbursed Letters of
Credit and any Letter of Credit Reserve) with respect to the Revolving Facility
shall not in any case exceed One Million Two Hundred Fifty Thousand Dollars
($1,250,000). Each Letter of Credit shall have an expiry date no later than the
Revolving Maturity Date. All Letters of Credit shall be, in form and substance,
acceptable to Bank in its sole discretion and shall be subject to the terms and
conditions of Bank's form of standard application and letter of credit
agreement."
4. Section 2.1.2.2(a) is hereby amended and replaced in its entirety as
follows:
"2.1.2.2 Foreign Exchange Contract: Foreign Exchange Settlements.
--------------------------------------------------------
(a) Subject to the terms of this Agreement, Borrower may enter
into foreign exchange contracts (the "Exchange Contracts") under the Revolving
Facility not to exceed an aggregate amount of One Million Two Hundred Fifty
Thousand Dollars ($1,250,000) (the "Contract Limit"), pursuant to which Bank
shall sell to or purchase from Borrower foreign currency on a spot or future
basis. Borrower shall not request any Exchange Contracts at any time it is out
of compliance with any of the provisions of this Agreement. All Exchange
Contracts must provide for delivery of settlement on or before the Revolving
Maturity Date. The amount available under the Revolving Committed Line at any
time shall be reduced by the following amounts (the "Foreign Exchange Reserve")
on any given day (the "Determination Date"): (i) on all outstanding Exchange
Contracts on which delivery is to be effected or settlement allowed more than
two business days after the Determination Date, ten percent (10%) of the gross
amount of the Exchange Contracts; plus (ii) on all outstanding Exchange
Contracts on which delivery is to be effected or settlement allowed within two
(2) business days after the Determination Date, one hundred percent (100%) of
the gross amount of the Exchange Contracts."
5. Section 2.1.2.3 is hereby amended and replaced in its entirety as
follows:
3
<PAGE>
"2.1.2.3 Cash Management Sublimit. Subject to the terms and
------------------------
conditions of this Agreement, for cash management services provided by Bank,
which services may include merchant services, PC-ACH, direct deposit of payroll,
business credit card, Firstax, and other related check cashing services as
defined in that certain Cash Management Services Agreement provided to Borrower
in connection herewith (a "Cash Management Service", or the "Cash Management
Services"), Borrower may utilize up to an aggregate amount not to exceed the
Revolving Committed Line, minus the sum of the following outstanding amounts:
-----
(i) the then outstanding principal balance of the Advances, minus (ii) the face
-----
amount of all outstanding Letters of Credit (including drawn but unreimbursed
Letters of Credit), minus (iii) the Foreign Exchange Reserve; provided that the
------
aggregate amount outstanding for Cash Management Services shall not exceed One
Million Two Hundred Fifty Thousand Dollars ($1,250,000) (the "Cash Management
Sublimit") under the Revolving Facility. Any amounts actually paid by Bank in
respect of a Cash Management Service or Cash Management Services shall, when
paid, constitute a Revolving Advance under this Agreement."
6. Section 2.1.4 is hereby amended and replaced in its entirety as
follows:
"2.1.4 Overadvances. If, at any time or for any reason, the amount of
------------
Obligations owed by Borrower to Bank pursuant to Section 2.1.2 of this Agreement
is greater than the lesser of the Revolving Committed Line or the Borrowing
Base, minus the sum of the following outstanding amounts: (i) the face amount of
-----
all outstanding Letters of Credit over $1,250,000(including drawn but
unreimbursed Letters of Credit), minus (ii) the Foreign Exchange Reserve over
-----
$1,250,000, minus (iii) outstanding amounts for Cash Management Services over
-----
$1,250,000, Borrower shall immediately pay to Bank, in cash, the amount of such
excess. If, at any time or for any reason, the amount of Obligations owed by
Borrower to Bank pursuant to Section 2.1.3 of this Agreement is greater than the
Committed New Equipment Line, Borrower shall immediately pay to Bank, in cash,
the amount of such excess."
7. A new Section 5.16 is hereby added as follows:
"5.16 Intellectual Property. To the best of its knowledge, Borrower
---------------------
is the sole owner of the Intellectual Property Collateral, and, except for non-
exclusive licenses granted by Borrower in the ordinary course of business,
Borrower has not granted any liens, encumbrances, or other security interests in
the Intellectual Property Collateral. To the best of Borrower's knowledge, each
of the Patents is valid and enforceable. No part of the Intellectual Property
Collateral has been judged invalid or unenforceable, in whole or in part, and no
claim has been made that any part of the Intellectual Property Collateral
violates the rights of any third party."
8. The following new Section 6.3(a)(vi) is hereby added as follows:
"(vi) within fifteen (15) days after the end of each fiscal quarter,
Borrower shall provide notice of any material addition, revision, enhancement,
or improvement to the Intellectual Property Collateral, including, but not
limited to, any subsequent ownership right of the Borrower in or to any Patents
relating to material patentable inventions, Trademarks and Copyrights relating
to major software releases not specified in any intellectual property security
agreement between Borrower and Bank or knowledge of an event that directly and
materially adversely effects the value of the Intellectual Property Collateral."
9. Section 6.3(c) is hereby amended and replaced in its entirety, as
follows:
4
<PAGE>
"(c) On the fifteenth (15th) day of each calendar month or the
Business Day prior to such 15th date if the 15th date falls on a holiday,
Saturday or Sunday, and, if the aggregate outstanding amount of Revolving
Advances exceeds Five Million Dollars ($5,000,000), then also on the last day of
each calendar month that is a Business Day, Borrower shall deliver to Bank a
Borrowing Base Certificate signed by a Responsible Officer in substantially the
form of Exhibit E hereto, together with aged listings of accounts receivable and
---------
accounts payable."
10. The following new Sections 6.8 and 6.10 are hereby added as follows:
"6.8 Quick Ratio. Borrower shall maintain, as of the last day of each
-----------
fiscal quarter during the term of this Agreement. a ratio of Quick Assets to
Current Liabilities (excluding deferred revenue) of at least 1.50 to 1.00."
"6.10 Tangible Net Worth. Borrower shall maintain, as of the last day
------------------
of each fiscal quarter during the term of this Agreement, a Tangible Net Worth
of not less than Three Million Three Hundred Thousand Dollars ($3,300,000)."
11. The following new Section 6.12 is hereby added as follows:
"6.12 Registration of Intellectual Property Rights. Borrower shall
--------------------------------------------
register or cause to be registered (to the extent not already registered) with
the United States Patent and Trademark Office or the United States Copyright
Office, as applicable, those intellectual property rights listed on Exhibits A,
B and C to the Intellectual Property Security Agreement delivered to Bank by
Borrower in connection with this Agreement within thirty (30) days of the date
of this Agreement. Borrower shall register or cause to be registered with the
United States Patent and Trademark Office or the United States Copyright Office,
as applicable, those additional material patentable inventions, Trademarks, and
Copyrights relating to major software releases, and material additions,
revisions, enhancements, or improvements to existing Copyrights, developed or
acquired by Borrower from time to time in connection with any product prior to
the sale or licensing of such product to any third party, including without
limitation revisions or additions to the intellectual property rights listed on
such Exhibits A, B and C.
(a) Borrower shall execute and deliver such additional instruments and
documents from time to time as Bank shall reasonably request to perfect Bank's
security interest in the Intellectual Property Collateral.
(b) Borrower shall (i) protect, defend and maintain the validity and
enforceability of the Trademarks, Patents and Copyrights, (ii) use its best
efforts to detect infringements of the Trademarks, Patents and Copyrights and
promptly advise Bank in writing of material infringements detected and (iii) not
allow any Trademarks, Patents or Copyrights to be abandoned, forfeited or
dedicated to the public without the written consent of Bank, which shall not be
unreasonably withheld, unless Bank determines that reasonable business practices
suggest that abandonment is appropriate.
(c) Bank shall have the right, but not the obligation, to take, at
Borrower's sole expense, any actions that Borrower is required under this
Section 6.8 to take but which Borrower fails to take, after thirty (30) days'
notice to Borrower. Borrower shall reimburse and indemnify Bank for all
reasonable costs and reasonable expenses incurred in the reasonable exercise of
its rights under this Section 6.12."
5
<PAGE>
12. A new Section 7.12 is hereby added as follows:
"7.12 Intellectual Property Agreements. Borrower shall not permit
--------------------------------
the inclusion in any material contract to which it becomes a party of any
provisions that would in any way prevent the creation of a security interest in
Borrower's rights and interests in any property included within the definition
of the Intellectual Property Collateral acquired under such contracts."
13. Section 8.2 is hereby amended and restated in its entirety as follows:
"8.2 Covenant Default. If Borrower fails to perform any obligation
----------------
under Section 6.7, 6.8, 6.9, 6.10 or 6.12 or violates any of the covenants
contained in Article 7 of this Agreement, or fails or neglects to perform, keep,
or observe any other material term, provision, condition, covenant, or agreement
contained in this Agreement, in any of the Loan Documents, or in any other
present or future agreement between Borrower and Bank and as to any default
under such other term, provision, condition, covenant or agreement that can be
cured, has failed to cure such default within thirty (30) days after Borrower
receives notice thereof or any officer of Borrower becomes aware thereof;
provided, however, that if the default cannot by its nature be cured within the
thirty (30) day period or cannot after diligent attempts by Borrower be cured
within such thirty (30) day period, and such default is likely to be cured
within a reasonable time, then Borrower shall have an additional reasonable
period (which shall not in any case exceed thirty (30) days) to attempt to cure
such default, and within such reasonable time period the failure to have cured
such default shall not be deemed an Event of Default (provided that no Advance
will be required to be made during such cure period);"
14. The following new Sections 9.2(f), 9.2(g) and 9.2(h) are hereby added
as follows:
"(f) to modify, in its sole discretion, any intellectual property
security agreement entered into between Borrower and Bank without first
obtaining Borrower's approval of or signature to such modification by amending
Exhibit A, Exhibit B and Exhibit C, thereof, as appropriate, to include
reference to any right, title or interest in any Copyrights, Patents or
Trademarks acquired by Borrower after the execution hereof or to delete any
reference to any right, title or interest in any Copyrights, Patents or
Trademarks in which Borrower no longer has or claims any right, title or
interest; (g) to file, in its sole discretion, one or more financing or
continuation statements and amendments thereto, relative to any of the
Collateral without the signature of Borrower where permitted by law; and (h) to
transfer the Intellectual Property Collateral into the name of Bank or a third
party to the extent permitted under the California Uniform Commercial Code
provided Bank may exercise such power of attorney to sign the name of Borrower
on any of the documents described in Section 4.2 regardless of whether an Event
of Default has occurred;"
15. The following sentence is added at the end of Section 9.4 as follows:
"Bank shall have a non-exclusive, royalty-free license to use the
Intellectual Property Collateral to the extent reasonably necessary to permit
Bank to exercise its rights and remedies upon the occurrence of an Event of
Default."
16. Exhibits C and E are hereby replaced in their entirety, with the
attached Exhibits C and E.
6
<PAGE>
17. As a condition to the effectiveness of this Amendment, Borrower shall
pay all Bank Expenses (including reasonable attorneys' fees not to exceed
$2,500) incurred through the date of this Amendment, which fees and expenses
become nonrefundable and fully earned on the date hereof.
18. The obligation of Bank to make any further Advance pursuant to the
terms of the Agreement, as amended hereby, is subject to the condition precedent
that Bank shall have received, in form and substance satisfactory to Bank, the
following:
a. this Amendment, duly executed by the Borrower;
b. a certificate of secretary of the Borrower with respect to
incumbency and resolutions authorizing the execution and delivery of this
Amendment;
c. payment of the Bank Expenses then due as specified in Section 18
hereof;
d. an intellectual property security agreement with Exhibits A, B
and C in the form attached hereto as Exhibit F;
e. an audit of Borrower's Accounts;
f. a UCC-2 financing statement; and
g. such other documents, and completion of such other matters as
Bank may reasonably deem necessary or appropriate.
19. Unless otherwise defined, all capitalized terms in this Amendment
shall be as defined in the Agreement. Except as amended, the Agreement remains
in full force and effect.
20. Borrower represents and warrants that the Representations and
Warranties contained in the Agreement are true and correct as of the date of
this Amendment, and that no Event of Default has occurred and is continuing.
7
<PAGE>
21. This Amendment may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one instrument.
IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the
first date above written.
CROSSWORLDS SOFTWARE, INC.
By: /s/
-----------------------
Title: SVP/CFO
--------------------
SILICON VALLEY BANK
By: /s/
-----------------------
Title: V.P.
--------------------
8
<PAGE>
EXHIBIT C
COMPLIANCE CERTIFICATE
TO: SILICON VALLEY BANK
FROM: CROSSWORLDS SOFTWARE, INC.
- -------------------------------------------------------------------------------
The undersigned authorized officer of CrossWorlds Software, Inc. hereby
certifies that in accordance with the terms and conditions of the Loan and
Security Agreement between Borrower and Bank (the "Agreement"), (i) Borrower is
in complete compliance for the period ending ______ with all required covenants
except as noted below and (ii) all representations and warranties of Borrower
stated in the Agreement are true and correct in all material respects as of the
date hereof. Attached herewith are the required documents supporting the above
certification. The Officer further certifies that these are prepared in
accordance with Generally Accepted Accounting Principles (GAAP) and are
consistently applied from one period to the next except as explained in an
accompanying letter or footnotes.
Please indicate compliance status by circling Yes/No under "Complies" column.
<TABLE>
<CAPTION>
Reporting Covenant Required Complies
------------------ -------- --------
<S> <C> <C>
A/R and A/P Agings Monthly on 15th day and last day Yes No
Monthly financial statements Monthly within 30 days Yes No
Borrowing Base Certificate Monthly on 15th day and last day Yes No
Annual (CPA Audited) FYE within 120 days Yes No
</TABLE>
<TABLE>
<CAPTION>
Financial Covenant Required Actual Complies
------------------ -------- ------ --------
<S> <C> <C> <C>
Maintain on a Quarterly Basis:
-----------------------------
Quick Ratio 1.50:1.00 _____:1.00 Yes No
Tangible Net Worth $3,300,000 Yes No
Maintain on a Monthly Basis:
---------------------------
Liquidity Coverage 1.50:1.00 _____:1.00 Yes No
</TABLE>
only monthly on the 15th day if the aggregate outstanding Revolving Advances are
less than $5,000,000
**Equipment Term debt only
<TABLE>
<S> <C>
---------------------------------------------------------
Comments Regarding Exceptions: See Attached. BANK USE ONLY
Sincerely, Received by:_________________________________________
AUTHORIZED SIGNER
______________________________________________
SIGNATURE Date:________________________________________________
______________________________________________ Verified:____________________________________________
TITLE AUTHORIZED SIGNER
______________________________________________ Date:________________________________________________
DATE
Compliance Status: Yes No
---------------------------------------------------------
</TABLE>
9
<PAGE>
EXHIBIT E
BORROWING BASE CERTIFICATE
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Borrower: CrossWorlds Software, Inc. Lender: Silicon Valley Bank
Revolving Commitment Amount: $10,000,000
- ------------------------------------------------------------------------------------------------------------------------------
ACCOUNTS RECEIVABLE
1. Accounts Receivable Book Value as of $_____________
2. Additions (please explain on reverse) $_____________
3. TOTAL ACCOUNTS RECEIVABLE $_____________
ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication)
4. Amounts over 120 days due $_____________
5. Concentration Limits $_____________
6. Foreign Accounts $_____________
7. Governmental Accounts $_____________
8. Contra Accounts * $_____________
9. Promotion or Demo Accounts $_____________
10. Intercompany/Employee Accounts $_____________
11. Other (please explain on reverse) $_____________
12. TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS $_____________
13. Eligible Accounts (#3 minus #12) $_____________
14. LOAN VALUE OF ACCOUNTS (80% of #13) $_____________
BALANCES
15. Maximum Loan Amount $_____________
16. Total Funds Available [Lesser of #15 or #14] $_____________
17. Present balance owing on Line of Credit $_____________
18. Outstanding under Sublimits exceeding $1,250,000( )
19. Outstanding under Sublimits exceeding $1,250,000(Outstanding Letters of Credit)*
20. Outstanding under Sublimits exceeding $1,250,000(Outstanding Letters of Credit)*
21. Outstanding under Sublimits exceeding $1,250,000(Outstanding Cash Management)*
22. RESERVE POSITION (#16 minus #17, #18, #19, #20 and #21) $_____________
</TABLE>
* Accounts with respect to which goods are placed on consignment, guaranteed
sale or other terms by reason of which the payment by the account debtor may
be conditional.
The undersigned represents and warrants that the foregoing is true, complete and
correct, and that the information reflected in this Borrowing Base Certificate
complies with the representations and warranties set forth in the Loan and
Security Agreement between the undersigned and Silicon Valley Bank.
COMMENTS:
CROSSWORLDS SOFTWARE, INC.
By:_____________________________
Authorized Signer
------------------------------
BANK USE ONLY
Rec'd By:___________________
Authorized Signer
Date:_______________________
Verified:___________________
Authorized Signer
------------------------------
<PAGE>
EXHIBIT F
---------
INTELLECTUAL PROPERTY SECURITY AGREEMENT
This Intellectual Property Security Agreement is entered into as of October
28, 1998, by and between SILICON VALLEY BANK ("Bank") and CROSSWORLDS SOFTWARE,
INC. ("Grantor").
RECITALS
--------
A. Bank has agreed to make certain advances of money and to extend
certain financial accommodation to Grantor (the "Loans") in the amounts and
manner set forth in that certain Loan and Security Agreement dated as of
December 10, 1996, as amended from time to time, including, without limitation,
the First Amendment to Loan and Security Agreement, dated as of September 29,
1997, and the Second Amendment to Loan and Security Agreement, dated as of
October 28, 1998 (as the same may be amended, modified or supplemented from time
to time, the "Loan Agreement"; capitalized terms used herein are used as defined
in the Loan Agreement). Bank is willing to make the Loans to Grantor, but only
upon the condition, among others, that Grantor shall grant to Bank a security
interest in certain Copyrights, Trademarks and Patents to secure the obligations
of Grantor under the Loan Agreement.
B. Pursuant to the terms of the Loan Agreement, Grantor has granted to
Bank a security interest in all of Grantor's right, title and interest, whether
presently existing or hereafter acquired, in, to and under all of the
Collateral.
NOW, THEREFORE, for good and valuable consideration, receipt of which is
hereby acknowledged, and intending to be legally bound, as collateral security
for the prompt and complete payment when due of its obligations under the Loan
Agreement, Grantor hereby represents, warrants, covenants and agrees as follows:
AGREEMENT
---------
To secure its obligations under the Loan Agreement, Grantor grants and
pledges to Bank a security interest in all of Grantor's right, title and
interest in, to and under its Intellectual Property Collateral (including
without limitation those Copyrights, Patents and Trademarks listed on Schedules
A, B and C hereto), and including without limitation all proceeds thereof (such
as, by way of example but not by way of limitation, license royalties and
proceeds of infringement suits), the right to sue for past, present and future
infringements, all rights corresponding thereto throughout the world and all re-
issues, divisions continuations, renewals, extensions and continuations-in-part
thereof.
This security interest is granted in conjunction with the security interest
granted to Bank under the Loan Agreement. The rights and remedies of Bank with
respect to the security interest granted hereby are in addition to those set
forth in the Loan Agreement and the other Loan Documents, and those which are
now or hereafter available to Bank as a matter of law or equity. Each right,
power and remedy of Bank provided for herein or in the Loan Agreement or any of
the Loan Documents, or now or hereafter existing at law or in equity shall be
cumulative and concurrent and shall be in addition to every right, power or
remedy provided for herein and the exercise by Bank of any one or more of the
rights, powers or remedies provided for in this Intellectual Property Security
Agreement, the Loan Agreement or any of the other Loan Documents, or now or
hereafter existing at law or in equity, shall not preclude the simultaneous or
later exercise by any person, including Bank, of any or all other rights, powers
or remedies.
Notwithstanding the foregoing, the filing on the Patents, Copyrights and
Trademarks described on Schedules A, B and C hereto, is solely for the purpose
of perfecting a security interest in the accounts receivable with respect to
such Intellectual Property Collateral.
Notwithstanding the foregoing, the term "Intellectual Property Collateral"
shall not include any general intangibles or contracts of Borrower (whether
owned or held as licensee or lessee, or otherwise) to the extent that (i) such
general intangibles are not assignable or capable of being encumbered as a
matter of law or under the terms of the license, lease or other agreement
applicable thereto (but solely to the extent that such restriction shall be
enforceable under applicable law) without the consent of the licensor or
1
<PAGE>
lessor thereof or other applicable party thereto and (ii) such consent has not
been obtained; provided, however, that the foregoing grant of security interest
-------- -------
shall extend to, and the term "Intellectual Property Collateral" shall include,
(A) any general intangible which is an Account or a proceed of, or otherwise
related to the enforcement or collection of, any Account or goods which are the
subject of any Account, and (B) any and all proceeds of any general intangibles
which are otherwise excluded to the extent that the assignment or encumbrance of
such proceeds is not so restricted, and (C) upon obtaining the consent of any
such licensor, lessor or other applicable party with respect to any such
otherwise excluded general intangibles, such general intangibles as well as any
and all proceeds thereof that might theretofore have been excluded from such
grant of a security interest and the term "Intellectual Property Collateral".
IN WITNESS WHEREOF, the parties have cause this Intellectual Property
Security Agreement to be duly executed by its officers thereunto duly authorized
as of the first date written above.
GRANTOR:
Address of Grantor: CROSSWORLDS SOFTWARE, INC., a Delaware corporation
577 Airport Blvd. By: /s/
Suite 800 --------------------------
Burlingame, CA 94010
Title: SVP/CFO
-----------------------
Attn: Robert J. Habig
BANK:
Address of Bank: SILICON VALLEY BANK
3003 Tasman Drive
Santa Clara, CA 95054-1191 By: /s/
--------------------------
Attn: Mr. Dan Sanchez Title: V.P.
-----------------------
2
<PAGE>
EXHIBIT A
---------
Copyrights
3
<PAGE>
EXHIBIT B
---------
Patents
4
Patent Titles: "Module Application Collaboration", "Execution of Extended
- ------------- Activity Diagrams by Code Generation", "Isolation Levels and
Compensating Transactions in an Information System" and
"Modular Application Collaboration including Filtering at the
Source and Proxy Execution of Compensating Transactions to
Conserve Server Resources"
<PAGE>
EXHIBIT C
---------
Trademarks
5
"CrossWorlds"
<PAGE>
EXHIBIT 10.23
March 26, 1999
To: ATGF II
Litton Master Trust
James Stableford
Emeric McDonald
Anthony Ciulla
Notwithstanding any provision of that certain Fourth Restated Investors
Rights Agreement (the "Investor Rights Agreement"), dated as of January 7, 1999
and as amended as of the date hereof, among CrossWorlds Software, Inc. (the
"Company") and the other parties thereto, if the Company intends to effect its
initial public offering ("IPO"), each of you ("Investor") shall have a right of
first refusal to purchase in the IPO (excluding any over-allotment option) an
amount of securities which the Company proposes to sell in the IPO equal to 100%
of the amount sufficient to maintain such Investor's proportionate beneficial
ownership interest in the Company (determined without reference to any over-
allotment option) attributable only to the Series E Preferred Stock of the
Company (or Common Stock issued upon conversion of the Series E Preferred Stock,
or a combination thereof) held by such Investor ("Investor Series E Preferred
Stock"), in accordance with the provisions of this letter, or such other
procedure as the Company shall agree upon in writing with the holders of a
majority of all outstanding shares of Investor Series E Preferred Stock (or
Common Stock issuable upon conversion of the Investor Series E Preferred, or a
combination thereof).
The Company shall provide (or cause the underwriters to provide) each of
the Investors with a copy of the preliminary prospectus included in the
registration statement for such IPO at least 10 days prior to the anticipated
effective date of such IPO, and shall at such time provide (or cause the
underwriters to provide) each Investor with reasonable instructions for
contacting the underwriters of the IPO to arrange for the purchase by each such
Investor in the IPO of the securities which such Investor is entitled to
purchase pursuant to this letter. For purposes of determining the pro rata
interest of each Investor, each security holder of the Company shall be treated
as owning that number of shares of Common Stock into which any outstanding
convertible securities may be converted and for which any outstanding options
may be exercised. Any Investor desiring to participate in the IPO pursuant to
this letter shall follow such reasonable instructions and shall inform the
underwriters of its intention to exercise its rights hereunder within 5 days
after receiving such preliminary prospectus.
To the extent that the Investors have not so offered to purchase all of the
shares available to them for purchase pursuant to this letter within 5 days of
the anticipated effective date of the registration statement for the IPO, the
Company or the underwriters shall inform those Investors who have so offered to
participate in the IPO pursuant to this letter of such number of available
shares not so offered to be purchased (the "Excess Shares"), and each of the
Investors who has offered to participate in the IPO shall have the right to
purchase the Excess Shares on a pro rata basis (based upon the number of shares
each such Investor was originally entitled to purchase pursuant to this );
provided, however, that the maximum number of Excess Shares which any Investor
shall be entitled to purchase shall be an amount which results in such Investor
participating in the IPO on a pro rata basis to the extent necessary to
<PAGE>
maintain 100% of such Investor's proportionate beneficial interest in the
Company as a Series E Preferred Stock holder (determined as provided above).
The foregoing right may be transferred to any transferee of at least 50,000
shares of Series E Preferred Stock or to any person who is an Amerindo
Affiliate, as such term is defined below. The foregoing right shall be subject
to applicable SEC and NASD rules and regulations and shall be subject to cut
back to the extent deemed necessary by the managing underwriter in the IPO as
being necessary to the success of the offering for reasons which it shall set
forth in writing.
In addition, each Investor agrees that during the one hundred eighty (180)
day period following the effective date of the IPO, it shall not sell, offer to
sell, or otherwise transfer or dispose of the shares of the Company acquired
though exercise of the rights granted to such Investor pursuant to this letter.
To enforce the foregoing covenant, the Company may impose stop-transfer
instructions with respect to the shares held by each Investor (and the shares of
every other person subject to the foregoing restriction) until the end of such
period. Each Investor agrees to execute the form of such market stand-off
agreement as may be reasonably requested by the underwriters.
It is hereby further agreed that Amerindo Investment Advisors Inc. and each
of its affiliated companies under common control with it, as well as each of its
and their respective employees and each of its and their clients with assets
under management by any of them shall be deemed to be "affiliates" of each other
and "affiliated" with each other for all purposes of this letter agreement.
Each such person is herein referred to as an "Amerindo Affiliate."
Finally, it is also understood and agreed that notwithstanding anything
contained in the Stock Purchase Agreement among the Investors, the Company and
the other parties thereto, or Investor Rights Agreements to the contrary or in
any future amendment thereto to which all Amerindo Affiliates then holding
Series E Preferred Stock (including shares of Common Stock issued on conversion
thereof) have not expressly consented in writing), the market stand-off
agreement provided for in Section 1.11 of such Investor Rights Agreement shall
not be deemed to extend to, and no Amerindo Affiliate shall be required to enter
into any such arrangement purporting to extend to, any securities of the Company
acquired by any Amerindo Affiliate in the open market following the IPO, or to
any securities of the Company acquired by any Amerindo Affiliate in the IPO,
other than shares acquired by an Amerindo Affiliate pursuant to the IPO right
provided for in this letter.
- 2 -
<PAGE>
Very truly yours,
CROSSWORLDS SOFTWARE, INC.
By: /s/ K. A. Garnett
_______________________________
Katrina A. Garnett
President and Chief Executive Officer
[Signatures Continue]
- 3 -
<PAGE>
Agreed and Accepted as of the Date Above:
ATGF II
By: /s/ Alberto W. Vilar
___________________________________
Name: Alberto W. Vilar
Title: Director
Litton Master Trust
By: Amerindo Investment Advisors Inc..
Attorney-in-Fact
By: /s/ Alberto W. Vilar
______________________________
Name: Alberto W. Vilar
/s/ James Stableford
______________________________
James Stableford
/s/ Emeric McDonald
_______________________________
Emeric McDonald
/s/ Anthony Ciulla
______________________________
Anthony Ciulla
- 4 -
<PAGE>
EXHIBIT 10.24
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT is made as of the ____ day of ________ 2000,
by and between CrossWorlds Software, Inc., a Delaware corporation (the
"Company") and Electronic Data Systems Corporation (the "Investor").
WHEREAS, the Investor has indicated a desire to purchase shares of Common
Stock, $0.001 par value (the "Common Stock") from the Company at the price per
share set forth in Section 1.2 below.
WHEREAS, the Company has indicated a desire to sell shares of Common Stock
to the Investor at the price per share set forth in Section 1.2 below.
WHEREAS, the Company and the Investor have agreed that this Agreement shall
constitute the entire understanding and agreement between the parties with
regard to the subject matter hereof.
NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Purchase and Sale of Stock.
--------------------------
1.1 Sale and Issuance of Stock. Subject to the terms and conditions
--------------------------
of this Agreement, the Company agrees to sell to the Investor and the
Investor agrees to purchase from the Company at the price per share set
forth in Section 1.2 below such number of shares of the Company's Common
Stock (the "Stock") as is equal to the lesser of: (I) the difference
obtained by subtracting (A) the quotient obtained by dividing (x) the
number of shares of issued and outstanding Common Stock of the Company
immediately prior to the closing of the IPO (as defined below), giving
effect to the conversion into Common Stock of outstanding shares of
preferred stock and giving effect to the issuance of all shares to be
issued in the IPO (including any over-allotment option shares) and giving
effect to the issuance of any other shares of the Company's capital stock
to be issued in private placements that are closed concurrently with the
closing of the IPO (as defined below) (with the number in this subpart (x)
referred to as the "Numerator Shares"), by (y) 0.98, minus (B) the
Numerator Shares; or (II) $10,000,000 million of shares of Common Stock at
the price per share set forth in Section 1.2 below.
1.2 The Closing. The purchase and sale of the Stock shall be held at
-----------
the Company's offices concurrently with the closing of the Company's
initial public offering (the "IPO") assuming that each of the conditions
set forth in Sections 4 and 5 have been satisfied or waived (the
"Closing"). At the Closing, the Company will deliver the Stock to the
Investor against payment of the purchase price therefor by check payable to
the order of the Company or by wire transfer. The per share purchase price
for the Stock shall be equal to the per share price paid by the public for
the Company's Common Stock in the IPO, less any underwriter discounts and
commissions, as reflected on the cover
-1-
<PAGE>
page of the final prospectus for such offering (as corrected for
typographical errors, if necessary, thereafter).
2. Representations and Warranties of the Company. The Company hereby
---------------------------------------------
represents and warrants to the Investor that, except as disclosed to the
Investor in a separate letter dated as of the date of this Agreement:
2.1 Organization and Good Standing. The Company is a corporation
------------------------------
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has all requisite corporate power and authority to
carry on its business as now conducted.
2.2 Authorization. All corporate action on the part of the Company,
-------------
its officers, directors and stockholders necessary for the authorization,
execution and delivery of this Agreement, the performance of all
obligations of the Company hereunder, and the authorization, issuance and
delivery of the Stock has been taken or will be taken at the Company's next
Board meeting prior to the Closing. Upon such authorization, this
Agreement will be a valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, subject to
laws of general application relating to bankruptcy, insolvency and the
relief of debtors and by general principles of equity.
2.3 Valid Issuance of Stock. The Stock, when issued, sold and
-----------------------
delivered in accordance with the terms hereof for the consideration
expressed, will be duly and validly issued, fully paid and nonassessable,
free and clear of any claims, liens, encumbrances, security interests,
options, charges or restrictions whatsoever, and, based in part upon the
representations of the Investor in this Agreement, will be issued in
compliance with all applicable federal and state securities laws.
2.4 Litigation. Except as set forth in the Company's registration
----------
statement prepared in connection with the IPO, as filed with the Securities
and Exchange Commission ("SEC") and amended from time to time (the
"Registration Statement"), there are no actions, proceedings or
investigations pending or, to the best of Company's knowledge, any basis
therefor or threat thereof, against or affecting the Company, that, either
in any case or in the aggregate, would result in any material adverse
change in the business, financial condition, or results of operations of
the Company.
2.5 Properties. To the Company's knowledge (but without having
----------
conducted any special investigation), the Company has (i) good and
marketable title to its properties and assets and has good title to all its
leasehold interests, and (ii) sufficient title, license and/or ownership of
all patents, trademarks, service marks, trade names, copyrights, trade
secrets, information, proprietary rights and processes necessary for its
business as now conducted on the date hereof.
2.6 Compliance with Other Documents. The execution and delivery of
-------------------------------
this Agreement, consummation of the transactions contemplated hereby, and
compliance with
-2-
<PAGE>
the terms and provisions hereof will not conflict with or result in a
breach of the terms and conditions of, or constitute a default under the
Restated Certificate or Bylaws of the Company or of any contract or
agreement to which the Company is now a party, except where such conflict,
breach or default of any such contract or agreement, either individually or
in the aggregate, would not have a material adverse effect either on the
Company's business, financial condition or results of operations or on the
transactions contemplated by this Agreement.
2.7 Financial Statements. The Company's audited balance sheet at
--------------------
December 31, 1999, and the related statements of operations and statements
of cash flows for the period then ended (collectively, the "Financial
Statements"): (I) are in accordance with the books and records of the
Company, (II) present fairly the financial condition of the Company at such
date and the results of its operations for the period therein specified,
and (III) have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis. The Company has no
material liabilities or obligations which are not shown or provided for in
the Financial Statements, except liabilities or obligations after December
31, 1999 in the ordinary course of business which, individually or in the
aggregate, would not be reasonably likely to have a material adverse effect
upon the business, operations or financial condition of the Company.
3. Representations and Warranties of the Investor. The Investor hereby
----------------------------------------------
represents and warrants that:
3.1 Authorization. This Agreement constitutes the valid and legally
-------------
binding obligation of the Investor, enforceable in accordance with its
terms, subject to laws of general application relating to bankruptcy,
insolvency and the relief of debtors and by general principles of equity.
3.2 Investigation. The Investor acknowledges that it has had an
-------------
opportunity to discuss the business, affairs and current prospects of the
Company with the Company's president. The Investor further acknowledges
having had access to information about the Company that it has requested or
considers necessary for purposes of purchasing the Stock.
3.3 Accredited Investor. The Investor is an "accredited investor" as
-------------------
such term is defined in Regulation D adopted by the SEC.
3.4 Purchase Entirely for Own Account. This Agreement is made with
---------------------------------
the Investor in reliance upon the Investor's representation to the Company,
which by the Investor's execution of this Agreement the Investor hereby
confirms, that the Stock will be acquired for investment for the Investor's
own account, not as a nominee or agent, and not with a view to the resale
or distribution of any part thereof, and that the Investor has no present
intention of selling, granting any participation in, or otherwise
distributing the same.
-3-
<PAGE>
4. Conditions to the Investor's Obligation at Closing. The obligation of
--------------------------------------------------
the Investor to purchase the Stock at the Closing is subject to the fulfillment
to the Investor's satisfaction on or prior to the Closing of the following
conditions:
4.1 Representations and Warranties. The representations and
------------------------------
warranties made by the Company in Section 2 hereof shall be true and
correct when made, and shall be true and correct as of the Closing with the
same force and effect as if they had been made on and as of such date,
subject to changes contemplated by this Agreement.
4.2 Securities Laws. The offer and sale of the Stock to the Investor
---------------
pursuant to this Agreement shall be exempt from the registration
requirements of the Securities Act of 1933, as amended (the "Securities
Act") and qualification requirements of all applicable state securities
laws.
4.3 Authorizations. All authorizations, approvals or permits, if
--------------
any, of any governmental authority or regulatory body or other persons that
are required for the Company to obtain on its own behalf in connection with
the lawful issuance and sale of the Stock pursuant to this Agreement shall
have been duly obtained and shall be effective on and as of the Closing.
4.4 Initial Public Offering of Common Stock. The initial public
---------------------------------------
offering of the Company's Common Stock shall have occurred on or before
July 1, 2000.
4.5 No Injunction or Litigation. No injunction or binding order,
---------------------------
decree or ruling issued by any court or governmental agency shall be in
effect which prevents the consummation of the transactions contemplated
hereby and there shall be no litigation and no public or private proceeding
which seeks to prevent, or seeks damages with respect to, the transactions
contemplated by this Agreement; provided that the foregoing sentence shall
not be construed to apply as a condition to Closing hereunder if such
injunction or litigation is commenced by the Investor.
4.6 No Material Adverse Change. There shall have been no material
--------------------------
adverse change to the business, assets, operations or financial condition
of the Company.
4.7 Compliance. The Company shall have performed and complied with
----------
all of its obligations hereunder to be performed or complied with on or
prior to the Closing date.
4.8 Officer's Certificate. The Investor shall have received a
---------------------
certificate, dated the Closing date, of the President or Chief Financial
Officer of the Company, confirming the matters set forth in Section 4.1,
4.3, 4.6, 4.7 and, to such officer's knowledge, 4.5.
5. Conditions to the Company's Obligations at Closing. The obligation of
--------------------------------------------------
the Company to sell the Stock at the Closing is subject to the fulfillment to
the Company's satisfaction on or prior to the Closing of the following
conditions:
-4-
<PAGE>
5.1 Representations and Warranties. The representations and
------------------------------
warranties of the Investor contained in Section 3 hereof shall be true as
of the Closing with the same force and effect as if they had been made on
and as of such date, subject to changes contemplated by this Agreement.
5.2 Securities Laws. The offer and sale of the Stock to the Investor
---------------
pursuant to this Agreement shall be exempt from the registration
requirements of the Securities Act and qualification requirements of all
applicable state securities laws.
5.3 Authorizations. All authorizations, approvals or permits, if
--------------
any, of any governmental authority or regulatory body that are required in
connection with the lawful issuance and sale of the Stock pursuant to this
Agreement shall have been duly obtained and shall be effective on and as of
the Closing.
5.4 Initial Public Offering of Common Stock. The initial public
---------------------------------------
offering of the Company's Common Stock shall have occurred on or before
July 1, 2000.
5.5 Payment of Purchase Price. The Investor shall have delivered to
-------------------------
the Company the purchase price for the Stock as set forth in Section 1.2
hereof.
5.6 No Injunction or Litigation. No injunction or binding order,
---------------------------
decree or ruling issued by any court or governmental agency shall be in
effect which prevents the consummation of the transactions contemplated
hereby and there shall be no litigation and no public or private proceeding
which seeks to prevent, or seeks damages with respect to, the transactions
contemplated by this Agreement.
5.7 Compliance. The Investor shall have performed and complied with
----------
all of its obligations hereunder to be performed or complied with on or
prior to the Closing date.
6. Covenants of the Company and the Investor.
-----------------------------------------
6.1 Agreement Not to Transfer.
-------------------------
(a) Prior to the first anniversary of the Closing, the Investor
shall not, directly or indirectly, Transfer or offer to Transfer any
shares of the Stock other than to affiliates who agree to be bound by
the terms of this Agreement, unless the Company consents to such
Transfer and the transferee agrees to be bound by this Agreement. Any
such Transfer must comply with all applicable laws, and the Company
may require an opinion of counsel reasonably satisfactory to it as to
such compliance. The restrictions set forth above are referred to as
the "Transfer Restrictions."
-5-
<PAGE>
(b) In order to enforce the Transfer Restrictions, the Company
may impose stop-transfer instructions with respect to the Stock until
the end of the restricted period.
(c) As used in this Agreement, the term "Transfer" shall mean any
sale, transfer, assignment, hypothecation, encumbrance or other
disposition, whether voluntary or involuntary, of shares of the Stock.
In the case of a hypothecation, the Transfer shall be deemed to occur
both at the time of the initial pledge and at any pledgee's sale or a
sale by any secured creditor or a retention by the secured creditor of
the pledged shares of the Stock in complete or partial satisfaction of
the indebtedness for which the shares of the Stock are security.
(d) After the first anniversary of the Closing, the Investor may
Transfer shares of the Stock without the transferee agreeing to be
bound by this Agreement and without the consent of the Company,
provided such Transfer complies with applicable federal and state
securities laws.
6.2 Market Stand-Off. In addition to the Transfer Restrictions
----------------
(which shall in no way be limited by the following), in connection with any
underwritten public offering by the Company of its equity securities
pursuant to an effective registration statement filed under the Securities
Act, the Investor shall not Transfer or offer to Transfer any shares of the
Stock without the prior written consent of the Company and its
underwriters. Such restriction (the "Market Stand-Off") shall be in effect
for such period of time from and after the effective date of the final
prospectus for the offering as may be requested by the Company or such
underwriters; provided, however, that (i) such Market Stand-Off shall not
exceed one hundred eighty (180) days, and (ii) the Investor shall be
subject to the Market Stand-Off only if the officers and directors of the
Company are also subject to similar restrictions. In order to enforce the
Market Stand-Off, the Company may impose stop-transfer instructions with
respect to the Stock until the end of the applicable stand-off period.
6.3 Voting Agreements. The following provision will be applicable at
-----------------
any time the Investor owns or controls in excess of 9.5% of the Voting
Securities (as defined below) during the first five (5) years after the
Closing: In the event that the Board of Directors of the Company approves a
sale of substantially all of the assets or capital stock of the Company or
a merger in which the Company would not be the surviving corporation, the
Investor agrees to vote all shares of Voting Securities owned by it with
respect to such sale of substantially all of the assets or capital stock or
merger in the same proportion as the votes cast by all other stockholders
of the Company entitled to vote on such matter (other than the Investor) at
such time as such matter is presented for a vote of the stockholders of the
Company. The Investor, as a holder of Voting Securities, shall be present,
in person or by proxy, at all meetings of stockholders of the Company so
that all shares of Voting Securities beneficially owned by it may be
counted for the purpose of determining the presence of a quorum at such
meetings. For purposes of this Agreement, (i) the term "Voting Securities"
shall refer to all securities of the Company entitled to vote
-6-
<PAGE>
generally for the election of directors, and (ii) the term "beneficial
ownership" shall have the meaning set forth in Rule 13d-3 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act").
6.4 Investor Rights Agreement. Concurrently with the execution of
-------------------------
this Agreement, the parties shall enter into the Investor Rights Agreement
attached hereto as Exhibit A.
7. Miscellaneous.
-------------
7.1 Governing Law. This Agreement shall be governed in all respects
-------------
by the laws of the State of Delaware, without regard to the conflict of law
provisions thereof.
7.2 Survival; Additional Securities. The representations and
-------------------------------
warranties set forth in Sections 2 and 3 shall survive until the Closing.
The covenants and agreements set forth in Section 6 shall survive in
accordance with their terms. Any new, substituted or additional securities
which are by reason of any stock split, stock dividend, recapitalization or
reorganization distributed with respect to the Stock ("Stock
Distributions") shall be immediately subject to the covenants and
agreements set forth in Section 6 to the same extent the Stock is at such
time covered by such provisions.
7.3 Successors and Assigns. Except as otherwise expressly provided
----------------------
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the respective successors and assigns of the parties hereto. Nothing
in this Agreement, express or implied, is intended to confer upon any party
other than the parties hereto or their respective successors and assigns
any rights, remedies, obligations, or liabilities under or by reason of
this Agreement, except as expressly provided in this Agreement.
Notwithstanding anything to the contrary contained herein, the covenants
set forth in Section 6 shall not be binding upon any entity which acquires
any shares of the Stock or a Stock Distribution in a transaction (x) after
the first anniversary of the Closing or (y) prior to the first anniversary
of the Closing to which the Company consents in accordance with Section
6.1(a) (other than an affiliate of the Investor) or (z) otherwise permitted
hereunder.
7.4 Entire Agreement. This Agreement and the Investor Rights
----------------
Agreement constitute the entire understanding and agreement between the
parties with regard to the subject matter hereof.
7.5 Notices. Except as otherwise provided, all notices and other
-------
communications required or permitted hereunder shall be in writing, shall
be effective when given, and shall in any event be deemed to be given upon
receipt or, if earlier, (i) five (5) days after deposit with the U.S.
postal service or other applicable postal service, if delivered by first
class mail, postage prepaid, (ii) upon delivery, if delivered by hand,
(iii) one (1) business day after the day of deposit with Federal Express or
similar overnight courier, freight prepaid, if delivered by overnight
courier or (iv) one (1)
-7-
<PAGE>
business day after the day of facsimile transmission, if delivered by
facsimile transmission with copy by first class mail, postage prepaid, and
shall be addressed, (a) if to the Investor, at the Investor's address set
forth below its signature, or at such other address as the Investor shall
have furnished to the Company in writing, or (b) if to the Company, at its
address as set forth below its signature, or at such other address as the
Company shall have furnished to the Investor in writing.
7.6 Amendments and Waivers. Any term of this Agreement may be
----------------------
amended and the observance of any term of the Agreement may be waived
(either generally or in a particular instance and either retroactively or
prospectively) only with the written consent of the Company and the
Investor.
7.7 Legal Fees. In the event of any action at law, suit in equity or
----------
arbitration proceeding in relation to this Agreement or the Stock or any
Stock Distribution, the prevailing party shall be paid by the other party a
reasonable sum for the attorneys' fees and expenses incurred by such
prevailing party.
7.8 Expenses; No Liability. Irrespective of whether the Closing is
----------------------
effected, the Company and the Investor shall each pay their own costs and
expenses incurred with respect to the negotiation, execution, delivery and
performance of this Agreement. The parties agree that if the Closing does
not occur due to reasons including the failure of the conditions set forth
in Section 4.2 or Section 5.2, this Agreement shall terminate without
liability on the part of any party to the other for any resulting damages,
claims or other liabilities.
7.9 Titles and Subtitles. The titles of the paragraphs and
--------------------
subparagraphs of this Agreement are for convenience of reference only and
are not to be considered in construing this Agreement.
7.10 Counterparts. This Agreement may be executed in counterparts,
------------
each of which shall be an original, but all of which together shall
constitute one instrument.
7.11 Severability. If one or more provisions of this Agreement are
------------
held to be unenforceable under applicable law, such provision shall be
excluded from this Agreement and the balance of the Agreement shall be
interpreted as if such provision were so excluded and shall be enforceable
in accordance with its terms.
7.12 Confidentiality. The parties hereto agree that, except with the
---------------
prior written permission of the other party, each shall at all times keep
confidential and not divulge, furnish, or make accessible to anyone any
confidential information, knowledge, or data concerning or relating to the
business or financial affairs of such other party to which said party has
been or shall become privy by reason of (i) this Agreement, (ii)
discussions or negotiations relating to this Agreement, or (iii) the
performance of obligations hereunder. The parties agree that for the
purposes of this Section 7.12 confidential information shall
-8-
<PAGE>
not include any information that is in the public domain or is
independently developed or received from an independent source or is
required by legal action to be disclosed.
[Signature Page to Follow]
-9-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year hereinabove first written.
CrossWorlds Software, Inc.
577 Airport Blvd., Suite 800
Burlingame, California 94010
Attn: Chief Financial Officer
________________________________________
By:
Title:
Electronic Data Systems Corporation
5400 Legacy Drive
MS H3-3D-05
Plano, Texas 75024
Attn: Treasurer
________________________________________
By:
Title:
-10-
<PAGE>
EXHIBIT A
INVESTOR RIGHTS AGREEMENT
THIS INVESTOR RIGHTS AGREEMENT (this "Agreement") is made as of the ____
---------
day of ________, 2000, by and among CrossWorlds Software, Inc., a Delaware
corporation (the "Company") and Electronic Data Systems Corporation (the
-------
"Investor").
- ---------
RECITALS
--------
WHEREAS, the Company and the Investor are entering into a Stock Purchase
Agreement (the "Purchase Agreement") of even date herewith; and
------------------
WHEREAS, in order to induce the Investor to purchase shares of Common Stock
pursuant to the Purchase Agreement, the Company desires to grant certain
registration rights to the Investor as set forth herein.
NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Registration Rights. The Company covenants and agrees as follows:
-------------------
1.1 Definitions. For purposes of this Section 1:
-----------
(a) The term "Act" means the Securities Act of 1933, as amended.
---
(b) The term "Affiliated Person" shall mean any Person who is an
-----------------
"affiliate" (as defined in Rule 12b-2 of the General Rules and Regulations under
the Securities Exchange Act of 1934, as amended).
(c) The term "Holder" means the Investor or any permitted
assignee of the registration rights with respect to the Registrable Securities
pursuant to the terms of Section 1.8.
(d) The term "1934 Act" shall mean the Securities Exchange Act
--------
of 1934, as amended.
(e) The term "person" means any individual, firm, corporation,
------
partnership, trust, incorporated or unincorporated association, joint venture,
joint stock company, limited liability company, government (or any agency or
political subdivision thereof) or other entity of any kind, and shall include
any successor (by merger or otherwise) of such entity.
(f) The terms "register", "registered" and "registration" refer
-------- ---------- ------------
to a registration effected by preparing and filing a registration statement or
similar document in compliance with the Act, and the declaration or ordering of
effectiveness of such registration statement or document.
-1-
<PAGE>
(g) The term "Registrable Securities" means Common Stock issued to the
----------------------
Investor pursuant to the Purchase Agreement, and any Common Stock of the Company
issued as (or issuable upon the conversion or exercise of any warrant, right or
other security which is issued as) a dividend or other distribution with respect
to, or in exchange for or in replacement of, the foregoing, excluding, however,
any shares sold or transferred by a person in a transaction in which the rights
under this Section 1 are not assigned. Registrable Securities shall also
include all securities defined as "Registrable Securities" under the Fifth
Restated Investor Rights Agreement dated October 1, 1999 among the Company and
various investors.
(h) The number of shares of "Registrable Securities then outstanding"
---------------------------------------
shall be determined by the number of shares of Common Stock outstanding which
are, and the number of shares of Common Stock issuable pursuant to then
exercisable or convertible securities which are, Registrable Securities.
(i) The term "SEC" shall mean the Securities and Exchange
---
Commission.
1.2 Piggyback Registration Rights.
-----------------------------
(a) Registration Rights. At any time after January 31, 2001, if
-------------------
the Company proposes to register any of its stock or other securities under the
Act in connection with the public offering of such securities solely for cash
(other than a registration relating solely to the sale of securities to
participants in a Company stock plan, a registration effected pursuant to Rule
145 under the Act, or a registration on any form which does not include
substantially the same information as would be required to be included in a
registration statement covering the sale of the Registrable Securities) the
Company shall, at such time, promptly give each Holder written notice of such
registration. Upon the written request of each Holder given within fifteen (15)
days after mailing of such notice by the Company in accordance with Section 7 of
the Purchase Agreement, the Company shall, subject to the provisions of
paragraph (b) below, cause to be registered under the Act all of the Registrable
Securities that each such Holder has requested to be registered.
(b) Underwriting. If the registration of which the Company gives
------------
notice is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as part of the written notice given pursuant
to Section 1.2(a). In such event, the right of any Holder to registration
pursuant to this Section 1.2 shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of Registrable Securities
in the underwriting to the extent provided herein. All Holders proposing to
distribute their securities through such underwriting shall (together with the
Company and the other holders distributing their securities through such
underwriting) enter into an underwriting agreement in customary form with the
managing underwriter selected for such underwriting by the Company.
Notwithstanding any other provision of this Section 1.2, if the Company and the
managing underwriter determine that marketing factors require a limitation of
the number of shares to be underwritten, the managing underwriter may limit or
exclude entirely the Registrable Securities to be included in such registration.
The Company shall so advise all Holders distributing their securities through
such underwriting, and the number of shares of Registrable Securities and other
securities that may be
-2-
<PAGE>
included in the registration and underwriting on behalf of persons other than
the Company shall be allocated among all Holders and such other holders in
proportion, as nearly as practicable, to the respective amounts of Registrable
Securities and other securities entitled to registration rights held by such
Holders and other holders at the time of filing the registration statement. To
facilitate the allocation of shares in accordance with the above provisions, the
Company may round the number of shares allocated to any Holder or other holder
to the nearest 100 shares.
1.3 Furnish Information. It shall be a condition precedent to the
-------------------
obligations of the Company to take any action pursuant to this Section 1 with
respect to the Registrable Securities of any selling Holder that such Holder
shall furnish to the Company such information regarding itself, the Registrable
Securities held by it, and the intended method of disposition of such securities
as shall be required to effect the registration of such Holder's Registrable
Securities.
1.4 Expenses of Registration. The Company shall bear and pay all
------------------------
expenses incurred in connection with any registration, filing (including keeping
such filings effective) or qualification of Registrable Securities with respect
to the registrations pursuant to this Agreement, including (without limitation)
all registration, filing, and qualification fees, printers and accounting fees
relating or apportionable thereto and the fees and disbursements of counsel for
the Company and no more than one counsel for all the selling Holders, but
excluding underwriting discounts and commissions relating to Registrable
Securities.
1.5 No Delay of Registration. No Holder shall have any right to
------------------------
obtain or seek an injunction restraining or otherwise delaying any such
registration as the result of any controversy that might arise with respect to
the interpretation or implementation of this Section 1.
1.6 Indemnification. In the event any Registrable Securities are
---------------
included in a registration statement under this Section 1:
(a) To the extent permitted by law, the Company will indemnify
and hold harmless each Holder, any underwriter (as defined in the Act) for such
Holder and each person, if any, who controls such Holder or underwriter within
the meaning of the Act or the 1934 Act, against any losses, claims, damages, or
liabilities (joint or several) to which they may become subject under the Act,
the 1934 Act or other federal or state law, insofar as such losses, claims,
damages, or liabilities (or actions in respect thereof) arise out of or are
based upon any of the following statements, omissions or violations
(collectively a "Violation"): (i) any untrue statement or alleged untrue
---------
statement of a material fact contained in such registration statement, including
any preliminary prospectus or final prospectus contained therein or any
amendments or supplements thereto, (ii) the omission or alleged omission to
state therein a material fact required to be stated therein, or necessary to
make the statements therein not misleading, or (iii) any violation or alleged
violation by the Company of the Act, the 1934 Act, any state securities law or
any rule or regulation promulgated under the Act, the 1934 Act or any state
securities law; and the Company will pay to each such Holder, underwriter or
controlling person any legal or other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim, damage,
liability, or action, as such expenses are incurred; provided, however, that
-3-
<PAGE>
the indemnity agreement contained in this subsection 1.6(a) shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability, or action
if such settlement is effected without the consent of the Company (which consent
shall not be unreasonably withheld), nor shall the Company be liable to any
indemnitee for any such loss, claim, damage, liability, or action to the extent
that it arises out of or is based upon a Violation which occurs in reliance upon
and in conformity with written information furnished by such indemnitee.
(b) To the extent permitted by law, each Holder will indemnify and
hold harmless the Company, each of its directors, each of its officers who has
signed the registration statement, each person, if any, who controls the Company
within the meaning of the Act, any underwriter, any other Holder selling
securities in such registration statement and any controlling person of any such
underwriter or other Holder, severally but not jointly, against any losses,
claims, damages, or liabilities (joint or several) to which any of the foregoing
persons may become subject, under the Act, the 1934 Act or other federal or
state law, insofar as such losses, claims, damages, or liabilities (or actions
in respect thereto) arise out of or are based upon any Violation, in each case
to the extent (and only to the extent) that such Violation occurs in reliance
upon and in conformity with written information furnished by such Holder; and
each such Holder will pay any legal or other expenses reasonably incurred by any
person intended to be indemnified pursuant to this subsection 1.6(b), in
connection with investigating or defending any such loss, claim, damage,
liability, or action; provided, however, that the indemnity agreement contained
in this subsection 1.6(b) shall not apply to amounts paid in settlement of any
such loss, claim, damage, liability or action if such settlement is effected
without the consent of the Holder, which consent shall not be unreasonably
withheld; provided that in no event shall any indemnity by any Holder under this
subsection 1.6(b) exceed the gross proceeds from the offering received by such
Holder.
(c) Promptly after receipt by an indemnified party under this Section
1.6 of notice of the commencement of any action (including any governmental
action), such indemnified party will, if a claim in respect thereof is to be
made against any indemnifying party under this Section 1.6, deliver to the
indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with one counsel mutually
satisfactory to the parties; provided, however, that an indemnified party
(together with all other indemnified parties which may be represented without
conflict by one counsel) shall have the right to retain one separate counsel,
with the fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action shall not relieve such indemnifying party of any liability to the
indemnified party under this Section 1.6 unless the failure to deliver notice is
materially prejudicial to its ability to defend such action. Any omission to so
deliver written notice to the indemnifying party will not relieve it of any
liability that it may have to any indemnified party otherwise than under this
Section 1.6.
-4-
<PAGE>
(d) If the indemnification provided for in this Section 1.6 is held by
a court of competent jurisdiction to be unavailable to an indemnified party with
respect to any loss, liability, claim, damage, or expense referred to therein,
then the indemnifying party, in lieu of indemnifying such indemnified party
hereunder, shall contribute to the amount paid or payable by such indemnified
party as a result of such loss, liability, claim, damage, or expense in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party on the one hand and of the indemnified party on the other in connection
with the statements or omissions that resulted in such loss, liability, claim,
damage, or expense as well as any other relevant equitable considerations;
provided that in no event shall any Holder be required to contribute under this
subsection 1.6(d) an aggregate amount in excess of the gross proceeds from the
offering received by such Holder less any amounts paid by the Holder pursuant to
subsection 1.6(b). The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission.
(e) Notwithstanding the foregoing, to the extent that the provisions
on indemnification and contribution contained in the underwriting agreement
entered into in connection with the underwritten public offering are in conflict
with the foregoing provisions, the provisions in the underwriting agreement
shall control.
(f) The obligations of the Company and Holders under this Section 1.6
shall survive the completion of any offering of Registrable Securities in a
registration statement under this Section 1, and otherwise.
1.7 Reports under Securities Exchange Act of 1934. With a view to
---------------------------------------------
making available to the Holders the benefits of Rule 144 promulgated under the
Act and any other rule or regulation of the SEC that may at any time permit a
Holder to sell securities of the Company to the public without registration, the
Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in SEC Rule 144, at all times after ninety (90) days
after the effective date of the first registration statement filed by the
Company for the offering of its securities to the general public;
(b) file with the SEC in a timely manner all reports and other
documents required of the Company under the Act and the 1934 Act; and
(c) furnish to any Holder, so long as the Holder owns any Registrable
Securities, forthwith upon request (i) a written statement by the Company that
it has complied with the reporting requirements of SEC Rule 144 (at any time
after ninety (90) days after the effective date of the first registration
statement filed by the Company), the Act and the 1934 Act (at any time after it
has become subject to such reporting requirements), (ii) a copy of the most
recent annual or quarterly report of the Company and such other reports and
documents so filed by the Company, and (iii) such other information as may be
reasonably requested in availing any
-5-
<PAGE>
Holder of any rule or regulation of the SEC which permits the selling of any
such securities without registration.
1.8 Assignment of Registration Rights. The rights to cause the
---------------------------------
Company to register Registrable Securities pursuant to this Section 1 may be
assigned (but only with all related obligations) by a Holder to a transferee or
assignee of such securities who, after such assignment or transfer, holds at
least one hundred thousand (100,000) shares of Registrable Securities (subject
to appropriate adjustment for stock splits, dividends, combinations and other
recapitalizations), provided: (a) the Company is, within a reasonable time
before such transfer, furnished with written notice of the name and address of
such transferee or assignee and the securities with respect to which such
registration rights are being assigned; (b) such transferee or assignee agrees
in writing to be bound by and subject to the terms and conditions of this
Agreement, including without limitation the provisions of Section 1.9 below; and
(c) such assignment shall be effective only if immediately following such
transfer the further disposition of such securities by the transferee or
assignee is restricted under the Act. For the purposes of determining the
number of shares of Registrable Securities held by a transferee or assignee of a
holder of Registrable Securities, Affiliated Persons shall be aggregated
together, provided that all assignees and transferees who would not qualify
individually for assignment of registration rights shall designate in writing to
the Company from time to time a single attorney-in-fact on behalf of the entire
group of Affiliated Persons for the purpose of exercising any rights, receiving
notices or taking any action under this Section 1.
1.9 "Market Stand-Off" Agreement. The Investor shall be bound by the
----------------------------
transfer restrictions and market standoff provisions set forth in the Purchase
Agreement to the extent, but only to the extent, set forth in the Purchase
Agreement. In addition:
(a) Each Holder other than the Investor hereby agrees that,
during the period of duration specified by the Company and an underwriter of
common stock or other securities of the Company, following the effective date of
a registration statement of the Company filed under the Act, it shall not, to
the extent requested by the Company and such underwriter, directly or indirectly
sell, offer to sell, contract to sell (including, without limitation, any short
sale), grant any option to purchase or otherwise transfer or dispose of (other
than to donees who agree to be similarly bound) any securities of the Company
held by it as of the effective date except common stock included in such
registration; provided, however, that:
(i) all officers and directors of the Company enter into
similar agreements; and
(ii) such market stand-off time period shall not exceed one
hundred eighty (180) days without the consent of the affected Holder; and
(b) Each Holder other than the Investor agrees to provide to the
other Underwriters of any public offering such further agreement as such
Underwriter may require in connection with this market stand-off agreement. In
order to enforce the foregoing covenant, the Company may impose stop-transfer
instructions with respect to the Registrable Securities of each
-6-
<PAGE>
Holder (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such period.
1.10 Termination of Registration Rights. The right of any Holder
----------------------------------
to inclusion in any registration pursuant to Section 1.2 shall terminate upon
such date as, in the opinion of counsel to the Company, a public trading market
shall exist for the Company's Common Stock and all shares of Registrable
Securities beneficially owned or subject to Rule 144 aggregation by such Holder
may immediately be sold under Rule 144 (without regard to Rule 144(k)) during
any 90-day period and such Holder holds less than one percent (1%) of the
outstanding capital stock of the Company.
2. Securities Law Compliance.
-------------------------
2.1 Restrictions on Transferability. The Registrable Securities
-------------------------------
and any other securities issued with respect of the Registrable Securities upon
any stock split, stock dividend, recapitalization, merger, consolidation, or
similar event, shall not be sold, assigned, transferred or pledged except upon
the conditions specified in the Purchase Agreement and this Agreement, which
conditions are intended to ensure compliance with the provisions of the Act, or
otherwise in compliance with the Act. In any sale, transfer, assignment or
pledge of any such shares prior to the first anniversary of the Closing (as
defined in the Purchase Agreement) other than in a public offering, the Investor
will cause any proposed purchaser, assignee, transferee, or pledgee of such
shares held by the Investor to agree to take and hold such securities subject to
the provisions and upon the conditions specified in the Purchase Agreement and
this Agreement, unless otherwise consented to by the Company.
2.2 Further Limitations on Disposition. Without in any way
----------------------------------
limiting the above, the Investor further agrees not to make any disposition of
all or any portion of the Registrable Securities unless and until the transferee
has agreed in writing for the benefit of the Company to be bound by Sections 1.9
of this Agreement and (to the extent required by applicable securities law, in
the opinion of counsel to the Company) has agreed to be bound by these Sections
2.1 and 2.2; provided, however, that the foregoing shall not apply if:
(a) There is then in effect a Registration Statement under the
Act covering such proposed disposition and such disposition is made in
accordance with such Registration Statement; or
(b) (i) The Investor shall have notified the Company of the
proposed disposition and shall have furnished the Company with a detailed
statement of the circumstances surrounding the proposed disposition, and (ii)
until such time as the proposed disposition may be made under Rule 144(k) under
the 1934 Act, if reasonably requested by the Company, the Investor shall have
furnished the Company with an opinion of counsel, reasonably satisfactory to the
Company, that such disposition will not require registration of such shares
under the Act; or
(c) The proposed disposition is made under Rule 144(k).
-7-
<PAGE>
2.3 Notwithstanding anything to the contrary contained herein, the
shares of stock acquired by the Investor from the Company pursuant to the
Purchase Agreement (and any other securities issued with respect to such
securities upon any stock split, stock dividend, recapitalization, merger,
consolidation or similar event) may be sold, assigned, transferred or pledged by
Investor to any person and such person shall not be required to take and hold
such securities subject to the Purchase Agreement, this Agreement or any of the
provisions hereof or thereof, so long as the transaction is at least one year
after the Closing (as defined in the Purchase Agreement), complies with
applicable federal and state securities laws, and Investor is not transferring
to such person the registration rights set forth in Section 1 hereof.
3. Miscellaneous. Section 7 of the Purchase Agreement is hereby
-------------
incorporated by reference as though restated in full herein and applied to this
Agreement.
-8-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Investor Rights
Agreement as of the date first above written.
CROSSWORLDS SOFTWARE, INC.
By:
------------------------------------------------
Name:
Title:
Address: 577 Airport Boulevard, Suite 800
Burlingame, CA 94010
INVESTOR:
ELECTRONIC DATA SYSTEMS CORPORATION
By:
------------------------------------------------
Name:
Title:
Address: 5400 Legacy Drive
MS H3-3D-05
Plano, Texas 75024
-9-
<PAGE>
EXHIBIT 10.25
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT is made as of the ____ day of ________ 2000,
by and between CrossWorlds Software, Inc., a Delaware corporation (the
"Company") and The Dow Chemical Company (the "Investor").
WHEREAS, the Investor has indicated a desire to purchase shares of Common
Stock, $0.001 par value (the "Common Stock") from the Company at the price per
share set forth in Section 1.2 below.
WHEREAS, the Company has indicated a desire to sell shares of Common Stock
to the Investor at the price per share set forth in Section 1.2 below.
WHEREAS, the Company and the Investor have agreed that this Agreement shall
constitute the entire understanding and agreement between the parties with
regard to the subject matter hereof.
NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Purchase and Sale of Stock.
--------------------------
1.1 Sale and Issuance of Stock. Subject to the terms and conditions
--------------------------
of this Agreement, the Company agrees to sell to the Investor and the
Investor agrees to purchase from the Company at the price per share set
forth in Section 1.2 below such number of shares of the Company's Common
Stock (the "Stock") as is equal to $2 million of shares of Common Stock at
the price per share set forth in Section 1.2 below.
1.2 The Closing. The purchase and sale of the Stock shall be held at
-----------
the Company's offices concurrently with the closing of the Company's
initial public offering (the "IPO") assuming that each of the conditions
set forth in Sections 4 and 5 have been satisfied or waived (the
"Closing"). At the Closing, the Company will deliver the Stock to the
Investor against payment of the purchase price therefor by check payable to
the order of the Company or by wire transfer. The per share purchase price
for the Stock shall be equal to the per share price paid by the public for
the Company's Common Stock in the IPO, less any underwriter discounts and
commissions, as reflected on the cover page of the final prospectus for
such offering (as corrected for typographical errors, if necessary,
thereafter).
2. Representations and Warranties of the Company. The Company hereby
---------------------------------------------
represents and warrants to the Investor that, except as disclosed to the
Investor in a separate letter dated as of the date of this Agreement:
2.1 Organization and Good Standing. The Company is a corporation
------------------------------
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has all requisite corporate power and authority to
carry on its business as now conducted.
2.2 Authorization. All corporate action on the part of the Company,
-------------
its officers, directors and stockholders necessary for the authorization,
execution and delivery of this Agreement, the performance of all
obligations of the Company hereunder, and the authorization, issuance and
delivery of the Stock has been taken or will be taken at the Company's next
Board meeting prior to the Closing. Upon such authorization, this
Agreement will be a valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, subject to
laws of general application relating to bankruptcy, insolvency and the
relief of debtors and by general principles of equity.
2.3 Valid Issuance of Stock. The Stock, when issued, sold and
-----------------------
delivered in accordance with the terms hereof for the consideration
expressed, will be duly and validly issued, fully paid and nonassessable,
free and clear of any claims, liens, encumbrances, security interests,
options, charges or restrictions whatsoever, and, based in part upon the
representations of the Investor in this Agreement, will be issued in
compliance with all applicable federal and state securities laws.
<PAGE>
2.4 Litigation. Except as set forth in the Company's registration
----------
statement prepared in connection with the IPO, as filed with the Securities
and Exchange Commission ("SEC") and amended from time to time (the
"Registration Statement"), there are no actions, proceedings or
investigations pending or, to the best of Company's knowledge, any basis
therefor or threat thereof, against or affecting the Company, that, either
in any case or in the aggregate, would result in any material adverse
change in the business, financial condition, or results of operations of
the Company.
2.5 Properties. To the Company's knowledge (but without having
----------
conducted any special investigation), the Company has (i) good and
marketable title to its properties and assets and has good title to all its
leasehold interests, and (ii) sufficient title, license and/or ownership of
all patents, trademarks, service marks, trade names, copyrights, trade
secrets, information, proprietary rights and processes necessary for its
business as now conducted on the date hereof.
2.6 Compliance with Other Documents. The execution and delivery of
-------------------------------
this Agreement, consummation of the transactions contemplated hereby, and
compliance with the terms and provisions hereof will not conflict with or
result in a breach of the terms and conditions of, or constitute a default
under the Restated Certificate or Bylaws of the Company or of any contract
or agreement to which the Company is now a party, except where such
conflict, breach or default of any such contract or agreement, either
individually or in the aggregate, would not have a material adverse effect
either on the Company's business, financial condition or results of
operations or on the transactions contemplated by this Agreement.
2.7 Financial Statements. The Company's audited balance sheet at
--------------------
December 31, 1999, and the related statements of operations and statements
of cash flows for the period then ended (collectively, the "Financial
Statements"): (I) are in accordance with the books and records of the
Company, (II) present fairly the financial condition of the Company at such
date and the results of its operations for the period therein specified,
and (III) have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis. The Company has no
material liabilities or obligations which are not shown or provided for in
the Financial Statements, except liabilities or obligations after December
31, 1999 in the ordinary course of business which, individually or in the
aggregate, would not be reasonably likely to have a material adverse effect
upon the business, operations or financial condition of the Company.
3. Representations and Warranties of the Investor. The Investor hereby
----------------------------------------------
represents and warrants that:
3.1 Authorization. This Agreement constitutes the valid and legally
-------------
binding obligation of the Investor, enforceable in accordance with its
terms, subject to laws of general application relating to bankruptcy,
insolvency and the relief of debtors and by general principles of equity.
3.2 Investigation. The Investor acknowledges that it has had an
-------------
opportunity to discuss the business, affairs and current prospects of the
Company with the Company's president. The Investor further acknowledges
having had access to information about the Company that it has requested or
considers necessary for purposes of purchasing the Stock.
3.3 Accredited Investor. The Investor is an "accredited investor" as
-------------------
such term is defined in Regulation D adopted by the SEC.
3.4 Purchase Entirely for Own Account. This Agreement is made with
---------------------------------
the Investor in reliance upon the Investor's representation to the Company,
which by the Investor's execution of this Agreement the Investor hereby
confirms, that the Stock will be acquired for investment for the Investor's
own account, not as a nominee or agent, and not with a view to the resale
or distribution of any part thereof, and that the Investor has no present
intention of selling, granting any participation in, or otherwise
distributing the same.
4. Conditions to the Investor's Obligation at Closing. The obligation of
--------------------------------------------------
the Investor to purchase the Stock at the Closing is subject to the fulfillment
to the Investor's satisfaction on or prior to the Closing of the following
conditions:
-2-
<PAGE>
4.1 Representations and Warranties. The representations and
------------------------------
warranties made by the Company in Section 2 hereof shall be true and
correct when made, and shall be true and correct as of the Closing with the
same force and effect as if they had been made on and as of such date,
subject to changes contemplated by this Agreement.
4.2 Securities Laws. The offer and sale of the Stock to the Investor
---------------
pursuant to this Agreement shall be exempt from the registration
requirements of the Securities Act of 1933, as amended (the "Securities
Act") and qualification requirements of all applicable state securities
laws.
4.3 Authorizations. All authorizations, approvals or permits, if
--------------
any, of any governmental authority or regulatory body or other persons that
are required for the Company to obtain on its own behalf in connection with
the lawful issuance and sale of the Stock pursuant to this Agreement shall
have been duly obtained and shall be effective on and as of the Closing.
4.4 Initial Public Offering of Common Stock. The initial public
---------------------------------------
offering of the Company's Common Stock shall have occurred on or before
July 1, 2000.
4.5 No Injunction or Litigation. No injunction or binding order,
---------------------------
decree or ruling issued by any court or governmental agency shall be in
effect which prevents the consummation of the transactions contemplated
hereby and there shall be no litigation and no public or private proceeding
which seeks to prevent, or seeks damages with respect to, the transactions
contemplated by this Agreement; provided that the foregoing sentence shall
not be construed to apply as a condition to Closing hereunder if such
injunction or litigation is commenced by the Investor.
4.6 No Material Adverse Change. There shall have been no material
--------------------------
adverse change to the business, assets, operations or financial condition
of the Company.
4.7 Compliance. The Company shall have performed and complied with
----------
all of its obligations hereunder to be performed or complied with on or
prior to the Closing date.
4.8 Officer's Certificate. The Investor shall have received a
---------------------
certificate, dated the Closing date, of the President or Chief Financial
Officer of the Company, confirming the matters set forth in Section 4.1,
4.3, 4.6, 4.7 and, to such officer's knowledge, 4.5.
5. Conditions to the Company's Obligations at Closing. The obligation of
--------------------------------------------------
the Company to sell the Stock at the Closing is subject to the fulfillment to
the Company's satisfaction on or prior to the Closing of the following
conditions:
5.1 Representations and Warranties. The representations and
------------------------------
warranties of the Investor contained in Section 3 hereof shall be true as
of the Closing with the same force and effect as if they had been made on
and as of such date, subject to changes contemplated by this Agreement.
5.2 Securities Laws. The offer and sale of the Stock to the Investor
---------------
pursuant to this Agreement shall be exempt from the registration
requirements of the Securities Act and qualification requirements of all
applicable state securities laws.
5.3 Authorizations. All authorizations, approvals or permits, if
--------------
any, of any governmental authority or regulatory body that are required in
connection with the lawful issuance and sale of the Stock pursuant to this
Agreement shall have been duly obtained and shall be effective on and as of
the Closing.
5.4 Initial Public Offering of Common Stock. The initial public
---------------------------------------
offering of the Company's Common Stock shall have occurred on or before
July 1, 2000.
-3-
<PAGE>
5.5 Payment of Purchase Price. The Investor shall have delivered to
-------------------------
the Company the purchase price for the Stock as set forth in Section 1.2
hereof.
5.6 No Injunction or Litigation. No injunction or binding order,
---------------------------
decree or ruling issued by any court or governmental agency shall be in
effect which prevents the consummation of the transactions contemplated
hereby and there shall be no litigation and no public or private proceeding
which seeks to prevent, or seeks damages with respect to, the transactions
contemplated by this Agreement.
5.7 Compliance. The Investor shall have performed and complied with
----------
all of its obligations hereunder to be performed or complied with on or
prior to the Closing date.
6. Covenants of the Company and the Investor.
-----------------------------------------
6.1 Agreement Not to Transfer.
-------------------------
(a) Prior to the first anniversary of the Closing, the
Investor shall not, directly or indirectly, Transfer or offer to
Transfer any shares of the Stock other than to affiliates who agree to
be bound by the terms of this Agreement, unless the Company consents to
such Transfer and the transferee agrees to be bound by this Agreement.
Any such Transfer must comply with all applicable laws, and the Company
may require an opinion of counsel reasonably satisfactory to it as to
such compliance. The restrictions set forth above are referred to as
the "Transfer Restrictions."
(b) In order to enforce the Transfer Restrictions, the Company
may impose stop-transfer instructions with respect to the Stock until
the end of the restricted period.
(c) As used in this Agreement, the term "Transfer" shall mean
any sale, transfer, assignment, hypothecation, encumbrance or other
disposition, whether voluntary or involuntary, of shares of the Stock.
In the case of a hypothecation, the Transfer shall be deemed to occur
both at the time of the initial pledge and at any pledgee's sale or a
sale by any secured creditor or a retention by the secured creditor of
the pledged shares of the Stock in complete or partial satisfaction of
the indebtedness for which the shares of the Stock are security.
(d) After the first anniversary of the Closing, the Investor
may Transfer shares of the Stock without the transferee agreeing to be
bound by this Agreement and without the consent of the Company,
provided such Transfer complies with applicable federal and state
securities laws.
6.2 Market Stand-Off. In addition to the Transfer Restrictions
----------------
(which shall in no way be limited by the following), in connection with any
underwritten public offering by the Company of its equity securities pursuant to
an effective registration statement filed under the Securities Act, the Investor
shall not Transfer or offer to Transfer any shares of the Stock without the
prior written consent of the Company and its underwriters. Such restriction (the
"Market Stand-Off") shall be in effect for such period of time from and after
the effective date of the final prospectus for the offering as may be requested
by the Company or such underwriters; provided, however, that (i) such Market
Stand-Off shall not exceed one hundred eighty (180) days, and (ii) the Investor
shall be subject to the Market Stand-Off only if the officers and directors of
the Company are also subject to similar restrictions. In order to enforce the
Market Stand-Off, the Company may impose stop-transfer instructions with respect
to the Stock until the end of the applicable stand-off period.
6.3 Voting Agreements. The following provision will be applicable at
-----------------
any time the Investor owns or controls in excess of 9.5% of the Voting
Securities (as defined below) during the first five (5) years after the Closing:
In the event that the Board of Directors of the Company approves a sale of
substantially all of the assets or capital stock of the Company or a merger in
which the Company would not be the surviving corporation, the Investor agrees to
vote all shares of Voting Securities owned by it with respect to such sale of
substantially all of the assets or capital stock or merger in the same
proportion as the votes cast
-4-
<PAGE>
by all other stockholders of the Company entitled to vote on such matter (other
than the Investor) at such time as such matter is presented for a vote of the
stockholders of the Company. The Investor, as a holder of Voting Securities,
shall be present, in person or by proxy, at all meetings of stockholders of the
Company so that all shares of Voting Securities beneficially owned by it may be
counted for the purpose of determining the presence of a quorum at such
meetings. For purposes of this Agreement, (i) the term "Voting Securities" shall
refer to all securities of the Company entitled to vote generally for the
election of directors, and (ii) the term "beneficial ownership" shall have the
meaning set forth in Rule 13d-3 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act").
6.4 Investor Rights Agreement. Concurrently with the execution of
-------------------------
this Agreement, the parties shall enter into the Investor Rights Agreement
attached hereto as Exhibit A.
7. Miscellaneous.
-------------
7.1 Governing Law. This Agreement shall be governed in all respects
-------------
by the laws of the State of Delaware, without regard to the conflict of law
provisions thereof.
7.2 Survival; Additional Securities. The representations and
-------------------------------
warranties set forth in Sections 2 and 3 shall survive until the Closing. The
covenants and agreements set forth in Section 6 shall survive in accordance with
their terms. Any new, substituted or additional securities which are by reason
of any stock split, stock dividend, recapitalization or reorganization
distributed with respect to the Stock ("Stock Distributions") shall be
immediately subject to the covenants and agreements set forth in Section 6 to
the same extent the Stock is at such time covered by such provisions.
7.3 Successors and Assigns. Except as otherwise expressly provided
----------------------
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the respective successors and assigns of the parties hereto. Nothing in
this Agreement, express or implied, is intended to confer upon any party other
than the parties hereto or their respective successors and assigns any rights,
remedies, obligations, or liabilities under or by reason of this Agreement,
except as expressly provided in this Agreement. Notwithstanding anything to the
contrary contained herein, the covenants set forth in Section 6 shall not be
binding upon any entity which acquires any shares of the Stock or a Stock
Distribution in a transaction (x) after the first anniversary of the Closing or
(y) prior to the first anniversary of the Closing to which the Company consents
in accordance with Section 6.1(a) (other than an affiliate of the Investor) or
(z) otherwise permitted hereunder.
7.4 Entire Agreement. This Agreement and the Investor Rights
----------------
Agreement constitute the entire understanding and agreement between the
parties with regard to the subject matter hereof.
7.5 Notices. Except as otherwise provided, all notices and other
-------
communications required or permitted hereunder shall be in writing, shall be
effective when given, and shall in any event be deemed to be given upon receipt
or, if earlier, (i) five (5) days after deposit with the U.S. postal service or
other applicable postal service, if delivered by first class mail, postage
prepaid, (ii) upon delivery, if delivered by hand, (iii) one (1) business day
after the day of deposit with Federal Express or similar overnight courier,
freight prepaid, if delivered by overnight courier or (iv) one (1) business day
after the day of facsimile transmission, if delivered by facsimile transmission
with copy by first class mail, postage prepaid, and shall be addressed, (a) if
to the Investor, at the Investor's address set forth below its signature, or at
such other address as the Investor shall have furnished to the Company in
writing, or (b) if to the Company, at its address as set forth below its
signature, or at such other address as the Company shall have furnished to the
Investor in writing.
7.6 Amendments and Waivers. Any term of this Agreement may be
----------------------
amended and the observance of any term of the Agreement may be waived (either
generally or in a particular instance and either retroactively or prospectively)
only with the written consent of the Company and the Investor.
-5-
<PAGE>
7.7 Legal Fees. In the event of any action at law, suit in equity or
----------
arbitration proceeding in relation to this Agreement or the Stock or any Stock
Distribution, the prevailing party shall be paid by the other party a reasonable
sum for the attorneys' fees and expenses incurred by such prevailing party.
7.8 Expenses; No Liability. Irrespective of whether the Closing is
----------------------
effected, the Company and the Investor shall each pay their own costs and
expenses incurred with respect to the negotiation, execution, delivery and
performance of this Agreement. The parties agree that if the Closing does not
occur due to reasons including the failure of the conditions set forth in
Section 4.2 or Section 5.2, this Agreement shall terminate without liability on
the part of any party to the other for any resulting damages, claims or other
liabilities.
7.9 Titles and Subtitles. The titles of the paragraphs and
--------------------
subparagraphs of this Agreement are for convenience of reference only and are
not to be considered in construing this Agreement.
7.10 Counterparts. This Agreement may be executed in counterparts,
------------
each of which shall be an original, but all of which together shall constitute
one instrument.
7.11 Severability. If one or more provisions of this Agreement are
------------
held to be unenforceable under applicable law, such provision shall be excluded
from this Agreement and the balance of the Agreement shall be interpreted as if
such provision were so excluded and shall be enforceable in accordance with its
terms.
7.12 Confidentiality. The parties hereto agree that, except with the
---------------
prior written permission of the other party, each shall at all times keep
confidential and not divulge, furnish, or make accessible to anyone any
confidential information, knowledge, or data concerning or relating to the
business or financial affairs of such other party to which said party has been
or shall become privy by reason of (i) this Agreement, (ii) discussions or
negotiations relating to this Agreement, or (iii) the performance of obligations
hereunder. The parties agree that for the purposes of this Section 7.12
confidential information shall not include any information that is in the public
domain or is independently developed or received from an independent source or
is required by legal action to be disclosed.
[Signature Page to Follow]
-6-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year hereinabove first written.
CrossWorlds Software, Inc.
577 Airport Blvd., Suite 800
Burlingame, California 94010
- -------------------------
By:
Title:
The Dow Chemical Company
(address)
---------------
- ------------------------
- ------------------------
By:
Title:
-7-
<PAGE>
EXHIBIT A
INVESTOR RIGHTS AGREEMENT
THIS INVESTOR RIGHTS AGREEMENT (this "Agreement") is made as of the ____
---------
day of ________, 2000, by and among CrossWorlds Software, Inc., a Delaware
corporation (the "Company") The Dow Chemical Company (the "Investor").
------- --------
RECITALS
--------
WHEREAS, the Company and the Investor are entering into a Stock Purchase
Agreement (the "Purchase Agreement") of even date herewith; and
------------------
WHEREAS, in order to induce the Investor to purchase shares of Common Stock
pursuant to the Purchase Agreement, the Company desires to grant certain
registration rights to the Investor as set forth herein.
NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Registration Rights. The Company covenants and agrees as follows:
-------------------
1.1 Definitions. For purposes of this Section 1:
-----------
(a) The term "Act" means the Securities Act of 1933, as
---
amended.
(b) The term "Affiliated Person" shall mean any Person who is
-----------------
an "affiliate" (as defined in Rule 12b-2 of the General Rules and Regulations
under the Securities Exchange Act of 1934, as amended).
(c) The term "Holder" means the Investor or any permitted
assignee of the registration rights with respect to the Registrable Securities
pursuant to the terms of Section 1.8.
(d) The term "1934 Act" shall mean the Securities Exchange Act
--------
of 1934, as amended.
(e) The term "person" means any individual, firm, corporation,
------
partnership, trust, incorporated or unincorporated association, joint venture,
joint stock company, limited liability company, government (or any agency or
political subdivision thereof) or other entity of any kind, and shall include
any successor (by merger or otherwise) of such entity.
(f) The terms "register", "registered" and "registration"
-------- ---------- ------------
refer to a registration effected by preparing and filing a registration
statement or similar document in compliance with the Act, and the declaration or
ordering of effectiveness of such registration statement or document.
(g) The term "Registrable Securities" means Common Stock
----------------------
issued to the Investor pursuant to the Purchase Agreement, and any Common Stock
of the Company issued as (or issuable upon the conversion or exercise of any
warrant, right or other security which is issued as) a dividend or other
distribution with respect to, or in exchange for or in replacement of, the
foregoing, excluding, however, any shares sold or transferred by a person in a
transaction in which the rights under this Section 1 are not assigned.
Registrable Securities shall also include all securities defined as "Registrable
Securities" under the Fifth Restated Investor Rights Agreement dated October 1,
1999 among the Company and various investors.
(h) The number of shares of "Registrable Securities then
---------------------------
outstanding" shall be determined by the number of shares of Common Stock
- -----------
outstanding which are, and the number of shares of Common Stock issuable
pursuant to then exercisable or convertible securities which are, Registrable
Securities.
-1-
<PAGE>
(i) The term "SEC" shall mean the Securities and Exchange
---
Commission.
1.2 Piggyback Registration Rights .
--------------------------------
(a) Registration Rights. At any time after January 31, 2001,
-------------------
if the Company proposes to register any of its stock or other securities under
the Act in connection with the public offering of such securities solely for
cash (other than a registration relating solely to the sale of securities to
participants in a Company stock plan, a registration effected pursuant to Rule
145 under the Act, or a registration on any form which does not include
substantially the same information as would be required to be included in a
registration statement covering the sale of the Registrable Securities) the
Company shall, at such time, promptly give each Holder written notice of such
registration. Upon the written request of each Holder given within fifteen (15)
days after mailing of such notice by the Company in accordance with Section 7,
the Company shall, subject to the provisions of paragraph (b) below, cause to be
registered under the Act of the Purchase Agreement all of the Registrable
Securities that each such Holder has requested to be registered.
(b) Underwriting. If the registration of which the Company gives
------------
notice is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as part of the written notice given pursuant
to Section 1.2(a). In such event, the right of any Holder to registration
pursuant to this Section 1.2 shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of Registrable Securities
in the underwriting to the extent provided herein. All Holders proposing to
distribute their securities through such underwriting shall (together with the
Company and the other holders distributing their securities through such
underwriting) enter into an underwriting agreement in customary form with the
managing underwriter selected for such underwriting by the Company.
Notwithstanding any other provision of this Section 1.2, if the Company and the
managing underwriter determine that marketing factors require a limitation of
the number of shares to be underwritten, the managing underwriter may limit or
exclude entirely the Registrable Securities to be included in such registration.
The Company shall so advise all Holders distributing their securities through
such underwriting, and the number of shares of Registrable Securities and other
securities that may be included in the registration and underwriting on behalf
of persons other than the Company shall be allocated among all Holders and such
other holders in proportion, as nearly as practicable, to the respective amounts
of Registrable Securities and other securities entitled to registration rights
held by such Holders and other holders at the time of filing the registration
statement. To facilitate the allocation of shares in accordance with the above
provisions, the Company may round the number of shares allocated to any Holder
or other holder to the nearest 100 shares.
1.3 Furnish Information. It shall be a condition precedent to the
-------------------
obligations of the Company to take any action pursuant to this Section 1 with
respect to the Registrable Securities of any selling Holder that such Holder
shall furnish to the Company such information regarding itself, the Registrable
Securities held by it, and the intended method of disposition of such securities
as shall be required to effect the registration of such Holder's Registrable
Securities.
1.4 Expenses of Registration. The Company shall bear and pay all
------------------------
expenses incurred in connection with any registration, filing (including keeping
such filings effective) or qualification of Registrable Securities with respect
to the registrations pursuant to this Agreement, including (without limitation)
all registration, filing, and qualification fees, printers and accounting fees
relating or apportionable thereto and the fees and disbursements of counsel for
the Company and no more than one counsel for all the selling Holders, but
excluding underwriting discounts and commissions relating to Registrable
Securities.
1.5 No Delay of Registration. No Holder shall have any right to
------------------------
obtain or seek an injunction restraining or otherwise delaying any such
registration as the result of any controversy that might arise with respect to
the interpretation or implementation of this Section 1.
1.6 Indemnification. In the event any Registrable Securities are
---------------
included in a registration statement under this Section 1:
-2-
<PAGE>
(a) To the extent permitted by law, the Company will indemnify
and hold harmless each Holder, any underwriter (as defined in the Act) for such
Holder and each person, if any, who controls such Holder or underwriter within
the meaning of the Act or the 1934 Act, against any losses, claims, damages, or
liabilities (joint or several) to which they may become subject under the Act,
the 1934 Act or other federal or state law, insofar as such losses, claims,
damages, or liabilities (or actions in respect thereof) arise out of or are
based upon any of the following statements, omissions or violations
(collectively a "Violation"): (i) any untrue statement or alleged untrue
---------
statement of a material fact contained in such registration statement, including
any preliminary prospectus or final prospectus contained therein or any
amendments or supplements thereto, (ii) the omission or alleged omission to
state therein a material fact required to be stated therein, or necessary to
make the statements therein not misleading, or (iii) any violation or alleged
violation by the Company of the Act, the 1934 Act, any state securities law or
any rule or regulation promulgated under the Act, the 1934 Act or any state
securities law; and the Company will pay to each such Holder, underwriter or
controlling person any legal or other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim, damage,
liability, or action, as such expenses are incurred; provided, however, that the
indemnity agreement contained in this subsection 1.6(a) shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability, or action
if such settlement is effected without the consent of the Company (which consent
shall not be unreasonably withheld), nor shall the Company be liable to any
indemnitee for any such loss, claim, damage, liability, or action to the extent
that it arises out of or is based upon a Violation which occurs in reliance upon
and in conformity with written information furnished by such indemnitee.
(b) To the extent permitted by law, each Holder will indemnify
and hold harmless the Company, each of its directors, each of its officers who
has signed the registration statement, each person, if any, who controls the
Company within the meaning of the Act, any underwriter, any other Holder selling
securities in such registration statement and any controlling person of any such
underwriter or other Holder, severally but not jointly, against any losses,
claims, damages, or liabilities (joint or several) to which any of the foregoing
persons may become subject, under the Act, the 1934 Act or other federal or
state law, insofar as such losses, claims, damages, or liabilities (or actions
in respect thereto) arise out of or are based upon any Violation, in each case
to the extent (and only to the extent) that such Violation occurs in reliance
upon and in conformity with written information furnished by such Holder; and
each such Holder will pay any legal or other expenses reasonably incurred by any
person intended to be indemnified pursuant to this subsection 1.6(b), in
connection with investigating or defending any such loss, claim, damage,
liability, or action; provided, however, that the indemnity agreement contained
in this subsection 1.6(b) shall not apply to amounts paid in settlement of any
such loss, claim, damage, liability or action if such settlement is effected
without the consent of the Holder, which consent shall not be unreasonably
withheld; provided that in no event shall any indemnity by any Holder under this
subsection 1.6(b) exceed the gross proceeds from the offering received by such
Holder.
(c) Promptly after receipt by an indemnified party under this
Section 1.6 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 1.6, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with one counsel mutually
satisfactory to the parties; provided, however, that an indemnified party
(together with all other indemnified parties which may be represented without
conflict by one counsel) shall have the right to retain one separate counsel,
with the fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action shall not relieve such indemnifying party of any liability to the
indemnified party under this Section 1.6 unless the failure to deliver notice is
materially prejudicial to its ability to defend such action. Any omission to so
deliver written notice to the indemnifying party will not relieve it of any
liability that it may have to any indemnified party otherwise than under this
Section 1.6.
(d) If the indemnification provided for in this Section 1.6 is
held by a court of competent jurisdiction to be unavailable to an indemnified
party with respect to any loss, liability, claim, damage, or expense referred to
therein, then the indemnifying party, in lieu of indemnifying such indemnified
party hereunder,
<PAGE>
shall contribute to the amount paid or payable by such indemnified party as a
result of such loss, liability, claim, damage, or expense in such proportion as
is appropriate to reflect the relative fault of the indemnifying party on the
one hand and of the indemnified party on the other in connection with the
statements or omissions that resulted in such loss, liability, claim, damage, or
expense as well as any other relevant equitable considerations; provided that in
no event shall any Holder be required to contribute under this subsection 1.6(d)
an aggregate amount in excess of the gross proceeds from the offering received
by such Holder less any amounts paid by the Holder pursuant to subsection
1.6(b). The relative fault of the indemnifying party and of the indemnified
party shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission to state a
material fact relates to information supplied by the indemnifying party or by
the indemnified party and the parties' relative intent, knowledge, access to
information, and opportunity to correct or prevent such statement or omission.
(e) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the underwriting
agreement entered into in connection with the underwritten public offering are
in conflict with the foregoing provisions, the provisions in the underwriting
agreement shall control.
(f) The obligations of the Company and Holders under this
Section 1.6 shall survive the completion of any offering of Registrable
Securities in a registration statement under this Section 1, and otherwise.
1.7 Reports under Securities Exchange Act of 1934. With a view to
---------------------------------------------
making available to the Holders the benefits of Rule 144 promulgated under the
Act and any other rule or regulation of the SEC that may at any time permit a
Holder to sell securities of the Company to the public without registration, the
Company agrees to:
(a) make and keep public information available, as those terms
are understood and defined in SEC Rule 144, at all times after ninety (90) days
after the effective date of the first registration statement filed by the
Company for the offering of its securities to the general public;
(b) file with the SEC in a timely manner all reports and other
documents required of the Company under the Act and the 1934 Act; and
(c) furnish to any Holder, so long as the Holder owns any
Registrable Securities, forthwith upon request (i) a written statement by the
Company that it has complied with the reporting requirements of SEC Rule 144 (at
any time after ninety (90) days after the effective date of the first
registration statement filed by the Company), the Act and the 1934 Act (at any
time after it has become subject to such reporting requirements), (ii) a copy of
the most recent annual or quarterly report of the Company and such other reports
and documents so filed by the Company, and (iii) such other information as may
be reasonably requested in availing any Holder of any rule or regulation of the
SEC which permits the selling of any such securities without registration.
1.8 Assignment of Registration Rights. The rights to cause the
---------------------------------
Company to register Registrable Securities pursuant to this Section 1 may be
assigned (but only with all related obligations) by a Holder to a transferee or
assignee of such securities who, after such assignment or transfer, holds at
least one hundred thousand (100,000) shares of Registrable Securities (subject
to appropriate adjustment for stock splits, dividends, combinations and other
recapitalizations), provided: (a) the Company is, within a reasonable time
before such transfer, furnished with written notice of the name and address of
such transferee or assignee and the securities with respect to which such
registration rights are being assigned; (b) such transferee or assignee agrees
in writing to be bound by and subject to the terms and conditions of this
Agreement, including without limitation the provisions of Section 1.9 below; and
(c) such assignment shall be effective only if immediately following such
transfer the further disposition of such securities by the transferee or
assignee is restricted under the Act. For the purposes of determining the
number of shares of Registrable Securities held by a transferee or assignee of a
holder of Registrable Securities, Affiliated Persons shall be aggregated
together, provided that all assignees and transferees who would not qualify
individually for assignment of registration rights shall designate in writing to
the Company from time to time
-4-
<PAGE>
a single attorney-in-fact on behalf of the entire group of Affiliated Persons
for the purpose of exercising any rights, receiving notices or taking any action
under this Section 1.
1.9 "Market Stand-Off" Agreement. The Investor shall be bound by
----------------------------
the transfer restrictions and market standoff provisions set forth in the
Purchase Agreement to the extent, but only to the extent, set forth in the
Purchase Agreement. In addition:
(a) Each Holder other than the Investor hereby agrees that,
during the period of duration specified by the Company and an underwriter of
common stock or other securities of the Company, following the effective date of
a registration statement of the Company filed under the Act, it shall not, to
the extent requested by the Company and such underwriter, directly or indirectly
sell, offer to sell, contract to sell (including, without limitation, any short
sale), grant any option to purchase or otherwise transfer or dispose of (other
than to donees who agree to be similarly bound) any securities of the Company
held by it as of the effective date except common stock included in such
registration; provided, however, that:
(i) all officers and directors of the Company enter
into similar agreements; and
(ii) such market stand-off time period shall not exceed
one hundred eighty (180) days without the consent of the affected Holder; and
(b) Each Holder other than the Investor agrees to provide to
the other Underwriters of any public offering such further agreement as such
Underwriter may require in connection with this market stand-off agreement. In
order to enforce the foregoing covenant, the Company may impose stop-transfer
instructions with respect to the Registrable Securities of each Holder (and the
shares or securities of every other person subject to the foregoing restriction)
until the end of such period.
1.10 Termination of Registration Rights. The right of any Holder
----------------------------------
to inclusion in any registration pursuant to Section 1.2 shall terminate upon
such date as, in the opinion of counsel to the Company, a public trading market
shall exist for the Company's Common Stock and all shares of Registrable
Securities beneficially owned or subject to Rule 144 aggregation by such Holder
may immediately be sold under Rule 144 (without regard to Rule 144(k)) during
any 90-day period and such Holder holds less than one percent (1%) of the
outstanding capital stock of the Company.
2. Securities Law Compliance.
-------------------------
2.1 Restrictions on Transferability. The Registrable Securities and
-------------------------------
any other securities issued with respect of the Registrable Securities upon any
stock split, stock dividend, recapitalization, merger, consolidation, or similar
event, shall not be sold, assigned, transferred or pledged except upon the
conditions specified in the Purchase Agreement and this Agreement, which
conditions are intended to ensure compliance with the provisions of the Act, or
otherwise in compliance with the Act. In any sale, transfer, assignment or
pledge of any such shares prior to the first anniversary of the Closing (as
defined in the Purchase Agreement) other than in a public offering, the Investor
will cause any proposed purchaser, assignee, transferee, or pledgee of such
shares held by the Investor to agree to take and hold such securities subject to
the provisions and upon the conditions specified in the Purchase Agreement and
this Agreement, unless otherwise consented to by the Company.
2.2 Further Limitations on Disposition. Without in any way
----------------------------------
limiting the above, the Investor further agrees not to make any disposition of
all or any portion of the Registrable Securities unless and until the transferee
has agreed in writing for the benefit of the Company to be bound by Sections 1.9
of this Agreement and (to the extent required by applicable securities law, in
the opinion of counsel to the Company) has agreed to be bound by these Sections
2.1 and 2.2; provided, however, that the foregoing shall not apply if:
(a) There is then in effect a Registration Statement under the
Act covering such proposed disposition and such disposition is made in
accordance with such Registration Statement; or
-5-
<PAGE>
(b) (i) The Investor shall have notified the Company of the
proposed disposition and shall have furnished the Company with a detailed
statement of the circumstances surrounding the proposed disposition, and (ii)
until such time as the proposed disposition may be made under Rule 144(k) under
the 1934 Act, if reasonably requested by the Company, the Investor shall have
furnished the Company with an opinion of counsel, reasonably satisfactory to the
Company, that such disposition will not require registration of such shares
under the Act; or
(c) The proposed disposition is made under Rule 144(k).
2.3 Notwithstanding anything to the contrary contained herein, the
shares of stock acquired by the Investor from the Company pursuant to the
Purchase Agreement (and any other securities issued with respect to such
securities upon any stock split, stock dividend, recapitalization, merger,
consolidation or similar event) may be sold, assigned, transferred or pledged by
Investor to any person and such person shall not be required to take and hold
such securities subject to the Purchase Agreement, this Agreement or any of the
provisions hereof or thereof, so long as the transaction is at least one year
after the Closing (as defined in the Purchase Agreement), complies with
applicable federal and state securities laws, and Investor is not transferring
to such person the registration rights set forth in Section 1 hereof.
3. Miscellaneous. Section 7 of the Purchase Agreement is hereby
-------------
incorporated by reference as though restated in full herein and applied to this
Agreement.
-6-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Investor Rights
Agreement as of the date first above written.
CROSSWORLDS SOFTWARE, INC.
By:
---------------------------------------
Name:
Title:
Address: 577 Airport Boulevard, Suite 800
Burlingame, CA 94010
INVESTOR:
THE DOW CHEMICAL COMPANY
By:
---------------------------------------
Name:
Title:
Address:
------------------------
------------------------
------------------------
-7-
<PAGE>
EXHIBIT 10.26
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT is made as of the ____ day of ________ 2000,
by and between CrossWorlds Software, Inc., a Delaware corporation (the
"Company") and Delphi Automotive (the "Investor").
WHEREAS, the Investor has indicated a desire to purchase shares of Common
Stock, $0.001 par value (the "Common Stock") from the Company at the price per
share set forth in Section 1.2 below.
WHEREAS, the Company has indicated a desire to sell shares of Common Stock
to the Investor at the price per share set forth in Section 1.2 below.
WHEREAS, the Company and the Investor have agreed that this Agreement shall
constitute the entire understanding and agreement between the parties with
regard to the subject matter hereof.
NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Purchase and Sale of Stock.
--------------------------
1.1 Sale and Issuance of Stock. Subject to the terms and conditions
--------------------------
of this Agreement, the Company agrees to sell to the Investor and the
Investor agrees to purchase from the Company at the price per share set
forth in Section 1.2 below such number of shares of the Company's Common
Stock (the "Stock") as is equal to $2 million of shares of Common Stock at
the price per share set forth in Section 1.2 below.
1.2 The Closing. The purchase and sale of the Stock shall be held at
-----------
the Company's offices concurrently with the closing of the Company's
initial public offering (the "IPO") assuming that each of the conditions
set forth in Sections 4 and 5 have been satisfied or waived (the
"Closing"). At the Closing, the Company will deliver the Stock to the
Investor against payment of the purchase price therefor by check payable to
the order of the Company or by wire transfer. The per share purchase price
for the Stock shall be equal to the per share price paid by the public for
the Company's Common Stock in the IPO, less any underwriter discounts and
commissions, as reflected on the cover page of the final prospectus for
such offering (as corrected for typographical errors, if necessary,
thereafter).
2. Representations and Warranties of the Company. The Company hereby
---------------------------------------------
represents and warrants to the Investor that, except as disclosed to the
Investor in a separate letter dated as of the date of this Agreement:
2.1 Organization and Good Standing. The Company is a corporation
------------------------------
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has all requisite corporate power and authority to
carry on its business as now conducted.
2.2 Authorization. All corporate action on the part of the Company,
-------------
its officers, directors and stockholders necessary for the authorization,
execution and delivery of this Agreement, the performance of all
obligations of the Company hereunder, and the authorization, issuance and
delivery of the Stock has been taken or will be taken at the Company's next
Board meeting prior to the Closing. Upon such authorization, this
Agreement will be a valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, subject to
laws of general application relating to bankruptcy, insolvency and the
relief of debtors and by general principles of equity.
2.3 Valid Issuance of Stock. The Stock, when issued, sold and
-----------------------
delivered in accordance with the terms hereof for the consideration
expressed, will be duly and validly issued, fully paid and nonassessable,
free and clear of any claims, liens, encumbrances, security interests,
options, charges or restrictions whatsoever, and, based in part upon the
representations of the Investor in this Agreement, will be issued in
compliance with all applicable federal and state securities laws.
<PAGE>
2.4 Litigation. Except as set forth in the Company's registration
----------
statement prepared in connection with the IPO, as filed with the Securities
and Exchange Commission ("SEC") and amended from time to time (the
"Registration Statement"), there are no actions, proceedings or
investigations pending or, to the best of Company's knowledge, any basis
therefor or threat thereof, against or affecting the Company, that, either
in any case or in the aggregate, would result in any material adverse
change in the business, financial condition, or results of operations of
the Company.
2.5 Properties. To the Company's knowledge (but without having
----------
conducted any special investigation), the Company has (i) good and
marketable title to its properties and assets and has good title to all its
leasehold interests, and (ii) sufficient title, license and/or ownership of
all patents, trademarks, service marks, trade names, copyrights, trade
secrets, information, proprietary rights and processes necessary for its
business as now conducted on the date hereof.
2.6 Compliance with Other Documents. The execution and delivery of
-------------------------------
this Agreement, consummation of the transactions contemplated hereby, and
compliance with the terms and provisions hereof will not conflict with or
result in a breach of the terms and conditions of, or constitute a default
under the Restated Certificate or Bylaws of the Company or of any contract
or agreement to which the Company is now a party, except where such
conflict, breach or default of any such contract or agreement, either
individually or in the aggregate, would not have a material adverse effect
either on the Company's business, financial condition or results of
operations or on the transactions contemplated by this Agreement.
2.7 Financial Statements. The Company's audited balance sheet at
--------------------
December 31, 1999, and the related statements of operations and statements
of cash flows for the period then ended (collectively, the "Financial
Statements"): (I) are in accordance with the books and records of the
Company, (II) present fairly the financial condition of the Company at such
date and the results of its operations for the period therein specified,
and (III) have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis. The Company has no
material liabilities or obligations which are not shown or provided for in
the Financial Statements, except liabilities or obligations after December
31, 1999 in the ordinary course of business which, individually or in the
aggregate, would not be reasonably likely to have a material adverse effect
upon the business, operations or financial condition of the Company.
3. Representations and Warranties of the Investor. The Investor hereby
----------------------------------------------
represents and warrants that:
3.1 Authorization. This Agreement constitutes the valid and legally
-------------
binding obligation of the Investor, enforceable in accordance with its
terms, subject to laws of general application relating to bankruptcy,
insolvency and the relief of debtors and by general principles of equity.
3.2 Investigation. The Investor acknowledges that it has had an
-------------
opportunity to discuss the business, affairs and current prospects of the
Company with the Company's president. The Investor further acknowledges
having had access to information about the Company that it has requested or
considers necessary for purposes of purchasing the Stock.
3.3 Accredited Investor. The Investor is an "accredited investor" as
-------------------
such term is defined in Regulation D adopted by the SEC.
3.4 Purchase Entirely for Own Account. This Agreement is made with
---------------------------------
the Investor in reliance upon the Investor's representation to the Company,
which by the Investor's execution of this Agreement the Investor hereby
confirms, that the Stock will be acquired for investment for the Investor's
own account, not as a nominee or agent, and not with a view to the resale
or distribution of any part thereof, and that the Investor has no present
intention of selling, granting any participation in, or otherwise
distributing the same.
4. Conditions to the Investor's Obligation at Closing. The obligation of
--------------------------------------------------
the Investor to purchase the Stock at the Closing is subject to the fulfillment
to the Investor's satisfaction on or prior to the Closing of the following
conditions:
-2-
<PAGE>
4.1 Representations and Warranties. The representations and
------------------------------
warranties made by the Company in Section 2 hereof shall be true and
correct when made, and shall be true and correct as of the Closing with the
same force and effect as if they had been made on and as of such date,
subject to changes contemplated by this Agreement.
4.2 Securities Laws. The offer and sale of the Stock to the Investor
---------------
pursuant to this Agreement shall be exempt from the registration
requirements of the Securities Act of 1933, as amended (the "Securities
Act") and qualification requirements of all applicable state securities
laws.
4.3 Authorizations. All authorizations, approvals or permits, if
--------------
any, of any governmental authority or regulatory body or other persons that
are required for the Company to obtain on its own behalf in connection with
the lawful issuance and sale of the Stock pursuant to this Agreement shall
have been duly obtained and shall be effective on and as of the Closing.
4.4 Initial Public Offering of Common Stock. The initial public
---------------------------------------
offering of the Company's Common Stock shall have occurred on or before
July 1, 2000.
4.5 No Injunction or Litigation. No injunction or binding order,
---------------------------
decree or ruling issued by any court or governmental agency shall be in
effect which prevents the consummation of the transactions contemplated
hereby and there shall be no litigation and no public or private proceeding
which seeks to prevent, or seeks damages with respect to, the transactions
contemplated by this Agreement; provided that the foregoing sentence shall
not be construed to apply as a condition to Closing hereunder if such
injunction or litigation is commenced by the Investor.
4.6 No Material Adverse Change. There shall have been no material
--------------------------
adverse change to the business, assets, operations or financial condition
of the Company.
4.7 Compliance. The Company shall have performed and complied with
----------
all of its obligations hereunder to be performed or complied with on or
prior to the Closing date.
4.8 Officer's Certificate. The Investor shall have received a
---------------------
certificate, dated the Closing date, of the President or Chief Financial
Officer of the Company, confirming the matters set forth in Section 4.1,
4.3, 4.6, 4.7 and, to such officer's knowledge, 4.5.
5. Conditions to the Company's Obligations at Closing. The obligation of
--------------------------------------------------
the Company to sell the Stock at the Closing is subject to the fulfillment to
the Company's satisfaction on or prior to the Closing of the following
conditions:
5.1 Representations and Warranties. The representations and
------------------------------
warranties of the Investor contained in Section 3 hereof shall be true as
of the Closing with the same force and effect as if they had been made on
and as of such date, subject to changes contemplated by this Agreement.
5.2 Securities Laws. The offer and sale of the Stock to the Investor
---------------
pursuant to this Agreement shall be exempt from the registration
requirements of the Securities Act and qualification requirements of all
applicable state securities laws.
5.3 Authorizations. All authorizations, approvals or permits, if
--------------
any, of any governmental authority or regulatory body that are required in
connection with the lawful issuance and sale of the Stock pursuant to this
Agreement shall have been duly obtained and shall be effective on and as of
the Closing.
5.4 Initial Public Offering of Common Stock. The initial public
---------------------------------------
offering of the Company's Common Stock shall have occurred on or before
July 1, 2000.
-3-
<PAGE>
5.5 Payment of Purchase Price. The Investor shall have delivered to
-------------------------
the Company the purchase price for the Stock as set forth in Section 1.2
hereof.
5.6 No Injunction or Litigation. No injunction or binding order,
---------------------------
decree or ruling issued by any court or governmental agency shall be in
effect which prevents the consummation of the transactions contemplated
hereby and there shall be no litigation and no public or private proceeding
which seeks to prevent, or seeks damages with respect to, the transactions
contemplated by this Agreement.
5.7 Compliance. The Investor shall have performed and complied with
----------
all of its obligations hereunder to be performed or complied with on or
prior to the Closing date.
6. Covenants of the Company and the Investor.
-----------------------------------------
6.1 Agreement Not to Transfer.
-------------------------
(a) Prior to the first anniversary of the Closing, the Investor
shall not, directly or indirectly, Transfer or offer to Transfer any
shares of the Stock other than to affiliates who agree to be bound by
the terms of this Agreement, unless the Company consents to such
Transfer and the transferee agrees to be bound by this Agreement. Any
such Transfer must comply with all applicable laws, and the Company may
require an opinion of counsel reasonably satisfactory to it as to such
compliance. The restrictions set forth above are referred to as the
"Transfer Restrictions."
(b) In order to enforce the Transfer Restrictions, the Company
may impose stop-transfer instructions with respect to the Stock until
the end of the restricted period.
(c) As used in this Agreement, the term "Transfer" shall mean any
sale, transfer, assignment, hypothecation, encumbrance or other
disposition, whether voluntary or involuntary, of shares of the Stock.
In the case of a hypothecation, the Transfer shall be deemed to occur
both at the time of the initial pledge and at any pledgee's sale or a
sale by any secured creditor or a retention by the secured creditor of
the pledged shares of the Stock in complete or partial satisfaction of
the indebtedness for which the shares of the Stock are security.
(d) After the first anniversary of the Closing, the Investor may
Transfer shares of the Stock without the transferee agreeing to be
bound by this Agreement and without the consent of the Company,
provided such Transfer complies with applicable federal and state
securities laws.
6.2 Market Stand-Off. In addition to the Transfer Restrictions
----------------
(which shall in no way be limited by the following), in connection with any
underwritten public offering by the Company of its equity securities
pursuant to an effective registration statement filed under the Securities
Act, the Investor shall not Transfer or offer to Transfer any shares of the
Stock without the prior written consent of the Company and its
underwriters. Such restriction (the "Market Stand-Off") shall be in effect
for such period of time from and after the effective date of the final
prospectus for the offering as may be requested by the Company or such
underwriters; provided, however, that (i) such Market Stand-Off shall not
exceed one hundred eighty (180) days, and (ii) the Investor shall be
subject to the Market Stand-Off only if the officers and directors of the
Company are also subject to similar restrictions. In order to enforce the
Market Stand-Off, the Company may impose stop-transfer instructions with
respect to the Stock until the end of the applicable stand-off period.
6.3 Voting Agreements. The following provision will be applicable at
-----------------
any time the Investor owns or controls in excess of 9.5% of the Voting
Securities (as defined below) during the first five (5) years after the
Closing: In the event that the Board of Directors of the Company approves a
sale of substantially all of the assets or capital stock of the Company or
a merger in which the Company would not be the surviving corporation, the
Investor agrees to vote all shares of Voting Securities owned by it with
respect to such sale of substantially all of the assets or capital stock or
merger in the same proportion as the votes cast
-4-
<PAGE>
by all other stockholders of the Company entitled to vote on such matter
(other than the Investor) at such time as such matter is presented for a
vote of the stockholders of the Company. The Investor, as a holder of
Voting Securities, shall be present, in person or by proxy, at all meetings
of stockholders of the Company so that all shares of Voting Securities
beneficially owned by it may be counted for the purpose of determining the
presence of a quorum at such meetings. For purposes of this Agreement, (i)
the term "Voting Securities" shall refer to all securities of the Company
entitled to vote generally for the election of directors, and (ii) the term
"beneficial ownership" shall have the meaning set forth in Rule 13d-3 under
the Securities Exchange Act of 1934, as amended (the "Exchange Act").
6.4 Investor Rights Agreement. Concurrently with the execution of
-------------------------
this Agreement, the parties shall enter into the Investor Rights Agreement
attached hereto as Exhibit A.
7. Miscellaneous.
-------------
7.1 Governing Law. This Agreement shall be governed in all respects
-------------
by the laws of the State of Delaware, without regard to the conflict of law
provisions thereof.
7.2 Survival; Additional Securities. The representations and
-------------------------------
warranties set forth in Sections 2 and 3 shall survive until the Closing.
The covenants and agreements set forth in Section 6 shall survive in
accordance with their terms. Any new, substituted or additional securities
which are by reason of any stock split, stock dividend, recapitalization or
reorganization distributed with respect to the Stock ("Stock
Distributions") shall be immediately subject to the covenants and
agreements set forth in Section 6 to the same extent the Stock is at such
time covered by such provisions.
7.3 Successors and Assigns. Except as otherwise expressly provided
----------------------
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the respective successors and assigns of the parties hereto. Nothing
in this Agreement, express or implied, is intended to confer upon any party
other than the parties hereto or their respective successors and assigns
any rights, remedies, obligations, or liabilities under or by reason of
this Agreement, except as expressly provided in this Agreement.
Notwithstanding anything to the contrary contained herein, the covenants
set forth in Section 6 shall not be binding upon any entity which acquires
any shares of the Stock or a Stock Distribution in a transaction (x) after
the first anniversary of the Closing or (y) prior to the first anniversary
of the Closing to which the Company consents in accordance with Section
6.1(a) (other than an affiliate of the Investor) or (z) otherwise permitted
hereunder.
7.4 Entire Agreement. This Agreement and the Investor Rights
----------------
Agreement constitute the entire understanding and agreement between the
parties with regard to the subject matter hereof.
7.5 Notices. Except as otherwise provided, all notices and other
-------
communications required or permitted hereunder shall be in writing, shall
be effective when given, and shall in any event be deemed to be given upon
receipt or, if earlier, (i) five (5) days after deposit with the U.S.
postal service or other applicable postal service, if delivered by first
class mail, postage prepaid, (ii) upon delivery, if delivered by hand,
(iii) one (1) business day after the day of deposit with Federal Express or
similar overnight courier, freight prepaid, if delivered by overnight
courier or (iv) one (1) business day after the day of facsimile
transmission, if delivered by facsimile transmission with copy by first
class mail, postage prepaid, and shall be addressed, (a) if to the
Investor, at the Investor's address set forth below its signature, or at
such other address as the Investor shall have furnished to the Company in
writing, or (b) if to the Company, at its address as set forth below its
signature, or at such other address as the Company shall have furnished to
the Investor in writing.
7.6 Amendments and Waivers. Any term of this Agreement may be
----------------------
amended and the observance of any term of the Agreement may be waived
(either generally or in a particular instance and either retroactively or
prospectively) only with the written consent of the Company and the
Investor.
-5-
<PAGE>
7.7 Legal Fees. In the event of any action at law, suit in equity or
----------
arbitration proceeding in relation to this Agreement or the Stock or any
Stock Distribution, the prevailing party shall be paid by the other party a
reasonable sum for the attorneys' fees and expenses incurred by such
prevailing party.
7.8 Expenses; No Liability. Irrespective of whether the Closing is
----------------------
effected, the Company and the Investor shall each pay their own costs and
expenses incurred with respect to the negotiation, execution, delivery and
performance of this Agreement. The parties agree that if the Closing does
not occur due to reasons including the failure of the conditions set forth
in Section 4.2 or Section 5.2, this Agreement shall terminate without
liability on the part of any party to the other for any resulting damages,
claims or other liabilities.
7.9 Titles and Subtitles. The titles of the paragraphs and
--------------------
subparagraphs of this Agreement are for convenience of reference only and
are not to be considered in construing this Agreement.
7.10 Counterparts. This Agreement may be executed in counterparts,
------------
each of which shall be an original, but all of which together shall
constitute one instrument.
7.11 Severability. If one or more provisions of this Agreement are
------------
held to be unenforceable under applicable law, such provision shall be
excluded from this Agreement and the balance of the Agreement shall be
interpreted as if such provision were so excluded and shall be enforceable
in accordance with its terms.
7.12 Confidentiality. The parties hereto agree that, except with the
---------------
prior written permission of the other party, each shall at all times keep
confidential and not divulge, furnish, or make accessible to anyone any
confidential information, knowledge, or data concerning or relating to the
business or financial affairs of such other party to which said party has
been or shall become privy by reason of (i) this Agreement, (ii)
discussions or negotiations relating to this Agreement, or (iii) the
performance of obligations hereunder. The parties agree that for the
purposes of this Section 7.12 confidential information shall not include
any information that is in the public domain or is independently developed
or received from an independent source or is required by legal action to be
disclosed.
[Signature Page to Follow]
-6-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year hereinabove first written.
CrossWorlds Software, Inc.
577 Airport Blvd., Suite 800
Burlingame, California 94010
- ---------------------------------------
By:
Title:
Delphi Automotive
(address)
------------------------------
- ---------------------------------------
- ---------------------------------------
By:
Title:
-7-
<PAGE>
EXHIBIT A
INVESTOR RIGHTS AGREEMENT
THIS INVESTOR RIGHTS AGREEMENT (this "Agreement") is made as of the ____
---------
day of ________, 2000, by and among CrossWorlds Software, Inc., a Delaware
corporation (the "Company") Delphi Automotive (the "Investor").
------- --------
RECITALS
--------
WHEREAS, the Company and the Investor are entering into a Stock Purchase
Agreement (the "Purchase Agreement") of even date herewith; and
------------------
WHEREAS, in order to induce the Investor to purchase shares of Common Stock
pursuant to the Purchase Agreement, the Company desires to grant certain
registration rights to the Investor as set forth herein.
NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Registration Rights. The Company covenants and agrees as follows:
-------------------
1.1 Definitions. For purposes of this Section 1:
-----------
(a) The term "Act" means the Securities Act of 1933, as amended.
---
(b) The term "Affiliated Person" shall mean any Person who is an
-----------------
"affiliate" (as defined in Rule 12b-2 of the General Rules and Regulations under
the Securities Exchange Act of 1934, as amended).
(c) The term "Holder" means the Investor or any permitted assignee
------
of the registration rights with respect to the Registrable Securities pursuant
to the terms of Section 1.8.
(d) The term "1934 Act" shall mean the Securities Exchange Act of
--------
1934, as amended.
(e) The term "person" means any individual, firm, corporation,
------
partnership, trust, incorporated or unincorporated association, joint venture,
joint stock company, limited liability company, government (or any agency or
political subdivision thereof) or other entity of any kind, and shall include
any successor (by merger or otherwise) of such entity.
(f) The terms "register", "registered" and "registration" refer
-------- ---------- ------------
to a registration effected by preparing and filing a registration statement or
similar document in compliance with the Act, and the declaration or ordering of
effectiveness of such registration statement or document.
(g) The term "Registrable Securities" means Common Stock issued
----------------------
to the Investor pursuant to the Purchase Agreement, and any Common Stock of the
Company issued as (or issuable upon the conversion or exercise of any warrant,
right or other security which is issued as) a dividend or other distribution
with respect to, or in exchange for or in replacement of, the foregoing,
excluding, however, any shares sold or transferred by a person in a transaction
in which the rights under this Section 1 are not assigned. Registrable
Securities shall also include all securities defined as "Registrable Securities"
under the Fifth Restated Investor Rights Agreement dated October 1, 1999 among
the Company and various investors.
(h) The number of shares of "Registrable Securities then
---------------------------
outstanding" shall be determined by the number of shares of Common Stock
- ------------
outstanding which are, and the number of shares of Common Stock issuable
pursuant to then exercisable or convertible securities which are, Registrable
Securities.
-1-
<PAGE>
(i) The term "SEC" shall mean the Securities and Exchange
---
Commission.
1.2 Piggyback Registration Rights.
-----------------------------
(a) Registration Rights. At any time after January 31, 2001, if
-------------------
the Company proposes to register any of its stock or other securities under the
Act in connection with the public offering of such securities solely for cash
(other than a registration relating solely to the sale of securities to
participants in a Company stock plan, a registration effected pursuant to Rule
145 under the Act, or a registration on any form which does not include
substantially the same information as would be required to be included in a
registration statement covering the sale of the Registrable Securities) the
Company shall, at such time, promptly give each Holder written notice of such
registration. Upon the written request of each Holder given within fifteen (15)
days after mailing of such notice by the Company in accordance with Section 7 of
the Purchase Agreement, the Company shall, subject to the provisions of
paragraph (b) below, cause to be registered under the Act all of the Registrable
Securities that each such Holder has requested to be registered.
(b) Underwriting. If the registration of which the Company gives
------------
notice is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as part of the written notice given pursuant
to Section 1.2(a). In such event, the right of any Holder to registration
pursuant to this Section 1.2 shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of Registrable Securities
in the underwriting to the extent provided herein. All Holders proposing to
distribute their securities through such underwriting shall (together with the
Company and the other holders distributing their securities through such
underwriting) enter into an underwriting agreement in customary form with the
managing underwriter selected for such underwriting by the Company.
Notwithstanding any other provision of this Section 1.2, if the Company and the
managing underwriter determine that marketing factors require a limitation of
the number of shares to be underwritten, the managing underwriter may limit or
exclude entirely the Registrable Securities to be included in such registration.
The Company shall so advise all Holders distributing their securities through
such underwriting, and the number of shares of Registrable Securities and other
securities that may be included in the registration and underwriting on behalf
of persons other than the Company shall be allocated among all Holders and such
other holders in proportion, as nearly as practicable, to the respective amounts
of Registrable Securities and other securities entitled to registration rights
held by such Holders and other holders at the time of filing the registration
statement. To facilitate the allocation of shares in accordance with the above
provisions, the Company may round the number of shares allocated to any Holder
or other holder to the nearest 100 shares.
1.3 Furnish Information. It shall be a condition precedent to the
-------------------
obligations of the Company to take any action pursuant to this Section 1 with
respect to the Registrable Securities of any selling Holder that such Holder
shall furnish to the Company such information regarding itself, the Registrable
Securities held by it, and the intended method of disposition of such securities
as shall be required to effect the registration of such Holder's Registrable
Securities.
1.4 Expenses of Registration. The Company shall bear and pay all
------------------------
expenses incurred in connection with any registration, filing (including keeping
such filings effective) or qualification of Registrable Securities with respect
to the registrations pursuant to this Agreement, including (without limitation)
all registration, filing, and qualification fees, printers and accounting fees
relating or apportionable thereto and the fees and disbursements of counsel for
the Company and no more than one counsel for all the selling Holders, but
excluding underwriting discounts and commissions relating to Registrable
Securities.
1.5 No Delay of Registration. No Holder shall have any right to
------------------------
obtain or seek an injunction restraining or otherwise delaying any such
registration as the result of any controversy that might arise with respect to
the interpretation or implementation of this Section 1.
1.6 Indemnification. In the event any Registrable Securities are
--------------
included in a registration statement under this Section 1:
-2-
<PAGE>
(a) To the extent permitted by law, the Company will indemnify and
hold harmless each Holder, any underwriter (as defined in the Act) for such
Holder and each person, if any, who controls such Holder or underwriter within
the meaning of the Act or the 1934 Act, against any losses, claims, damages, or
liabilities (joint or several) to which they may become subject under the Act,
the 1934 Act or other federal or state law, insofar as such losses, claims,
damages, or liabilities (or actions in respect thereof) arise out of or are
based upon any of the following statements, omissions or violations
(collectively a "Violation"): (i) any untrue statement or alleged untrue
---------
statement of a material fact contained in such registration statement, including
any preliminary prospectus or final prospectus contained therein or any
amendments or supplements thereto, (ii) the omission or alleged omission to
state therein a material fact required to be stated therein, or necessary to
make the statements therein not misleading, or (iii) any violation or alleged
violation by the Company of the Act, the 1934 Act, any state securities law or
any rule or regulation promulgated under the Act, the 1934 Act or any state
securities law; and the Company will pay to each such Holder, underwriter or
controlling person any legal or other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim, damage,
liability, or action, as such expenses are incurred; provided, however, that the
indemnity agreement contained in this subsection 1.6(a) shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability, or action
if such settlement is effected without the consent of the Company (which consent
shall not be unreasonably withheld), nor shall the Company be liable to any
indemnitee for any such loss, claim, damage, liability, or action to the extent
that it arises out of or is based upon a Violation which occurs in reliance upon
and in conformity with written information furnished by such indemnitee.
(b) To the extent permitted by law, each Holder will indemnify and
hold harmless the Company, each of its directors, each of its officers who has
signed the registration statement, each person, if any, who controls the Company
within the meaning of the Act, any underwriter, any other Holder selling
securities in such registration statement and any controlling person of any such
underwriter or other Holder, severally but not jointly, against any losses,
claims, damages, or liabilities (joint or several) to which any of the foregoing
persons may become subject, under the Act, the 1934 Act or other federal or
state law, insofar as such losses, claims, damages, or liabilities (or actions
in respect thereto) arise out of or are based upon any Violation, in each case
to the extent (and only to the extent) that such Violation occurs in reliance
upon and in conformity with written information furnished by such Holder; and
each such Holder will pay any legal or other expenses reasonably incurred by any
person intended to be indemnified pursuant to this subsection 1.6(b), in
connection with investigating or defending any such loss, claim, damage,
liability, or action; provided, however, that the indemnity agreement contained
in this subsection 1.6(b) shall not apply to amounts paid in settlement of any
such loss, claim, damage, liability or action if such settlement is effected
without the consent of the Holder, which consent shall not be unreasonably
withheld; provided that in no event shall any indemnity by any Holder under this
subsection 1.6(b) exceed the gross proceeds from the offering received by such
Holder.
(c) Promptly after receipt by an indemnified party under this
Section 1.6 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 1.6, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with one counsel mutually
satisfactory to the parties; provided, however, that an indemnified party
(together with all other indemnified parties which may be represented without
conflict by one counsel) shall have the right to retain one separate counsel,
with the fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action shall not relieve such indemnifying party of any liability to the
indemnified party under this Section 1.6 unless the failure to deliver notice is
materially prejudicial to its ability to defend such action. Any omission to so
deliver written notice to the indemnifying party will not relieve it of any
liability that it may have to any indemnified party otherwise than under this
Section 1.6.
(d) If the indemnification provided for in this Section 1.6 is
held by a court of competent jurisdiction to be unavailable to an indemnified
party with respect to any loss, liability, claim, damage, or expense referred to
therein, then the indemnifying party, in lieu of indemnifying such indemnified
party hereunder,
-3-
<PAGE>
shall contribute to the amount paid or payable by such indemnified party as a
result of such loss, liability, claim, damage, or expense in such proportion as
is appropriate to reflect the relative fault of the indemnifying party on the
one hand and of the indemnified party on the other in connection with the
statements or omissions that resulted in such loss, liability, claim, damage, or
expense as well as any other relevant equitable considerations; provided that in
no event shall any Holder be required to contribute under this subsection 1.6(d)
an aggregate amount in excess of the gross proceeds from the offering received
by such Holder less any amounts paid by the Holder pursuant to subsection
1.6(b). The relative fault of the indemnifying party and of the indemnified
party shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission to state a
material fact relates to information supplied by the indemnifying party or by
the indemnified party and the parties' relative intent, knowledge, access to
information, and opportunity to correct or prevent such statement or omission.
(e) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the underwriting
agreement entered into in connection with the underwritten public offering are
in conflict with the foregoing provisions, the provisions in the underwriting
agreement shall control.
(f) The obligations of the Company and Holders under this Section
1.6 shall survive the completion of any offering of Registrable Securities in a
registration statement under this Section 1, and otherwise.
1.7 Reports under Securities Exchange Act of 1934. With a view to
---------------------------------------------
making available to the Holders the benefits of Rule 144 promulgated under the
Act and any other rule or regulation of the SEC that may at any time permit a
Holder to sell securities of the Company to the public without registration, the
Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in SEC Rule 144, at all times after ninety (90) days
after the effective date of the first registration statement filed by the
Company for the offering of its securities to the general public;
(b) file with the SEC in a timely manner all reports and other
documents required of the Company under the Act and the 1934 Act; and
(c) furnish to any Holder, so long as the Holder owns any
Registrable Securities, forthwith upon request (i) a written statement by the
Company that it has complied with the reporting requirements of SEC Rule 144 (at
any time after ninety (90) days after the effective date of the first
registration statement filed by the Company), the Act and the 1934 Act (at any
time after it has become subject to such reporting requirements), (ii) a copy of
the most recent annual or quarterly report of the Company and such other reports
and documents so filed by the Company, and (iii) such other information as may
be reasonably requested in availing any Holder of any rule or regulation of the
SEC which permits the selling of any such securities without registration.
1.8 Assignment of Registration Rights. The rights to cause the
---------------------------------
Company to register Registrable Securities pursuant to this Section 1 may be
assigned (but only with all related obligations) by a Holder to a transferee or
assignee of such securities who, after such assignment or transfer, holds at
least one hundred thousand (100,000) shares of Registrable Securities (subject
to appropriate adjustment for stock splits, dividends, combinations and other
recapitalizations), provided: (a) the Company is, within a reasonable time
before such transfer, furnished with written notice of the name and address of
such transferee or assignee and the securities with respect to which such
registration rights are being assigned; (b) such transferee or assignee agrees
in writing to be bound by and subject to the terms and conditions of this
Agreement, including without limitation the provisions of Section 1.9 below; and
(c) such assignment shall be effective only if immediately following such
transfer the further disposition of such securities by the transferee or
assignee is restricted under the Act. For the purposes of determining the
number of shares of Registrable Securities held by a transferee or assignee of a
holder of Registrable Securities, Affiliated Persons shall be aggregated
together, provided that all assignees and transferees who would not qualify
individually for assignment of registration rights shall designate in writing to
the Company from time to time
-4-
<PAGE>
a single attorney-in-fact on behalf of the entire group of Affiliated Persons
for the purpose of exercising any rights, receiving notices or taking any action
under this Section 1.
1.9 "Market Stand-Off" Agreement. The Investor shall be bound by
----------------------------
the transfer restrictions and market standoff provisions set forth in the
Purchase Agreement to the extent, but only to the extent, set forth in the
Purchase Agreement. In addition:
(a) Each Holder other than the Investor hereby agrees that, during
the period of duration specified by the Company and an underwriter of common
stock or other securities of the Company, following the effective date of a
registration statement of the Company filed under the Act, it shall not, to the
extent requested by the Company and such underwriter, directly or indirectly
sell, offer to sell, contract to sell (including, without limitation, any short
sale), grant any option to purchase or otherwise transfer or dispose of (other
than to donees who agree to be similarly bound) any securities of the Company
held by it as of the effective date except common stock included in such
registration; provided, however, that:
(i) all officers and directors of the Company enter into
similar agreements; and
(ii) such market stand-off time period shall not exceed one
hundred eighty (180) days without the consent of the affected Holder; and
(b) Each Holder other than the Investor agrees to provide to the
other Underwriters of any public offering such further agreement as such
Underwriter may require in connection with this market stand-off agreement. In
order to enforce the foregoing covenant, the Company may impose stop-transfer
instructions with respect to the Registrable Securities of each Holder (and the
shares or securities of every other person subject to the foregoing restriction)
until the end of such period.
1.10 Termination of Registration Rights. The right of any Holder
----------------------------------
to inclusion in any registration pursuant to Section 1.2 shall terminate upon
such date as, in the opinion of counsel to the Company, a public trading market
shall exist for the Company's Common Stock and all shares of Registrable
Securities beneficially owned or subject to Rule 144 aggregation by such Holder
may immediately be sold under Rule 144 (without regard to Rule 144(k)) during
any 90-day period and such Holder holds less than one percent (1%) of the
outstanding capital stock of the Company.
2. Securities Law Compliance.
-------------------------
2.1 Restrictions on Transferability. The Registrable Securities and
-------------------------------
any other securities issued with respect of the Registrable Securities upon any
stock split, stock dividend, recapitalization, merger, consolidation, or similar
event, shall not be sold, assigned, transferred or pledged except upon the
conditions specified in the Purchase Agreement and this Agreement, which
conditions are intended to ensure compliance with the provisions of the Act, or
otherwise in compliance with the Act. In any sale, transfer, assignment or
pledge of any such shares prior to the first anniversary of the Closing (as
defined in the Purchase Agreement) other than in a public offering, the Investor
will cause any proposed purchaser, assignee, transferee, or pledgee of such
shares held by the Investor to agree to take and hold such securities subject to
the provisions and upon the conditions specified in the Purchase Agreement and
this Agreement, unless otherwise consented to by the Company.
2.2 Further Limitations on Disposition. Without in any way
----------------------------------
limiting the above, the Investor further agrees not to make any disposition of
all or any portion of the Registrable Securities unless and until the transferee
has agreed in writing for the benefit of the Company to be bound by Sections 1.9
of this Agreement and (to the extent required by applicable securities law, in
the opinion of counsel to the Company) has agreed to be bound by these Sections
2.1 and 2.2; provided, however, that the foregoing shall not apply if:
(a) There is then in effect a Registration Statement under the Act
covering such proposed disposition and such disposition is made in accordance
with such Registration Statement; or
-5-
<PAGE>
(b) (i) The Investor shall have notified the Company of the
proposed disposition and shall have furnished the Company with a detailed
statement of the circumstances surrounding the proposed disposition, and (ii)
until such time as the proposed disposition may be made under Rule 144(k) under
the 1934 Act, if reasonably requested by the Company, the Investor shall have
furnished the Company with an opinion of counsel, reasonably satisfactory to the
Company, that such disposition will not require registration of such shares
under the Act; or
(c) The proposed disposition is made under Rule 144(k).
2.3 Notwithstanding anything to the contrary contained herein, the
shares of stock acquired by the Investor from the Company pursuant to the
Purchase Agreement (and any other securities issued with respect to such
securities upon any stock split, stock dividend, recapitalization, merger,
consolidation or similar event) may be sold, assigned, transferred or pledged by
Investor to any person and such person shall not be required to take and hold
such securities subject to the Purchase Agreement, this Agreement or any of the
provisions hereof or thereof, so long as the transaction is at least one year
after the Closing (as defined in the Purchase Agreement), complies with
applicable federal and state securities laws, and Investor is not transferring
to such person the registration rights set forth in Section 1 hereof.
3. Miscellaneous. Section 7 of the Purchase Agreement is hereby
-------------
incorporated by reference as though restated in full herein and applied to this
Agreement.
-6-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Investor Rights
Agreement as of the date first above written.
CROSSWORLDS SOFTWARE, INC.
By:
----------------------------------------
Name:
Title:
Address: 577 Airport Boulevard, Suite 800
Burlingame, CA 94010
INVESTOR:
DELPHI AUTOMOTIVE
By:
----------------------------------------
Name:
Title:
Address:
----------------------------------
----------------------------------
----------------------------------
-7-
<PAGE>
EXHIBIT 10.27
________ __, 2000
To: Electronic Data Systems Corporation
5400 Legacy Drive
MS H3-3D-05
Plano, Texas 75024
Gentlemen:
This letter confirms certain disclosures by CrossWorlds Software, Inc. (the
"Company") to you under Section 2 of the Stock Purchase Agreement dated as of
the above date. In particular, the Company's representations in Section 2 are
true and correct as of today's date, except as follows:
2.5. Comdisco and Silicon Valley Bank have liens on the Company's assets.
Additionally, the Company agrees with you that, except for the maximum
number of shares being purchased under the Stock Purchase Agreement and except
as otherwise provided further below, the material terms of the Stock Purchase
Agreement and Investor Rights Agreement attached thereto will be no less
favorable to you than the terms applicable under agreements with other investors
(including investors that may enter into such agreements after the date hereof,
if any) that are purchasing shares of the Company's capital stock in private
placements that are intended to close concurrently with the closing of the IPO.
The Company will not enter into any amendment or supplement to the terms of any
of such other agreements without first providing the Investor with reasonable
notice thereof and the opportunity, if Investor so elects, to so amend or
supplement the Stock Purchase Agreement and Investor Rights Agreement attached
thereto.
In addition to the foregoing, however, you acknowledge that if the SEC
takes the position that one or more of the Company's stock purchase agreements
with investors (including you) cannot be closed as a private placement of
securities concurrently with the closing of the IPO, the Company may terminate
any or all of such agreements as the Company sees fit in the Company's sole
discretion, without regard to the provisions of the above paragraph or any other
factor. Any such termination will be without liability on the part of any party
to the other, consistent with the provisions of Section 7.8 of the Stock
Purchase Agreement.
If the foregoing correctly states your understanding, please so indicate by
signing where indicated below.
CrossWorlds Software, Inc.
By:
--------------------------------------
Alfred J. Amoroso, President and Chief
Executive Officer
Electronic Data Systems Corporation
5400 Legacy Drive
MS H3-3D-05
Plano, Texas 75024
- -----------------------------------
By:
Title:
<PAGE>
______ __, 2000
To: The Dow Chemical Company
Gentlemen:
This letter confirms certain disclosures by CrossWorlds Software, Inc. (the
"Company") to you under Section 2 of the Stock Purchase Agreement dated as of
the above date. In particular, the Company's representations in Section 2 are
true and correct as of today's date, except as follows:
2.5. Comdisco and Silicon Valley Bank have liens on the Company's assets.
Additionally, the Company agrees with you that, except for the maximum
number of shares being purchased under the Stock Purchase Agreement and except
as otherwise provided further below, the material terms of the Stock Purchase
Agreement and Investor Rights Agreement attached thereto will be no less
favorable to you than the terms applicable under agreements with other investors
(including investors that may enter into such agreements after the date hereof,
if any) that are purchasing shares of the Company's capital stock in private
placements that are intended to close concurrently with the closing of the IPO.
The Company will not enter into any amendment or supplement to the terms of any
of such other agreements without first providing the Investor with reasonable
notice thereof and the opportunity, if Investor so elects, to so amend or
supplement the Stock Purchase Agreement and Investor Rights Agreement attached
thereto.
In addition to the foregoing, however, you acknowledge that if the SEC
takes the position that one or more of the Company's stock purchase agreements
with investors (including you) cannot be closed as a private placement of
securities concurrently with the closing of the IPO, the Company may terminate
any or all of such agreements as the Company sees fit in the Company's sole
discretion, without regard to the provisions of the above paragraph or any other
factor. Any such termination will be without liability on the part of any party
to the other, consistent with the provisions of Section 7.8 of the Stock
Purchase Agreement.
If the foregoing correctly states your understanding, please so indicate by
signing where indicated below.
CrossWorlds Software, Inc.
By:
-------------------------------------
Alfred J. Amoroso, President and Chief
Executive Officer
The Dow Chemical Company
By:
-----------------------------
Title:
---------------------------
<PAGE>
EXHIBIT 10.29
______ __, 2000
To: Delphi Automotive
Gentlemen:
This letter confirms certain disclosures by CrossWorlds Software, Inc. (the
"Company") to you under Section 2 of the Stock Purchase Agreement dated as of
the above date. In particular, the Company's representations in Section 2 are
true and correct as of today's date, except as follows:
2.5. Comdisco and Silicon Valley Bank have liens on the Company's assets.
Additionally, the Company agrees with you that, except for the maximum
number of shares being purchased under the Stock Purchase Agreement and except
as otherwise provided further below, the material terms of the Stock Purchase
Agreement and Investor Rights Agreement attached thereto will be no less
favorable to you than the terms applicable under agreements with other investors
(including investors that may enter into such agreements after the date hereof,
if any) that are purchasing shares of the Company's capital stock in private
placements that are intended to close concurrently with the closing of the IPO.
The Company will not enter into any amendment or supplement to the terms of any
of such other agreements without first providing the Investor with reasonable
notice thereof and the opportunity, if Investor so elects, to so amend or
supplement the Stock Purchase Agreement and Investor Rights Agreement attached
thereto.
In addition to the foregoing, however, you acknowledge that if the SEC
takes the position that one or more of the Company's stock purchase agreements
with investors (including you) cannot be closed as a private placement of
securities concurrently with the closing of the IPO, the Company may terminate
any or all of such agreements as the Company sees fit in the Company's sole
discretion, without regard to the provisions of the above paragraph or any other
factor. Any such termination will be without liability on the part of any party
to the other, consistent with the provisions of Section 7.8 of the Stock
Purchase Agreement.
If the foregoing correctly states your understanding, please so indicate by
signing where indicated below.
CrossWorlds Software, Inc.
By:
-------------------------------------
Alfred J. Amoroso, President and Chief
Executive Officer
Delphi Automotive
By:
-----------------------------
Title:
---------------------------
<PAGE>
Exhibit 21.1
List of Subsidiaries
--------------------
NAME Jurisdiction of Incorporation
__________________________ _____________________________
CrossWorlds Software GmbH Germany
CrossWorlds Software France S.A.R.L. France
CrossWorlds Software Australia Pty. Limited Australia
CrossWorlds Software Limited United Kingdom
CrossWorlds Software (Ireland) Limited Ireland
<PAGE>
INDEPENDENT AUDITORS' REPORT
ON SCHEDULE AND CONSENT
The Board of Directors
Crossworlds Software, Inc. and Subsidiaries
The audits referred to in our report dated January 24, 2000, included the
related financial statement schedule as of December 31, 1999, and for each of
the years in the three-year period ended December 31, 1999 included in the
registration statement. This financial statement schedule is the responsibility
of the Company's management. Our responsibility is to express an opinion on
this financial statement schedule based on our audits. In our opinion, such
financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
We consent to the use of our reports included herein and to the reference to
our firm under the headings "Selected Consolidated Financial Data" and
"Experts" in the prospectus.
/s/ KPMG LLP
Mountain View, California
April 7, 2000
