<PAGE>
As filed with the Securities and Exchange Commission on March 17, 2000
Registration No. 333-96055
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
----------------
AMENDMENT NO. 2
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 Maximum
Title Of Each Class Of Aggregate Amount Of
Securities To Be Registered Offering Price(1) Registration Fee (2)
- ------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, par value $0.001...... $73,600,000 $19,431
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</TABLE>
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(1) Estimated solely for the purpose of computing the amount of the
registration fee pursuant to Rule 457(o) under the Securities Act.
(2) $13,200 of this fee was previously paid with original filing on February
3, 2000.
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 MARCH 17, 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 additional shares of common stock.
The underwriters are separately underwriting the shares being offered. The
underwriters expect to deliver the shares in exchange for cash in New York, New
York on , 2000.
-----------
Investing in our common stock involves a high degree of risk.
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
a division of Dain Rauscher Incorporated
Thomas Weisel Partners LLC
Prospectus dated , 2000
<PAGE>
[DESCRIPTION OF COLOR ARTWORK]
The inside front cover contains artwork depicting CrossWorlds' e-Business
Infrastructure Software. Our eBusiness Infrastructure is represented by seven
squares inside a circle, the CrossWorlds circle. 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, between sets of customers and suppliers, are the words
CrossWorlds eBusiness Infrastructure. A thin line connects the phrase to the
top of the CrossWorlds circle.
Below the circle, between sets of customers and suppliers, is text. The text
has the phrase CrossWorlds Solution Elements on top with the following five
elements bulleted underneath: Real-time Process Automation, Packaged
Application Integration, Custom/Legacy Integration, Scalable Integration
Architucture, and e-Business Standard Support (XML, EDI, Security).
Outside of the circle are four graphics, two depicting suppliers and two
depicting customers, each graphic has a set of pipes and an internet cloud. The
suppliers are across the circle from each other, as are the customers. Three
suppliers are on each side identified with the word Suppliers. Each supplier is
depicted as a box. Each supplier is connected to the CrossWorlds circle via a
pipe which goes through a cloud representing the internet. The internet cloud
has the word Internet in the middle of the cloud.
Three customers are on each side of the circle identified with the word
Customers. Each customer is represented by a cylinder. Each customer is
connected to the CrossWorlds circle via a pipe which goes through a cloud
representing the internet. The internet cloud has the word Internet in the
middle of the cloud.
Around the bottom half of the circle is a dotted line identified as the
Firewall. The firewall intersects the pipes of the suppliers and customers
between the CrossWorlds circle and the internet 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.................................................... 15
Use of Proceeds.......................................................... 15
Dividend Policy.......................................................... 15
Capitalization........................................................... 16
Dilution................................................................. 18
Selected Consolidated Financial Data..................................... 20
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 22
Business................................................................. 32
Management............................................................... 51
Certain Relationships and Related Transactions........................... 62
Principal Stockholders................................................... 66
Description of Capital Stock............................................. 68
Shares Eligible for Future Sale.......................................... 70
Underwriting............................................................. 72
Legal Matters............................................................ 75
Experts.................................................................. 75
Additional Information Available to You.................................. 75
Index to Consolidated Financial Statements............................... F-1
</TABLE>
----------------
TRADEMARK NOTICE
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.
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 is not complete and does not contain all the information you
should consider before buying shares in the offering. You should read the
entire prospectus carefully. Unless otherwise indicated, this prospectus
assumes that the underwriters have not exercised their option to purchase
additional shares and all shares of preferred stock have been automatically
converted into shares of common stock.
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 are a leading provider of e-business infrastructure software that enables
the integration and automation of business processes within enterprises and
among trading partners using the Internet. Our products help traditional and
emerging businesses utilize the Internet as a platform to 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 business process support, architectural flexibility and the
ability to support e-business strategies.
Our Products
Our products are based on scalable architecture that meets the requirements
of global organizations and trading networks with large volumes of business
transactions. We offer a set of tools that our customers can use to customize
and extend their integration solution to fulfill their unique e-business
requirements. We also provide pre-built connectivity solutions to leading e-
business and enterprise applications, as well as common technology
environments, and have developed pre-built components for automating many of
the common business processes within the enterprise and among trading partners.
Our Strategy
Our strategy focuses on expanding our support for e-business applications and
technologies, building connectivity for additional enterprise applications and
expanding our set of pre-built business process integration modules. Our sales
strategy is to focus on selling our products to traditional and emerging
companies in selected industries, including technology, industrial
manufacturing, process manufacturing and telecommunications. To support these
strategic efforts, we intend to expand our strategic partnerships with IBM, SAP
AG and global systems integrators through technology sharing and cooperative
marketing and sales efforts. In addition, we expect our systems integrator
partners to provide an increasing portion of the implementation services
associated with our products.
Our Customers
Since late 1997, when we shipped our first product, we have licensed our
products to 45 customers in these markets, including Applied Materials, Inc.,
Delphi Automotive Systems, E.I. DuPont de Nemours and Company, Ingersoll-Rand
Company, Nortel Networks Corporation, Siemens AG, Solar Turbines, Inc., a
wholly owned subsidiary of Caterpillar Inc., and U S WEST.
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 to be outstanding
after this offering.......... 23,696,563 shares
Use of proceeds............... Working capital and general corporate purposes.
Proposed Nasdaq National
Market symbol................ CWLD
</TABLE>
The following information is based on 19,696,563 pro forma shares outstanding
on December 31, 1999 reflecting the conversion of all outstanding shares of
convertible preferred stock into 16,542,628 shares of common stock. This number
excludes:
. 6,793,436 shares of common stock issuable upon exercise of stock options
outstanding on December 31, 1999 at a weighted average exercise price of
$5.78 per share;
. 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 be as follows:
. 1997 stock plan: 3,000,000 shares.
. 2000 employee stock purchase plan: 750,000 shares.
. 2000 directors' stock option plan: 300,000 shares.
The 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 respective 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 $67,106
Working capital (deficit)............................... (1,052) 53,548
Total assets............................................ 29,177 83,777
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) 53,874
</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 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. If any of the following risks actually
occur, our business, financial condition or operating results could be
materially harmed. This could cause the trading price of our common stock to
decline, and you may lose all or part of your investment.
Due to our limited operating history, it is difficult to predict future
operating results or our stock price.
We were incorporated in March 1996 and shipped our first products in November
1997. Because our operating history is limited, the value of an investment in
us, our future operating results and our future stock price are difficult to
predict. In addition, because of our limited operating history, we have limited
insight into trends that may emerge and affect our business. In the months
ahead, we will encounter many challenges and difficulties frequently
encountered by companies in new and rapidly evolving markets. To succeed in our
market we will need to:
. expand our customer base;
. compete effectively with internal information technology departments of
potential customers, systems integrators that develop customized
solutions and other software vendors that offer business integration
solutions; and
. manage expanding operations--specifically our ability to install
management information and control systems in an efficient and timely
manner.
We may not be successful in addressing all or any of these challenges. Our
failure to meet these challenges would negatively affect our business and
operating results and the value of your investment.
We have a history of losses, expect expenditures on research and development
and other activities to cause us to incur future losses, and we may never
achieve profitability.
We have experienced operating losses in each quarterly and annual period
since March 1996. We may never achieve profitability. Despite our history of
losses, we believe that it is vital to our future success that we increase our
research and development and sales and marketing expenses. As a result of these
additional expenses, we will need to increase our revenue to achieve and
maintain profitability. We incurred net losses of $15.5 million from March 1996
through December 31, 1997 against revenue of $1.1 million, $41.4 million for
the year ended December 31, 1998 against revenue of $7.7 million and $38.2
million for the year ended December 31, 1999 against revenue of $19.1 million.
As of December 31, 1999, we had an accumulated deficit of approximately
$95.1 million. We may not be able to sustain these growth rates in the future.
As a result, we expect to incur significant losses in the future.
Our revenue is subject to significant fluctuations and is unpredictable. If we
experience future revenue shortfalls, the value of your investment could
decline.
Our quarterly operating results have varied significantly in the past and
will likely vary significantly in the future due to a number of factors
inherent to our business. If we experience future revenue shortfalls, our stock
value could be adversely affected. We believe that period-to-period comparisons
of our operating results are not meaningful and should not be relied on as
indicators of our future performance. Factors which create variability include:
. the small number, large size and diverse scope of the integration
projects in which we are engaged;
. the delay or deferral of product implementation schedules by us or by our
customers; and
. the length of the sales cycle and the implementation schedule for a
product or service.
7
<PAGE>
Because we experience significant variability in our quarterly revenue due to
the nature of our sales cycles, we may not fulfill the expectations of
financial analysts which could negatively affect our stock price.
Our sales cycle causes variability in our revenue which could adversely
affect the value of your investment. Our sales cycle is long for the following
reasons:
. our e-business infrastructure solutions are expensive, with a median
selling price of approximately $530,000, comprised of licensing fees and
service fees.
. our solutions are complex.
. to successfully sell our products, we generally must spend a significant
amount of time educating our potential customers about uses and benefits
of our products.
. some of our prospective customers evaluate our products on a trial basis
before entering a sales contract.
Consequently, our sales cycle varies typically from two to nine months. 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 that order to be shifted from the expected
quarter to a subsequent quarter or quarters.
Because we experience significant variability in our quarterly revenue due to
the nature of our implementation cycles, we may not fulfill the expectations of
financial analysts which could negatively affect our stock price.
Because we generally recognize revenue from orders on a percentage-of-
completion basis as the customer reaches milestones in the implementation of
the business integration solutions purchased, the timing of our revenue depends
on continued progress in our customers' implementation cycles.
Because of the complexity of our products and because of each customer's
particular integration requirements and the variety of enterprise applications
being integrated, our product implementation schedules can take three to nine
months or more and span multiple quarterly periods. If we fail to achieve
continued progress on anticipated implementation schedules or our customers
delay, suspend or terminate their implementation efforts, expected licensing
fee revenue from our sales contracts subject to percentage-of-completion
accounting and service fee revenue from all of our sales contracts may not be
recognized until subsequent quarters, if at all.
Because a substantial majority of our revenue has been derived from sales of
our software products and related services to a small number of selected
industries, our operations could be hurt by decline in demand for our software
in these industries.
A large majority of our revenue to date has been derived from sales of our
software and related services to customers in the telecommunications industry
and the manufacturing industry. Any significant decline in the demand for, and
market acceptance of, our software could hurt our results of operations. Of our
customer base, comprised as of December 31, 1999 of 45 customers, 23 customers
are in the manufacturing industry and 14 customers are in the
telecommunications industry. Sales of products to the manufacturing and
telecommunications industries accounted for approximately 72% of our revenue in
1997, approximately 96% of our revenue in 1998 and approximately 90% of our
revenue in 1999. We expect that sales of our software and related services to
these industries will account for a majority of our revenue over the next
twelve months.
Our revenue is derived from a small number of customers and could suffer if we
lose a major customer.
We have generated a substantial portion of our annual and quarterly revenue
from a limited number of customers and we expect that a small number of
customers will continue to account for a substantial portion
8
<PAGE>
of our revenue. As of December 31, 1999, our customer base was comprised of
45 customers, many of whom we believe will continue to provide a substantial
portion of our revenue through additional license, implementation services and
maintenance fees. In 1999, one customer accounted for more than 21% of our
revenue and six customers collectively accounted for more than 50% of our
revenue. To date we have not lost a significant customer. However, the loss of
even one customer could have a material adverse effect on our revenue,
particularly if the lost customer accounts for a significant portion of our
revenue.
If we are unable to increase software license revenue as a portion of our
overall revenue, our gross margins and profitability could fail to improve.
We intend to further develop our relationships with systems integrators with
the goal of having them perform a majority of the consulting services
associated with our products. If we are unable to further develop these
relationships, it will be significantly more difficult to migrate to a business
model that is more heavily weighted towards software license revenue, thus
limiting our ability to increase gross margins and profitability over time.
Our revenue will likely decline 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. In many cases, these parties have extensive
relationships with our existing and potential customers and influence the
decisions of these customers. We rely upon these firms to recommend our
products during the evaluation stage of the purchasing process, to refer
prospective customers and to provide access to their executive-level decision
makers. In addition, if these systems integrators are not appropriately trained
to implement our products, this could significantly harm our reputation with
existing and prospective customers. Our failure to establish or maintain these
relationships would significantly harm our ability to license and successfully
implement our e-business infrastructure software products.
If we are unable to keep up with the significant competition in the market for
business integration solutions, we could lose market share and our ability to
maintain current pricing levels which could adversely affect our strategy.
The market for our products is intensely competitive, and is expected to
become increasingly competitive as current competitors enhance and expand their
product offerings and new competitors enter the market. Our current competitors
include a number of companies offering one or more solutions to the application
integration problem, some of which are directly competitive with our products.
To date, we have faced competition from the following sources:
. internal information technology departments of potential customers;
. systems integrators and other information technology service providers;
and
. software vendors targeting one or more segments of the business
integration software market.
It is possible that new competitors or alliances among competitors may emerge
and rapidly acquire significant market share. Competition could result in price
reductions, reduced gross margins and loss of market share, any one of which
could significantly reduce our future revenues.
We depend on licensed technology. If we lose our right to use licensed
technology, our revenue could be adversely affected.
We incorporate into our products software licensed to us by third parties,
which provide important messaging and other functionality. Our products
incorporate software developed and maintained by third parties. We depend on
these third parties to deliver and support reliable products, enhance their
current products, develop new products on a timely and cost-effective basis and
respond to emerging
9
<PAGE>
industry standards and other technological changes. Any interruption in the
supply of our licensed software or changes in the pricing or other terms of
these licenses could harm our business by disrupting our operations, delaying
our sales and hindering our ability to support our existing customers, unless
and until we can replace the functionality provided by this licensed software.
If we fail to keep up with rapid technological change, we could lose market
share or our products could become obsolete which could harm our revenue.
The market for our products is characterized by rapid technological change,
frequent new product introductions and enhancements, uncertain product life
cycles, changing customer requirements and evolving industry standards,
including Internet standards. The introduction of products embodying new
technologies and the emergence of new industry standards could quickly make our
existing products obsolete and unmarketable. Our future success will depend
upon our ability to continue to develop and introduce a variety of new products
and product enhancements to address the increasingly sophisticated needs of our
customers.
If our products do not work with multiple hardware and software platforms, our
customers will not buy our products and we will not be successful.
We currently serve a customer base with a wide variety of constantly changing
hardware and networking platforms. If we are not able to provide and support
our products on multiple hardware and software platforms, our customers will
not buy our products and our business would be hurt. In the past, 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 enterprise
application vendors, we would be unable to create and maintain our connectivity
products and our operations would be harmed.
We have strategic relationships with a number of enterprise application
vendors. These vendors provide access to their software and documentation which
enables us to develop our connectivity products to be compatible with their
packaged enterprise applications. If our strategic relationships with these
vendors are terminated or restricted, or we are unsuccessful in establishing
strategic relationships with other vendors, our ability to develop connectivity
products to integrate new and existing versions of these vendors' packaged
enterprise applications would be adversely affected.
The loss of, or inability to attract, key personnel, including senior
management 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. If we do not succeed in
attracting new personnel, or retaining and motivating existing personnel, our
business will be adversely affected. The services and expertise of our senior
management team would be difficult to replace. The intense competition for
qualified personnel in our industry and geographic region could hinder our
ability to replace any of these members of our senior management team if we
were to lose their services in the future.
10
<PAGE>
We primarily sell our products through our direct sales force. If we fail to
expand our direct sales, consulting and customer support organizations, our
business may be unable to grow and revenues could suffer.
To date, we have sold our products primarily through our direct sales force
and have supported our customers through our consulting and customer support
staff. We believe that the retention of qualified direct sales personnel in our
business is particularly difficult because the market for business integration
solutions is still emerging, market acceptance of our products has not yet been
achieved, and the sales cycles associated with our products are lengthy. Our
direct sales, consulting and customer support organizations are vital to our
success. If we fail to sufficiently expand our direct sales force or our
consulting and customer support staffs, we may not be able to increase revenue
or achieve increased market acceptance of our products.
We require technical personnel to develop and maintain our products. If we fail
to attract and retain skilled technical personnel, our product development
could be harmed.
Our failure to attract and retain the highly-trained technical personnel
that are integral to our product development and customer support teams may
limit the rate at which we can generate sales and develop new products or
product enhancements. This could harm our business, financial condition and
operating results. Qualified technical personnel are in great demand throughout
the software industry. The demand for qualified technical personnel is
particularly acute in the San Francisco Bay Area where our corporate
headquarters are located. Our success depends in large part upon our continued
ability to attract and retain highly skilled technical employees, particularly
software architects and engineers.
Our products may suffer from undetected errors and defects. We could face
litigation if one of these errors or defects causes our products to
malfunction, which might require considerable effort and expense to defend and
result in significant liability.
Our software products are complex and may contain undetected errors or
defects, especially when first introduced or when new versions are released.
Any errors or defects that are discovered after commercial release could result
in loss of revenue or delay in market acceptance, diversion of development
resources, damage to our customer relationships or reputation, increased
service and warranty cost or costly litigation defense. We have previously
discovered software errors in products that we have developed and sold. These
errors, when discovered by our customers, have impaired our customer
relationships to varying degrees. Any defects and errors found in our products
could cause customers to seek damages for loss of data, lost revenue, systems
costs or other adverse consequences they may suffer. A successful product
liability claim brought against us could adversely affect our business.
The cost and difficulties of implementing our products could significantly harm
our reputation with customers, which may diminish our ability to license
additional products to our customers.
Our products are often implemented as part of complex, time consuming and
expensive projects. From time to time our customers experience delays and
difficulties in implementing our products. These delays and difficulties, when
suffered over a prolonged period, have impaired our customer relationships to
varying degrees. Failure by customers to successfully deploy our products, or
the failure by us or third party consultants to ensure customer satisfaction,
could damage our reputation with existing and future customers and reduce
future revenue. In many cases, our customers must interact with, modify or
replace significant elements of their existing computer systems, further
complicating the implementation process. If our customers are dissatisfied with
any part of the implementation process, for any reason, our ability to license
further products to these customers would diminish.
Because our products could interfere with the operations of our customers'
other software and hardware applications, we may be subject to potential
product liability and warranty claims by these customers, which may be costly
and may not be adequately covered by insurance.
Our e-business infrastructure products are integrated with our customers'
networks and software applications. The sale and support of our products may
entail the risk of product liability or warranty claims
11
<PAGE>
based on damage to, or interference with, these networks or applications. Any
of these claims, even if not meritorious, could result in costly litigation or
divert management's attention and resources. Our current insurance coverage
would likely be insufficient to protect us from all liability that may be
imposed under these types of claims.
Our recent growth has strained our existing personnel and other resources. Any
failure to manage this growth may hurt the value of your investment.
Our recent growth has strained, and we expect that any future growth will
continue to strain, our management systems and resources, which could harm our
business. In particular, we may not be able to install management information
and control systems in an efficient and timely manner, and our current or
planned personnel, systems, procedures and controls may not be adequate to
support our future operations. We have grown from 111 employees as of December
31, 1997 to 202 employees as of December 31, 1999. As of December 31, 1999, we
have also opened 14 sales offices and established subsidiaries in Australia,
France, Germany, Ireland and the United Kingdom. Additionally, several of our
executive officers, including our president and chief executive officer, senior
vice president global services and senior vice president worldwide sales,
joined us within the last 6 months. To effectively manage our growth, we will
be required to integrate, train, motivate and manage our work force, continue
to improve our operational, financial and management controls, reporting
systems and procedures, as well as maintain close coordination among our
executive, engineering, accounting, finance, marketing, sales and operations
organizations. In addition, if our currently planned expenditures related to
the expansion of our operations are not accompanied or shortly followed by
significantly increased revenue, our losses would be even greater than expected
until we were able to delay or reduce these expenditures. For example, during
1998 we increased our operating expenses significantly, particularly sales and
marketing expenses, based on our expectations of revenue growth that did not
materialize as quickly as anticipated. These increased expense levels
materially adversely affected our operating results for that period. If we fail
in managing growth in any of these areas, our business would be adversely
affected.
Our international operations are expensive and uncertain. If we do not perform
as projected, our operating results could be negatively affected.
As part of our strategy to address the global needs of our customers and
partners, we have committed significant resources to the opening of
international offices and the expansion of international sales and support
channels in advance of revenue. Revenues from international sales represented
20% of total 1997 revenue, 23% of total 1998 revenue and 19% of total 1999
revenue. We have only limited experience in marketing, selling and distributing
our products and services internationally. If our international expansion
strategy does not generate sufficient revenue to offset our expenditures to
establish and maintain our international operations, our business could be
adversely affected. In December 1998, we implemented strategic decisions to
cease our Asian and Australian operations because our capital expenditures in
those markets were not producing sufficient returns. We cannot assure you that
this will not happen to other of our international operations. We cannot be
sure that we will be able to successfully localize, market, sell and deliver
our products in foreign markets, and our failure to do so could adversely
affect the value of your investment.
In addition, as we expand our international operations, we may allow payment
in foreign currencies and exposure to losses in foreign currency transactions
may increase. We may choose to limit exposure to these losses through the
purchase of forward foreign exchange contracts or other hedging strategies, but
currency hedging strategies may not succeed in helping us avoid exchange
related losses.
Any failure to protect our intellectual property rights could harm our
business.
We rely primarily on a combination of patents, copyrights, trademarks, trade
secret laws and contractual obligations with employees and third parties to
protect the proprietary aspects of our technology. The legal
12
<PAGE>
protection affords only limited protection. Unauthorized parties may copy
aspects of our products and obtain and use information that we regard as
proprietary. In addition, other parties may breach confidentiality agreements
or other protective contracts. Furthermore, the laws of many foreign countries
do not protect our intellectual property rights to the same extent as the laws
of the United States. Litigation may be necessary to enforce our intellectual
property rights and to protect our trade secrets. Intellectual property
litigation has an inherently uncertain outcome and could result in substantial
costs and diversion of management's attention and resources.
We may be sued by third parties for infringement of their proprietary rights.
We may be subject to legal proceedings and claims for alleged infringement of
third party proprietary rights, such as patents, trademarks or copyrights,
particularly as the number of products and competitors in our industry grow and
functionalities of products overlap. Any litigation could result in substantial
costs and diversion of management's attention and resources. Further, parties
making infringement claims against us may be able to obtain injunctive or other
equitable relief, which could prevent us from selling our products or require
us to enter into royalty or license agreements which are not advantageous to
us. This risk is higher in a market in which a larger number of patent
applications have been filed but are not yet publicly disclosed, and as a
result we are less able to determine which patents our products may infringe
and take measures to avoid infringement.
The market price of technology stocks has been volatile and our common stock
price may be volatile.
The market price of our common stock is likely to be highly volatile. Equity
markets, particularly the market for high-technology companies, have recently
experienced significant price and volume fluctuations that are unrelated to the
operating performance of individual companies. These broad market fluctuations
may adversely affect the market price of our common stock. In the past,
securities class action litigation has often been instituted against companies
following periods of volatility in the market price of their securities. Such
litigation could result in substantial costs and a diversion of management's
attention and resources.
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 respective affiliates, will continue to own approximately 42.8% of our
outstanding common stock. Accordingly, 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 could have the effect of delaying or
preventing a change in control that other stockholders view as favorable.
Our charter document provisions could limit another party's ability to acquire
us.
Provisions of our certificate of incorporation and bylaws, as well as
provisions of Delaware law, could make it more difficult for a third party to
acquire us, even if doing so would be beneficial to our stockholders. For
example our certificate of incorporation allows our board of directors to issue
up to 5,000,000 shares of preferred stock without a stockholder vote. Our
bylaws provide that special meetings of stockholders can be called only by the
board of directors or an authorized committee of the board.
Some of our shares will be eligible for future sale which may cause our stock
price to decline.
Sales of significant amounts of our common stock, including shares issued
upon the exercise of outstanding options, in the public market after this
offering could adversely affect the market price of our
13
<PAGE>
common stock. These sales also might make it more difficult for us to sell
equity securities or equity-related securities in the future at a time and
price that we believe appropriate. Upon completion of this offering, we will
have outstanding 23,696,563 shares of common stock, based upon 19,696,563
shares outstanding as of December 31, 1999 as adjusted to reflect the
conversion of all outstanding shares of preferred stock into 16,542,628 shares
of common stock and to include the 4,000,000 shares of common stock issued in
this offering. All of the shares sold in this offering will be freely tradable
without restriction unless held by our affiliates. The remaining 19,696,563
shares of our common stock outstanding after this offering will be restricted
as a result of securities laws or lock-up agreements signed by the holder and
will be available for sale.
This number excludes 7,136,867 shares of our common stock issuable upon
exercise of outstanding options and warrants outstanding as of December 31,
1999, which will be tradable in the public market subject to vesting and the
expiration of lock-up agreements.
Chase Securities Inc. may, in its sole discretion and at any time without
prior notice, release all or any portion of the common stock subject to lock-up
agreements.
New investors will suffer substantial and immediate dilution in the tangible
book value of their shares.
Purchasers of the common stock in the offering will suffer an immediate and
substantial dilution of $12.73 per share in the net tangible book value of our
common stock from the assumed initial public offering price of $15.00 per
share. To the extent outstanding options are exercised, there will be further
dilution.
14
<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 regarding the growth of various markets.
You should not place undue reliance on these forward-looking statements, which
apply only as of the date of this prospectus. Our actual results could differ
materially from those anticipated in these forward-looking statements for many
reasons, including the risks faced by us which are 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 will be approximately $54.6
million, or $63.0 million if the underwriters' option to purchase additional
shares is exercised in full, assuming an offering price of $15.00 per share and
after deducing 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
. capital expenditures made in the ordinary course of business.
We intend, if the opportunity arises, to use an unspecified portion of the net
proceeds to acquire or invest in complementary businesses, products and
technologies. From time to time, in the ordinary course of business, we expect
to evaluate potential acquisitions of such businesses, products or
technologies.
Pending such uses, we intend to invest the net proceeds from this offering in
short-term, interest-bearing, investment-grade securities.
DIVIDEND POLICY
We have never declared or paid cash dividends on our capital stock. We
currently intend to retain any future earnings to fund the development and
growth of our business and 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.
15
<PAGE>
CAPITALIZATION
The following 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 the conversion of all
outstanding shares of convertible preferred stock into 16,542,628 shares
of common stock upon the closing of this offering and to reflect our sale
and issuance of 4,000,000 shares of common stock in this offering at an
assumed initial public offering price of $15.00 per share and the
application of the net proceeds we receive.
This table should be read in conjunction with our consolidated financial
statements and related notes and Management's Discussion and Analysis of
Financial Condition and Results of Operations included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
December 31, 1999
---------------------
Pro Forma
Actual As Adjusted
-------- -----------
(in thousands)
<S> <C> <C>
Cash and cash equivalents................................ $ 12,506 $67,106
======== =======
Long-term debt and capital lease obligations, less
current portion......................................... 3,513 3,513
-------- -------
Stockholders' equity (deficit):
Convertible preferred stock, $0.01 stated value per
share; actual--17,000,000 shares authorized;
16,126,003 shares issued and outstanding; pro forma as
adjusted--5,000,000 shares authorized, none issued or
outstanding .......................................... 161 --
Common stock, $0.001 stated value per share; actual--
45,000,000 shares authorized, 3,153,935 shares issued
and outstanding; pro forma as adjusted--150,000,000
shares authorized; 23,696,563 shares issued and
outstanding, pro forma as adjusted ................... 3 24
Additional paid-in capital............................. 96,757 151,497
Deferred stock-based compensation...................... (2,540) (2,540)
Accumulated deficit.................................... (95,107) (95,107)
-------- -------
Total stockholders' equity (deficit)................. (726) 53,874
-------- -------
Total capitalization............................... $ 2,787 $57,387
======== =======
</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. Effective on the date of completion of this
offering, the shares reserved for future issuance under our stock option plans
will be as follows:
. 1997 stock plan: 3,000,000 shares.
16
<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 date of completion of the offering, which reserves totalled
1,064,087 shares on December 31, 1999.
Warrants
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.
17
<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:
total tangible assets -- total liabilities
shares of common stock outstanding
After giving effect to the receipt of the estimated net proceeds from 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, our pro forma, as adjusted net
tangible book value at December 31, 1999 would have been approximately $53.9
million or $2.27 per share of common stock. This represents an immediate
increase in net tangible book value of $2.31 per share to existing stockholders
and an immediate dilution of $12.73 per share to new investors. The following
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........... 2.31
------
Pro forma net tangible book value after the offering......... 2.27
------
Dilution per share to new investors.......................... $12.73
======
</TABLE>
Comparative Investment Information
The 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 83% $88,145,000 59% $ 4.48
New investors.............. 4,000,000 17 60,000,000 41 15.00
---------- ----- ------------ -----
Totals................... 23,696,563 100.0% $148,145,000 100.0%
========== ===== ============ =====
</TABLE>
Additional Share Information
The information presented above with respect to existing stockholders
includes 16,126,003 shares of preferred stock which will be automatically
converted into 16,542,628 shares of common stock upon the closing of this
offering. This information is as of December 31, 1999 and excludes:
. 6,793,436 shares of common stock issuable upon the exercise of
outstanding options at a weighted average exercise price of $5.78 per
share;
. 343,431 shares of common stock issuable upon the exercise of outstanding
warrants at a weighted average exercise price of $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. Effective on the date of completion of this
offering, the shares reserved for future issuance under our stock option plans,
will be as follows:
. 1997 stock plan: 3,000,000 shares.
18
<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 date of completion of the offering, which 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
and warrants issued in the future will result in further dilution to new
investors.
19
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with Management's Discussion and Analysis of Financial Condition
and Results of Operations, our consolidated financial statements and related
notes, and other financial information included elsewhere in this prospectus.
The consolidated statements of operations data for the years ended December
31, 1997, 1998 and 1999, and the selected consolidated balance sheet data at
December 31, 1998 and 1999 presented below are derived from consolidated
financial statements that have been audited by KPMG LLP, independent auditors,
which are included elsewhere in this prospectus.
The selected historical consolidated financial data set forth below for the
period from March 8, 1996, inception, to December 31, 1996 and as of December
31, 1996 and 1997 have been derived from audited financial statements. 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,
respectively................... -- 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,
respectively................... 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, respectively ... 375 6,954 23,141 21,792
General and administrative,
excludes stock-based
compensation at $683,390 and
$221,927 for 1998 and 1999,
respectively .................. 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>
20
<PAGE>
<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>
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In addition to historical information, the following discussion contains
forward-looking statements. You should read the cautionary statements made in
this prospectus as being applicable to all related forward-looking statements
wherever they appear in this prospectus.
Overview
We are a leading provider of e-business infrastructure software that enables
the integration and automation of business processes within enterprises and
among trading partners over the Internet. Our products help traditional and
emerging businesses to utilize the Internet as a platform to increase
productivity, improve responsiveness to customer demands and enhance overall
competitiveness.
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
and, as of December 31, 1999, we had an accumulated deficit of $95.1 million.
We anticipate that our operating expenses will continue to increase, as we
expand our product lines and sales and marketing efforts. Accordingly, we
expect to incur net losses at least through the end of 2001.
Revenues to date have been derived from the license of our e-business
infrastructure software and from maintenance and support, consulting and
training services. Customers who license our software generally purchase
maintenance contracts, typically covering a twelve month period. Additionally,
customers may purchase consulting services, which are customarily billed by us
at a fixed daily rate plus out-of-pocket expenses. We also offer training
services that are billed on a per student or per class session basis. The
initial total orders from end-user customers, including licenses and services,
have ranged from $250,000 to over $5.0 million.
Because our software arrangements typically involve significant customization
or implementation services, our software license revenue is generally
recognized using the percentage-of-completion method over the 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
upon shipment revenues associated with projects implemented by our systems
integrator partners when our services are not essential to the functionality of
the software. Consulting and service revenue is recognized as the services are
performed. Maintenance revenue from customer support and product upgrades,
including maintenance bundled with original software licenses, are deferred and
recognized ratably over the term of the maintenance agreement. 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.
As a result of our revenue recognition policy, the current period revenue mix
between software license revenue and service and other revenue does not
necessarily reflect the mix in current period sales activities. For example,
revenues recognized during the quarter ended December 31, 1999 generally
resulted from sales made during the first two quarters of fiscal 1999. We
expect the future revenue mix to be more reflective of
22
<PAGE>
our current period sales mix, which has been weighted more heavily towards
software licenses than previous quarters.
Our sales to date have been primarily generated by our direct sales force,
with a small percentage derived from indirect channels. In an effort to
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.
We established an international presence in mid-1997 by opening a sales
office in Germany. We subsequently opened sales offices in the United Kingdom
and France in 1998. Revenues from international sales represented 20% of total
1997 revenue, 28% of total 1998 revenue and 22% of total 1999 revenue. The
percentage decrease during the year ended December 31, 1999 was due primarily
to significant revenue contribution from five U.S.-based customers,
collectively accounting for greater than 48% of total revenue during the
period.
A small number of customers accounted for a significant portion of our
revenues during the periods 1997, 1998 and 1999. In 1997, Farmland Industries,
Orange Plc. and two former customers each accounted for greater than 10% of our
revenue. In 1998, US West, Siemens and Hercules, Inc. each accounted for
greater than 10% of our revenue. In 1999, DuPont accounted for greater than 10%
of our revenue.
Because of our revenue recognition policy, we calculate accounts receivable
days sales outstanding, DSO, 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.
At times throughout 1998 and to a lesser extent during 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 deemed fair values as deferred stock-based compensation. We amortize
deferred stock-based compensation over the vesting period of the related award
as a noncash expense in 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.
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.
23
<PAGE>
Results of Operations
The following 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 principally from a greater number of
transactions and to a lesser extent, a larger average transaction size.
As a result of our revenue recognition policy, the current period revenue mix
between software license revenue and service and other revenue does not
necessarily reflect the mix in current period sales activities. For example,
revenues recognized during the quarter ended December 31, 1999 generally
resulted from sales made during the first two quarters of fiscal 1999. We
expect the future revenue mix to be more reflective of our current period sales
mix which has been weighted more heavily towards software licenses than
previous quarters.
Service, Maintenance and Other Revenue. Service, maintenance and other
revenue increased from $360,000 to $3.7 million to $10.9 million in 1997, 1998
and 1999, representing growth of 937% and 192%. These increases were due to an
increase in consulting, training and maintenance fees principally associated
with the increased number of licenses sold and to a lesser extent, the
increased average transaction size and a larger installed license base.
Cost of Software License Revenue and Royalties. Cost of software license
revenue and royalties revenue increased from $36,000 to $438,000 to
$1.6 million in 1997, 1998 and 1999, representing approximately 3%, 6% and 8%
of total revenue. The increase in absolute dollar amount was due to increases
in software license and royalties revenue which increased the related royalty
costs. The increase from 1997 to 1998 in cost of software license and royalties
revenue as a percentage of total revenue related to an increase in royalty fees
associated
24
<PAGE>
with technology licensed by CrossWorlds. The increase from 1998 to 1999 in cost
of software license and royalties revenue as a percentage of total revenue
related to the amortization of certain guaranteed minimum royalty payments
associated with technology licensed by CrossWorlds. We expect this percentage
to decrease in the future as a result of our replacing the licensed technology
with our own internally developed product during the fourth quarter of 1999.
Cost of Service, Maintenance and Other Revenue. Cost of service, maintenance
and other revenue increased from $1.9 million to $5.4 million to $10.1 million
in 1997, 1998 and 1999, representing 168%, 70% and 53% of total revenue. The
increase in cost of service, maintenance and other revenue in absolute dollars
was due to an increase in personnel costs. Cost of service, maintenance and
other revenue as a percentage of total revenue declined in 1998 and 1999 due
primarily to higher utilization of our consulting staff, most of whom were not
engaged in revenue generating activities in 1997. 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 head
count dedicated to new product initiatives. Research and development expenses
represented 368%, 152% and 75% of total revenue in 1997, 1998 and 1999. The
decrease as a percentage of total revenue was principally due to growth in our
total revenue offset somewhat by an increase in our personnel costs. 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. The increase from 1997 to 1998 principally reflects the hiring of
additional sales and marketing personnel for the building of our direct sales
channel and higher sales commissions associated with increased sales volume
during the period. In 1998, we also made significant expenditures on
advertising and marketing programs and to a lesser extent, invested in foreign
operations in Australia and Asia. The decrease from 1998 to 1999 principally
reflects significant reductions in expenditures on advertising and to a lesser
extent, the closure of foreign operations in Australia and Asia. 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
principally due to the growth in total revenue during both periods and to a
lesser extent, the reduction of expenditures 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 primarily to increased staffing
necessary to manage and support our growth. The decrease as a percentage of our
total revenue was due primarily to the growth in our total revenue.
Other Income (Expense). Other income increased from $166,000 in 1997 to
$479,000 in 1998, despite the lower year end cash balance in 1998. This
increase was due primarily to our completion of a $23.0 million financing at
the end of 1997, resulting in a higher average cash balance in 1998 than in
1997. In 1999, other expense was $1.9 million. This increase in expense was due
principally to the write-off of a prepaid royalty asset and to a lesser extent,
interest payments on outstanding debt. See note 4 of notes to consolidated
financial statement for additional information on the write-off of the prepaid
royalty asset.
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.
25
<PAGE>
Provision for Income Taxes. We incurred net operating losses in 1997 and 1998
and 1999 and consequently paid no federal, state and foreign income taxes in
each of those years.
As of December 31, 1999, we had federal and state net operating loss
carryforwards of approximately $85.1 million and $70.2 million. We also had
federal and state research and development tax credit carryforwards of
approximately $1.2 million and $852,000. Our federal net operating loss
carryforwards will expire at various dates beginning 2011 through 2019 if not
utilized and our state net operating loss carryforward expires beginning in the
year 2004.
As of December 31, 1998 and 1999, we had deferred tax assets of approximately
$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.
26
<PAGE>
Eight Quarters Ended December 31, 1999
The following tables present CrossWorlds' statement of operations data for
each of the eight quarters ended December 31, 1999, including amounts expressed
as a percentage of total revenue. This unaudited quarterly information has been
prepared on the same basis as CrossWorlds' audited consolidated financial
statements and, in the opinion of management, reflects all adjustments
consisting only of normal recurring entries necessary for a fair presentation
of the information for the periods presented. The operating results for any
quarter are not necessarily indicative of results for any future period.
<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 respective 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
respective 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
respective 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 respective
quarters ended December 31, 1999.
27
<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>
The trends discussed in the annual comparisons of operating results from 1997
through 1999 generally apply to the comparison of results of operations for our
eight most recent quarters ended December 31, 1999. Our software license and
service revenue mix fluctuated significantly at various times during the last
eight quarters because the service components of our sales contracts fluctuated
based on the customization and installation needs of our customers. As a result
of our revenue recognition policy, the current period revenue mix between
software license revenue and service, maintenance and other revenue does not
necessarily reflect the mix in current period sales activities. For example,
revenues recognized during the quarter ended December 31, 1999 generally
resulted from sales made during the first two quarters of fiscal 1999.
We expect the future revenue mix to be more reflective of our current period
sales mix which has been weighted more heavily towards software licenses than
previous quarters. Specifically, in the quarter ended September 30, 1998,
software license revenue was lower as a percentage of total revenue relative to
the other seven quarters ended December 31, 1999 principally due to a reduction
in the number of sales closed in the prior quarter and to a lesser extent, the
completion of several significant projects in the preceding quarter.
Additionally, we were contracted to complete several proof-of-concept service
projects that were designed to allow customers to evaluate our software, thus
resulting in a decrease in software license revenue during the period.
Services, maintenance and other revenue increased significantly from the
quarter ended December 31, 1998 to the quarter ended March 31, 1999 due
primarily to the implementation of two significant projects.
During the quarter ended December 31, 1998, cost of software license and
royalties revenue increased as a percentage of total revenue due to an increase
in royalty fees associated with technology licensed by CrossWorlds. The
increase for the two quarters ended December 31, 1999 in cost of software
license and royalties revenue as a percentage of total revenue related to the
amortization of certain guaranteed minimum royalty payments associated with
certain technology licensed by CrossWorlds. We expect this percentage to
decrease in the future as a result of our replacing the licensed technology
with our own internally developed product during the fourth
28
<PAGE>
quarter of 1999. In addition, in anticipation of increased customer demand
which did not materialize until later periods, we expanded our professional
services organization during the quarter ended September 30, 1998, resulting in
significant services costs as a percentage of total revenue during that
quarter.
Research and development expenses increased during the quarter ended June 30,
1998 due to increased staffing as we accelerated our efforts to expand our
product lines. Sales and marketing expenses increased during the quarter ended
June 30, 1998 principally due to increased advertising and, to a lesser extent,
expanded business development efforts as we established our presence in the
marketplace and built strategic partnerships.
Sales and marketing expenses decreased during the quarter ended March 31,
1999 principally due to our reorganization, the reduction in the size of our
marketing organization, our election not to pursue advertising campaigns
similar to those we pursued in 1998, and to a lesser extent, our strategic
decisions in December 1998 to cease our Asian and Australian operations because
our expenditures in those markets were not producing sufficient returns.
Sales and marketing expenses increased during the quarter ended December 31,
1999 due to increased commissions expense payable to sales and business
development personnel. Commission expense increases are generally not
comparable to revenue increases 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 increased during the quarter ended
December 31, 1999 principally due to expenses associated with the employment of
our chief executive officer.
Total operating expenses increased during the quarter ended June 30, 1999
from the prior quarter as we increased our investment in research and
development, expanded our direct sales force, and built our finance
infrastructure to support our growth. Total operating expenses increased during
the quarter ended December 31, 1999 from the prior quarter principally due to
the increase in sales commission expense and to a lesser extent, expenses
associated with the employment of our chief executive officer.
Other expense increased during the quarter ended December 31, 1999 due to the
write-off of a prepaid royalty asset. See note 4 of notes to consolidated
financial statements. Our quarterly results have varied widely in the past, and
we expect that they may continue to fluctuate in the future as a result of a
number of factors.
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. In addition, European sales may tend to be relatively lower during the
summer months than during other periods. We expect that seasonal trends will
continue.
Software license revenue is generally recognized over the project
implementation cycle which is typically from three to nine months. As a result,
we expect that software license revenue will only be partially affected by
seasonal trends.
Liquidity and Capital Resources
We have funded our operations through December 31, 1999 primarily through
private sales of preferred equity securities, totaling $85.7 million and to a
lesser extent, commercial bank loans and equipment leases. As of December 31,
1999, we had $12.5 million in cash and cash equivalents.
29
<PAGE>
Our operating activities resulted in net cash outflows of $11.4 million,
$32.0 million and $28.8 million in 1997, 1998 and 1999. The sources of cash
were primarily increases in accumulated liabilities, increases in accrued
compensation and related expenses, and increases in deferred revenue in 1997,
1998 and 1999. Uses of cash in operating activities were primarily due to net
operating losses and increases in accounts receivable for 1997, 1998 and 1999.
Investing activities used cash of $1.8 million in 1997, $3.7 million in 1998
and $785,000 in 1999, due primarily to the purchase of capital equipment. In
April 1999, we began leasing equipment through a $1.5 million master lease
agreement with a lender. The master lease agreement is accounted for as a
capital lease and for that reason the $1.1 million purchased through the master
lease agreement as of December 31, 1999 is reflected on our balance sheet.
Financing activities provided cash of $36.7 million in 1997 and $16.3 million
in 1998, primarily through the issuance of preferred stock, proceeds from an
equipment loan in 1997 and 1998 and proceeds from the issuance of convertible
subordinated notes and proceeds from a revolving line of credit in 1998.
Financing activities provided cash totaling $36.6 million in 1999, due
primarily to the issuance of preferred stock and the issuance of a subordinated
loan.
As of December 31, 1999, our principal commitments consisted of obligations
under a revolving line of credit, equipment facility loans, an irrevocable
letter of credit, obligations under the master lease agreement and a
subordinated loan and security agreement. As of December 31, 1999, we had
$6.5 million in outstanding borrowings which are payable through 2002. Our
revolving line of credit provides for borrowing of up to $10.0 million based on
60% of eligible accounts receivable. Borrowings under this line of credit
accrue interest, payable monthly, at 0.10% above prime rate. As of December 31,
1999, we had no borrowings against this line of credit. Borrowings are secured
by substantially all of our assets. We also have agreements which require us to
comply with additional financial covenants. See notes 3 and 4 of notes to
consolidated financial statements. 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 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. Capital expenditures were primarily for
computer workstations used for product development, product demonstrations and
customer support.
Because of our revenue recognition policy, we calculate accounts receivable
days sales outstanding, DSO, 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
certain of our sales agreements spread our billings over the applicable project
implementation cycle and our sales activity is concentrated at the end of each
quarter, we anticipate that our DSO will continue to be substantial in future
periods. 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.
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, and may seek to
30
<PAGE>
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. From time to time, in the ordinary course of business, we may
evaluate potential acquisitions of these businesses, products or technologies.
We have no current plans, agreements or commitments, and are not currently
engaged in any negotiations involving any such transaction.
Qualitative and Quantitative Disclosures about Market Risk
Because we market our products both in the United States and in foreign
countries, our financial results could be affected by factors including changes
in foreign currency exchange rates or weak economic conditions in foreign
markets. Our interest income is sensitive to changes in the general level of
U.S. interest rates, particularly since the majority of our investments are in
short-term instruments. Due to the nature of our short-term investments, we
believe that there is no material interest rate risk exposure. As a result, no
quantitative tabular disclosures are required.
Recent Accounting Pronouncements
In December 1998, the Accounting Standards Executive Committee, the governing
body of the AICPA, issued SOP 98-9, Software Revenue Recognition, with Respect
to Certain Arrangements, which requires recognition of revenue using the
residual method in a multiple-element arrangement when fair value does not
exist for one or more of the undelivered elements in the arrangement. Under the
residual method, the total fair value of the undelivered elements is deferred
and subsequently, recognized in 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.
31
<PAGE>
BUSINESS
Overview
We are a provider of e-business infrastructure software to enable the
integration and automation of business processes within enterprises and among
trading partners using the Internet. Our products help traditional and emerging
businesses to utilize the Internet as a platform to increase productivity,
improve responsiveness to customer demands and enhance overall competitiveness.
Our product suite is based on a modular architecture that scales to meet the
requirements of large enterprises, and combines standard Internet businesses
with proprietary innovations.
We offer a suite of tools that customers can use to build e-business
integration solutions, as well as extend and customize CrossWorlds' pre-built
components. Our customers can utilize CrossWorlds' pre-built connectivity to
leading applications and pre-built process automation components for common e-
business and enterprise processes.
We sell and market our products primarily through a direct sales force that
targets global companies in selected industries such as technology, industrial
manufacturing, process manufacturing and telecommunications. Additionally, we
utilize our relationships with IBM, SAP, global systems integrators and
software providers to help sell and implement our products in these and other
markets. Our customers include companies such as Applied Materials,
Caterpillar/Solar Turbines, Delphi Automotive, DuPont, Ingersoll-Rand, Nortel
Networks, Siemens and U S WEST.
Industry Background
The Need for Collaborative Business Strategies
In recent years, many large companies have faced an increasingly competitive
business environment. This competitive environment has been exacerbated by
factors such as changes in government regulation, mergers and acquisitions, and
the increasing adoption of e-business strategies. In response to this changing
environment, many companies have begun to fundamentally realign their
operations to increase efficiency and become more responsive to customer and
market demands.
In pursuit of these goals, many companies are implementing collaborative
business strategies that improve coordination and communication among multiple
business functions, divisions and trading partners. Examples of these
strategies include the use of Internet-based marketplaces and trading
exchanges; collaborative supply and demand planning among trading partners;
outsourcing of customer service and manufacturing activities to third parties;
and inventory management across multiple company divisions and distribution
channels.
Efforts to implement collaborative business strategies within and beyond
enterprises, however, have been constrained by various information technology
and business issues, including the following:
. companies have traditionally been managed on a functional basis with
minimal coordination between functions such as procurement,
manufacturing, sales, logistics and administration;
. companies have adopted disparate packaged and custom enterprise
applications to automate each business function, including:
(a) enterprise resource planning applications from vendors such as SAP
and Oracle Corporation,
(b) customer relationship management applications from vendors such as
Siebel Systems, Inc. and Clarify Inc.,
(c) supply chain management applications from vendors such as i2
Technologies, Manugistics Group, Inc. and Numetrix, a J.D. Edwards
Company,
(d) e-business applications from vendors such as SAP, Ariba, Inc. and
BroadVision, Inc., and
(e) industry-specific applications from vendors such as Portal Software
Inc. and MetaSolv Software, Inc.;
. business processes typically span multiple functions and applications,
requiring a significant level of integration within the enterprise;
32
<PAGE>
. extending supply chain and outsourced business processes outside the
enterprise requires integration and coordination among trading partners
and their applications; and
. technological incompatibilities and functional differences among
disparate applications make it difficult for many of these enterprise
systems to inter-operate in real time and to allow integration over the
Internet.
For example, a seemingly simple task such as receiving and fulfilling a
customer's order over the Internet may require interaction among the e-
business, order management, manufacturing, logistics and accounting systems
within one company and the customer service, manufacturing and accounting
systems of multiple trading partners, each of which utilizes its own enterprise
applications. The total dollar value of such business-to-business transactions
over the Internet is expected to grow to $1.3 trillion by 2003, according to
Forrester Research.
As a result, most large organizations face significant integration challenges
and need a flexible e-business infrastructure that automates internal and
Internet-based business processes while utilizing investments made in
enterprise applications. The Yankee Group estimates that approximately 35% to
40% of total corporate information technology spending is now consumed by
system integration costs. This spending includes the cost of integration both
within the enterprise and among trading partners over the Internet.
Current Business Integration Market
Business integration solutions have traditionally been provided by numerous
parties, including systems integrators, other information technology service
providers, information technology departments within companies and software
vendors. 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, excluding related services, 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 software products
that integrate business applications both within an enterprise and, to a lesser
extent, among trading partners.
To date, the business integration software market has been comprised of four
segments:
. Messaging-Oriented Middleware is the underlying software that manages the
movement of simple messages between applications. These products offer
limited functionality to support business logic, the set of rules that
support business processes by defining how, when and in what form data is
transmitted between applications. Companies offering products in this
segment include IBM, TIBCO Software, Inc. and BEA.
. Enterprise Application Integration Tools are designed to allow
information technology professionals 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 useable 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 is software that uses industry-specific
formats to enable point-to-point electronic links for the purpose of
transmitting business documents periodically. Companies offering products
in this segment include Sterling Commerce and Harbinger.
. Extensible Markup Language (XML) Tools enable companies to build
integration solutions based on the exchange of XML-formatted documents.
These solutions typically do not address the integration
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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 have fallen
short of providing a complete business integration solution in a number of
respects:
. Inability to Support e-Business. Many current business integration
products lack support for standard Internet data formats and
communication protocols. In addition, most solutions are not able to
support complex, Internet-based processes between trading partners.
. Lack of Business Process Support. Many tools-based or electronic data
interchange solutions support the transmission of data or business
documents rather than automating business processes between applications
and enterprises. In addition, many products do not provide pre-built
support for the most common business process integration requirements.
. Lack of Pre-built Application Connectivity. Many business integration
solutions do not provide pre-built connectivity to the market's leading
packaged e-business and enterprise applications. With these solutions,
companies may find it difficult to pursue e-business strategies using
existing information technology infrastructure.
. Architectural Inflexibility. Most point-to-point interfaces cannot be
easily applied to similar situations and require significant
modifications or full-scale reprogramming when adding additional trading
partners or applications. In addition, many business integration products
are based on out-dated technologies or do not provide a unified
integration architecture.
New Approaches for Business Integration
We believe that a large opportunity exists for software vendors to address
these limitations by providing software solutions that:
. provide an e-business infrastructure for the integration and automation
of business processes both within the enterprise and among trading
partners over the Internet;
. provide an open platform to support the scalability and manageability
requirements of large enterprises;
. utilize the functionality of leading enterprise application packages; and
. operate in a variety of technical environments including those comprised
of custom applications, leading packaged applications, various operating
systems and the Internet.
This comprehensive business integration solution would improve operating
efficiencies, enable organizations to adapt to changes in business and
information technology requirements and allow companies to more fully capture
the benefits of e-business.
The CrossWorlds Solution
Our e-business infrastructure software enables the integration and automation
of business processes within enterprises and among trading partners over the
Internet. Our products are based on a modular architecture that scales to meet
the requirements of large enterprises, and combines standard Internet
technologies with proprietary innovations. We offer a suite of tools that
customers can use to build e-business integration solutions, as well as extend
and customize CrossWorlds' pre-built components. Our customers can also utilize
CrossWorlds' pre-built connectivity to leading applications and pre-built
process automation components for common e-business and enterprise processes.
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<PAGE>
Our products are characterized by the following five elements:
Flexible e-Business Infrastructure
We believe our products provide a strong foundation for e-business between
companies and their trading partners. We support a number of the leading
packaged e-business applications and development platforms. Our architecture
also supports standard e-business and Internet data formats and communication
protocols. When combined with our application integration and business process
automation products, customers are able to quickly deploy e-business solutions
that take advantage of their existing information technology infrastructures.
Real-time Business Process Automation
We believe our business process level integration solutions enable customers
to accelerate their e-business initiatives by integrating disparate enterprise
applications and automating their underlying business processes. While many
application integration and e-business solutions focus primarily on
transferring data between applications, our solution allows companies to
automate business processes that span applications. This solution reduces
process redundancies and data inconsistencies between applications. We offer
both 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 offer version specific connectivity products to accommodate
functional and technological changes in these standard interfaces. In some
cases, we have created additional tools to facilitate the use of standard
interfaces provided by various application vendors. This allows customers to
migrate between existing and new application releases with minimal changes to
their integration solution, 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 such as data transformation, data cross-referencing and
communications between applications and the CrossWorlds environment. To
accelerate development efforts, we also provide pre-built connectivity to many
common technology environments.
Scalable Integration Architecture
Our Java-based, enterprise class architecture provides a modular application
integration environment that is both flexible and scalable. Our 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.
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<PAGE>
Strategy
Our objective is to establish and maintain a market leadership position in
the e-business infrastructure software market. To this end, our strategy
includes the following key elements:
Provide Comprehensive e-Business Solutions
As enterprises increasingly conduct business over the Internet, they will
face a growing number of integration challenges. Over the next twelve months we
intend to enhance our current e-business product offering by developing
Internet-based business process integration modules and adding packaged
connectivity for additional e-business applications such as those used for web-
based procurement and web-based order management. In addition, we 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 unified architecture, our solution addresses a
broad range of integration requirements faced by global enterprises, allowing
them to simplify their overall informational technology infrastructure. Over
the next two years we plan to build connectivity to additional packaged
applications and technology environments. In addition, 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 leverages 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 scale
to meet the demanding requirements of large enterprises. We have been granted a
patent on key elements of our technology and have additional patents pending on
other portions of our architecture.
Penetrate Selected Industries
We believe that sales to global companies in selected industries such as
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
In addition to the industry focus in our sales, marketing and business
development efforts, we also plan to promote broader acceptance of the
CrossWorlds platform. A key element of this plan is the CrossWorlds Exchange,
an online, subscription-based resource for customers, systems integrators and
other partners that contains a repository of reusable integration components
based on CrossWorlds' open architecture. The CrossWorlds Exchange will also
provide access to methodologies and templates to facilitate project
implementation and third-party product development. The CrossWorlds Exchange
will be implemented in phases over the next six months. Another element of this
strategy is to work with strategic partners to expand distribution of our
products into additional industries.
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<PAGE>
Utilize Strategic Partnerships
We intend to continue to develop and extend our strategic partnerships to
promote adoption of our e-business infrastructure solutions. We believe that
these strategic partnerships are a competitive advantage. Our partnerships with
enterprise application and other technology vendors and systems integrators
provide sales and marketing leverage and access to required technology and
expertise. A number of our partners have also made equity investments in
CrossWorlds. Currently, our most significant strategic partners are IBM, SAP
and a number of global systems integrations. Over the next twelve to twenty-
four months we expect these partners will provide an increasing portion of the
resources needed to implement our products.
Products and Technology
CrossWorlds' 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 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 and legacy 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. When these services are included, initial total sales to end-user
customers have ranged from $250,000 to over $5 million. In some cases,
customers have licensed additional software or purchased additional consulting
services as their use of our products has expanded.
Business Process Integration Products
Our business process integration solution is comprised of pre-built modules
and related tools that together enable business process integration both within
the enterprise and among trading partners over the Internet. Our solution
allows customers to:
. extend the functionality of individual applications, which enables
additional e-business capabilities;
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<PAGE>
. 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 reduces the maintenance effort
typically associated with integration.
Business Process Integration Toolset
Business process integration modules are created and extended using the
CrossWorlds Process Designer suite of tools. The CrossWorlds Process Designer
is a standards-based tool for creating CrossWorlds common objects, designing
business process flows and automatically generating the underlying Java
programming code to operate on the CrossWorlds InterChange Server. 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 using the CrossWorlds Process Designer to create their own
business process integration modules, customers can utilize a number of pre-
built components from CrossWorlds that integrate many of the common business
processes required for e-business and other enterprise business functions.
These pre-built components utilize our common object model, allowing multiple
processes to be combined into solutions that address complex requirements.
CrossWorlds' pre-built process integration modules are grouped into three
product lines that are detailed in the following three tables.
CrossWorlds eBusiness. CrossWorlds 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 also partially utilizes available
process integration modules from other product lines.
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<PAGE>
CrossWorlds eBusiness
<TABLE>
<CAPTION>
Module Description
------------------------------- ---------------------------------------------
<C> <S>
CrossWorlds eSales Integrates the various applications involved
in the Internet-based sales and ordering
process, creating a seamless environment for
creating, processing, tracking and fulfilling
sales orders
CrossWorlds eProcurement Integrates self-service procurement
applications with financial and inventory
systems
CrossWorlds eCustomer Service Provides self-service information to
customers and suppliers 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 a forecasting process spanning
multiple trading partners
CrossWorlds Supply Planning Enables effective planning in batch and real-
time modes by integrating supply planning
applications with operational systems within
the enterprise and at trading partners
</TABLE>
CrossWorlds Customer Interaction. Our CrossWorlds 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 thereby
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 management 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 to provide customer service
representatives with up-to-date customer,
billing, purchase, product and pricing
information
</TABLE>
CrossWorlds Enterprise. Our CrossWorlds Enterprise product line includes
business process integration modules that synchronize information about key
corporate assets such as customers, products, inventory and employees. This
enables companies to maintain a single, consistent and up-to-date view of
information that is often duplicated across multiple systems, and simplifies
the task of exchanging data among trading partners.
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<PAGE>
CrossWorlds Enterprise
<TABLE>
<CAPTION>
Module Description
------------------------------- --------------------------------------------
<C> <S>
CrossWorlds Human Resources Synchronizes relevant human resources
information such as employee master files,
departmental structures and payroll
information across multiple human resources
applications and with multiple enterprise
resource planning applications
CrossWorlds Procurement Enables an enterprise to synchronize product
and vendor databases and generate purchase
requisitions and orders among multiple
procurement and financial applications
CrossWorlds Inventory Synchronizes and tracks inventory movements
Management between inventory management and order
fulfillment applications, providing a
consistent view of distributed inventory
across multiple plants and disparate
applications
CrossWorlds Financial Integrates various functional applications
Transactions with financial applications by posting
accounts receivable, accounts payable and
general ledger transactions
</TABLE>
Application Integration Products
CrossWorlds' application integration products include pre-built connectivity
for many of the leading packaged applications and common technology platforms
as well as a toolkit for building connectivity to custom and legacy
applications.
Many of our connectors are targeted at specific versions of enterprise
applications and are maintained and upgraded by CrossWorlds to support new
functionality and interfaces as they are released by application vendors.
CrossWorlds also maintains a library of application and technology connectivity
solutions for less common environments, some of which are included in the
listings below. This connector library can be utilized by CrossWorlds
implementation staff, customers and our systems integrator partners to more
rapidly build new connectors on site.
Pre-built Application Connectivity Solutions
CrossWorlds Application Connectors. Our CrossWorlds Application Connectors
are designed to understand the means by which a packaged application
communicates with its external environment via published interfaces or other
import/export methods. Our CrossWorlds Application Connectors have the ability
to monitor the events occurring within an application and make them available
to the CrossWorlds environment in real-time. Many of our CrossWorlds
Application Connectors also include pre-built components that support the most
common business integration scenarios, enabling our customers to deploy e-
business infrastructure solutions more rapidly. In most cases we support
multiple releases of the supported applications to allow our customers to more
easily upgrade their packaged applications and related integration solutions.
CrossWorlds Application Connectors are available for a number of the leading
e-business and enterprise applications used by manufacturing and
telecommunications companies, including those offered by Baan Company N.V.,
BroadVision, Clarify, J.D. Edwards & Company, Kenan Systems, a subsidiary of
Lucent Technologies, Inc., Manugistics, MetaSolv, Numetrix, Oracle, PeopleSoft
Inc., Portal, SAP, including SAP R/3, and SAP B2B Procurement, Siebel, Trilogy
Software, Inc. and Vantive, a subsidiary of PeopleSoft.
CrossWorlds Technology Connectors. We also provide CrossWorlds Technology
Connectors to leading enterprise and e-business technology environments to
allow integration with legacy applications and
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applications which lack well-defined interfaces. This is accomplished by using
widely adopted, standard technologies such as ODBC, JDBC, HTML, CORBA, XML,
EDI, CICS, IBM MQSI and Oracle RDBMS.
Custom and Legacy Application Integration Toolset
Three tools are used to build connectivity solutions involving custom and
legacy applications.
CrossWorlds Connector Development Kit. The CrossWorlds Connector Development
Kit can be used to build connectors to custom applications and extend the
connectivity provided by our pre-built connectors. The CrossWorlds Connector
Development Kit provides a uniform framework for connector development,
allowing customers to reuse previously built components. The combination of
CrossWorlds Technology Connectors and the CrossWorlds Connector Development Kit
enables us to offer connectivity to the most common environments while
minimizing the amount of programming our customers need to perform.
CrossWorlds Map Designer. The CrossWorlds Map Designer is used to build and
extend transformation maps that convert data from application specific formats
into 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. The CrossWorlds Relationship Designer
maintains references between integrated data that resides in disparate
applications. Using a graphical user interface, the CrossWorlds Relationship
Designer enables the definition of cross-reference relationships between
applications necessary for simultaneously synchronizing data across multiple
applications.
Infrastructure Products
CrossWorlds process automation and application integration solutions are
deployed on the CrossWorlds InterChange Server, a Java-based, enterprise-class
software product that scales to meet the requirements of global organizations
and trading networks with large volumes of mission-critical transactions.
We believe that CrossWorlds' infrastructure products exhibit the key
characteristics of enterprise class software solutions:
Technology Infrastructure. The CrossWorlds InterChange Server utilizes a
combination of proprietary technologies and industry-standard messaging
middleware from IBM. The CrossWorlds InterChange Server is a modular, Java-
based infrastructure that allows us to leverage new technologies and industry
standards as they emerge. It supports the most widely-accepted operating system
standards, including Microsoft Windows NT and the Sun Solaris version of UNIX,
although the CrossWorlds InterChange Server can interoperate with applications
based on all common operating systems. We have been granted a patent on key
elements of our architecture.
e-Business Foundation. CrossWorlds' open platform supports a variety of
Internet standards, including XML, RosettaNet, HTML, HTTP, ftp, and EDI. The
CrossWorlds InterChange Server provides interfaces for multiple data formats
and supports communications over multiple protocols, and is engineered to allow
us to rapidly add support for new and emerging e-business standards. Integrated
security ensures the integrity and confidentiality of exchanges between trading
partners.
Scalability. Our e-business infrastructure is designed to scale to meet the
needs of organizations with multiple packaged and custom applications. The
CrossWorlds InterChange Server is multi-threaded and capable of executing
multiple business processes simultaneously in a distributed environment. Our
modular architecture gives customers flexibility in deploying our solution, and
allows them to improve performance of individual components to maximize
scalability in the overall solution.
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<PAGE>
Manageability. We provide a distributed system management capability in the
form of the CrossWorlds System Manager. The CrossWorlds System Manager is
highly visual and tightly integrated with the CrossWorlds InterChange Server
enabling users to monitor and control the execution of our business process
integration modules and connectivity solutions from a centralized user
interface.
Adaptability. We provide an effective method of separating the functionality
of our process integration modules and connectors. This separation provides
multiple benefits to corporations implementing CrossWorlds' products. These
benefits include the ability to mix and match business process integration
modules and connectors, enabling greater adaptability to constantly changing
business requirements.
Customers and Markets
We have targeted and licensed our software to large global organizations in
four industries: technology, industrial manufacturing, process manufacturing
and telecommunications. In addition, customers in other industries 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.
The following 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:
Technology Telecommunications
- ------------------------------------- -------------------------------------
. Applied Materials . Avantel S.A./MCIWorldCom
. Nortel Networks . Axtel
. Royal Philips N.V. . Citykom Munster GmbH
. Siemens . CodeNet
. EWE TEL AG
. Sony Corporation
. Excel Communications, Inc.
Industrial Manufacturing
- ------------------------------------- . KPNQwest
. Orange Plc.
. Orbitel
. Andersen Corporation . U S WEST
. Caterpillar/Solar Turbines
. Delphi Automotive Other Industries
. Ingersoll-Rand -------------------------------------
. Vorwerk AG
. Whirlpool Corporation
. Baxter Healthcare (Health Care)
Process Manufacturing
. diCarta, Inc. (Software)
- ------------------------------------- . EnBW International GmbH
(Utilities)
. DuPont . LodgeNet Entertainment Corporation
. Farmland Industries (Entertainment)
. Hercules, Inc. . Neoforma.com, Inc. (Health Care)
. Roche Group . Premier, Inc. (Health Care)
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<PAGE>
Customer Case Studies
The following 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 such as 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, legacy and custom applications and support the
company's complex business processes. These applications operate within
multiple business units, and Delphi wanted a solution that would improve
the efficiency of data sharing across the company. Delphi currently has a
large SAP ERP implementation along with a myriad of custom and legacy
applications that manage production, purchasing and fulfillment.
Solution: Delphi is implementing CrossWorlds to integrate the company's
complex application environment across the enterprise. From CrossWorlds,
Delphi purchased the 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
An important element of our overall strategy is to continue to enhance and
expand our strategic partnerships with key 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. As part of the
agreement, CrossWorlds and IBM have also established a joint design council
to identify areas of potential development cooperation such as joint
product development and technology transfer, and to accelerate the
development of IBM's MQSeries-based enterprise application integration
solutions. In addition, CrossWorlds has agreed to incorporate additional
technology from IBM as part of CrossWorlds' infrastructure. We plan to
expand our relationship to include a sales, marketing and implementation
partnership with IBM Global Services, IBM's systems integration
organization.
SAP. SAP made equity investments in CrossWorlds in 1997 and 1999. SAP
and CrossWorlds have committed resources towards joint development,
marketing and sales. CrossWorlds supports SAP's Business Framework
architecture and is a certified partner in SAP's Complementary Software
Program. SAP has certified the CrossWorlds Connector for R/3 for the SAP
Business Application Programming Interface (BAPI). An executive from SAP
sits on CrossWorlds' technical advisory board. We have recently expanded
our partnership efforts to include cooperative sales efforts surrounding
SAP's B2B Procurement and mySAP.com product lines.
Strategic Investors
In addition to SAP, we have received equity investments of at least $1
million from a variety of leading companies in the technology industry. Some of
these investors also provide marketing and sales leverage. Strategic investors
include:
<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 Corp. IMI is a provider of order management
(IMI) applications for manufacturers and
wholesale distributors.
Intel Corporation Intel is a manufacturer of computer,
networking and communications
products.
J.D. Edwards J.D. Edwards is a provider of
enterprise resource planning
applications.
Manugistics Manugistics is a provider of supply
chain planning and management
applications.
Omron Corporation Omron is a Japan-based supplier of
industrial automation, service
automation, healthcare automation and
information processing.
</TABLE>
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<PAGE>
Systems Integrators/Consulting Firms
Systems integrators and consulting firms provide strategic sales, marketing
and product development leverage. Partnerships with key systems integrator and
consulting firms can help shorten the sales cycle for customer situations and
enable access to executives at potential prospects. In some instances, these
partnerships also include joint product development efforts. In addition to our
strategic partnerships with SAP and IBM listed above, our systems integrator
and consulting firm partners include:
<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. CrossWorlds
and Cap Gemini have cooperatively
developed a connectivity solution for
the Portal application for this
market. Cap Gemini has installed
CrossWorlds' software in its solution
centers.
CSC CSC Consulting and CrossWorlds have a
joint sales and implementation
partnership focused on large
enterprises in the United States and
Europe.
Deloitte Consulting Deloitte Consulting and CrossWorlds
have a joint sales, implementation and
marketing partnership focused on the
telecommunications and enterprise
resource planning markets.
EDS EDS and CrossWorlds have a joint
sales, implementation and marketing
partnership focused on providing
e-business integration solutions to
selected industries.
Ernst & Young Ernst & Young and CrossWorlds have a
joint sales, implementation, marketing
and development partnership focused on
selected industries, including
manufacturing and telecommunications.
CrossWorlds and Ernst & Young have
cooperatively developed a connectivity
solution for the MetaSolv application
for the telecommunications industry.
An Ernst & Young executive is a member
of our technical advisory board.
PricewaterhouseCoopers PricewaterhouseCoopers and CrossWorlds
have a joint sales, implementation and
marketing alliance focused on
providing e-business integration
solutions for selected industries.
CrossWorlds is being bundled into
selected PricewaterhouseCoopers'
solution sets which include software
and implementation services.
</TABLE>
In addition, CrossWorlds has worked cooperatively with other systems
integrators and consulting firms including Andersen Consulting and Cambridge
Technology Partners, although we have no formal partnerships with these
companies.
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<PAGE>
Application Partners
We have established formal business relationship with a number of enterprise
application software providers. These relationships typically include one or
more of the following: technical cooperation, joint marketing, cooperative
development 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>
In addition, CrossWorlds provides connectivity solutions for products from
other vendors with whom we have no formal relationship including those provided
by Kenan, Mannesmann, Numetrix and Trilogy.
Sales
We sell our software primarily through our direct sales organization. As of
December 31, 1999 our direct sales force consisted of 24 sales professionals
located in offices in North America and Europe. We have domestic offices
located in Burlingame, California; Los Angeles, California; Chicago, Illinois;
Bethesda, Maryland; Newton, Massachusetts; Edina, Minnesota; Princeton, New
Jersey; White Plains, New York; Charlotte, North Carolina; and Dallas, Texas.
Our European headquarters is based in Munich, Germany and we have also
established subsidiaries and local offices in France and the United Kingdom.
Technical sales support is provided by 15 pre-sales representatives located in
the corporate and field offices. The field sales force is complemented by four
telebusiness staff based in our Burlingame, California headquarters and two
telebusiness 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. The
decision makers within CrossWorlds' prospective customers for the CrossWorlds
products are their executive teams, frequently consisting of the chief
information officer, chief financial officer and chief executive officer. Our
typical customer profile includes Fortune 1000 companies in technology,
industrial manufacturing, process manufacturing and telecommunications. While
the sales cycle varies significantly from customer to customer for initial
sales, the cycle has ranged to date 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.
Targeted at information technology managers as well as chief information
officers, chief financial officers and other senior executives within global
Fortune 1000 companies, CrossWorlds' marketing programs are focused on creating
awareness and generating interest in the CrossWorlds solution to increase
sales. Our marketing plan includes the following critical elements:
Brand Awareness and Public Relations. Increasing brand awareness is a key
component of our marketing strategy. We believe that the building of the
CrossWorlds brand has improved our sales effectiveness by providing access to
executives at target accounts and contributed to our ability to attract leading
partners. To build brand awareness, we engage in a wide range of public
relations activities including industry analyst relations, press releases,
media relations and media tours.
Lead Generation. We have developed lead-generation programs, including direct
mail campaigns, seminar series and audioseminars, targeted at specific
audiences and account profiles. In addition, we exhibit at selected trade shows
and partner user group events with the goal of identifying prospective
customers. These efforts are complemented by our own internal telebusiness
organization, which provides support for lead-generation activities.
Joint Marketing. We have worked with application, technology and systems
integrators partners to jointly plan and execute a variety of marketing
programs including trade shows and user groups, joint speaking opportunities,
seminar tours, public relations and advertising campaigns. To date, we have
executed joint marketing activities with Clarify, Compaq, Deloitte Consulting,
Ernst & Young, IBM, MetaSolv, Oracle, PeopleSoft, Portal,
PricewaterhouseCoopers, SAP and Siebel.
Customer Support, Implementation and Training
Customer Support
We have implemented a customer support strategy designed to 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. Separately, a toll-free phone number
provides customers with access to technical service professionals on a 24-hour
a day, 7-day a week basis. Our staff also provides on-site support to resolve
more complex issues, typically on a fee-for-service basis.
We measure the satisfaction level of each customer annually using a customer
satisfaction research firm to help us identify, analyze and solve customer
service problems in a timely manner.
Client Services
To install and configure our products, we maintain an internal client
services implementation team with expertise at installing and configuring our
products at client sites. While most implementations to date have been
performed by our internal staff, our long term implementation strategy is to
support the efforts of our third-party systems integrator partners with a small
number of CrossWorlds' client services resources on each client project. We
believe the presence of our client service staff has helped maintain the
consistency and quality of our product implementation.
Training
We offer a wide range of training courses in the installation, configuration,
customization and administration of CrossWorlds products. Typically, these
courses are attended by the relevant members of a
47
<PAGE>
customer's information technology team. CrossWorlds also trains third-party
implementation personnel on the installation, customization and configuration
of CrossWorlds products. Training is available at CrossWorlds' training
facility in Burlingame, California and at various locations around the world
through a third-party training provider. In addition, customers and
implementation partners can arrange for dedicated classes to be provided at
their own facilities.
Research and Development
We have made substantial investments in research and development. In
addition, whenever practicable, we have also leveraged technology from leading
third-party providers and cooperative development with systems integrator
partners to reduce our own research and development expenditures. Through
December 31, 1999, we have invested approximately $30.8 million in research and
development.
A high level of expenditure on research and development continues to be vital
to our success due to:
. the complexity of developing a comprehensive integration solution for e-
business and the enterprise;
. the need to support an increasing number of packaged enterprise
applications, particularly in the e-business and telecommunications
markets;
. the ongoing expansion of the functionality in each of our product lines;
and
. the increasing functional depth of our industry solutions for
manufacturing and telecommunications.
Our research and development efforts are focused on the development of
collaboration modules and connectivity solutions, the supporting infrastructure
and tools, quality assurance and technical publications that support all facets
of product usage. Our research and development staff are also engaged in the
development of advanced technologies and the evaluation of emerging third-party
products that can be utilized in future releases of the product.
As of December 31, 1999, there were 75 employees in our research and
development organization, approximately half of which were dedicated to the
development of collaboration modules and connectivity solutions, with the
balance focused on infrastructure development, quality assurance, documentation
and technical support.
We have assembled a technical advisory board, made up of senior executives
from Compaq, McKinsey & Company, Ernst & Young and SAP, that provides feedback
on existing product plans and guidance for future research and development
activities.
Intellectual Property and Other Proprietary Rights
Legal Protections
We rely on a combination of patent, copyright, trademark and trade secret
laws and restrictions on disclosure to protect our intellectual property
rights. We have been granted one patent relating to our architecture and four
U.S. patent applications relating to the architecture of our products pending.
We cannot assure you that these applications will be approved, that any issued
patents will protect our intellectual property or that they will not challenged
by third parties. Furthermore, there can be no assurance that others will not
independently develop similar or competing technology or design around any
patents that may be issued to us. We also have three pending U.S. and
international trademark applications.
Confidentiality and License Agreements
We also enter into confidentiality or license agreements with our employees,
consultants and corporate partners, and control access to and distribution of
our software, documentation and other proprietary
48
<PAGE>
information. In addition, we provide our products to end-users primarily under
non-exclusive license agreements which impose restrictions on customers'
ability to utilize the software. Despite our efforts to protect our proprietary
rights, existing laws afford only limited protection. Attempts may be made to
copy or reverse engineer aspects of our product or to obtain and use
information that we regard as proprietary. There can be no assurance that we
will be able to protect our proprietary rights against unauthorized third-party
copying or use. Use by others of our proprietary rights could materially harm
our business. Monitoring unauthorized use of our products is difficult, and we
cannot assure you that the steps we have taken will prevent misappropriation of
our technology, particularly in foreign countries where the laws may not
protect our proprietary rights as fully as in the United States.
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. Although we attempt to
avoid infringing known proprietary rights of third parties in our product
development efforts, we expect that we may be subject to legal proceedings and
claims for alleged infringement by us or our licensees of third party
proprietary rights, such as patents, trademarks or copyrights, by us or our
licensees from time to time in the ordinary course of business. Any claims
relating to the infringement of third party proprietary rights, even if not
meritorious, could result in costly litigation, divert management's attention
and resources, or require us to enter into royalty or license agreements which
are not advantageous to us. In addition, parties making these claims may be
able to obtain an injunction, which could prevent us from selling our products
in the United States and abroad. Any of these results could harm our business.
We may increasingly be subject to infringement claims as the number of products
and competitors in our industry grow and functionalities of products overlap.
Furthermore, former employers of our current and future employees may assert
that our employees have improperly disclosed confidential or proprietary
information to us.
Competition
The market for our products is intensely competitive, and is expected to
become increasingly competitive as current competitors expand their product
offerings and new competitors enter the market. Our current competitors include
a number of companies offering one or more solutions to the application
integration problem, some of which are directly competitive with our products.
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.
A second source of competition results from systems integrators and other
information technology service providers engaged to build customized
integration solutions across multiple customer applications. The competitive
factors in this area require that we demonstrate to our prospective customers,
systems integrators and other service providers the cost savings, risk
reduction and other advantages of an integration solution based on
commercially-supported software.
Our competitors also include a large number of software vendors targeting one
or more segments of the business integration software market through various
technological solutions. Most of the competitors offer components of a complete
solution. Some competitors' solutions are centered on such technologies as
messaging and data transport, including BEA, Microsoft Corporation, and TIBCO.
Other competitors' solutions are focused on e-business and integration tools
including Active Software, Extricity Software, Inc., Mercator Software, New Era
of Networks, OnDisplay, Software Technologies Corporation, Vitria Technology
Inc. and webMethods.
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<PAGE>
Many of these competitors have longer operating histories, significantly
greater financial, technical, marketing, and other resources, significantly
greater name recognition and a larger installed base of customers than
CrossWorlds. In addition, many competitors have well-established relationships
with current and potential customers. As a result, these competitors may be
able to respond more quickly to new or emerging technologies and changes in
customer requirements, or to devote greater resources to the development,
promotion and sale of their products than CrossWorlds.
In addition, current and potential competitors have established or may
establish cooperative relationships among themselves or with third parties to
increase the ability of their products to address customer needs. Accordingly,
it is possible that new competitors or alliances among competitors may emerge
and rapidly acquire significant market share. Potential competition could
emerge from 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 CrossWorlds had a total of 202 employees, of which
178 were based in North America, including the United States and Canada, and 24
were based in Europe, principally in the United Kingdom and Germany. Of the
total, 65 were engaged in sales and marketing, 75 were in product development
and customer support, 40 were in implementation services and 22 were in
finance, administration and operations. None of our employees is represented by
a labor union. We have not experienced any work stoppages and consider our
relations with our employees to be good.
Facilities
Our principal administrative, sales, marketing, support and research and
development facilities are located in approximately 40,000 square feet in
Burlingame, California. The lease on this office space expires in April 2008.
We currently lease other domestic sales and support offices in Los Angeles,
California; Denver, Colorado; Westport, Connecticut; Chicago, Illinois;
Bethesda, Maryland; Newton, Massachusetts; Ann Arbor, Michigan; Princeton, New
Jersey; White Plains, New York; Charlotte, North Carolina; and Dallas, Texas.
We also maintain international offices in leased facilities located in the
United Kingdom, France and Germany. The German office also serves as our
European headquarters.
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<PAGE>
MANAGEMENT
Executive Officers and Directors
The executive officers and directors of CrossWorlds as of February 2, 2000
are as follows:
<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."Rocky"
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 IBM, Mr. Amoroso held various positions
at Price Waterhouse, now PricewaterhouseCoopers, from 1985 to 1993 including
lead technology partner and partner in charge of the worldwide insurance
consulting practice. Prior to Price Waterhouse, Mr. Amoroso founded Computech
Corporation, an information technology consulting and development firm, in 1977
and served as chief executive officer. Computech was purchased by Price
Waterhouse in 1985. Mr. Amoroso has a B.S. degree in systems engineering and a
M.S. in operations research from the Polytechnic Institute of Brooklyn.
Katrina A. Garnett founded CrossWorlds in March 1996, and has served as
chairman of CrossWorlds since October 1999 and a director since March 1996. In
addition, 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. Prior to 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
51
<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. In addition, Mr. Gupta is a director
and consultant to several private companies.
Mark R. Kent has served as senior vice president finance and chief financial
officer for CrossWorlds since March 1999. 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.
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<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. "Rocky" Pimentel has been a director of CrossWorlds since March
1999. Mr. Pimentel has been senior vice president of WebTV Networks, Inc., a
provider of consumer Internet services and designer of internet access
appliances and a subsidiary of Microsoft Corporation, since November 1996. From
June 1992 to October 1996, Mr. Pimentel served as senior vice president and
chief financial officer of LSI Logic Corporation, a leading provider of
semiconductors. Mr. Pimentel serves as a director of ConXion Corporation,
everSearch.com and NetCell Corporation.
Colin F. Raymond has been a director of CrossWorlds since October 1999. Mr.
Raymond has been a partner with Soros Private Equity Partners, a private
investment management firm, since May 1999. From 1996 to 1999, Mr. Raymond was
with Morgan Stanley Capital Partners, most recently as vice president. 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 (7) directors. Each director is
elected for a period of one year at CrossWorlds' annual meeting of stockholders
and serves until the next annual meeting or until his successor is duly elected
and qualified. The executive officers serve at the discretion of the board of
directors. Katrina A. Garnett, CrossWorlds founder and chairman of the board of
directors, is married to Terence J. Garnett, a member of CrossWorlds' board of
directors.
Board Compensation
Except for reimbursement for reasonable travel expenses relating to
attendance at board meetings and the grant of stock options, directors are not
compensated for their services as directors. As of the offering, directors who
are employees of CrossWorlds are eligible to participate in CrossWorlds' 1997
stock plan and directors who are not employees of CrossWorlds will be eligible
to participate in CrossWorlds' 2000 director stock option plan. Our outside
directors have received option grants as follows:
<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 the above 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.
53
<PAGE>
Executive Compensation
The following table provides summary information concerning the compensation
received for services provided to CrossWorlds during the year ended December
31, 1999. This information is provided for everyone who served as our chief
executive officer during the year, 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 one other person who was not an
executive officer at year end.
The amounts in the column All Other Annual Compensation, with the exception
of $40,271 paid to Alfred J. Amoroso for moving expenses, are insurance
premiums paid by CrossWorlds.
Summary Compensation Table
Mr. Amoroso joined CrossWorlds in October 1999. Mr. Kent joined CrossWorlds
in March 1999. Mr. Fitzgerald resigned as senior vice president, sales in
October 1999. Ms. Garnett resigned as chief executive officer in October 1999.
<TABLE>
<CAPTION>
Long-Term
Compensation
Awards
------------
Annual
Compensation
----------------- Securities
Salary Bonus Underlying All Other Annual
Name and Principal Position Year ($) ($) Options (#) Compensation ($)
- --------------------------- ---- -------- -------- ------------ ----------------
<S> <C> <C> <C> <C> <C>
Alfred J. Amoroso
President and Chief
Executive Officer........ 1999 $115,530 $ -- 2,125,192 $40,346
Barton S. Foster
Senior Vice President,
Marketing................ 1999 175,000 76,112 216,666 357
Prashant Gupta
Chief Technology Officer.. 1999 175,000 106,112 333,332 2,304
Mark R. Kent
Senior Vice President and
Chief Financial Officer.. 1999 136,719 36,509 399,999 351
James G. Rowley
Senior Vice President,
Engineering.............. 1999 164,583 84,798 204,999 319
Kevin Fitzgerald
Former Senior Vice
President, Sales......... 1999 149,965 248,606 166,666 1,338
Katrina A. Garnett
Chairman.................. 1999 175,000 106,112 -- 360
</TABLE>
- --------
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<PAGE>
Option Grants
The following table provides summary information regarding stock options
granted to the following officers during the year ended December 31, 1999.
Option Grants in Last Fiscal Year
The percentage of total options granted to employees is based on an aggregate
of 6,968,975 shares subject to options granted by CrossWorlds under the 1997
stock plan and the 1999 executive stock plan during the year ended December 31,
1999. Potential realizable values are net of exercise price, but before taxes
associated with exercise. The 5% and 10% assumed annual rates of compounded
stock price appreciation are set by the Securities and Exchange Commission. The
actual stock price appreciation over the 10-year term is almost certainly not
going to be at the assumed 5% and 10% levels or at any other defined level.
Unless the market price of the common stock appreciates over the long term, no
value will be realized from the option grants made to the executive officers.
<TABLE>
<CAPTION>
Potential Realizable
Percentage Value at Assumed
of Total Annual Rates of
Number of Options Stock Price
Shares Granted to Appreciation For
Underlying Employees Exercise Option Term
Options in Fiscal Price Expiration --------------------
Name Granted(#) Year ($/Share) 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>
Option Exercises and Holdings
The following table provides summary information concerning the shares of
common stock represented by outstanding stock options held by each of the
following officers as of December 31, 1999.
Fiscal Year-End Option Values
The values of unexercised in-the-money options are based on the fair market
value of $9.00 per share as of December 31, 1999, as determined by the board of
directors, minus the exercise price, multiplied by the number of shares
underlying the option.
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options at Fiscal In-the-Money Options
Year-End 1999 at Fiscal Year End($)
------------------------- -------------------------
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>
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<PAGE>
Stock Plans
1997 Stock Plan.
Adoption and Initial Reserve. Our 1997 stock plan was originally adopted by
our board of directors and approved by our stockholders in January 1997. As of
December 31, 1999, an aggregate of 4,992,638 shares was reserved for issuance
under the 1997 plan. 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. If
not terminated earlier by our board of directors, the 1997 plan will terminate
in 2007.
Reserved Shares Following this Offering. In addition, the 1997 plan was
amended to provide for a total of 3,000,000 shares to be available for grant at
the effective time of this offering, plus an automatic annual increase on the
first day of each of our fiscal years beginning in 2001 and ending in 2005 in
an amount equal to the lesser of:
. 3,000,000 shares,
. 5% of our outstanding common stock on the last day of the immediately
preceding fiscal year, or
. a lesser number of shares as our board determines.
This amendment to the 1997 plan will be submitted to our stockholders for
approval prior to the completion of this offering.
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 the
granting to employees, including officers and directors, of incentive stock
options within the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended. The 1997 plan also provides for the granting to employees and
consultants, including nonemployee directors, of nonstatutory stock options and
stock purchase rights. To the extent an option holder would have the right in
any calendar year to exercise for the first time one or more incentive stock
options for shares having an aggregate fair market value, under all plans of
CrossWorlds and determined for each share as of the date the option to purchase
the shares was granted, in excess of $100,000, any of these excess options
shall be treated as nonstatutory stock options.
Administration. The 1997 plan may be administered by the board of directors
or a committee of the board, each known as the administrator. The 1997 plan is
currently administered by the compensation committee. The administrator
determines the terms of options and stock purchase rights granted under the
1997 plan, including the number of shares subject to the award, the exercise or
purchase price, the term and the vesting and exercisability of the award and
other conditions to which the award is subject. In no event, however, may an
individual employee receive awards for more than 1,000,000 shares under the
1997 plan in any fiscal year.
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 our outstanding capital stock or
the stock of any parent or subsidiary corporation of CrossWorlds must equal at
least 110% of the fair market value of the common stock on the date of grant.
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
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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 may not be transferred by the option holder other than by will or the
laws of descent or distribution and may be exercised during the lifetime of the
option holder only by such 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 pursuant to stock purchase rights granted under the 1997 Plan
is generally subject to a repurchase right at the purchaser's original purchase
price. This repurchase right is exercisable by CrossWorlds upon termination of
the purchaser's employment or consulting relationship with us, for any reason,
including death or disability. This repurchase right will lapse according to
the terms of the stock purchase right determined by the administrator at the
time of grant.
Change of Control. In the event of the sale of all or substantially all of
the assets of CrossWorlds, or the merger of CrossWorlds with another
corporation, then each option and stock purchase right may be assumed or an
equivalent award substituted by the successor corporation. If the successor
corporation refuses to assume or substitute for an outstanding award, each
award shall become fully vested and exercisable before the effective date of
the transaction.
In addition, in the event that outstanding awards are assumed or new awards
are substituted for them, if an option holder's employment with CrossWorlds is
involuntarily terminated for reasons other than cause within one year following
a merger or sale of assets, subject to specified limitations described in the
1997 plan, the option holder will receive limited accelerated vesting. 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 in the event of a stock split, stock dividend
or other similar change in capital structure.
Amendment and Termination. The administrator has the authority to amend or
terminate the 1997 plan as long 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 2000 directors' stock option plan was
adopted by the board of directors in January 2000 and will be submitted to our
stockholders for approval before completion of this offering. A total of
300,000 shares of common stock has been reserved for issuance under the
directors' plan. No shares have been issued under the directors' plan. The
directors' plan becomes effective on the date of this offering.
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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, to the extent administration is necessary, it will be performed by the
board of directors. To the extent conflicts of interest arise, it is expected
that they will be addressed by abstention of any interested director from both
deliberations and voting 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 optionee first becomes a nonemployee director of
CrossWorlds. On the date of CrossWorlds' annual stockholders meeting each year,
each nonemployee director of CrossWorlds will be granted an option to purchase
5,000 shares of common stock if, on such date, 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 pursuant to 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
such option per month. If a nonemployee director ceases to serve as a director
for any reason other than death or disability, he or she may, but only within
90 days after the date he or she ceases to be a director of CrossWorlds,
exercise options granted under the directors' plan. If the director does not
exercise such option which the director was entitled to exercise within such 90
day period, such option shall terminate.
The exercise price of all stock options granted under the directors' plan
shall be equal to the fair market value of a share of CrossWorlds' common stock
on the date of grant of the option. Options granted under the directors' plan
have a term of ten years.
Outstanding options will adjust in the event of 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, options will be
assumed by the successor corporation or equivalent options substituted. If the
acquiror does not agree to such assumption or substitution, the options will
terminate upon completion of the acquisition to the extent 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 to the extent
required by applicable law. If not terminated earlier, the directors' plan will
have a term of ten years.
2000 Employee Stock Purchase Plan.
Adoption and Reserved Shares. Our 2000 employee stock purchase plan was
adopted by the board of directors in January 2000 and will be submitted to our
stockholders for approval before completion of this offering. A total of
750,000 shares of common stock has been reserved for issuance under the
purchase plan, none of which have been issued as of the date of this offering.
The number of shares reserved for issuance
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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 by a series of overlapping
offering periods of approximately 24 months' duration, with new offering
periods, other than the first offering period, beginning 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 purchase plan will be administered by the board of
directors or by a committee appointed by the board. Employees, including
officers and employee directors, of CrossWorlds, or of any majority-owned
subsidiary designated by the board, are eligible to participate in the purchase
plan if they are employed by CrossWorlds or any such subsidiary for at least 20
hours per week and more than five months per year.
Plan Terms. The purchase plan permits eligible employees to purchase common
stock through payroll deductions, which may not exceed 15% of an employee's
compensation, at a price equal to the lower of 85% of the fair market value of
CrossWorlds' common stock at the beginning of each offering period or at the
end of each purchase period. Employees may end their participation in the
offering at any time during the offering period, and participation ends
automatically on termination of employment with CrossWorlds.
An employee cannot be granted an option under the purchase plan if
immediately after the grant the employee would own stock or hold outstanding
options to purchase stock equaling 5% or more of the total voting power or
value of all classes of our stock or stock of our subsidiaries, or 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. In addition, no employee
may purchase more than 1,500 shares of common stock under the purchase plan in
any one purchase period.
The purchase plan provides that in a merger of CrossWorlds with or into
another corporation or a sale of all or substantially all of CrossWorlds'
assets, each right to purchase stock under the purchase plan will be assumed or
an equivalent right substituted by the successor corporation. However, our
board of directors will shorten any ongoing offering period so that employees'
rights to purchase stock under the purchase plan are able to be exercised
before to the transaction if the successor corporation refuses to assume each
purchase right or to substitute an equivalent right. Outstanding options will
adjust in the event of a stock split, stock dividend or other similar change in
capital structure. The board of directors has the power to amend or terminate
the purchase plan as long as 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 1996 stock plan was originally adopted by
our board of directors and approved by our stockholders in March 1996. It
provides for the grant of incentive stock options to employees and nonstatutory
stock options to employees and consultants. As of December 31, 1999, 980,555
shares were reserved for issuance under the 1996 plan, but the board of
directors has determined that no future grants will be made under the 1996
plan.
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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
features. Only options may be granted out of the 1996 plan. Nonstatutory stock
options granted under the 1996 plan are nontransferable in all cases and must
generally be granted with an exercise price equal to at least 85% of the fair
market value of our common stock on the date of grant.
In a merger, reorganization or similar transaction involving CrossWorlds,
each outstanding option shall be assumed by the successor corporation or an
equivalent option substituted for it, 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 adjust in the event of
a stock split, stock dividend or other similar change in capital structure. The
term of options granted under the 1996 plan is ten years from the date of
grant. Options granted under the 1996 plan must be exercised within three
months after the end of the option holder's status as an employee of
CrossWorlds, or within twelve months after such 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. The 1999 executive stock plan was adopted by
our board of directors and approved by our stockholders in October 1999. A
total of 3,500,000 shares of common stock have been reserved for issuance under
the 1999 plan. As of December 31, 1999, 2,859,525 options were issued and
outstanding or committed for issuance and 640,475 shares remained available for
future option or stock purchase right grants. We do not intend to grant any
additional options or stock purchase rights under the 1999 plan after the date
of this offering. Unless terminated earlier, the 1999 plan will terminate in
October 2009.
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 to the following features. The 1999 plan does not impose a
limitation on the number of shares subject to options and stock purchase rights
that may be issued to any individual employee. Nonstatutory stock options and
stock purchase rights may not be granted to non-employee directors under the
1999 plan after the date of this offering. Nonstatutory stock options and stock
purchase rights granted under the 1999 plan are nontransferable in all cases
and must generally be granted with an exercise price or purchase price equal to
at least 85% of the fair market value of our common stock on the date of grant.
If we sell all or substantially all of our assets or merge with or into
another corporation, then each option and stock purchase right may be assumed
or an equivalent option or stock purchase right substituted by the successor
corporation. However, if the successor corporation does not agree to this
assumption or substitution, the option or stock purchase right shall become
fully vested and exercisable for a period of fifteen days from the date
optionee received notice and will terminate following such period. Upon the
closing of the transaction, outstanding repurchase rights will terminate unless
assigned to the successor corporation. The board of directors may amend, modify
or terminate the 1999 plan at any time as long as any amendment, modification
or termination does not impair vesting rights of plan participants and provided
that stockholder approval shall be required for an amendment to the extent
required by applicable law.
Limitation of Liability and Indemnification Matters
As permitted by the Delaware General Corporation Law, CrossWorlds has
included in its amended and restated certificate of incorporation a provision
to eliminate the personal liability of its officers and directors for monetary
damages for breach or alleged breach of their fiduciary duties as officers or
directors, subject to specified exceptions. In addition, CrossWorlds' bylaws
provide that CrossWorlds is required to indemnify its officers and directors
under circumstances in which indemnification would otherwise be discretionary.
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CrossWorlds is required to advance expenses to its officers and directors as
incurred for proceedings against them for which they may be indemnified.
CrossWorlds has entered into indemnification agreements with its officers and
directors containing provisions that are in some respects broader than the
specific indemnification provisions contained in the Delaware General
Corporation Law. The indemnification agreements require CrossWorlds to:
. indemnify such officers and directors against liabilities that may arise
by reason of their status or service as officers and directors, other
than liabilities arising from willful misconduct of a culpable nature;
. to advance their expenses incurred as a result of any proceeding against
them 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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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Since January 1997, we have issued and sold shares of our capital stock as
follows:
. a total of 2,104,144 shares of series C preferred stock at a price of
$6.00 per share in March and April, 1997,
. a total of 2,063,307 shares of series D preferred stock at a price of
$15.00 per share in December 1997 and March 1998, 2,883,326 shares of
series E preferred stock at a price of $6.00 per share in January, March
and April, 1999, and
. a total of 3,671,071 shares of series F preferred stock at a price of
$6.81 per share in October, 1999.
The following table summarizes the shares of capital stock purchased by
executive officers, directors and five-percent stockholders and their
affiliates in these transactions.
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 to the extent of his pecuniary interest in these entitles.
(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 to the following
persons in the following amounts. These warrants were issued in consideration
of their commitment to provide funding to CrossWorlds of up to $10,000,000, if
necessary, on mutually agreed terms and conditions, if this offering is not
completed.
<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 twenty-five percent (25%) of each officer's remaining unvested
options or shares of restricted stock shall become fully vested and exercisable
upon a change of control of CrossWorlds.
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In addition, to the extent options or restricted shares are assumed by or
assigned to a successor corporation, under certain circumstances officers will
receive limited accelerated vesting and severance payments as follows:
. if the officer is involuntarily terminated under the terms of the change
of control agreement within one year of the change of control, then,
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 in an amount equal to twelve (12)
months of further vesting of each award at the rate specified in the
applicable stock option or stock purchase agreement;
. if involuntarily terminated under the terms of the change of control
agreement within one year of the change of control, 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
On January 1, 2000, CrossWorlds and Arthur R. Matin entered into an
employment agreement pursuant to which Mr. Matin became CrossWorlds' senior
vice president of worldwide sales. This employment agreement established Mr.
Matin's base salary at $20,833.33 per month and provides for the payment of a
sign-on bonus of $300,000 to be paid on or before March 1, 2000. In addition,
Mr. Matin will be eligible to earn a target bonus of up to $225,000.
Mr. Matin is to be granted options to purchase 400,000 shares of CrossWorlds'
common stock, 350,000 of which are subject to CrossWorlds' right of repurchase.
CrossWorlds' right of repurchase lapses in equal monthly installments over
forty-eight (48) months from the date of Mr. Matin's employment. If Mr. Matin's
employment is terminated by CrossWorlds without cause or if he resigns with
cause, CrossWorlds' repurchase rights shall lapse as to that number of shares
that would have vested over the next twelve (12) months.
Mr. Matin is also entitled to severance payments of six months' base salary
plus one-half of his annual target bonus, together with six months of medical
insurance payments for him and his eligible dependents, if he is terminated
without cause or if he resigns with good reason.
In a change in control of CrossWorlds, then CrossWorlds' repurchase rights
shall lapse as to all of Mr. Matin's unvested shares. If Mr. Matin is
terminated without cause or if he resigns with good reason within one year
after a change of control, then he shall be entitled to nine months' base
salary plus three quarters of his annual target bonus, together with nine
months of medical insurance payments for him and his eligible dependents.
On October 11, 1999, CrossWorlds amended its option agreement with Mark Kent,
CrossWorlds' chief financial officer and senior vice president, finance to
provide that all of Mr. Kent's options shall become fully vested and
exercisable upon a change of control of CrossWorlds.
On October 5, 1999, CrossWorlds and Alfred J. Amoroso entered into an
employment agreement pursuant to which Mr. Amoroso became CrossWorlds'
president and chief executive officer. This employment agreement established
Mr. Amoroso's base salary at $41,666.66 per month and provides for a sign-on
bonus of $400,000 to be paid on or before March 1, 2000. In addition, Mr.
Amoroso became eligible for a pro rata target bonus of $250,000 based on the
number of weeks of actual employment in 1999 and a full annual target bonus of
$250,000 for the year 2000. Beginning in the year 2001 Mr. Amoroso will be
eligible to receive an annual bonus equal to at least 50% of his base salary.
CrossWorlds will also provide Mr. Amoroso with relocation expenses and
temporary living costs. The temporary living costs are currently anticipated to
total $200,000 to $300,000. CrossWorlds will provide Mr. Amoroso, at his
request, with a moving assistance loan of $1,500,000 pursuant to a secured non-
recourse promissory note, the principal and interest of which will be forgiven
in equal monthly installments from the date of employment over a period
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of forty-eight (48) months, so long as Mr. Amoroso remains employed by
CrossWorlds. CrossWorlds will also make periodic bonus payments to Mr. Amoroso
which, following the deduction of all applicable taxes, will allow Mr. Amoroso
to make all tax payments on the loan, forgiven interest, relocation expenses
and temporary living costs. If Mr. Amoroso is terminated without cause or if he
resigns with good reason, CrossWorlds will forgive an additional twelve (12)
months of loan and accumulated interest payments.
Under the terms of the employment agreement, Mr. Amoroso was granted an
option to purchase 1,328,245 shares of CrossWorlds' common stock which vest
monthly in equal installments over forty-eight (48) months. Mr. Amoroso was
granted an additional option to purchase 796,947 shares of CrossWorlds' common
stock which vest monthly in equal installments over forty-eight (48) months;
however, the vesting shall accelerate and CrossWorlds' repurchase right will
lapse immediately as to those shares upon the effectiveness of this offering.
If Mr. Amoroso's employment is terminated without cause or if he resigns with
good reason in the first year of employment, then 50% of the shares will vest
on the date of termination. Following the first year of Mr. Amoroso's
employment, if Mr. Amoroso's employment is terminated without a determination
by CrossWorlds' board of directors that Mr. Amoroso has engaged in:
. willful misconduct which damages CrossWorlds;
. misappropriation of CrossWorlds' assets; or
. has been convicted of, or entered a plea of "guilty" or "no contest" to a
felony; or
If he resigns within sixty days of any of the following:
. 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 thirty-five (35) miles from his then current
office;
then Mr. Amoroso shall vest in that number of shares that would have vested
over the next twelve (12) months from the date of termination. In the event Mr.
Amoroso's employment with CrossWorlds is terminated, 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, a change of control during the period of Mr. Amoroso's employment,
then each of his outstanding options will become fully vested and CrossWorlds'
repurchase right will lapse immediately as to all shares subject to all
options.
In January 2000, CrossWorlds approved a loan of $100,000 to CrossWorlds'
senior vice president, engineering, James G. Rowley, which CrossWorlds will
forgive at the rate of 1/24th per month over twenty-four (24) months based on
his continued employment with us.
In, November 1999, CrossWorlds loaned $150,000 to CrossWorlds' senior vice
president, marketing and business development, Barton S. Foster, pursuant to
which CrossWorlds received a secured promissory note, secured by real property.
In January 2000, CrossWorlds approved the forgiveness of Mr. Foster's loan at
the rate of 1/24th per month over twenty-four (24) months based on his
continued employment with us.
CrossWorlds and two terminated executive officers entered into severance
agreements pursuant to 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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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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PRINCIPAL STOCKHOLDERS
The following table presents information about the beneficial ownership of
our common stock as of December 31, 1999, and as adjusted to reflect the sale
of common stock in this offering and the conversion of all outstanding shares
of preferred stock into shares of common stock.
. 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 following executive officers, directors and
stockholders can be reached at the principal offices of CrossWorlds.
This table assumes no exercise of the Underwriters' over-allotment option.
Except under applicable community property laws or as indicated in the
footnotes to this table, to CrossWorlds' knowledge, each stockholder identified
in the table possesses sole voting and investment power over all shares of
common stock shown 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>
Entitles affiliated with Soros Private Equity
Partners(1)................................... 1,478,345 7.50% 6.24%
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 10.27 8.68
Barton S. Foster............................... 149,307 * *
Prashant Gupta................................. 382,638 1.92 1.60
Mark R. Kent................................... 148,265 * *
James G. Rowley................................ 232,331 1.17 *
Terence J. Garnett(3).......................... 6,069,478 30.81 25.61
Frederick W. Gluck(4).......................... 142,346 * *
Andrew K. Ludwick(5)........................... 406,039 2.05 1.71
Albert A. Pimentel(6).......................... 147,657 * *
Colin F. Raymond(7)............................ 1,478,345 7.50 6.24
Katrina A. Garnett(8).......................... 7,402,810 37.58 31.24
Kevin Fitzgerald............................... -- -- --
All directors and executive officers of
CrossWorlds as a group (11 persons)........... 12,731,458 55.74 47.43
</TABLE>
- --------
(1) Includes shares held by Quantum Industrial Partners, LDC and SFM Domestic
Investments LLC. Also includes 9,916 shares issuable upon exercise of a
warrant issued to entities affiliated with Soros Private Equity Partners on
February 2, 2000.
(2) Includes 16,528 shares issuable upon exercise of a warrant issued to Mr.
Amoroso on February 2, 2000.
66
<PAGE>
(3) Includes 6,069,478 shares of common stock held by the Garnett Family Trust
U/D/T April 2, 1997. Excludes 1,333,332 shares of common stock held
directly by Ms. Garnett. Excludes 333,332 shares of common stock held in
trust for the benefit of Mr. Garnett's children. Mr. Garnett does not
possess voting or dispositive power over 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.
(7) Represents 1,468,429 shares held by entities affiliated with Soros Private
Equity Partners. Also includes 9,916 shares issuable upon exercise of a
warrant issued to entities affiliated with Soros Private Equity Partners on
February 2, 2000. Mr. Raymond disclaims beneficial ownership of these
shares except to the extent of his pecuniary interest in Soros Private
Equity Partners and its affiliates.
(8) Includes 6,069,478 shares of common stock held by the Garnett Family Trust
U/D/T April 2, 1997 and 1,333,332 shares of common stock held directly by
Ms. Garnett. Excludes 333,332 shares of common stock held in trust for the
benefit of Ms. Garnett's children. Ms. Garnett does not possess voting or
dispositive power over those shares.
67
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon the completion of this offering, CrossWorlds will be authorized to issue
150,000,000 shares of common stock, $0.001 stated value per share, and
5,000,000 shares of undesignated preferred stock, $0.01 stated value per share.
All currently outstanding shares of preferred stock will be converted into
common stock upon the closing of this offering.
Common Stock
As of December 31, 1999, there were 19,696,563 shares of common stock
outstanding, adjusted to reflect the conversion of all outstanding shares of
preferred stock, excluding the exercise of any outstanding options or warrants
into common stock, held of record by 332 stockholders.
Options to purchase an aggregate of 6,793,436 shares of common stock were
also outstanding. There will be 23,696,563 shares of common stock outstanding,
assuming no exercise of the underwriters' overallotment option or exercise of
outstanding options under CrossWorlds' stock plans, after giving effect to the
sale of the shares offered hereby.
The holders of common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. Subject to
preferences that may be applicable to any outstanding preferred stock, holders
of common stock are entitled to receive ratably such dividends as may be
declared by the board of directors out of funds legally available for that
purpose. In a liquidation, dissolution or winding up of CrossWorlds, the
holders of common stock are entitled to share ratably in all assets remaining
after payment of liabilities, subject to the prior distribution rights of any
outstanding preferred stock. The common stock has no preemptive or conversion
rights or other subscription rights. The outstanding shares of common stock
are, and the shares of common stock to be issued upon completion of this
offering will be, fully paid and non-assessable.
Preferred Stock
Upon the closing of the offering, all outstanding shares of preferred stock
except for series D preferred stock will be converted into one share of common
stock and automatically retired. Upon the closing of the offering each share of
series D will be converted into approximately 1.2 shares of common stock and
automatically retired. After that, the board of directors has the authority,
without further action by the stockholders, to issue up to 5,000,000 shares of
preferred stock, $0.01 stated value, in one or more series. The board of
directors will also have the authority to designate the rights, preferences,
privileges and restrictions of each series, including dividend rights, dividend
rates, conversion rights, voting rights, terms of redemption, redemption
prices, liquidation preferences and the number of shares constituting any
series.
The issuance of preferred stock may have the effect of delaying, deferring or
preventing a change in control of CrossWorlds without further action by the
stockholders. The issuance of preferred stock with voting and conversion rights
may also adversely affect the voting power of the holders of common stock. An
issuance of preferred stock could have the effect of decreasing the market
price of the common stock. As of the closing of the offering, no shares of
preferred stock will be outstanding. CrossWorlds currently has no plans to
issue any shares of preferred stock.
Warrants
At December 31, 1999, there were warrants outstanding to purchase an
aggregate of 343,431 shares of common stock. Generally, each warrant contains
provisions for the adjustment of the exercise price and the aggregate number of
shares issuable upon the exercise of the warrant 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
68
<PAGE>
contains provisions for the adjustment of the exercise price and the aggregate
number of shares issuable upon the exercise of the warrant for stock dividends,
stock splits, reorganizations, reclassifications and consolidations.
Registration Rights
The holders of 18,220,000 shares of common stock, assuming the conversion of
all outstanding preferred stock upon completion of this offering, and warrants
to purchase 337,097 shares of common stock, or those persons to whom
registrable securities are transferred, 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 certain limitations in the agreement, (a) the holders of at least
thirty percent (30%) of the registrable securities then outstanding or (b)
Quantum Industrial Partners LDC or SFM Domestic Investments LLC may require, on
two occasions beginning six months after the date of this prospectus, that
CrossWorlds use its best efforts to register the securities for public resale
if Form S-3 is not available.
If CrossWorlds registers any of its common stock either for its own account
or for the account of other security holders, the holders of registrable
securities are entitled to include their shares of common stock in such
registration, subject to the ability of the underwriters to limit the number of
shares included in the offering. Any holder of registrable securities then
outstanding may also require CrossWorlds, but not more than twice in any
twelve-month period, to register all or a portion of their registrable
securities on Form S-3 when use of that form becomes available to CrossWorlds,
provided that the proposed aggregate selling price, net of any underwriters'
discounts or commissions, is at least $1,000,000. CrossWorlds will be
responsible for paying all registration expenses, and the holders of
registrable securities selling their shares will be responsible for paying all
selling expenses.
Delaware Anti-Takeover Law and 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 certain types of
coercive takeover practices and inadequate takeover bids and to encourage
persons seeking to acquire control of CrossWorlds to negotiate with it first.
CrossWorlds believes that the benefits of increased protection of our potential
ability to negotiate with the proponent of an unfriendly or unsolicited
proposal to acquire or restructure CrossWorlds outweigh the disadvantages of
discouraging such proposals because negotiation of such proposals could result
in an improvement of their terms.
CrossWorlds is subject to the provisions of Section 203 of the Delaware law.
In general, the statute prohibits a publicly-held Delaware corporation from
engaging in a business combination with an interested stockholder for a period
of three years after the date that the person became an interested stockholder
unless, with certain exceptions, the business combination or the transaction in
which the person became an interested stockholder is approved in a prearranged
manner. Generally, a business combination includes a merger, asset or stock
sale, or other transaction resulting in a financial benefit to the stockholder.
Generally, an interested stockholder is a person who, together with affiliates
and associates, owns, or within three years prior, did own, 15% or more of the
corporation's voting stock. These provisions may have the effect of delaying,
deferring or preventing a change in control of CrossWorlds without further
action by the stockholders.
Our certificate of incorporation allows our board of directors to issue up to
5,000,000 shares of preferred stock without a stockholder vote. Our bylaws
provide that special meetings of stockholders can be called only by the board
of directors or an authorized committee of the board. Moreover, the business
permitted to be conducted at any special meeting of stockholders is limited by
Delaware Law to the business described in the notice of the meeting. These
provisions would make it difficult for stockholders to call a special meeting
to take corporate action, and may have the effect of delaying deferring or
preventing a change in control of CrossWorlds.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is Boston Equiserve.
69
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
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, since only a limited
number of shares will be available for sale shortly after this offering because
of contractual and legal restrictions on resale, as described below, sales of
substantial amounts of CrossWorlds common stock in the public market after the
restrictions lapse could adversely affect the prevailing market price and
CrossWorlds' ability to raise equity capital in the future.
Upon completion of the offering, based upon shares outstanding as of
December 31, 1999, CrossWorlds will have outstanding 23,696,563 shares of
common stock. Of these shares, the 4,000,000 shares sold in the offering, plus
any shares issued upon exercise of the underwriters' overallotment option, will
be freely tradable without restriction under the Securities Act, unless
purchased by affiliates of CrossWorlds as that term is defined in Rule 144
under the Securities Act, generally, officers, directors or 10% stockholders.
The remaining 19,696,563 shares outstanding are restricted securities within
the meaning of Rule 144 under the Securities Act. Restricted securities may be
sold in the public market only if registered or if they qualify for an
exemption from registration under Rules 144, 144(k) or 701 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.
Stockholders of CrossWorlds holding an aggregate of 19,696,563 shares of
common stock are subject to lock-up agreements. These agreements generally
provide that they will not offer, sell, contract to sell or grant any option to
purchase or dispose of CrossWorlds common stock or any securities exercisable
for or convertible into CrossWorlds common stock, owned by them for a period of
180 days after the effective date of this registration statement without the
prior written consent of Chase Securities Inc. As a result of these contractual
restrictions, despite possible earlier eligibility for sale under the
provisions of Rules 144, 144(k) and 701, shares subject to lock-up agreements
will not be salable until these agreements expire or are waived by the
designated underwriters' representative. Taking into account the lock-up
agreements, and assuming Chase Securities Inc. does not release stockholders
from these agreements, the following shares will be eligible for sale in the
public market at the following times:
. Beginning on the effective date of this prospectus, only the shares sold
in the offering will be immediately available for sale in the public
market.
. Beginning 180 days after the effective date, approximately 2,405,075
shares will be eligible for sale under Rule 701 and approximately
20,241,574 additional shares will be eligible for sale under Rule 144,
of which all but 9,215,662 shares are held by affiliates.
In general, under Rule 144 as currently in effect, and beginning after the
expiration of the lock-up agreements, 180 days after the effective date, of a
person, or persons whose shares are aggregated, who has beneficially owned
restricted Securities for at least one year would be entitled to sell within
any three-month period a number of shares that does not exceed the greater of:
. one percent of the number of shares of common stock then outstanding,
which will equal approximately 236,966 shares immediately after the
offering; or
. the average weekly trading volume of the common stock during the four
calendar weeks preceding the sale.
Sales under Rule 144 are also subject to manner of sale provisions and notice
requirements and to the availability of current public information about
CrossWorlds. Under Rule 144(k), a person who is not considered to have been an
affiliate of CrossWorlds at any time during the three months preceding a sale,
and who has beneficially owned the shares proposed to be sold for at least two
years, is entitled to sell these shares without complying with the manner of
sale, public information, volume limitation or notice provisions of Rule 144.
70
<PAGE>
Pursuant to the lock-up agreements, all CrossWorlds employees holding common
stock or stock options may not sell shares acquired upon exercise until 180
days after the effective date. Beginning 180 days after the effective date, any
employee, officer or director of or consultant to CrossWorlds who purchased
shares pursuant to a written compensatory plan or contract may be entitled to
rely on the resale provisions of Rule 701. Rule 701 permits affiliates to sell
their Rule 701 shares under Rule 144 without complying with the holding period
requirements of Rule 144. Rule 701 further provides that non-affiliates may
sell 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.
In addition, CrossWorlds intends to file registration statements under the
Securities Act as promptly as possible after the effective date to register
shares to be issued pursuant to CrossWorlds' employee benefit plans. As a
result, any options exercised under the 1997 stock plan or any other benefit
plan after the effectiveness of such registration statement will also be freely
tradable in the public market, except that shares held by affiliates will still
be subject to the volume limitation, manner of sale, notice and public
information requirements of Rule 144 unless otherwise resalable under Rule 701.
As of December 31, 1999, there were outstanding options for the purchase of
6,793,436 shares, of which 3,310,545 options were exercisable. No shares have
been issued to date under our purchase plan or directors plan.
71
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement, the
underwriters named below, Chase Securities Inc., Dain Rauscher Wessels, a
division of Dain Rauscher Incorporated, and Thomas Weisel Partners LLC have
separately agreed to purchase from us the following numbers of shares of our
common stock:
<TABLE>
<CAPTION>
Number
of
Name Shares
---- ------
<S> <C>
Chase Securities Inc................................................
Dain Rauscher Wessels...............................................
Thomas Weisel Partners LLC..........................................
----
Total...............................................................
====
</TABLE>
The underwriting agreement provides that the obligations of the underwriters
are subject to conditions precedent, including the absence of any material
adverse change in our business and the receipt of certificates, opinions and
letters from us, our counsel and independent auditors. The underwriters are
committed to purchase all shares of common stock offered in this prospectus if
any shares are purchased.
The underwriters propose to offer the shares of common stock directly to the
public at the public offering price on the cover page of this prospectus and to
certain dealers at the 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 and other selling
terms.
We have granted to the underwriters an option, exercisable no later than 30
days after the date of this prospectus, to purchase up to 600,000 additional
shares of common stock at the public offering price, less the underwriting
discount on the cover page of this prospectus. To the extent that the
underwriters exercise this option, each underwriter will be committed to
purchase approximately the same percentage that the number of shares of common
stock to be purchased by it shown in the above table bears to the total number
of shares of common stock offered in this offering. We will be obligated to
sell shares to the underwriters to the extent the option is exercised. The
underwriters may exercise this option only to cover over-allotments of common
stock offered in this prospectus.
The following table shows the per share and total underwriting discounts and
commissions we will pay to the underwriters:
<TABLE>
<CAPTION>
Total
-------------------
Without With
Over- Over-
allotment allotment
--------- ---------
<S> <C> <C>
Per share.............................................. $ $
Total.................................................. $ $
</TABLE>
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.
72
<PAGE>
Stockholders, including all executive officers and directors, who own in the
aggregate shares of common stock have agreed that they will not,
without the prior written consent of Chase Securities Inc., offer, sell or
dispose of any shares of common stock or securities exercisable for or
convertible into shares of common stock owned by them until 180 days following
the date of this prospectus.
We have agreed that we will not, without the prior written consent of Chase
Securities Inc., offer, sell or 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, except that we may issue
shares upon the exercise of options granted before the date hereof, 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 such period.
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.
Persons participating in this offering may over-allot or effect transactions
which stabilize, maintain or otherwise affect the market price of the common
stock at levels above those which might otherwise prevail in the open market.
These persons may enter stabilizing bids or effect syndicate covering
transactions. A stabilizing bid means the placing of any bid or making any
purchase for the purpose of fixing or maintaining the price of the common
stock. A syndicate covering transaction means the placing of any bid on behalf
of the underwriting syndicate or the making of any purchase to reduce a short
position created in connection with this offering. These transactions may occur
on the Nasdaq National Market, in the over-the-counter market or otherwise.
Stabilizing, 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 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, one of the representatives of the underwriters,
was organized and registered as a broker-dealer in December 1998. Since
December 1998, Thomas Weisel Partners has been named as a lead or co-manager on
110 filed public offerings of equity securities, of which 79 have been
completed, and has acted as a syndicate member in an additional 54 public
offerings of equity securities. Thomas Weisel Partners does not have any
material relationship with us or any of our officers, directors or other
controlling persons, except with respect to its contractual relationship with
us pursuant to the underwriting agreement entered into for this offering.
We estimate that the total expenses of this offering, excluding underwriting
discounts and commissions, will be approximately $ .
73
<PAGE>
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 otherwise 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 pursuant to 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 to the extent these reserved shares are purchased. Any
reserved shares that are not purchased by these persons will be offered by the
underwriters to the public on the same basis as the other shares in this
offering.
74
<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, a certain investment
partnership and members of Wilson Sonsini Goodrich & Rosati, Professional
Corporation, beneficially owned an aggregate of 29,165 shares of our common
stock.
EXPERTS
The consolidated financial statements and schedule of CrossWorlds Software,
Inc. and subsidiaries as of December 31, 1998 and 1999, and for each of the
years in the three-year period ended December 31, 1999, have been included 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, which terms shall include any amendments, 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 CrossWorlds and the common stock offered in
this offering, reference is made to the registration statement, including the
exhibits and the financial statements and not filed as a part of the
registration statement. Statements made in this prospectus concerning the
contents of any contract or other document referred to in this prospectus are
summaries, and in each instance, reference is made to the copy of the contract
or other document filed as an exhibit to the registration statement for a more
complete description of the matter involved.
The registration statement, including the exhibits and the financial
statements and not as filed as a part of the registration statement, as well as
any reports and other information filed with the commission may be inspected
without charge at the public reference facilities maintained by the commission
at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional offices
of the commission located at Seven World Trade Center, 13th Floor, New York, NY
10048, and the 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 certain fees prescribed
by 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.
75
<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--5,000,000
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. 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.
(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.
F-9
<PAGE>
CROSSWORLDS SOFTWARE, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(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 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.
F-10
<PAGE>
CROSSWORLDS SOFTWARE, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(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, 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). If the offering 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
(Formerly CrossRoads Software, Incorporated)
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 infrastructure products. 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 Connector Developer Kit.
The five smaller disks are labeled Infrastructure Tools.
At the end of the four pipes are four blocks labeled Applications. The four
blocks are labeled individually as follows: Enterprise Resource Planning,
Customer Relationship Management, Supply Chain Management, and Custom/Legacy.
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.
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
4,000,000 Shares
[LOGO OF CROSSWORLDS SOFTWARE, INC. APPEARS HERE]
Common Stock
------------
PROSPECTUS
------------
Chase H&Q
Dain Rauscher Wessels
a division of Dain Rauscher Incorporated
Thomas Weisel Partners LLC
------------
, 2000
------------
You should rely only on information contained in this prospectus. We have
not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of our common stock.
No action is being taken in any jurisdiction outside the United States to
permit a public offering of the common stock or possession or distribution of
this prospectus in any such jurisdiction. Persons who come into possession of
this prospectus in jurisdictions outside the United States are required to
inform themselves about and to observe any restrictions as to this offering
and the distribution of this prospectus applicable to that jurisdiction.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<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* Amended and Restated Certificate of Incorporation of CrossWorlds.
3.2* Bylaws of CrossWorlds.
4.1 Specimen Stock Certificate.
4.2* Warrant dated January 7, 1999 issued by CrossWorlds to Comdisco, Inc.
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 between CrossWorlds and Barton S. Foster.
10.12 Form of Change of Control Agreement between CrossWorlds and each of
its executive officers.
10.13**+ IBM/OEM 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 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.
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>
- --------
* To be supplied by amendment.
** Previously filed
+ Confidential treatment requested.
II-3
<PAGE>
(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 Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Burlingame, State of
California on March 16, 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
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 March 16, 2000
- ----------------------------------- Executive Officer and
Alfred J. Amoroso Director (Principal
Executive Officer)
/s/ Mark R. Kent Chief Financial Officer March 16, 2000
- ----------------------------------- (Principal Financial and
Mark R. Kent Accounting Officer)
* Chairman of the March 16, 2000
- ----------------------------------- Board
Katrina A. Garnett
* Director March 16, 2000
- -----------------------------------
Terence J. Garnett
* Director March 16, 2000
- -----------------------------------
Frederick W. Gluck
* Director March 16, 2000
- -----------------------------------
Andrew K. Ludwick
* Director March 16, 2000
- -----------------------------------
Albert A. Pimentel
* Director March 16, 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 Deductions of
of Period Expenses Describe 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* Amended and Restated Certificate of Incorporation of CrossWorlds.
3.2* Bylaws of CrossWorlds.
4.1 Specimen Stock Certificate.
4.2* Warrant dated January 7, 1999 issued by CrossWorlds to Comdisco, Inc.
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 between CrossWorlds and Barton S. Foster.
10.12 Form of Change of Control Agreement between CrossWorlds and each of
its executive officers.
10.13**+ IBM/OEM Distribution Agreement dated July 11, 1997, with exhibits,
including IBM/OEM Program Agreement dated June 3, 1999 and Amendment
01 to IBM/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 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.
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>
- --------
* To be supplied by amendment.
** Previously filed
+ Confidential treatment requested.
<PAGE>
Exhibit 4.1
[LOGO OF CROSSWORLDS SOFTWARE, INC. APPEARS HERE]
CROSSWORLDS SOFTWARE, INC.
THIS CERTIFICATE IS TRANSFERABLE
IN BOSTON, MA OR NEW YORK, NY
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
SEE REVERSE FOR CERTAIN DEFINITIONS
AND A STATEMENT AS TO THE RIGHTS,
PREFERENCES, PRIVILEGES AND
RESTRICTIONS OF SHARES
CUSIP 109704 10 6
This Certifies that
is the record holder of
FULLY PAID AND NONASSESSABLE SHARES OF THE COMMON STOCK, PAR VALUE $0.001 PER
SHARE, OF
CROSSWORLDS SOFTWARE, INC.
transferable on the books of the Corporation by the holder hereof, in
person or by duly authorized attorney, upon surrender of this Certificate
properly endorsed. This Certificate is not valid until countersigned and
registered by the Transfer Agent and Registrar.
IN WITNESS WHEREOF the Corporation has caused this Certificate to be
signed in facsimile by its duly authorized officers and sealed with a facsimile
of its corporate seal.
Dated:
/s/ Stacey Giamalis /s/ Alfred J. Amoroso
SECRETARY PRESIDENT AND CHIEF EXECUTIVE OFFICER
COUNTERSIGNED AND REGISTERED:
BOSTON EQUISERVE TRUST COMPANY
TRANSFER AGENT
AND REGISTRAR
BY /s/ M. Peneszic
AUTHORIZED SIGNATURE
Non-Profiled Document
<PAGE>
A statement of the powers, designations, preferences and 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 as established, from time to time, by the Certificate of
Incorporation of the Corporation and by any certificate of determination, the
number of shares constituting each class and series, and the designations
thereof, may be obtained by the holder hereof upon request and without charge
from the Secretary of the Corporation at the principal office of the
Corporation.
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of
survivorship and not as tenants
in common
COM PROP - as community property
UNIF GIFT MIN ACT - ......................... Custodian ......................
(Cust) (Minor)
under Uniform Gifts to Minors
Act ......................................................
(State)
UNIF TRF MIN ACT - ................. Custodian (until age ................)
(Cust)
............................ under Uniform Transfers
(Minor)
to Minors Act .............................................
(State)
Additional abbreviations may also be used though not in the above list.
Non-Profiled Document -2-
<PAGE>
FOR VALUE RECEIVED, hereby sell, assign and transfer unto
-----------------------
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares
- --------------------------------------------------------------------------
of the common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
Attorney
- ------------------------------------------------------------------------
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated
----------------------------
X
----------------------------------
X
----------------------------------
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME(S) AS
WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR
-3-
<PAGE>
ANY CHANGE WHATEVER.
Signature(s) Guaranteed
By
-----------------------------------
THE SIGNATURE(S) MUST BE GUARANTEED BY
AN ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN
ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE
GUARANTEE MEDALLION PROGRAM), PURSUANT
TO S.E.C. RULE 17Ad-15.
-4-
<PAGE>
EXHIBIT 4.3
THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR
OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT
OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
CORPORATION AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.
WARRANT TO PURCHASE STOCK
Corporation: Crossworlds Software, Inc., a Delaware corporation
Number of Shares: 6,334
Class of Stock: Common Stock
Initial Exercise Price: $6.60 per share
Issue Date: August 9, 1999
Expiration Date: August 9, 2004
THIS WARRANT CERTIFIES THAT, for the agreed upon value of $1.00 and for
other good and valuable consideration, SILICON VALLEY BANK ("Holder") is
entitled to purchase the number of fully paid and nonassessable shares of the
class of securities (the "Shares") of the corporation (the "Company") at the
initial exercise price per Share (the "Warrant Price") all as set forth above
and as adjusted pursuant to Article 2 of this Warrant, subject to the provisions
and upon the terms and conditions set forth in this Warrant.
ARTICLE 1. EXERCISE.
--------
1.1 Method of Exercise. Holder may exercise this Warrant by
------------------
delivering a duly executed Notice of Exercise in substantially the form attached
as Appendix 1 to the principal office of the Company. Unless Holder is
exercising the conversion right set forth in Section 1.2, Holder shall also
deliver to the Company a check for the aggregate Warrant Price for the Shares
being purchased.
1.2 Conversion Right. In lieu of exercising this Warrant as
----------------
specified in Section 1.1, Holder may from time to time convert this Warrant, in
whole or in part, into a number of Shares determined by dividing (a) the
aggregate fair market value of the Shares or other securities otherwise issuable
upon exercise of this Warrant minus the aggregate Warrant Price of such Shares
by (b) the fair market value of one Share. The fair market value of the Shares
shall be determined pursuant to Section 1.4.
1.3 Intentionally Omitted
---------------------
1.4 Fair Market Value. If the Shares are traded in a public market,
-----------------
the fair market value of the Shares shall be the five day average closing price
of the Shares (or the five day average closing price of the Company's stock into
which the Shares are convertible). 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 shall be the initial "Price to
the Public" specified in the final prospectus with respect to the offering. If
the Shares are not traded in a public market, the Board of Directors of the
Company shall determine fair market value in its reasonable good faith judgment.
The foregoing notwithstanding, if Holder advises the Board of Directors in
writing that Holder disagrees with such determination, then the Company and
Holder shall promptly agree upon a reputable investment banking firm to
undertake such valuation. If the valuation of such investment banking firm is
greater than that determined by the Board of Directors, then all fees and
expenses of such investment banking firm shall be paid by the Company. In all
other circumstances, such fees and expenses shall be paid by Holder.
1.5 Delivery of Certificate and New Warrant. Promptly after Holder
---------------------------------------
exercises or converts this Warrant, the Company shall deliver to Holder
certificates for the Shares acquired and, if this Warrant has not been fully
exercised or converted and has not expired, a new Warrant representing the
Shares not so acquired.
<PAGE>
1.6 Replacement of Warrants. On receipt of evidence reasonably
-----------------------
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of loss, theft or destruction, on delivery of an
indemnity agreement reasonably satisfactory in form and amount to the Company
or, in the case of mutilation, on surrender and cancellation of this Warrant,
the Company at its expense shall execute and deliver, in lieu of this Warrant, a
new warrant of like tenor.
1.7 Repurchase on Sale, Merger, or Consolidation of the Company.
-----------------------------------------------------------
1.7.1. "Acquisition". For the purpose of this Warrant,
-----------
"Acquisition" means any sale, license, or other disposition of all or
substantially all of the assets of the Company, or any reorganization,
consolidation, or merger of the Company where the holders of the Company's
securities before the transaction beneficially own less than 50% of the
outstanding voting securities of the surviving entity after the transaction.
1.7.2. Deemed Exercise or Assumption of Warrant. If, on the
----------------------------------------
closing date for any Acquisition, the fair market value of the Shares (or other
securities issuable upon exercise of this Warrant) is equal to or greater than
three (3) times the Initial Exercise Price, then the Warrant shall be deemed to
have been automatically exercised upon the closing date of such an Acquisition
and thereafter the Holder shall participate in the Acquisition as a holder of
the Shares (or other securities issuable upon exercise of the Warrant) on the
same terms as other holders of the same class of securities of the Company. If,
on the closing date for any Acquisition, the fair market value of the Shares (or
other securities issuable upon exercise of this Warrant) is less than the three
(3) times the Initial Exercise Price, then upon the Acquisition, the successor
entity shall assume the obligations of the Warrant, and the Warrant shall be
exercisable for the same securities, cash, and property as would be payable for
the Shares issuable upon exercise of the unexercised portion of this Warrant as
if such Shares were outstanding on the record date for the Acquisition and
subsequent closing.
ARTICLE 2. ADJUSTMENTS TO THE SHARES.
-------------------------
2.1 Stock Dividends, Splits, Etc. If the Company declares or pays a
----------------------------
dividend on its common stock (or the Shares if the Shares are securities other
than common stock) payable in common stock, or other securities, subdivides the
outstanding common stock into a greater amount of common stock, or, if the
Shares are securities other than common stock, subdivides the Shares in a
transaction that increases the amount of common stock into which the Shares are
convertible, then upon exercise of this Warrant, for each Share acquired, Holder
shall receive, without cost to Holder, the total number and kind of securities
to which Holder would have been entitled had Holder owned the Shares of record
as of the date the dividend or subdivision occurred.
2.2 Reclassification, Exchange or Substitution. Upon any
------------------------------------------
reclassification, exchange, substitution, or other event that results in a
change of the number and/or class of the securities issuable upon exercise or
conversion of this Warrant, Holder shall be entitled to receive, upon exercise
or conversion of this Warrant, the number and kind of securities and property
that Holder would have received for the Shares if this Warrant had been
exercised immediately before such reclassification, exchange, substitution, or
other event. Such an event shall include any automatic conversion of the
outstanding or issuable securities of the Company of the same class or series as
the Shares to common stock pursuant to the terms of the Company's Certificate of
Incorporation upon the closing of a registered public offering of the Company's
common stock. The Company or its successor shall promptly issue to Holder a new
Warrant for such new securities or other property. The new Warrant shall provide
for adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Article 2 including, without limitation,
adjustments to the Warrant Price and to the number of securities or property
issuable upon exercise of the new Warrant. The provisions of this Section 2.2
shall similarly apply to successive reclassifications, exchanges, substitutions,
or other events.
2.3 Adjustments for Combinations, Etc. If the outstanding shares are
---------------------------------
combined or consolidated, by reclassification or otherwise, into a lesser number
of shares, the Warrant Price shall be proportionately increased.
2
<PAGE>
2.4 No Impairment. The Company shall not, by amendment of its
-------------
Articles of Incorporation or through a reorganization, transfer of assets,
consolidation, merger, dissolution, issue, or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed under this Warrant by the Company, but
shall at all times in good faith assist in carrying out of all the provisions of
this Article 2 and in taking all such action as may be necessary or appropriate
to protect Holder's rights under this Article against impairment. If the Company
takes any action affecting the Shares or its common stock other than as
described above that adversely affects Holder's rights under this Warrant, the
Warrant Price shall be adjusted downward and the number of Shares issuable upon
exercise of this Warrant shall be adjusted upward in such a manner that the
aggregate Warrant Price of this Warrant is unchanged.
2.5 Fractional Shares. No fractional Shares shall be issuable upon
-----------------
exercise or conversion of the Warrant and the number of Shares to be issued
shall be rounded down to the nearest whole Share. If a fractional share
interest arises upon any exercise or conversion of the Warrant, the Company
shall eliminate such fractional share interest by paying Holder an amount
computed by multiplying the fractional interest by the fair market value of a
full Share.
2.6 Certificate as to Adjustments. Upon each adjustment of the
-----------------------------
Warrant Price, the Company at its expense shall promptly compute such
adjustment, and furnish Holder with a certificate of its Chief Financial Officer
setting forth such adjustment and the facts upon which such adjustment is based.
The Company shall, upon written request, furnish Holder a certificate setting
forth the Warrant Price in effect upon the date thereof and the series of
adjustments leading to such Warrant Price.
ARTICLE 3. REPRESENTATIONS AND COVENANTS OF THE COMPANY.
--------------------------------------------
3.1 Representations and Warranties. The Company hereby represents
------------------------------
and warrants to the Holder as follows:
(a) The initial Warrant Price referenced on the first page of
this Warrant is not greater than as determined in good faith by the Board of
Directors of the Company.
(b) All Shares which may be issued upon the exercise of the
purchase right represented by this Warrant, and all securities, if any, issuable
upon conversion of the Shares, shall, upon issuance, be duly authorized, validly
issued, fully paid and nonassessable, and free of any liens and encumbrances
except for restrictions on transfer provided for herein or under applicable
federal and state securities laws.
(c) The Capitalization Table attached to this Warrant is true
and complete as of the Issue Date.
3.2 Notice of Certain Events. If the Company proposes at any time
------------------------
(a) to declare any dividend or distribution upon its common stock, whether in
cash, property, stock, or other securities and whether or not a regular cash
dividend; (b) to offer for subscription pro rata to the holders of shares of
Common Stock; (c) to effect any reclassification or recapitalization of common
stock; or (d) to merge or consolidate with or into any other corporation, or
sell, lease, license, or convey all or substantially all of its assets, or to
liquidate, dissolve or wind up, then, in connection with each such event, the
Company shall give Holder (1) at least 10 business days prior written notice of
the date on which a record will be taken for such dividend, distribution, or
subscription rights (and specifying the date on which the holders of common
stock will be entitled thereto) or for determining rights to vote, if any, in
respect of the matters referred to in (c) and (d) above; and (2) in the case of
the matters referred to in (c) and (d) above at least 10 days prior written
notice of the date when the same will take place (and specifying the date on
which the holders of common stock will be entitled to exchange their common
stock for securities or other property deliverable upon the occurrence of such
event).
3.3 Information Rights. So long as the Holder holds this Warrant
------------------
and/or any of the Shares, the Company shall deliver to the Holder (a) promptly
after mailing, copies of all notices or other written communications to the
shareholders of the Company, (b) within ninety (90) days after the end of
3
<PAGE>
each fiscal year of the Company, the annual audited financial statements of the
Company certified by independent public accountants of recognized standing and
(c) such other financial statements required under and in accordance with any
loan documents between Holder and the Company (or if there are no such
requirements [or if the subject loan(s) no longer are outstanding]), then within
forty-five (45) days after the end of each of the first three quarters of each
fiscal year, the Company's quarterly, unaudited financial statements.
ARTICLE 4. REPRESENTATIONS, WARRANTIES OF THE HOLDER.
-----------------------------------------
The Holder hereby represents and warrants to the Company as follows:
4.1 Purchase for Own Account. This Warrant and the securities to be
------------------------
acquired upon exercise of this Warrant by the Holder hereunder will be acquired
for investment for the Holder's own account, not as a nominee or agent, and not
with a view to the public resale or distribution thereof within the meaning of
the 1933 Act, and the Holder has no present intention of selling, granting any
participation in, or otherwise distributing the same. If not an individual, the
Holder also represents that the Holder has not been formed for the specific
purpose of acquiring this Warrant or the Shares.
4.2 Disclosure of Information. The Holder has received or has had
-------------------------
full access to all the information it considers necessary or appropriate to make
an informed investment decision with respect to the acquisition of this Warrant
and its underlying securities. The Holder further has had an opportunity to ask
questions and receive answers from the Company regarding the terms and
conditions of the offering of this Warrant and its underlying securities and to
obtain additional information (to the extent the Company possessed such
information or could acquire it without unreasonable effort or expense)
necessary to verify any information furnished to the Holder or to which the
Holder has access.
4.3 Investment Experience. The Holder understands that the purchase
---------------------
of this Warrant and its underlying securities involves substantial risk. The
Holder: (i) has experience as an investor in securities of companies in the
development stage and acknowledges that the Holder is able to fend for itself,
can bear the economic risk of such Holder's investment in this Warrant and its
underlying securities and has such knowledge and experience in financial or
business matters that the Holder is capable of evaluating the merits and risks
of its investment in this Warrant and its underlying securities and/or (ii) has
a preexisting personal or business relationship with the Company and certain of
its officers, directors or controlling persons of a nature and duration that
enables the Holder to be aware of the character, business acumen and financial
circumstances of such persons.
4.4 No Public Market. The Holder understands that no public market
----------------
currently exists for any Company securities, and that the Company has made no
statement that a public market will ever exist for Company securities.
4.5 Accredited Investor Status. The Holder is an "accredited
--------------------------
investor" within the meaning of Regulation D promulgated under the 1933 Act.
4.6 Lockup Period. (a) The undersigned 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 Securities Act of 1933, as
amended, 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 undersigned.
4
<PAGE>
(b) The undersigned 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 Shares (and the shares or securities of every other person
subject to the foregoing restriction) until the end of such period.
ARTICLE 5. MISCELLANEOUS.
-------------
5.1 Term. This Warrant is exercisable, in whole or in part, at any
----
time and from time to time on or before the Expiration Date set forth above.
The Company shall give Holder written notice of any Acquisition (as defined in
Section 1.7, above) at least 10 business days before the consummation of such
Acquisition. If such notice is not received by Holder, and to the extent this
Warrant must be exercised pursuant to Section 1.7.2, above, the Expiration Date
shall automatically be extended until 10 business days after the date Holder
receives such notice.
5.2 Legends. This Warrant and the Shares (and the securities
-------
issuable, directly or indirectly, upon conversion of the Shares, if any) shall
be imprinted with one or all of the following legends in substantially the
following form:
(a) THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHOUT
AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO RULE 144 OR
AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE CORPORATION AND ITS
COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED.
(b) ANY LEGEND REQUIRED BY THE BLUE SKY LAWS OF ANY STATE TO THE EXTENT
SUCH LAWS ARE APPLICABLE TO THE SHARES REPRESENTED BY THE CERTIFICATE SO
LEGENDED.
5.3 Compliance with Securities Laws on Transfer. This Warrant and
-------------------------------------------
the Shares issuable upon exercise this Warrant (and the securities issuable,
directly or indirectly, upon conversion of the Shares, if any) may not be
transferred or assigned in whole or in part without compliance with applicable
federal and state securities laws by the transferor and the transferee
(including, without limitation, the delivery of investment representation
letters and, if required by the Company, legal opinions reasonably satisfactory
to the Company, as reasonably requested by the Company). The Company shall not
require Holder to provide an opinion of counsel if the transfer is to an
affiliate of Holder or if there is no material question as to the availability
of current information as referenced in Rule 144(c), Holder represents that it
has complied with Rule 144(d) and (e) in reasonable detail, the selling broker
represents that it has complied with Rule 144(f), and the Company is provided
with a copy of Holder's timely filed notice of proposed sale.
5.4 Transfer Procedure. Subject to the provisions of Section 4.3
------------------
Holder may transfer all or part of this Warrant or the Shares issuable upon
exercise of this Warrant (or the securities issuable, directly or indirectly,
upon conversion of the Shares, if any) at any time to Silicon Valley Bancshares
or The Silicon Valley Bank Foundation, or to any affiliate of Holder, or, to any
other transferree by giving the Company prior written notice of the portion of
the Warrant being transferred setting forth the name, address and taxpayer
identification number of the transferee and surrendering this Warrant to the
Company for reissuance to the transferee(s) (and Holder if applicable) provided
that Holder transfers a portion of the Warrant for the greater of 2,500 Shares
or all of the Shares subject to the Warrant, and provided further that in no
event shall the number of transfers of the rights and interest in the Warrant
exceeds three (3) transfers. Unless the Company is filing financial information
with the SEC 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.
5.5 No Rights as Shareholder. Until the exercise of this Warrant,
------------------------
the Holder of this Warrant shall not have or exercise any rights by virtue
hereof as a stockholder of the Company.
5
<PAGE>
5.6 Notices. All notices and other communications from the Company
-------
to the Holder, or vice versa, shall be deemed delivered and effective when given
personally or mailed by first-class registered or certified mail at such address
as may have been furnished to the Company or the Holder, as the case may be, in
writing by the Company or such holder from time to time. All notices to be
provided under this Warrant shall be sent to the following address:
Silicon Valley Bank
Attn: Treasury Department
3003 Tasman Drive
Santa Clara, CA 95054
5.7 Waiver. This Warrant and any term hereof may be changed, waived,
------
discharged or terminated only by an instrument in writing signed by the party
against which enforcement of such change, waiver, discharge or termination is
sought.
5.8 Attorneys Fees. In the event of any dispute between the parties
--------------
concerning the terms and provisions of this Warrant, the party prevailing in
such dispute shall be entitled to collect from the other party all costs
incurred in such dispute, including reasonable attorneys' fees.
5.9 Governing Law. This Warrant shall be governed by and construed
-------------
in accordance with the laws of the State of California, without giving effect to
its principles regarding conflicts of law.
"COMPANY"
CROSSWORLDS SOFTWARE, INC.
By: ________________________________
Name: ______________________________
(Print)
Title: Chairman of the Board, President or
Vice President
By: ________________________________
Name: ______________________________
(Print)
Title: Chief Financial Officer, Secretary,
Assistant Treasurer or Assistant
Secretary
6
<PAGE>
APPENDIX 1
NOTICE OF EXERCISE
------------------
1. The undersigned hereby elects to purchase _____________ shares of the
Common/Preferred Series ___ [Strike one] Stock of ______________. pursuant to
the terms of the attached Warrant, and tenders herewith payment of the purchase
price of such shares in full.
1. The undersigned hereby elects to convert the attached Warrant into
Shares/cash [strike one] in the manner specified in the Warrant. This
conversion is exercised with respect to _____________________ of the Shares
covered by the Warrant.
[Strike paragraph that does not apply.]
2. Please issue a certificate or certificates representing said shares in
the name of the undersigned or in such other name as is specified below:
___________________________________________
(Name)
___________________________________________
___________________________________________
(Address)
3. The undersigned represents it is acquiring the shares solely for its
own account and not as a nominee for any other party and not with a view toward
the resale or distribution thereof except in compliance with applicable
securities laws.
___________________________________ _____________________
(Signature) Date
<PAGE>
Exhibit 4.5
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A
VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE
OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT
RELATED THERETO OR AN OPINION OF COUNSEL IN A FORM SATISFACTORY TO THE COMPANY
THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933.
- --------------------------------------------------------------------------------
Warrant No. Number of Shares:
Date of Issuance: February 2, 2000 (subject to adjustment)
CROSSWORLDS SOFTWARE, INC.
Common Stock Purchase Warrant
CrossWorlds Software, Inc. (the "Company"), for value received, hereby
certifies that ________________________________________________________, or its
registered assigns (the "Registered Holder"), is entitled, subject to the terms
set forth below, to purchase from the Company, at any time after the date hereof
and on or before the Expiration Date (as defined in Section 5 below), up to
_____________________ shares (as adjusted from time to time pursuant to the
provisions of this Warrant) of Common Stock of the Company, at a purchase price
of $11.00 per share. The shares purchasable upon exercise of this Warrant and
the purchase price per share, as adjusted from time to time pursuant to the
provisions of this Warrant, are hereinafter referred to as the "Warrant Stock"
and the "Purchase Price," respectively.
1. Exercise.
(a) Manner of Exercise. This Warrant may be exercised by the
Registered Holder, in whole or in part, by surrendering this Warrant, with the
purchase/exercise form appended hereto as Exhibit A duly executed by such
Registered Holder or by such Registered Holder's duly authorized attorney, at
the principal office of the Company, or at such other office or agency as the
Company may designate, accompanied by payment in full of the Purchase Price
payable in respect of the number of shares of Warrant Stock purchased upon such
exercise. The Purchase Price may be paid by cash, check, wire transfer or by the
surrender of promissory notes or other instruments representing indebtedness of
the Company to the Registered Holder.
(b) Effective Time of Exercise. Each exercise of this Warrant
shall be deemed to have been effected immediately prior to the close of business
on the day on which this Warrant shall have been surrendered to the Company as
provided in Section 1(a) above. At such time, the person or persons in whose
name or names any certificates for Warrant Stock shall be issuable upon such
exercise as provided in Section 1(d) below shall be deemed to have become the
holder or holders of record of the Warrant Stock represented by such
certificates.
(c) Net Issue Exercise.
<PAGE>
(i) In lieu of exercising this Warrant in the manner
provided above in Section 1(a), the Registered Holder may elect to receive
shares equal to the value of this Warrant (or the portion thereof being
canceled) by surrender of this Warrant at the principal office of the Company
together with notice of such election on the purchase/exercise form appended
hereto as Exhibit A duly executed by such Registered Holder or such Registered
Holder's duly authorized attorney, in which event the Company shall issue to
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
Registered Holder.
Y = The number of shares of Common Stock purchasable under this
Warrant (at the date of such calculation).
A = The fair market value of one share of Common Stock (at the date
of such calculation).
B = The Purchase Price (as adjusted to the date of such calculation).
(ii) For purposes of this Section 1(c), the fair market
value of one share of Common Stock on the date of calculation shall mean:
(A) 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
Securities and Exchange Commission, then the fair market value per share of
Common Stock shall be the initial "Price to Public" specified in the final
prospectus with respect to the offering;
(B) if this Warrant is exercised after, and not in connection
with, the Company's initial public offering, and if the Company's Common Stock
is traded on a securities exchange or The Nasdaq Stock Market or actively traded
over-the-counter:
(1) if the Company's Common Stock is traded on a securities
exchange or The Nasdaq Stock Market, the fair market value shall be deemed to be
the average of the closing prices over a thirty (30) day period ending three
days before date of calculation; or
(2) if the Company's Common Stock is actively traded over-the-
counter, the fair market value shall be deemed to be the average of the closing
bid or sales price (whichever is applicable) over the thirty (30) day period
ending three days before the date of calculation; or
(C) if neither (A) nor (B) is applicable, the fair market value
shall be at the highest price per share which the Company could obtain on the
date of calculation
-2-
<PAGE>
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 agreed by the
Company and the Registered Holder, unless the Company is at such time subject to
an acquisition as described in Section 5(b) below, in which case the fair market
value per share of Common Stock shall be deemed to be the value of the
consideration per share received by the holders of such stock pursuant to such
acquisition.
(d) Delivery to Holder. As soon as practicable after the
exercise of this Warrant in whole or in part, and in any event within ten (10)
days thereafter, the Company at its expense will cause to be issued in the name
of, and delivered to, the Registered Holder, or as such Holder (upon payment by
such Holder of any applicable transfer taxes) may direct:
(i) a certificate or certificates for the number of shares of
Warrant Stock to which such Registered Holder shall be entitled, and
(ii) in case such exercise is in part only, a new warrant or
warrants (dated the date hereof) of like tenor, calling in the aggregate on the
face or faces thereof for the number of shares of Warrant Stock equal (without
giving effect to any adjustment therein) to the number of such shares called for
on the face of this Warrant minus the number of such shares purchased by the
Registered Holder upon such exercise as provided in Section 1(a) above.
2. Adjustments.
(a) Stock Splits and Dividends. If outstanding shares of the
Company's Common Stock shall be subdivided into a greater number of shares or a
dividend in Common Stock shall be paid in respect of Common Stock, the Purchase
Price in effect immediately prior to such subdivision or at the record date of
such dividend shall simultaneously with the effectiveness of such subdivision or
immediately after the record date of such dividend be proportionately reduced.
If outstanding shares of Common Stock shall be combined into a smaller number of
shares, the Purchase Price in effect immediately prior to such combination
shall, simultaneously with the effectiveness of such combination, be
proportionately increased. When any adjustment is required to be made in the
Purchase Price, the number of shares of Warrant Stock purchasable upon the
exercise of this Warrant shall be changed to the number determined by dividing
(i) an amount equal to the number of shares issuable upon the exercise of this
Warrant immediately prior to such adjustment, multiplied by the Purchase Price
in effect immediately prior to such adjustment, by (ii) the Purchase Price in
effect immediately after such adjustment.
(b) Reclassification, Etc. In case of any reclassification or
change of the outstanding securities of the Company or of any reorganization of
the Company (or any other corporation the stock or securities of which are at
the time receivable upon the exercise of this Warrant) or any similar corporate
reorganization on or after the date hereof, then and in each such case the
holder of this Warrant, upon the exercise hereof at any time after the
consummation of such reclassification, change, reorganization, merger or
conveyance, shall be entitled to receive, in lieu of the stock or other
securities and property receivable upon the exercise hereof prior to such
consummation, the stock or other securities or property to which such holder
would
-3-
<PAGE>
have been entitled upon such consummation if such holder had exercised
this Warrant immediately prior thereto, all subject to further adjustment as
provided in Section 2(a); and in each such case, the terms of this Section 2
shall be applicable to the shares of stock or other securities properly
receivable upon the exercise of this Warrant after such consummation.
(c) Adjustment Certificate. When any adjustment is required to
be made in the Warrant Stock or the Purchase Price pursuant to this Section 2,
the Company shall promptly mail to the Registered Holder a certificate setting
forth (i) a brief statement of the facts requiring such adjustment, (ii) the
Purchase Price after such adjustment and (iii) the kind and amount of stock or
other securities or property into which this Warrant shall be exercisable after
such adjustment.
3. Transfers.
(a) Unregistered Security. Each holder of this Warrant
acknowledges that this Warrant and the Warrant Stock have not been registered
under the Securities Act of 1933, as amended (the "Securities Act"), and agrees
not to sell, pledge, distribute, offer for sale, transfer or otherwise dispose
of this Warrant or any Warrant Stock issued upon its exercise in the absence of
(i) an effective registration statement under the Act as to this Warrant or such
Warrant Stock and registration or qualification of this Warrant or such Warrant
Stock under any applicable U.S. federal or state securities law then in effect
or (ii) an opinion of counsel, satisfactory to the Company, that such
registration and qualification are not required. Each certificate or other
instrument for Warrant Stock issued upon the exercise of this Warrant shall bear
a legend substantially to the foregoing effect.
(b) Transferability. Subject to the provisions of Section 3(a)
hereof and of Section 1.11 of the Investors' Rights Agreement dated October 1,
1999 among the Company and certain holders of the Company's securities, this
Warrant and all rights hereunder are transferable, in whole or in part, upon
surrender of the Warrant with a properly executed assignment (in the form of
Exhibit B hereto) at the principal office of the Company.
(c) Warrant Register. The Company will maintain a register
containing the names and addresses of the Registered Holders of this Warrant.
Until any transfer of this Warrant is made in the warrant register, the Company
may treat the Registered Holder of this Warrant as the absolute owner hereof for
all purposes; provided, however, that if this Warrant is properly assigned in
blank, the Company may (but shall not be required to) treat the bearer hereof as
the absolute owner hereof for all purposes, notwithstanding any notice to the
contrary. Any Registered Holder may change such Registered Holder's address as
shown on the warrant register by written notice to the Company requesting such
change.
4. No Impairment. The Company will not, by amendment of its charter or
through reorganization, consolidation, merger, dissolution, sale of assets or
any other voluntary action, 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 action as
may be necessary or appropriate in order to protect the rights of the holder of
this Warrant against impairment.
-4-
<PAGE>
5. Termination. This Warrant (and the right to purchase securities upon
exercise hereof) shall terminate upon the earliest to occur of the following
(the "Expiration Date"): (a) February 2, 2005, (b) the sale, conveyance or
disposal of all or substantially all of the Company's property or business or
the Company's merger into or consolidation with any other corporation (other
than a wholly-owned subsidiary of the Company) or any other transaction or
series of related transactions in which more than fifty percent (50%) of the
voting power of the Company is disposed of, provided that this Section 5(b)
shall not apply to a merger effected exclusively for the purpose of changing the
domicile of the Company, or (c) five (5) years after the closing of the initial
public offering of the Company's Common Stock pursuant to a registration
statement under the Securities Act.
6. Notices of Certain Transactions. In case:
(a) the Company shall take a record of the holders of its
Common Stock (or other stock or securities at the time deliverable upon the
exercise of this Warrant) for the purpose of entitling or enabling them to
receive any dividend or other distribution, or to receive any right to subscribe
for or purchase any shares of stock of any class or any other securities, or to
receive any other right, to subscribe for or purchase any shares of stock of any
class or any other securities, or to receive any other right, or
(b) of any capital reorganization of the Company, any
reclassification of the capital stock of the Company, any consolidation or
merger of the Company, any consolidation or merger of the Company with or into
another corporation (other than a consolidation or merger in which the Company
is the surviving entity), or any transfer of all or substantially all of the
assets of the Company, or
(c) of the voluntary or involuntary dissolution, liquidation or
winding-up of the Company,
then, and in each such case, the Company will mail or cause to be mailed to the
Registered Holder of this Warrant a notice specifying, as the case may be, (i)
the date on which a record is to be taken for the purpose of such dividend,
distribution or right, and stating the amount and character of such dividend,
distribution or right, or (ii) the effective date on which such reorganization,
reclassification, consolidation, merger, transfer, dissolution, liquidation or
winding-up is to take place, and the time, if any is to be fixed, as of which
the holders of record of Common Stock (or such other stock or securities at the
time deliverable upon such reorganization, reclassification, consolidation,
merger, transfer, dissolution, liquidation or winding-up) are to be determined.
Such notice shall be mailed at least ten (10) days prior to the record date or
effective date for the event specified in such notice.
7. Reservation of Stock. The Company will at all times reserve and keep
available, solely for the issuance and delivery upon the exercise of this
Warrant, such shares of Warrant Stock and other stock, securities and property,
as from time to time shall be issuable upon the exercise of this Warrant.
-5-
<PAGE>
8. Exchange of Warrants. Upon the surrender by the Registered Holder of
any Warrant or Warrants, properly endorsed, to the Company at the principal
office of the Company, the Company will, subject to the provisions of Section 3
hereof, issue and deliver to or upon the order of such Holder, at the Company's
expense, a new Warrant or Warrants of like tenor, in the name of such Registered
Holder or as such Registered Holder (upon payment by such Registered Holder of
any applicable transfer taxes) may direct, calling in the aggregate on the face
or faces thereof for the number of shares of Common Stock called for on the face
or faces of the Warrant or Warrants so surrendered.
9. Replacement of Warrants. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and (in the case of loss, theft or destruction) upon delivery of an
indemnity agreement (with surety if reasonably required) in an amount reasonably
satisfactory to the Company, or (in the case of mutilation) upon surrender and
cancellation of this Warrant, the Company will issue, in lieu thereof, a new
Warrant of like tenor.
10. Notices. Any notice required or permitted by this Warrant shall be
in writing and shall be deemed sufficient upon receipt, when delivered
personally or by courier, overnight delivery service or confirmed facsimile, or
forty-eight (48) hours after being deposited in the regular mail as certified or
registered mail (airmail if sent internationally) with postage prepaid,
addressed (a) if to the Registered Holder, to the address of the Registered
Holder most recently furnished in writing to the Company and (b) if to the
Company, to the address set forth below or subsequently modified by written
notice to the Registered Holder.
11. No Rights as Stockholder. Until the exercise of this Warrant, the
Registered Holder of this Warrant shall not have or exercise any rights by
virtue hereof as a stockholder of the Company.
12. No Fractional Shares. No fractional shares of Common Stock will be
issued in connection with any exercise hereunder. In lieu of any fractional
shares which would otherwise be issuable, the Company shall pay cash equal to
the product of such fraction multiplied by the fair market value of one share of
Common Stock on the date of exercise, as determined in good faith by the
Company's Board of Directors.
13. Amendment or Waiver. Any term of this Warrant may be amended or
waived only by an instrument in writing signed by the party against which
enforcement of the amendment or waiver is sought.
14. Headings. The headings in this Warrant are for purposes of
reference only and shall not limit or otherwise affect the meaning of any
provision of this Warrant.
15. Governing Law. This Warrant 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.
-6-
<PAGE>
CROSSWORLDS SOFTWARE, INC.
By: _________________________________
Mark R. Kent, Chief Financial Officer
Address: 577 Airport Blvd., Suite 800
Burlingame, CA 94010
AGREED AND ACCEPTED:
WARRANT HOLDER
Name (print): __________________________________
Signature: _____________________________________
Title (if applicable): ______________________________
Address:
-7-
<PAGE>
EXHIBIT A
PURCHASE/EXERCISE FORM
To: CrossWorlds Software, Inc. Dated:
The undersigned, pursuant to the provisions set forth in the attached
Warrant No. _____, hereby irrevocably elects to (a) purchase _______ shares of
the Common Stock covered by such Warrant and herewith makes payment of
$_________, representing the full purchase price for such shares at the price
per share provided for in such Warrant, or (b) exercise such Warrant for _______
shares purchasable under the Warrant pursuant to the Net Issue Exercise
provisions of Section 1(c) of such Warrant.
The undersigned further acknowledges that it has reviewed the market
standoff provisions set forth in Section 1.11 of the Investors' Rights Agreement
dated October 1, 1999 among the Company and certain holders of the Company's
securities and agrees to be bound by such provisions.
Signature: _____________________________
Name (print): __________________________
Title (if applic.) _____________________
Company (if applic.): __________________
<PAGE>
EXHIBIT B
ASSIGNMENT FORM
FOR VALUE RECEIVED, _________________________________________ hereby
sells, assigns and transfers all of the rights of the undersigned under the
attached Warrant with respect to the number of shares of Common Stock covered
thereby set forth below, unto:
Name of Assignee Address/Fax Number No. of Shares
Dated:_________________ Signature: _______________________________
_______________________________
Witness: _______________________________
<PAGE>
EXHIBIT 5.1
March 16, 2000
CrossWorlds Software
577 Airport Boulevard, Suite 800
Burlingame, CA 94010
Registration Statement on Form S-1 (File No. 333-96055)
Ladies and Gentlemen:
We have examined the amended Registration Statement on Form S-1 (File
No. 333-96055) (the "Registration Statement") filed by you with the Securities
----------------------
and Exchange Commission on February 3, 2000, in connection with the registration
under the Securities Act of 1933 of shares of your Common Stock (the "Shares").
As your legal counsel in connection with this transaction, we have examined the
proceedings taken and we are familiar with the proceedings proposed to be taken
by you in connection with the sale and issuance of the Shares.
It is our opinion that upon completion of the proceedings being taken
in order to permit such transactions to be carried out in accordance with the
securities laws of the various states where required, the Shares, when issued
and sold in the manner described in the Registration Statement, will be legally
and validly issued, fully paid and nonassessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement and further consent to the use of our name wherever it appears in the
Registration Statement and in any amendment to it.
Sincerely,
VENTURE LAW GROUP
A Professional Corporation
/s/ Venture Law Group
<PAGE>
Exhibit 10.1
CROSSWORLDS SOFTWARE, INC.
FIFTH RESTATED INVESTOR RIGHTS AGREEMENT
October 1, 1999
<PAGE>
TABLE OF CONTENTS
1. Registration Rights..............................................1
1.1 Definitions.................................................1
1.2 Demand Registration.........................................2
1.3 Piggyback Registration Rights...............................5
1.4 Form S-3 Registration.......................................5
1.5 Furnish Information.........................................6
1.6 Expenses of Registration....................................7
1.7 No Delay of Registration....................................7
1.8 Indemnification.............................................7
1.9 Reports under Securities Exchange Act of 1934...............9
1.10 Assignment of Registration Rights..........................10
1.11 Market Stand-Off Agreement.................................10
1.12 Termination of Registration Rights.........................11
2. Company Right of First Refusal on Sales of Shares...............11
2.1 General....................................................11
2.2 Exceptions.................................................12
2.3 No Assignment of Rights of First Refusal...................12
2.4 Termination................................................12
3. Covenants of the Company........................................12
3.1 Delivery of Financial Statements...........................12
3.2 Inspection Rights..........................................13
3.3 Payment of Taxes and Other Claims..........................13
3.4 Maintenance of Properties; Insurance.......................13
3.5 Books and Records..........................................14
3.6 Compliance with Laws.......................................14
3.7 Proprietary Information Agreements.........................14
3.8 Investment Company Act.....................................14
3.9 Termination of Covenants...................................14
4. Securities Law Compliance.......................................14
4.1 Restrictions on Transferability............................14
4.2 Further Limitations on Disposition.........................15
5. Miscellaneous...................................................15
5.1 Successors and Assigns.....................................15
5.2 Governing Law..............................................16
5.3 Counterparts...............................................16
5.4 Titles and Subtitles.......................................16
5.5 Notices....................................................16
5.6 Expenses...................................................16
-i-
<PAGE>
5.7 Amendments and Waivers.....................................16
5.8 Aggregation of Stock.......................................16
5.9 Severability...............................................17
5.10 Entire Agreement...........................................17
5.11 Additional Parties.........................................17
EXHIBITS
Exhibit A: Schedule of Investors
-ii-
<PAGE>
FIFTH RESTATED INVESTOR RIGHTS AGREEMENT
THIS FIFTH RESTATED INVESTOR RIGHTS AGREEMENT (this "Agreement") is
made as of the 1st day of October 1999, by and among CrossWorlds Software, Inc.,
a Delaware corporation (the "Company") and the Investors listed on Exhibit A
hereto (collectively, the "Investors").
RECITALS
WHEREAS, the Company and certain of the Investors (the "Prior Holders")
have previously entered into a Fourth Restated Investor Rights Agreement dated
as of January 7, 1999, as amended by the First Amendment to Fourth Restated
Investor Rights Agreement, dated as of March 26, 1999, providing certain
registration and other rights to such Investors (the "Prior Agreement");
WHEREAS, the Company and certain of the Investors (the "Series F
Holders") are entering into a Series F Preferred Stock Purchase Agreement (the
"Purchase Agreement") of even date herewith;
WHEREAS, in order to induce the Series F Holders to purchase shares of
Series F Preferred Stock pursuant to the Purchase Agreement, the Company and the
Prior Holders desire that the Company grant to the Series F Holders the
registration and other rights set forth herein, and further desire to conform
the existing registration and other rights of the Prior Holders to such rights
of the Series F Holders as set forth herein; and
WHEREAS, all Investors desire that the prior Agreement shall be
terminated and that this Agreement shall govern the registration and other
rights of all Investors.
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) and, with
respect to Soros Private Equity Partners LLC, any Person controlling, controlled
by, or under common control with Soros Fund Management LLC. For the purposes of
this Agreement, "control" includes the ability to have investment discretion
through contractual means or by operation of law.
(c) The term "Holder" means any person owning or
having the right to acquire Registrable Securities or any permitted assignee
thereof pursuant to the terms of Section 1.10.
<PAGE>
(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 (i)
Common Stock issuable or issued upon conversion of the Series A Preferred
Stock currently held by Investors as specified on Exhibit A hereto; (ii) Common
Stock issuable or issued upon conversion of the Series B Preferred Stock
currently held by Investors as specified on Exhibit A hereto; (iii) Common Stock
issuable or issued upon conversion of the Series C Preferred Stock currently
held by Investors as specified on Exhibit A hereto; (iv) Common Stock issuable
or issued upon conversion of the Series D Preferred Stock currently held by
Investors as specified on Exhibit A hereto; (v) Common Stock issuable or issued
upon conversion of the Series E Preferred Stock currently held by Investors as
specified on Exhibit A hereto; (vi) Common Stock issuable or issued upon
conversion of the Series F Preferred Stock acquired by Purchasers (as defined in
the Purchase Agreement) pursuant to the Purchase Agreement; (vii) the additional
shares of Common Stock currently held by certain Investors as specified on
Exhibit A hereto; and (viii) 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 in all cases,
however, any shares sold or transferred by a person in a transaction in which
the rights under this Section 1 are not assigned.
(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 Demand Registration.
(a) If the Company shall receive at any time
after six (6) months after the effective date of the first registration
statement for a public offering of securities of the Company (other than a
registration statement relating either to the sale of securities to employees of
the Company pursuant to a stock option, stock purchase or similar plan or a SEC
Rule 145 transaction), a written request from (1) at least 30% of the
Registrable Securities then outstanding
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(the "Initiating Holders") or (2) Quantum Industrial Partners LDC or SFM
Domestic Investments LLC and, subject to Section 1.10, their permitted assigns
(the "Initiating Series F Holders"), requesting that the Company file a
registration statement under the Act covering the registration of a portion of
the Registrable Securities then outstanding, then the Company shall:
(i) within ten (10) days of the receipt
thereof, give written notice of such request to all Holders; and
(ii) effect as soon as practicable, and
in any event within sixty (60) days of the receipt of such request, the
registration under the Act of all Registrable Securities which the Holders
request to be registered, subject to the limitations of subsection 1.2(b), and,
in the event of a limitation pursuant to subsection 1.2(b), within fifteen (15)
days of the mailing of such notice by the Company in accordance with Section
5.5.
(b) If the Initiating Holders or the Initiating
Series F Holders intend to distribute the Registrable Securities covered by
their request by means of an underwriting, they shall so advise the Company as a
part of their request made pursuant to subsection 1.2(a) and the Company shall
include such information in the written notice referred to in subsection 1.2(a).
The underwriter will be selected by the Company and shall be reasonably
acceptable to a majority in interest of the Initiating Holders or the Initiating
Series F Holders, as the case may be. In such event, the right of any Holder or
other holder of securities of the Company to include securities in such
registration shall be conditioned upon such Holder's or holders' participation
in such underwriting and the inclusion of such Holder's or holders' securities
in the underwriting (unless otherwise mutually agreed by a majority in interest
of the Initiating Holders or the Initiating Series F Holders, as the case may
be, and such Holder or holder) to the extent provided herein. All Holders and
other holders of securities of the Company 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 underwriter advise the
Initiating Holders or the Initiating Series F Holders, as the case may be, in
writing that marketing factors require a limitation of the number of shares to
be underwritten, then the Initiating Holders or the Initiating Series F Holders
shall so advise all Holders of Registrable Securities and other holders of
registration rights which would otherwise be underwritten pursuant hereto, and
the number of shares of securities that may be included in the underwriting on
behalf of each Holder or other holder shall be allocated pro-rata amongst the
selling stockholders according to the total number of securities held by each
such selling stockholder and entitled to inclusion therein on the basis of a
registration rights agreement with the Company; provided that if marketing
factors require a limitation of the number of shares to be underwritten in a
registration requested by the Initiating Series F Holders, the Company shall
reduce (to zero, if necessary), first as to the any Holders of Registrable
Securities and other holders of registration rights who are not Initiating
Series F Holders as a group, if any, and then, if such reduction is not
sufficient, as to the Initiating Series F Holders as a group, pro rata within
each group based on the number of Registrable Securities included in the request
for registration, the amount of Registrable Securities to be included by each
Holder in such registration. For purposes of allocation securities to be
included in any offering, for any selling stockholder which is a
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partnership or corporation, the partners, retired partners and stockholders of
such holder (and in the case of a partnership, any affiliated partnerships), or
the estates and family members of any such partners and retired partners and any
trusts for the benefit of any of the foregoing persons shall be deemed to be a
single "selling stockholder," and any pro-rata reduction with respect to such
"selling stockholder" shall be based upon the aggregate amount of shares
carrying registration rights owned by all entities and individuals included in
such "selling stockholder," as defined in this sentence.
(c) Notwithstanding the foregoing, if the Company
shall furnish to the Holders requesting a registration statement pursuant
to this Section 1.2 a certificate signed by the Chief Executive Officer of the
Company stating that in the good faith judgment of the Board of Directors of the
Company, it would be seriously detrimental to the Company and its stockholders
for such registration statement to be filed and it is therefore essential to
defer the filing of such registration statement, the Company shall have the
right to defer taking action with respect to such filing for a period of not
more than ninety (90) days after receipt of the request of the Initiating
Holders or the Initiating Series F Holders, as the case may be; provided,
however, that the Company may not utilize this right more than once in any
twelve-month period.
(d) In addition, the Company shall not be obligated
to effect, or to take any action to effect, any registration pursuant to
this Section 1.2 after the Company has effected: (i) two (2) registrations
requested by the Initiating Holders pursuant to this Section 1.2, and (ii) two
registrations requested by the Initiating Series F Holders, pursuant to this
Section 1.2, and such registrations have been declared or ordered effective. For
purposes of this Section 1.2, a proposed registration that is withdrawn due to a
material adverse change in the Company's business or financial condition shall
not count as a registration.
(e) In addition, if the Company shall deliver to the
Initiating Holders or the Initiating Series F Holders, as the case may
be, requesting a registration statement pursuant to this Section 1.2, a
certificate signed by the Chief Executive Officer of the Company stating that
the Company intends to file, within sixty (60) days following the date of
receipt of the request of Initiating Holders or the Initiating Series F Holders,
as the case may be, a registration statement covering securities to be offered
by the Company on its own behalf, then the Company may defer the registration
statement requested by this Section 1.2 for so long as the Company in good faith
intends to file a registration statement for the offering of securities on its
own behalf (but in any event, a registration statement shall be filed within
ninety (90) days following receipt of the request of the Initiating Holders or
the Initiating Series F Holders, except as provided in paragraph (c) hereof). In
the event the Company shall file a registration statement for the offering of
securities on its own behalf as provided herein, the Holders shall be entitled
to include Registrable Securities in such registration and offering, provided
that the registration statement relates to shares of Common Stock of the Company
and Registrable Securities are eligible under law for inclusion in such
registration. In such event, the right of the Holders to inclusion of shares in
such registration and offering shall be governed by the provisions of Section
1.3 hereof, except that (with respect to an offering governed by this paragraph
(e)) in the event of an underwritten offering, if marketing factors require the
limitation of the number of shares to be underwritten, the number of shares to
be included in such underwritten registration and offering on behalf of the
Holders and other holders of pari passu registration rights shall not
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constitute less than forty percent (40%) of the total number of securities
included in such underwritten registration and offering.
1.3 Piggyback Registration Rights.
(a) Registration Rights. 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,
the first registration for a public offering of securities of the Company 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 5.5, 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 1.3(a). In such event, the right of any Holder
to registration pursuant to this Section 1.3 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 1.3, 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.
1.4 Form S-3 Registration. If at any time that the
Company shall be eligible to effect a registration and offering pursuant to Form
S-3 under the Act or any successor form ("Form S-3"), the Company shall receive
from one or more of the Holders a written request or requests that the Company
effect a registration on Form S-3 and any related qualification or compliance
with respect to all or a part of the Registrable Securities owned by such Holder
or Holders, the Company will:
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(a) promptly give written notice of the proposed
registration, and any related qualification or compliance, to all other
Holders; and
(b) as soon as practicable, effect such registration
and all such qualifications and compliances as may be so requested and
as would permit or facilitate the sale and distribution of all or such portion
of such Holder's or Holders' Registrable Securities as are specified in such
request, together with all or such portion of the Registrable Securities of any
other Holder or Holders joining in such request as are specified in a written
request given within fifteen (15) days after receipt of such written notice from
the Company; provided, however, that the Company shall not be obligated to
effect any such registration, qualification or compliance, pursuant to this
Section 1.4: (1) if Form S-3 is not available for such offering by the Holders;
(2) if the Holders, together with the holders of any other securities of the
Company entitled to inclusion in such registration, propose to sell Registrable
Securities and such other securities (if any) at an aggregate price to the
public (net of any underwriters' discounts or commissions) of less than one
million dollars ($1,000,000); (3) if the Company shall furnish to the Holders a
certificate signed by the President of the Company stating that in the good
faith judgment of the Board of Directors of the Company, it would be seriously
detrimental to the Company and its stockholders for such Form S-3 Registration
to be effected at such time, in which event the Company shall have the right to
defer the filing of the Form S-3 registration statement for a period of not more
than ninety (90) days after receipt of the request of the Holder or Holders
under this Section 1.4; provided, however, that the Company shall not utilize
this right more than twice in any twelve month period, and the Company shall not
utilize this right (or the similar right to defer in Section 1.2(c)) for two
consecutive ninety (90) days periods; (4) if the Company has, within the twelve
(12) month period preceding the date of such request, previously effected a
registration on Form S-3 pursuant to this Section 1.4; (5) in any particular
jurisdiction in which the Company would be required to qualify to do business or
to execute a general consent to service of process in effecting such
registration, qualification or compliance.
(c) Subject to the foregoing, the Company shall file
a registration statement covering the Registrable Securities and other
securities so requested to be registered as soon as practicable after receipt of
the request or requests of the Holders. Registrations effected pursuant to this
Section 1.4 shall not be counted as demands for registration or registrations
effected pursuant to Sections 1.2 or 1.3, respectively.
1.5 Furnish Information.
(a) 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.
(b) The Company shall have no obligation with respect
to any registration requested pursuant to Section 1.2 if, due to the operation
of subsection 1.5(a), the number of shares or the anticipated aggregate offering
price of the Registrable Securities to be included in the registration does not
equal or exceed the number of shares or the anticipated
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aggregate offering price required to originally trigger the Company's obligation
to initiate such registration as specified in subsection 1.2(a).
1.6 Expenses of Registration. The Company shall bear and pay
all expenses incurred in connection with any registration, filing or
qualification of Registrable Securities with respect to the registrations
pursuant to Sections 1.2, 1.3 and 1.4 for each Holder (which right may be
assigned as provided in Section 1.10), 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; provided, however, that the Company shall not be required to pay for
any expenses of any registration proceeding begun pursuant to Section 1.2 or 1.4
if the registration request is subsequently withdrawn at the request of a
majority of the Holders of the Registrable Securities electing to be registered
(in which case all participating Holders shall bear such expenses), unless (i)
the registration is withdrawn following any deferral of the registration by the
Company pursuant to Section 1.2(c) or 1.4(b); (ii) the registration is withdrawn
due to a material adverse change in the Company's business or financial
condition; or (iii) in the case of a demand registration pursuant to Section
1.2, the Holders of a majority of the Registrable Securities proposed to be
registered by such Holders requesting withdrawal agree that the Holders shall
forfeit their right to one registration pursuant to Section 1.2.
1.7 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.
1.8 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 the
indemnity agreement contained in this subsection 1.8(a) shall not apply to
amounts paid in
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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 1.8(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 1.8(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 1.8(b) exceed the gross proceeds
from the offering received by such Holder.
(c) Promptly after receipt by an indemnified party
under this Section 1.8 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 1.8,
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 1.8 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 1.8.
(d) If the indemnification provided for in this
Section 1.8 is held by a court of competent jurisdiction to be unavailable to an
indemnified party with respect to any loss,
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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 1.8(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 1.8(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 1.8 shall survive the completion of any offering of Registrable
Securities in a registration statement under this Section 1, and otherwise.
1.9 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.
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1.10 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 seventy-five thousand (75,000) 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 1.11 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, (i) Affiliated Persons, and (ii) the holdings of
spouses, ancestors, lineal descendants and siblings who acquire Registrable
Securities by gift, will or intestate succession (collectively, "Family
Members"), shall in each case 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 or
Family Members, as the case may be, for the purpose of exercising any rights,
receiving notices or taking any action under this Section 1.
1.11 "Market Stand-Off" Agreement.
(a) Each Holder 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.
(b) Each Holder 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.
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(c) Notwithstanding the foregoing, the obligations
described in this Section 1.11 shall not apply to a Holder eligible to use
Schedule 13G under the 1934 Act for any underwritten public offering by the
Company other than its initial underwritten public offering.
1.12 Termination of Registration Rights.
(a) The right of any Holder to inclusion in any
registration pursuant to Section 1.3 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.
(b) The right of any Holder to inclusion in any
registration pursuant to Sections 1.2 or 1.4 shall terminate upon the earlier of
(i) 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 two percent (2%) of the
outstanding capital stock of the Company, and (ii) the date which is three years
from the date of the Company's initial underwritten public offering.
2. Company Right of First Refusal on Sales of Shares.
2.1 General. In the event that a Holder proposes to make any
sale or transfer of Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock, Series E Preferred Stock, Series F
Preferred Stock or Common Stock issued upon conversion of Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock, Series E Preferred Stock or Series F Preferred Stock otherwise permitted
pursuant to this Agreement, then prior to effecting such sale or transfer the
Holder shall give the Company the opportunity to purchase such shares in the
following manner:
(a) Such Holder shall give notice (the "Transfer
Notice") to the Company in writing of such intention, specifying the
securities proposed to be sold or transferred, the proposed price per share
therefor (the "Transfer Price"), the name of the proposed transferee or
transferees and the other material terms upon which such disposition is proposed
to be made, including such other terms and information as the Company may
reasonably request in order to confirm the bona fide nature of the proposed
transaction.
(b) The Company shall have the right, exercisable by
written notice given by the Company to such Holder within thirty (30) days after
receipt of such Transfer Notice to purchase all (but not less than all) of the
securities specified in such Transfer Notice.
(c) If the Company exercises its right of first
refusal hereunder, the closing of the purchase of the securities with respect
to which such right has been exercised shall
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take place within thirty (30) days after the Company gives notice of such
exercise, which period of time shall be extended if necessary to comply with
applicable securities laws and regulations. Upon exercise of its right of first
refusal, the Company and such Holder shall be legally obligated to consummate
the purchase contemplated thereby and shall use their best efforts to secure any
approvals required in connection therewith.
(d) If the Company does not exercise its right of
first refusal hereunder within the thirty (30) day period specified for such
exercise, such Holder shall be free, during the period of thirty (30) days
following the expiration of such time for exercise to enter into an agreement to
sell the securities specified in such Transfer Notice, to the specified proposed
transferee or another investor which is solely a financial investor acquiring
for investment purposes, on terms no less favorable to such Holder than the
terms specified in such Transfer Notice, provided that the closing of the
purchase and sale of such securities shall take place within thirty (30) days
after such Holder enters into such agreement.
2.2 Exceptions. The right of first refusal herein shall not
apply to any transfer of securities by a Holder without receipt of consideration
by the Holder (i) to any Family Member (as defined in Section 1.1) of any Holder
who is an individual, or to a trust for the benefit of the Holder or the
Holder's Family Members, (ii) to any Affiliated Person (as defined in Section
1.1) of a Holder, (iii) to any partner, member of shareholder of the Holder, or
(iv) to any not-for-profit organization which qualifies under Section 501(c) of
the Internal Revenue Code of 1986, as amended, provided in any such case that
the transferee agrees to be bound by the provisions of this right of first
refusal with respect to any further transfers.
2.3 No Assignment of Rights of First Refusal. The Company may
not assign its rights of first refusal under this Section 2.
2.4 Termination. The Company's right of first refusal set
forth herein shall terminate upon the first to occur of (i) the closing of an
initial public offering of the Common Stock of the Company to the general public
which is effected pursuant to a registration statement filed with, and declared
effective by, the SEC under the Securities Act, and (ii) such date as the
Company shall be subject to the reporting requirements of Section 13(a) or 15(d)
of the 1934 Act.
3. Covenants of the Company.
3.1 Delivery of Financial Statements. The Company shall
deliver to each Investor, so long as such Investor shall be a Holder of at least
seventy-five thousand (75,000) shares of Registrable Securities (subject to
appropriate adjustment for stock splits, dividends, combinations and other
recapitalizations):
(a) as soon as practicable, but in any event within
one hundred twenty (120) days after the end of each fiscal year of the Company,
an income statement for such fiscal year, a balance sheet of the Company and
statement of stockholders' equity as of the end of such year, and a statement of
cash flows for such year, such year-end financial reports to be in reasonable
detail, prepared in accordance with generally accepted accounting principles,
and
-12-
<PAGE>
audited and certified by independent public accountants of nationally recognized
standing selected by the Company;
(b) as soon as practicable, but in any event within
sixty (60) days after the end of each of the first three (3) quarters of each
fiscal year of the Company, an unaudited profit or loss statement, a statement
of cash flows for such fiscal quarter and an unaudited balance sheet as of the
end of such fiscal quarter; and
(c) within thirty (30) days of the end of each month,
an unaudited profit or loss statement, a statement of cash flows for such month
and an unaudited balance sheet as of the end of such month.
3.2 Inspection Rights. The Company will permit representatives
of each Investor holding at least 75,000 shares of Registrable Securities
(subject to appropriate adjustments for all stock splits, dividends,
combinations, recapitalizations and the like) to visit and inspect any of its
properties and during regular business hours upon reasonable notice and as often
as may reasonably by desired, and (in person or telephonically) to discuss the
business, operations, properties, prospects and financial and other condition of
the Company and its subsidiaries with appropriate officers and employees of the
Company and its subsidiaries and with their independent certified public
accountants, subject to an appropriate nondisclosure agreement being executed by
the Investor.
3.3 Payment of Taxes and Other Claims. The Company and its
subsidiaries will pay or discharge (or cause to be paid or discharged), before
the same shall become delinquent, all material Taxes, assessments and
governmental charges levied or imposed upon the Company or its subsidiaries or
upon its or their income, profits or property; provided, however, that the
Company and its subsidiaries shall not be required to pay or discharge or cause
to be paid or discharged) any such Tax, assessment or charge whose amount,
applicability or validity is being contested in good faith by appropriate
proceedings provided that adequate reserves or accruals are established and
maintained therefor in accordance with GAAP.
3.4 Maintenance of Properties; Insurance.
(a) Maintenance of Properties. The Company will, in
all material respects, cause all its properties, licenses, rights, franchises
and agreements ("Properties"), and the Properties of its subsidiaries used or
useful in the conduct of the business of the Company and its subsidiaries, to be
maintained and kept in good condition, repair and working order, and will cause
to be made all necessary repairs, renewals, replacements, and improvements
thereof, all as in the judgment of Company may be reasonable for the conduct of
the business of the Company; provided, however, that nothing in this Section 3.4
shall prevent the Company or a subsidiary from discontinuing the operation and
maintenance of any Property if such discontinuance is, in the judgment of the
Company, desirable in the conduct of its business.
(b) Insurance. The Company shall obtain and maintain
(or cause to be obtained and maintained) for itself and each of its
subsidiaries from one or more carriers, policies for "all risk" and general
public liability insurance against loss, damage or claims of the kinds
-13-
<PAGE>
that, in the reasonable, good faith opinion of the Company, is adequate and
appropriate for the conduct of the business of the Company and such Subsidiaries
in a prudent manner, all of which insurance shall be in such amounts, with such
deductibles and amounts of self-insurance and by such methods as shall be
customary, and adequate and appropriate for the conduct of the business of the
Company and such subsidiaries in a prudent manner for entities similarly
situated in its industry.
3.5 Books and Records. The Company will, and will cause each
of its subsidiaries to, keep proper books of record and account in which entries
in conformity with generally accepted accounting principles and all requirements
of applicable law shall be made of all dealings and transactions in relation to
its and their business and activities. The Company shall maintain an office in
the continental United States where such books and records shall be maintained
and can be inspected.
3.6 Compliance with Laws. The Company shall comply, and shall
cause each of its subsidiaries to comply, with all Laws (as defined in Section
2.25 of the Purchase Agreement) to which any of them or any of their respective
properties is subject, except to the extent that the failure to so comply is not
reasonably expected to have a material adverse effect upon the business or
financial condition of the Company.
3.7 Proprietary Information Agreements. The Company shall
maintain in full force and effect in accordance with their respective terms, and
shall take all actions necessary to protect and enforce its rights under, its
Proprietary Information and Invention Assignment Agreements with its employees.
3.8 Investment Company Act. The Company shall not become an
"investment company" or a company "controlled" by an "investment company,"
within the meaning of the Investment Company Act of 1940, as amended. In the
event that the Company breaches the foregoing, the Company shall forthwith
notify the Purchasers and shall take immediate corrective action to the extent
commercially practicable in order to remedy such breach.
3.9 Termination of Covenants. The covenants set forth in this
Section 3 shall terminate and be of no further force or effect (i) when the sale
of securities pursuant to a registration statement filed by the Company under
the Act in connection with the firm commitment underwritten offering of its
securities to the general public is consummated or when the Company first
becomes subject to the periodic reporting requirements of Sections 13(a) or
15(d) of the 1934 Act, whichever event shall first occur or (ii) with respect to
the covenants set forth in this Section 3, as to any Holder, or transferee or
assignee of such Holder, who is deemed by the Board of Directors of the Company
to be a competitor or potential competitor of the Company.
4. Securities Law Compliance.
4.1 Restrictions on Transferability. The Series A, Series B,
Series C, Series D, Series E and Series F Preferred Stock (collectively, the
"Preferred Stock"), the Common Stock issuable upon conversion thereof (the
"Conversion Stock") and any other
-14-
<PAGE>
securities issues with respect of the Preferred Stock 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 this Agreement, which conditions are intended to ensure compliance
with the provisions of the Act. Each Investor will cause any proposed purchaser,
assignee, transferee, or pledgee of any such shares held by such Investor to
agree to take and hold such securities subject to the provisions and upon the
conditions specified in this Agreement.
4.2 Further Limitations on Disposition. Without in any way
limiting the above, each Investor further agrees not to make any disposition of
all or any portion of the Preferred Stock or Conversion Stock unless and until
the transferee has agreed in writing for the benefit of the Company to be bound
by Sections 1.11 and 2 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 4.1 and 4.2, and:
(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.
Notwithstanding the foregoing, any shares of Series E Preferred Stock
of the Company, any Common Stock issuable upon exercise thereof, as well as any
other shares of capital stock of the Company which are issued with respect to
such shares as a result of a stock dividend, stock split, or other capital
reorganization of the Company, purchased by Hambrecht & Quist California,
Hambrecht & Quist Employee Venture Fund, L.P. II, Access Technology Partners,
L.P., Access Technology Partners Brokers Fund, L.P. and H&Q CrossWorlds Software
Investors, L.P. (collectively the "H&Q Investors") pursuant to the terms of the
Series E Preferred Stock Purchase Agreement and the other agreements referenced
therein, each dated as of January 7, 1999, as amended as of the date hereof,
shall be freely transferable between the H&Q Investors without restriction,
including but not limited to any restriction imposed by the Company or any
requirement of prior notice to the Company or any other restriction other wise
imposed by or for the benefit of the Company in connection with any such
transfer.
5. Miscellaneous.
5.1 Successors and Assigns. Except as otherwise provided
herein, 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
(including transferees of any shares of Registrable Securities). 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,
-15-
<PAGE>
obligations, or liabilities under or by reason of this Agreement, except as
expressly provided in this Agreement.
5.2 Governing Law. This Agreement shall be governed by and
construed under the laws of the State of California as such laws apply to
agreements entered into by residents of California and to be performed entirely
within such state.
5.3 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.
5.4 Titles and Subtitles. The titles and subtitles used in
this Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
5.5 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 upon receipt or, if earlier, (a) five
(5) days after deposit with the U.S. Postal Service or other applicable postal
service, if delivered by first class mail, postage prepaid, (b) upon delivery,
if delivered by hand, (c) one (1) business day after the business day of deposit
with Federal Express or similar overnight courier, freight prepaid or (d) one
(1) business day after the business day of facsimile transmission, if delivered
by facsimile transmission with copy by first class mail, postage prepaid, and
shall be addressed (i) if to an Investor, at the Investor's addresses as set
forth on Exhibit A hereto and (ii) if to the Company, at the address of its
principal corporate offices (attention: Secretary), or in any such case at such
other address as a party may designate by ten (10) days' advance written notice
to the other party pursuant to the provisions above.
5.6 Expenses. If any action at law or in equity is necessary
to enforce or interpret the terms of this Agreement, the prevailing party shall
be entitled to reasonable attorneys' fees, costs and necessary disbursements in
addition to any other relief to which such party may be entitled.
5.7 Amendments and Waivers. Any term of this Agreement may be
amended and the observance of any term of this 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 holders of
a majority of the Registrable Securities then outstanding; provided that (a) the
provisions of Sections 1.11(c) and 3.8 may not be amended as to any Holder
without such Holder's prior written consent, (b) the provisions of Section 3 may
be amended only with the consent of the holders of a majority of the outstanding
Series D Preferred Stock, (c) the provisions of Sections 1.1(b), 1.2(a), 1.10,
1.12 and 2.2 may be amended only with the written consent of Quantum Industrial
Partners LDC and SFM Domestic Investments LLC and (d) the provisions set forth
in the last paragraph of Section 4.2 with respect to the H&Q Investors may be
amended only with the consent of a majority of the Registrable Securities held
by the H&Q Investors. Any amendment or waiver effected in accordance with this
paragraph shall be binding upon each holder of any Registrable Securities then
outstanding, each future holder of all such Registrable Securities, and the
Company.
-16-
<PAGE>
5.8 Aggregation of Stock. All shares of the Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock, Series E Preferred Stock or Series F Preferred Stock held or acquired (or
Common Stock issued upon conversion thereof) by affiliated entities or persons
(including (i) partners or constituent members, (ii) former partners and former
constituent members and (iii) affiliated companies controlled by, controlling or
under common control of such person or entity and their employees and each of
its and their clients with assets under management by any of them) shall be
aggregated for the purpose of determining the availability of or discharge of
any rights under this Agreement. For purposes of this Section 5.8, the Company
may rely on such person whom a group of related persons shall designate from
time to time for information relating to the affiliations of entities or
persons.
5.9 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.
5.10 Entire Agreement. This Agreement (including the Exhibits
hereto, if any) constitutes the full and entire understanding and agreement
between the parties with regard to the subjects hereof and thereof, and
supersedes all prior agreements and understandings with respect to the subject
matter hereof (including without limitation the Prior Agreement).
5.11 Additional Parties. The parties hereto agree that should
the Company sell additional shares of Series F Preferred Stock to additional
purchasers (the "Additional Purchasers") pursuant to any Additional Closing (as
defined in the Purchase Agreement), such Additional Purchasers shall, after
executing copies of this Agreement (and without any amendment hereto), become
"Investors" and "Purchasers" hereunder and have their names and related
information added to Exhibit A hereto.
-17-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Fifth Restated
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
SERIES F HOLDER:
NIR BARKAT HOLDINGS, LTD.
By:
--------------------------------------
Name:
Title:
ELI BARKAT HOLDINGS, LTD
By:
--------------------------------------
Name:
Title:
YUVAL 63 HOLDINGS 1995, LTD
By:
--------------------------------------
Name:
Title:
BARE, LLC
By:
--------------------------------------
Name:
Title:
[Signature Page to Fifth Restated Investor Rights Agreement]
<PAGE>
QUANTUM INDUSTRIAL PARTNERS LDC
By:
--------------------------------------
Name: Michael C. Neus
Title: Attorney-in-Fact
SFM DOMESTIC INVESTMENTS LLC
By:
--------------------------------------
Name: Michael C. Neus
Title: Attorney-in-Fact
[Signature Page to Fifth Restated Investor Rights Agreement]
<PAGE>
SAP AG (Walldorf)
By:
--------------------------------------
Name:
Title:
[Signature Page to Fifth Restated Investor Rights Agreement]
<PAGE>
SELIGMAN COMMUNICATIONS AND
INFORMATION FUND, INC.
By: J. & W. Seligman & Co. Incorporated,
Its investment advisor
By:
--------------------------------------
Name:
Title:
[Signature Page to Fifth Restated Investor Rights Agreement]
<PAGE>
TERENCE J. GARNETT and KATRINA A.
GARNETT, Trustees of the GARNETT
FAMILY TRUST U/D/T dated April 2, 1997
By: __________________________________
Name:
Title:
KATRINA GARNETT
--------------------------------------
FREDERICK GLUCK
--------------------------------------
ANDREW LUDWICK
--------------------------------------
The Ludwick Family 1989 Trust, Andrew K.
Ludwick and Worth Z. Ludwick, Trustees
By: __________________________________
Name:
Title:
LUDWICK FAMILY LIMITED PARTNERSHIP
By: __________________________________
Name:
Title:
[Signature Page to Fifth Restated Investor Rights Agreement]
<PAGE>
ACCESS TECHNOLOGY PARTNERS BROKERS FUND, L.P.
By: H&Q VENTURE MANAGEMENT, LLC
Its: General Partner
By:
----------------------------------------------
Its:
----------------------------------------------
H&Q CROSSWORLDS SOFTWARE INVESTORS, L.P.
By:
----------------------------------------------
Its:
----------------------------------------------
HAMBRECHT & QUIST CALIFORNIA
By:
----------------------------------------------
Its:
----------------------------------------------
HAMBRECHT & QUIST EMPLOYEE VENTURE FUND, L.P. II
By: H&Q VENTURE MANAGEMENT, LLC
Its: General Partner
By:
----------------------------------------------
Its:
----------------------------------------------
ACCESS TECHNOLOGY PARTNERS, L.P.
By: ACCESS TECHNOLOGY MANAGEMENT, LLC
Its: Managing Member
By:
----------------------------------------------
Its:
----------------------------------------------
[Signature Page to Fifth Restated Investor Rights Agreement]
<PAGE>
VENROCK ASSOCIATES
By: __________________________________
Name:
Title:
VENROCK ASSOCIATES II, L.P.
By: __________________________________
Name:
Title:
[Signature Page to Fifth Restated Investor Rights Agreement]
<PAGE>
ALBERT A. PIMENTEL
----------------------------------
[Signature Page to Fifth Restated Investor Rights Agreement]
<PAGE>
Exhibit A
SCHEDULE OF INVESTORS
INVESTOR ADDRESSES
George F. Adam, Jr.
Admirals L.P.
ATGF II
SUCRE Building Calle 48 Este
Bella Vista, PO Box 5168
Panama S, Panama
Attractor LP
1110 Burlingame Avenue
Burlingame, CA 94010
Attention: Harvey Allison
Attractor Dearborn Partners LP
1110 Burlingame Avenue
Burlingame, CA 94010
Attention: Harvey Allison
Attractor Institutional LP
1110 Burlingame Avenue
Burlingame, CA 94010
Attention: Harvey Allison
Axon Solutions Limited
90a Queens Road
Twickenham
Middlesex
TWI 4ET, UK
<PAGE>
Bayview Investors, Ltd.
c/o Dana Zink
555 California Street
San Francisco, CA 941041
William James Bell 1993 Trust
10539 Bellagio Road
Los Angeles, CA 90077
Attention: William Bell
Marc Benioff
95 Telegraph Hill
San Francisco, CA 94133
Brad Benson
c/o People Soft
4440 Rosewood Dr., Bldg. 4
Pleasanton, CA 94588-3050
Mark A. Bertelsen
2250 Byron Street
Palo Alto, CA 94301
BIG Partnership
c/o Margaret L. Taylor
40 Kentfield Court
Alamo, CA 94507
BmU-Beteiligungsgesellschaft fur
mittelstandische Unternehmen mbH
Am Platz der Republik
60325 Frankfurt am Main
Germany
George Boutros
c/o Credit Suisse First Boston
2400 Hanover Street
Palo Alto, CA 94304
Ann S. Bowers Separate Property
Trust, Ann S. Bowers, Trustee
237 Coleridge Avenue
Palo Alto, CA 94301-3532
<PAGE>
James J. Bozzini
c/o PeopleSoft
4440 Rosewood Drive, Bldg. 4
Pleasanton, CA 94588
William J. Brady
c/o People Soft
4440 Rosewood Dr., Bldg. 4
Pleasanton, CA 94588-3050
Roy Bukstein
c/o Alger & Bukstein
790 Clydesdale Road
Hillsborough, CA 94010
David Burlington
c/o People Soft
4440 Rosewood Dr., Bldg. 4
Pleasanton, CA 94588-3050
Johnny S. Chen and Sherry H. Chen
1994 Trust
c/o Johnny Chen
Sybase
6475 Christie Avenue
Emeryville, CA 94608
Emily A. Chien
21 East 87th Street, Apt. 8C
New York, NY 10128
Anthony Ciulla
c/o Amerindo Investment Advisers, Inc.
One Embarcadero Center, Suite 2300
San Francisco, CA 94111
CPQ Holdings, Inc.
20555 State Highway 249
Mail Stop 110605
Houston, TX 77070
Attention: Shaka Jaggi
<PAGE>
Michael S. Dell
c/o Dell Computer Corporation
2214 W. Braker Lane, Suite D
Austin, TX 78758
DMG Employee Coinvestment Fund, L.P.
31 W. 52nd St., 13th Floor
New York, NY 10019
Attention: Frank Thuemmer
DMG Technology Ventures, L.L.C.
31 W. 52nd St., 13th Floor
New York, NY 10019
Attention: Frank Thuemmer
Dain, Rauscher & Wessels
Dain Rauscher Plaza
60 South 6th Street, 18th Floor
Minneapolis, MN 55402
Attention: Bryson Hollimon
David A. Duffield Trust
Dated July 14, 1988
c/o PeopleSoft
4440 Rosewood Drive, Bldg. 4
Pleasanton, CA 94588
Francois Duliege
c/o UB Networks
29 Bis Avenue du Chateau
Le Perrenx, FRANCE 94170
J.D. Edwards & Company
One Technology Way
Denver, CO 80237
Attention: Rick Allen
Fede Corp.
Egerton Stud, The Hodge
Cambridge Road
New Market, Suffolk
CB806J, England
<PAGE>
Michael Frandsen
c/o People Soft
4440 Rosewood Dr., Bldg. 4
Pleasanton, CA 94588-3050
Galleon Management Services
135 E. 57th Street, 26th Floor
New York, NY 10022
Attention: Raj Rajarantnam
Katrina A. Garnett
c/o CrossWorlds Software, Inc.
577 Airport Blvd., Ste. 800
Burlingame, CA 94010
Terence J. Garnett and Katrina
Garnett, as Husband and Wife
c/o CrossWorlds Software, Inc.
577 Airport Blvd., Ste. 800
Burlingame, CA 94010
George Gilbert
c/o Credit Suisse First Boston
2400 Hanover Street
Palo Alto, CA 94304
Frederick W. Gluck
743 San Ysidro Road
Santa Barbara, CA 93108
Hambrecht & Quist California
Hambrecht & Quist Employee
Venture Fund, L.P. II
Access Technology Partners, L.P.
Access Technology Partners Brokers Fund, L.P.
H&Q CrossWorlds Software Investors, L.P.
One Bush Street
San Francisco, CA 94104
John J. Hamilton III
c/o William Wilson & Co.
150 Fox Hollow Road
Woodside, CA 94062
Attention: John J. Hamilton
<PAGE>
Promod Haque
236 Old Adobe Road
Los Gatos, CA 95030
Anthony Harris
c/o SAP Australia Pty Ltd.
Level 1, 168 Walker Street
North Sydney NSW 2060
Australia
Les Hayman
750A Chai Chee Road
7th Floor Chai Chee Industrial Park
Singapore 469001
Industri-Mathematik International Corp.
Box 7733
103 95 Stockholm, Sweden
Intel Corporation
Attn: Guy Anthony
Strategic Investments and Acquisitions
Treasury Department SC4210
2200 Mission College Boulevard
Santa Clara, CA 95052
John Martin Jack, Trustee, FBO
John M. Jack Trust U/A/D 08/10/95
c/o Vantive Corporation
2455 Augustine Drive
Santa Clara, CA 95054
Friedrich Carol Janssen
Amal Johnson, Trustee,
Johnson Family Living Trust
BAAN
2350 Mission College Blvd., Ste. 1300
Santa Clara, CA 95054
<PAGE>
Kanematsu Corporation
1555 Bovet Rd., Suite 800
San Mateo, CA 94402
Attn: Rob Jacobs
Kanematsu USA Inc.
1555 Bovet Rd., Suite 800
San Mateo, CA 94402
Attn: Rob Jacobs
Fred Langhammer
c/o Estee Lauder
767 5th Avenue
New York, NY 10153
Attention: Frank Thuemmler
Michael J. Levinthal and Katherine Grace Schlien
and Theodore Elliott Schlein, Trustees of the
Levinthal Family Generation SkippingTrust
c/o Mayfield
420 Maple Street
Palo Alto, CA 94301
Michael J. Levinthal and Katherine Grace Schlien
and Theodore Elliott Schlein, Trustees of the Kate
Parker Levinthal Trust-1997 UTA dated 10/8/97
c/o Mayfield
420 Maple Street
Palo Alto, CA 94301
Michael J. Levinthal, Trustee of the
Michael J. Levinthal Trust U/D/T 1/18/88
c/o Mayfield
420 Maple Street
Palo Alto, CA 94301
Michael J. Levinthal and Katherine Grace Schlien
and Theodore Elliott Schlein, Trustees of the
Zachary Dylan Parker Trust dated 10/8/97
c/o Mayfield
420 Maple Street
Palo Alto, CA 94301
<PAGE>
Litton Master Trust
c/o Chase Manhattan Bank
Four New York Plaza
Ground Floor
New York, NY 10004
Attn: Chase Acct# P49391, Litton Industries
The Ludwick Family Limited Partnership
491 Santa Rita Road
Palo Alto, CA 94301
The Ludwick Family 1989 Trust, Andrew K.
Ludwick and Worth Z. Ludwick, Trustees
491 Santa Rita Road
Palo Alto, CA 94301
John R. and Rhonda R. Luongo
c/o Vantive Corporation
2455 Augustine Corporation
Santa Clara, CA 95054
Homer L. Luther
3661 Wickersham Lane
Houston, TX 77027
Homer Luther IRA Rollover
3661 Wickersham Lane
Houston, TX 77027
Manugistics, Inc.
2115 East Jefferson Street
Rockville, MD 20852-4999
Attention: Bill Gibson
Emeric McDonald
c/o Amerindo Investment Advisers, Inc.
One Embarcadero Center, Suite 2300
San Francisco, CA 94111
Christina M. Morgan
c/o Hambrecht & Quist
2127 Greenways Drive
Woodside, CA 94062
<PAGE>
Nancy S. Mueller Revocable Trust
2100 Waverly Street
Palo Alto, CA 94301
T. Michael and Yvonne M. Nevens
as Husband and Wife
c/o McKinsey & Co.
24142 Summerhill Avenue
Los Altos, CA 94024
Nexus Capital Partners I L.P.
c/o DMG
1 Market Plaza
Steuart Tower, Suite 2400
San Francisco, CA 94105
Attention: Rob Horning
NIR Barkat Holdings, LTD
ELI Barkat Holdings, LTD
Yuval 63 Holdings 1995, LTD
BARE, LLC
8 Hamarpe st
Har Hozvim, Jerusalem
Israel 91450
Attention: Avi Broder
Omron Corporation
Karasuma Nanajo
Shinogoyo-ky
Kyoto 617
Japan
Attention: Tatsuro Ichihara
Pade Family Trust
c/o McKinsey & Co.
Attn: William Pade
630 Hansen Way
Palo Alto, CA 94304
Palmetto Partners
Attn: Don Kendall
711 Louisianna, 33rd Floor
Houston, TX 77002
<PAGE>
Robert T. Pardue
c/o PeopleSoft
4440 Rosewood Drive, Bldg. 4
Pleasanton, CA 94588-3050
Thomas Pasley
c/o People Soft
4440 Rosewood Dr., Bldg. 4
Pleasanton, CA 94588-3050
Charles E. Phillips
c/o Morgan Stanley
1585 Broadway, 14th Floor
New York, NY 10036
Ross Anthony Pimentel 1994 Trust
c/o Rocky Pimentel
18206 Daves Avenue
Monte Sereno, CA 95030
Albert A. & Laurie J. Pimentel Joint Trust
c/o Rocky Pimentel
18206 Daves Avenue
Monte Sereno, CA 95030
Jacquelyn Marie Pimentel 1994 Trust
c/o Rocky Pimentel
18206 Daves Avenue
Monte Sereno, CA 95030
Jayne Leigh Pimentel 1994 Trust
c/o Rocky Pimentel
18206 Daves Avenue
Monte Sereno, CA 95030
Kathryn Rose Pimentel 1996 Trust
c/o Rocky Pimentel
18206 Daves Avenue
Monte Sereno, CA 95030
<PAGE>
Porcelain Partners L.P.
c/o DMG
1 Market Street
Steuart Tower, Suite 2400
San Francisco, CA 94105
Attention: Rob Homing
Quattrone Family Trust, Frank P. Quattrone and
Denise Foderaro, Trustees
c/o Credit Suisse First Boston Corp.
2400 Hanover Street
Palo Alto, CA 94304
M.R. Rangaswami
6233 E. Country Club Vista Drive
Tucson, AZ 85750
David B. Readerman and Rita Burgess, as Husband
and Wife
55 Rolling Hills Road
Tiburon, CA 94520
Heinz Ulrich Roggenkemper
c/o SAP AG
950 Tower Ln., 16th Floor
Foster City, CA 94404
SAP AG
950 Tower Ln., 16th Floor
Foster City, CA 94404
Attn: Heinz Ulrich Roggenkemper
Ori Sasson
2 Irving Court
Orinda, CA 94563
Seligman Communications and Information Fund,
Inc.
125 University Avenue
Palo Alto, CA 94301
Attention: Storm Bostwick
<PAGE>
James C. Sha
c/o Actra
18 Valley Oak
Portola Valley, CA 94028
Roger J. Sippl
c/o Visigenics
116 Fox Hollow Road
Woodside, CA 94062
Bob Spinner
c/o Clarify
2125 O'Nell Drive
San Jose, CA 95131
James Stableford
c/o Amerindo Investment Advisers, Inc.
43 Upper Grosvenor Street
London W1X9PG
England
David Stamm
c/o Clarify Inc.
2125 O'Nell Drive
San Jose, CA 95131
Star Bay Partners, L.P., a California Limited
Partnership
44 Montgomery Street, Suite 2000
San Francisco, CA 94104
Attention: Pascal N. Levensohn
Frank H. Thuemmler
c/o DMG Technology
31 West 52nd Street, 15th Floor
New York, NY 10019
Thyssen Global, Inc.
1 Piso
1642 Lomas de San Isidro
Buenos Aires, Argentina
Attention: Claudio Zich Thyssen
<PAGE>
Morton Topfer
c/o Dell Computer Corporation
1415 Woolridge Drive
Austin, TX 78703
Venrock Associates
30 Rockefeller Plaza, Room 5508
New York, NY 10112
Attn: Ted McCourtney
Venrock Associates II, L.P.
30 Rockefeller Plaza, Room 5508
New York, NY 10112
Attn: Ted McCourtney
Alex Vieux
c/o Dasar
1157 San Antonio Road
Mountain View, CA 94043
John Neil Weintraut
c/o 21st Century Internet
1949 Chestnut Street #201
San Francisco, CA 94123
The Wilson Family Limited Partnership
c/o William Wilson & Associates
Attn: William Wilson
2929 Campus Drive, Suite 450
San Mateo, CA 94403
William Wilson III
c/o William Wilson & Associates
Attn: William Wilson
2929 Campus Drive, Suite 450
San Mateo, CA 94403
WS Investment Co. 96A
Attn: Mary Anne Pedroni
650 Page Mill Road
Palo Alto, CA 94304-1050
<PAGE>
WS Investment Co. 97A
Attn: Mary Anne Pedroni
c/o Wilson, Sonsini, Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94304-1050
Trustee, WSG&R Retirement Plan
FBO Howard S. Zeprun
Attn: Jayne Brownlee
650 Page Mill Road
Palo Alto, CA 94304-1050
Howard S. Zeprun, as custodian for
Morgan Garnett under CUTMA
until age 21
Wilson, Sonsini, Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94304
Quantum Industrial Partners LDC
SFM Domestic Investments LLC
Attn: Michael C. Neus, Esq.
c/o Soros Fund Management
888 Seventh Avenue
New York, NY 10106
SAP AG (Walldorf)
Neurottstrasse 16
69190 Walldorf
Germany
Tel: ###-##-#### 7 51222
Fax: ###-##-#### 7 42540
[Robert Solomon]
[Address]
<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:_____________________________
Title:__________________________
EXHIBIT A - Stock Option Agreements
EXHIBIT B - Proprietary Information Agreement
9
<PAGE>
EXHIBIT 10.10
PROMISSORY NOTE
---------------
$100,000.00 Burlingame, California
February 14, 2000
For value received, the undersigned promises to pay CrossWorlds Software,
Inc., a Delaware corporation (the "Company"), at its principal office the
-------
principal sum of $100,000.00 with interest from the date hereof at a rate of
6.20% per annum, compounded annually, on the unpaid balance of such principal
sum.
Principal and interest shall be due and payable on February 14, 2002. So
long as the undersigned remains an employee of the Company, the Company shall
forgive the loan 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
Company's stockholders immediately prior thereto own less than 50% of the voting
stock of the Company (or its successor or parent) immediately thereafter.
In the event of any voluntary or involuntary termination of the
undersigned's employment by the Company for any or no reason, this Note, shall,
at the option of the Company, be accelerated, and the whole unpaid balance on
this Note (to the extent not forgiven) of principal and accrued interest shall
be immediately due and payable. The Company shall have the right to deduct the
amount due and payable to the Company under this Note at the time of such
termination from any amounts, including accrued salary and vacation benefits,
then due to the undersigned. The undersigned shall execute the documentation
provided by the Company at the time of any such deduction.
Principal and interest are payable in lawful money of the United States of
America. AMOUNTS DUE UNDER THIS NOTE MAY BE PREPAID AT ANY TIME WITHOUT PREMIUM
OR PENALTY.
Should any action be instituted for the collection of this Note, the
reasonable costs and attorneys' fees therein of the holder shall be paid by the
undersigned The makers and endorsers have severally waived presentment for
payment, protest, notice of protest and notice of nonpayment of this Note.
This Note is not secured.
The holder of this Note shall have full recourse against the undersigned.
In case of an event of default the Company may proceed against the undersigned
as permitted by applicable law.
/s/ James Rowley
--------------------
James Rowley
<PAGE>
Exhibit 10.12
[ON CROSSWORLDS LETTERHEAD]
[Officers]
______ __, 2000
_______________
_______________
_______________
Dear __________:
This letter agreement (the "Agreement") is to confirm the terms of your
ongoing employment with CrossWorlds Software, Inc. (the "Company") and, with the
exhibits attached hereto, supercedes and replaces all prior oral and/or written
agreements regarding the subject matter hereof between you and the Company.
1. Term of Employment. This Agreement will commence on the date hereof
------------------
and continue until it is terminated by either you or the Company. You
acknowledge that your employment is and will continue to be at-will, as defined
under applicable law, and that your employment with the Company may be
terminated by either party at any time for any or no reason. If your employment
terminates for any reason, you will not be entitled to any payments, benefits,
damages, award or compensation other than as provided in this Agreement. The
rights and duties created by this paragraph may not be modified in any way
except by a written agreement executed by the Chief Executive Officer on behalf
of the Company.
2. Duties and Obligations. You are employed as [______________] of the
----------------------
Company, and as such report to the Company's [_______________]. Your job duties
and responsibilities are described on Exhibit A attached hereto. You agree to
---------
the best of your ability and experience that you will, to the reasonable
satisfaction of the Company and its Board of Directors (the "Board"), at all
-----
times loyally and conscientiously perform all of the duties and obligations
required of you pursuant to the terms of this Agreement or reasonably related to
your position. You will comply with and be bound by the Company's operating
policies, procedures and practices from time to time in effect during the term
of your employment.
3. Change of Control.
-----------------
(a) Treatment of Stock Options upon a Change of Control. In
---------------------------------------------------
the event of a Change of Control (as defined below) and unless otherwise limited
by the provisions of paragraph 5 below, each stock option and share of
restricted stock you hold that is not otherwise fully exercisable or vested
(released from the Company's repurchase option) as of the effective date of a
shall become immediately exercisable or vested as of such date in an amount
equal to twenty-five percent (25%) of the remaining unvested portion of each
option or share of restricted stock you hold.
<PAGE>
(b) Involuntary Termination following a Change of Control. If your
-----------------------------------------------------
employment is involuntarily terminated other than for Cause (as defined below)
or terminated by you following a Constructive Termination (as defined below) at
any time within one (1) year following a Change of Control, you will be entitled
to receive payment of severance benefits equal to 6 months of your regular
monthly salary plus target bonus (subject to any applicable tax withholding).
Payment will be made in a lump sum immediately following the termination date.
Pursuant to the provisions of COBRA, health insurance benefits with the same
coverage provided to you prior to the termination (e.g. medical, dental,
optical, mental health) and in all other respects significantly comparable to
those in place immediately prior to the termination will be provided at the
Company's cost until the earlier of 6 months following the termination date or
the date on which you are eligible for comparable health benefits from another
employer. In addition, and except as otherwise determined below, each stock
option and share of restricted stock you hold that is not otherwise fully
exercisable or vested (released from the Company's repurchase option) as of the
termination date shall become vested in accordance with the provisions of
section 13(c) of the Company's 1997 Stock Plan (the "Plan"), a copy of which is
attached hereto as Exhibit B. In the event that your termination occurs on the
---------
effective date of the Change of Control transaction, the stock acceleration
benefits provided in section 13(c) of the Plan shall occur prior to the stock
acceleration benefits provided in subparagraph (a) above.
5. In the event that the severance and other benefits provided to you
by this Agreement constitute "parachute payments" within the meaning of Section
280G of the Internal Revenue Code of 1986, as amended (the "Code"), and (ii) but
for this paragraph 6, would be subject to the excise tax imposed by Section 4999
of the Code (or any corresponding provisions of state income tax law), then the
stock vesting acceleration described above shall be either
(i) delivered in full, or
(ii) delivered as to such lesser extent which would result in no
portion of such severance benefits being subject to excise tax under Section
4999 of the Code, whichever of the foregoing amounts, taking into account the
applicable federal, state and local income taxes and the excise tax imposed by
Section 4999, results in your receipt on an after-tax-basis, of the greater
amount of severance benefits, notwithstanding that all or some portion of such
severance benefits may be taxable under Section 4999 of the Code. Any
determination required under this paragraph 6 shall be made in writing by the
Company's independent accountants, whose determination shall be conclusive and
binding on you and the Company. In the event that subdivision (i) above applies,
then you shall be responsible for any excise taxes imposed with respect to such
severance and other benefits. In the event that subdivision (ii) above applies,
then each benefit provided hereunder shall be proportionately reduced to the
extent necessary to avoid imposition of such excise taxes.
6. For purposes of this Agreement, the following definitions will apply:
(a) "Cause" for your termination will exist if the Company terminates
-----
your employment for any of the following reasons: (i) you willfully fail
substantially to perform your
-2-
<PAGE>
duties hereunder (other than any such failure due to your physical or mental
illness), and such willful failure is not remedied within 10 business days after
written notice from the Company's Chief Executive Officer, which written notice
shall state that failure to remedy such conduct may result in an involuntary
termination for cause; (ii) you engage in willful and serious misconduct that
has caused or is reasonably expected to result in material injury to the Company
or any of its affiliates, (iii) you are convicted of or enter a plea of guilty
or nolo contendere to a crime that constitutes a felony, or (iv) you willfully
breach any of your obligations hereunder or under any other written agreement or
covenant with the Company or any of its affiliates, including, but not limited
to, the Confidentiality Agreement, and such willful breach is not remedied
within 10 business days after written notice from the Company's Chief Executive
Officer, which written notice shall state that failure to remedy such conduct
may result in an involuntary termination for cause.
(b) "Change of Control" will 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 Company's
stockholders immediately prior thereto own less than 50% of the voting stock of
the Company (or its successor or parent) immediately thereafter.
(c) "Comparable Employment" will mean employment or consulting that
---------------------
provides compensation, benefits and duties that, in the sole discretion of the
Board, are deemed to be generally comparable to those pertaining to your
position with the Company at the time of termination of your employment.
(d) "Constructive Termination" will be deemed to occur if, without
------------------------
your prior written consent, there is: (A)(i) a material reduction of your duties
and responsibilities as [___________] of the Company (or a successor
corporation); (ii) any reduction in the total value of your compensation and
benefits; (iii) a relocation of your business office location to a location that
increases your commute by more than thirty (30) miles from your current business
office location, and (B) within sixty (60) days immediately following such
material change in duties or reduction in value of base compensation and
benefits or relocation of business office you elect to terminate your employment
voluntarily. For purposes of this definition and this Agreement, however, a
change in title with the same responsibilities shall not be considered a
Constructive Termination, should this result solely from an acquisition by a
larger company in which you have continuing responsibilities for the Company
entity similar to those you had for the Company when it was independent.
7. You have signed a Confidential Information and Invention Assignment
Agreement (the "Confidentiality Agreement") substantially in the form attached
-------------------------
hereto as Exhibit C. You hereby represent and warrant to the Company that you
---------
have complied with all obligations under the Confidentiality Agreement and agree
to continue to abide by the terms of the Confidentiality Agreement and further
agree that the provisions of the Confidentiality Agreement will survive any
termination of this Agreement or of your employment relationship with the
Company.
-3-
<PAGE>
8. You represent that your performance of all the terms of this Agreement
will not breach any other agreement to which you are a party. You have not, and
will not during the term of this Agreement, enter into any oral or written
agreement in conflict with any of the provisions of this Agreement.
9. Any successor to the Company (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 will assume the
obligations under this Agreement and agrees expressly to perform the obligations
under this Agreement in the same manner and to the same extent as the Company
would be required to perform such obligations in the absence of a succession.
The terms of this Agreement and all of your rights hereunder will inure to the
benefit of, and be enforceable by, your personal or legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees.
10. This Agreement, including any exhibits hereto, constitutes the sole
agreement of the parties and supersedes all negotiations and prior agreements
with respect to the subject matter hereof.
11. Any term of this Agreement may be amended or waived only with the
written consent of the parties.
12. Any notice required or permitted by this Agreement will be in writing
and will be deemed sufficient upon receipt, when delivered personally or by a
nationally-recognized delivery service (such as Federal Express or UPS), or 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 as set forth below or as subsequently modified by written
notice.
13. The validity, interpretation, construction and performance of this
Agreement will be governed by the laws of the State of California, without
giving effect to the principles of conflict of laws.
14. 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 will be excluded from this Agreement, (ii) the balance of the
Agreement will be interpreted as if such provision were so excluded and (iii)
the balance of the Agreement will be enforceable in accordance with its terms.
15. You and the Company agree to attempt to settle any disputes arising in
connection with this Agreement through good faith consultation. In the event
that we are not able to resolve any such disputes within fifteen (15) days after
notification in writing to the other, we agree that any dispute or claim arising
out of or in connection with this Agreement will be finally settled by binding
arbitration in San Mateo County, California in accordance with the rules of the
American Arbitration Association by one arbitrator appointed in accordance with
said rules. The arbitrator will apply California law, without reference to rules
of conflicts of law or rules of statutory arbitration, to the resolution of any
dispute. Judgment on the award rendered by the arbitrator
-4-
<PAGE>
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. The Company
agrees to pay, on a monthly basis, the reasonable attorney fees, costs and
expenses (as determined by the arbitrator) incurred by you in good faith in
connection with the arbitration, regardless of the outcome. You agree that
punitive damages will not be awarded. This paragraph will not apply to the
Confidentiality Agreement.
16. You acknowledge that, in executing this Agreement, you have had the
opportunity to seek the advice of independent legal counsel, and have read and
understood all of the terms and provisions of this Agreement.
Please indicate your agreement with the above terms by signing below.
Sincerely,
CrossWorlds Software, Inc.
By:______________________________________
Title: President & Chief Executive Officer
My agreement with the above terms is signified by my signature below.
____________________________
-5-
<PAGE>
EXHIBIT A
---------
DESCRIPTION OF JOB DUTIES
AND RESPONSIBILITIES
<PAGE>
EXHIBIT B
---------
1997 STOCK PLAN
<PAGE>
EXHIBIT C
---------
CONFIDENTIAL INFORMATION AND
INVENTION ASSIGNMENT AGREEMENT
-2-
<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>
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.
6
<PAGE>
(b) Additional Rent.
---------------
(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.
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(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.
-----------
(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
20
<PAGE>
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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<PAGE>
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
22
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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.
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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
[BAY PARK PLAZA FLOOR PLAN]
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
<PAGE>
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.
3
<PAGE>
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
4
<PAGE>
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
-----
5
<PAGE>
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
2
<PAGE>
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.
3
<PAGE>
(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.
4
<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
2
<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:
3
<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.
[BAY PARK PLAZA 5th FLOOR PLAN]
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.
[BAY PARK PLAZA 6th FLOOR PLAN]
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
[BAY PARK PLAZA 2nd FLOOR PLAN]
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
[BAY PARK PLAZA 2nd FLOOR PLAN]
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
[BAY PARK PLAZA 2nd FLOOR PLAN]
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:
------------------ ---------------------------
Name:
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
---------------------
[BAY PARK PLAZA FLOOR PLAN]
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:
------------------- -------------------
Name:
-------------------
By: /s/ Stacey ???? Title:
--------------------- ------------------
Print Name:
--------------
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 10.17
FIRST AMENDMENT
---------------
TO
--
LOAN AND SECURITY AGREEMENT
---------------------------
This First Amendment to Loan and Security Agreement (this "Amendment") is
entered into as of September 29, 1997, by and between SILICON VALLEY BANK
("Bank") and 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 (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:
"Advance" or "Advances" means a cash advance or cash advances under
the Equipment Facility, Revolving Facility or the New Equipment Facility.
"Borrowing Base" has the meaning set forth in Section 2.1.2(a) hereof.
"Cash Management Service" or "Cash Management Services" has the
meaning set forth in Section 2.1.2.3 herein.
"Committed New Equipment Line" means Two Million Dollars ($2,000,000).
"Eligible Accounts" means those Accounts that arise in the ordinary,
course of Borrower's business that comply with all of Borrower's representations
and warranties to Bank set forth in Section 5.4; provided, that standards of
--------
eligibility may be fixed and revised from time to time by Bank in Bank's
reasonable judgment and upon thirty (30) days prior written notification thereof
to Borrower in accordance with the provisions hereof. Unless otherwise agreed to
by Bank, Eligible Accounts shall not include the following:
(1) Accounts that the account debtor has failed to pay within
one hundred twenty (120) days of invoice date;
(2) Accounts with respect to an account debtor, fifty percent
(50%) of whose Accounts the account debtor has failed to pay within ninety (90)
days of invoice date;
(3) Accounts with respect to which the account debtor is an
officer, employee, or agent of Borrower;
(4) Accounts with respect to which goods are placed on
consignment, guaranteed sale, sale or return, sale on approval, bill and hold,
or other terms by reason of which the payment by the account debtor may be
conditional;
(5) Accounts with respect to which the account debtor is an
Affiliate of Borrower;
<PAGE>
(6) Accounts with respect to which the account debtor does not
have its principal place of business in the United States, except for Eligible
Foreign Accounts, and Accounts arising from products shipped to or services
provided to branches or offices located in the United States of any account
debtor that does not have its principal place of business in the United States;
(7) Accounts with respect to which the account debtor is the
United States or any department, agency, or instrumentality of the United
States;
(8) Accounts with respect to which Borrower is liable to the
account debtor for goods sold or services rendered by the account debtor to
Borrower, but only to the extent of any amounts owing to the account debtor
against amounts owed to Borrower;
(9) Accounts with respect to an account debtor, including
Subsidiaries and Affiliates, whose total obligations to Borrower exceed twenty-
five percent (25%) of all Accounts, to the extent such obligations exceed the
aforementioned percentage, and (ii) as approved in writing by Bank;
(10) Accounts with respect to which the account debtor disputes
liability or makes any claim with respect thereto as to which Bank believes, in
its sole discretion, that there may be a basis for dispute (but only to the
extent of the amount subject to such dispute or claim), or is subject to any
Insolvency Proceeding, or becomes insolvent, or goes out of business; and
(11) Accounts the collection of which Bank reasonably determines
to be doubtful.
"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.
"Equipment Advance" or "Equipment Advances" means a cash advance or
cash advances under the Equipment Facility or the New Equipment Facility.
"Foreign Exchange Reserve" has the meaning set forth in Section
2.1.2.2 herein.
"Letter of Credit" or "Letters of Credit" has the meaning set forth in
Section 2.1.2.1 herein.
"New 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 March 31, 1997, which equipment is new and has not previously been
used by any Person.
"New Equipment Availability Date" means September 28, 1998.
"New Equipment Facility" means the facility under which Borrower may
request Bank to issue cash advances, as specified in Section 2.1.3 hereof.
"New Equipment Facility Maturity Date" means the date immediately
preceding the third anniversary of the New Equipment Availability Date.
<PAGE>
"Payment Date" means the twenty-ninth (29th) calendar day of each
month commencing on the first such date after the Closing Date and ending on the
New Equipment Facility Maturity Date.
"Revolving Advance" or "Revolving Advances" means a cash advance or
cash advances under the Revolving Facility.
"Revolving Committed Line" means One Million Five Hundred Thousand
Dollars ($1,500,000).
"Revolving Facility" means the facility under which Borrower may
request Bank to issue cash advances, as specified in Section 2.1.2 hereof.
"Revolving Maturity Date" means the date immediately preceding the
first anniversary of the date of this Agreement.
2. Section 2.1.2 is hereby amended and replaced in its entirety as
follows:
2.1.2 Revolving Facility.
------------------
(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 (i) the face amount of all outstanding Letters
-----
of Credit (including drawn but unreimbursed Letters of Credit), (ii) the Foreign
Exchange Reserve and (iii) amounts, outstanding for Cash Management Services.
For purposes of this Agreement, "Borrowing Base" shall mean an amount equal to
eighty percent (80%) 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.
(b) Procedures. Whenever Borrower desires a Revolving
----------
Advance, Borrower will notify Bank by facsimile transmission or telephone no
later than 3:00 p.m. California time, on the Business Day that the Revolving
Advance is to be made. Each such notification shall be promptly confirmed by a
Payment/Advance Form in substantially the form of Exhibit B hereto. Bank is
---------
authorized to make Revolving Advances under this Agreement, based upon
instructions received from a Responsible Officer, or without instructions if in
Bank's discretion such Revolving Advances are necessary to meet Obligations
which have become due and remain unpaid. 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 Revolving Advances made under this Section 2.1.2 to Borrower's
deposit account.
(c) Interest, Payments. Interest shall accrue from the date
------------------
of each Revolving Advance at the rate specified in Section 2.2(a) and shall be
payable on the Payment Date 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 or against the Revolving Committed Line, 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) Maturity. The Revolving Facility shall terminate on
--------
the Revolving Maturity Date, at which time all Revolving Advances under this
Section 2.1.2 shall be immediately due and payable.
<PAGE>
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 (i) the lesser of the
Revolving Committed Line or the Borrowing Base, minus (ii) the then outstanding
-----
principal balance of the Advances under the Revolving Facility (including drawn
but unreimbursed Letters of Credit), minus (iii) the Foreign Exchange Reserve,
-----
minus (iv) 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) shall not in
any case exceed Eight Hundred Fifty Thousand Dollars ($850,000). 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.
(b) The obligation of Borrower to immediately reimburse
Bank for drawings made under Letters of Credit shall be absolute, unconditional
and irrevocable, and shall be performed strictly in accordance with the terms of
this Agreement and such Letters of Credit, under all circumstances whatsoever.
Borrower shall indemnify, defend, protect, and hold Bank harmless from any loss,
cost, expense or liability, including, without limitation, reasonable attorneys'
fees, arising out of or in connection with any Letters of Credit.
(c) Borrower may request that Bank issue a Letter of Credit
payable in a currency other titan United States Dollars. If a demand for payment
is made under any such Letter of Credit, Bank shall treat such demand as a
Revolving Advance to Borrower of the equivalent of the amount thereof (plus
cable charges) in United States currency at the then prevailing rate of exchange
in San Francisco, California, for sales of that other currency for cable
transfer to the country of which it is the currency.
(d) Upon the issuance of any letter of credit payable in a
currency other than United States Dollars, Bank shall create a reserve under the
Revolving Committed Line for letters of credit against fluctuations in currency
exchange rates, in an amount equal to ten percent (10%) of the face amount of
such letter of credit. The amount of such reserve may be amended by Bank from
time to time account for fluctuations in the exchange rate. The availability of
funds under the Revolving Committed Line shall be reduced by the amount of such
reserve for so long as such letter of credit remains outstanding.
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") not to exceed
an aggregate amount of Eight Hundred Fifty Thousand Dollars ($850,000) (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.
<PAGE>
(b) Bank may, in its discretion, terminate the Exchange
Contracts at any time (i) that an Event of Default occurs or (ii) that there is
no sufficient availability under the Revolving Committed Line and Borrower does
not have available funds in its bank account to satisfy the Foreign Exchange
Reserve. If Bank terminates the Exchange Contracts, and without limitation of
any applicable indemnities, Borrower agrees to reimburse Bank for any and all
fees, costs and expenses relating thereto to arising in connection therewith.
(c) Borrower shall not permit the total gross amount of all
Exchange Contracts on which delivery is to be effected and settlement allowed in
any two (2) business day periods to be more than Four Hundred Twenty-Five
Thousand Dollars ($425,000) (the "Settlement Limit"), nor shall Borrower permit
the total gross amount of all Exchange Contracts to which Borrower is a party,
outstanding at any one time, to exceed the Contract Limit. Notwithstanding the
above, however, the amount which may be settled in any two (2) business day
period may be increased above the Settlement Limit up to, but in no event to
exceed, the amount of the Contract Limit under either of the following
circumstances:
(i) if there is sufficient availability under the
Revolving Committed Line in the amount of the Foreign Exchange Reserve as
of each Determination Date, provided that Bank in advance shall reserve the
full amount of the Foreign Exchange Foreign Reserve against the Revolving
Committed Line; or
(ii) if there is insufficient availability under the
Revolving Committed Line, as to settlements within any two (2) business day
period, provided that Bank, in its sole discretion, may: (A) verify good
funds overseas prior to crediting Borrower's deposit account with Bank (in
the case of Borrower's sale of foreign currency); or (B) debit Borrower's
deposit account with Bank prior to delivering foreign currency overseas
(in the case of Borrower's purchase of foreign currency).
(d) In the case of Borrower's purchase of foreign currency,
Borrower in advance shall instruct Bank upon settlement either to treat the
settlement amount as an advance under the Revolving Committed Line, or to debit
Borrower's account for the amount settled.
(e) Borrower shall execute all standard form applications
and agreements of Bank in connection with the Exchange Contracts and, without
limiting any of the terms of such applications and agreements, Borrower will pay
all standard fees and charges of Bank in connection with the Exchange Contracts.
(f) Without limiting any of the other terms of this
Agreement or any such standard form applications and agreement of Bank, Borrower
agrees to indemnify Bank and hold it harmless, from and against any and all
claims, debts, liabilities, demands, obligations, actions, costs and expenses
(including, without limitation, attorneys' fees of counsel of Bank's choice), of
every nature and description which it may sustain or recur, based upon, arising
out of, or in any way relating to any of the Exchange Contracts or any
transactions relating thereto or contemplated thereby.
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 (i) the
lesser of the Revolving Committed Line or the Borrowing Base, minus (ii) the
-----
then outstanding principal balance of the Advances under the Revolving Facility,
minus (iii) the face amount of all outstanding Letters of Credit (including
- -----
drawn but unreimbursed Letters of Credit), minus (iv) the Foreign Exchange
-----
Reserve; provided that the aggregate amount outstanding for Cash Management
Services shall not exceed Eight
<PAGE>
Hundred Fifty Thousand Dollars ($850,000) (the "Cash Management Sublimit"). 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.
3. A new Section 2.1.3 is hereby added as follows:
2.1.3 New Equipment Facility.
----------------------
(a) Equipment Advances. Subject to and upon the terms and
------------------
conditions of this Agreement, Bank agrees, at any time from September 29, 1997,
through the New Equipment Availability Date to make Equipment Advances under the
New Equipment Facility to Borrower for New Eligible Equipment in an aggregate
principal amount not to exceed the lesser of (i) the Committed New Equipment
Line, or (ii) one hundred percent (100%) of the cost of such New Eligible
Equipment. On the date of each Equipment Advance under the New Equipment
Facility, Borrower shall provide invoices and other documents as requested by
Bank, in form and content satisfactory to Bank, demonstrating that the Equipment
Advances then outstanding under the New Equipment Facility (A) shall be used to
finance or refinance, as the case may be, New Eligible Equipment, and (B) (i)
shall not exceed one hundred percent (100%) of the cost of such New 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 New Eligible Equipment for each such Advance under the New Equipment
Facility is comprised of software licenses, leasehold improvements or other soft
costs. Amounts borrower pursuant to this Section 2.1.3 may not be reborrowed
once repaid.
(b) Procedures. Whenever Borrower desires an Equipment
----------
Advance, Borrower shall notify Bank by facsimile transmission or telephone no
later than 3:00 p.m. California time, one (1) Business Day before the day on
which the Equipment Advance is requested to be made. Each such notification
shall be promptly confirmed by a Payment/Advance Form in substantially the form
of Exhibit B hereto. The notice shall be signed by a Responsible Officer and
---------
include a copy of the invoice for the New Eligible Equipment to be financed.
Bank is authorized to make Equipment Advances under this Agreement, based upon
instructions received from a Responsible Officer, or without instructions if in
Bank's discretion such Equipment Advances are necessary to meet Obligations
which have become due and remain unpaid. 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 Equipment Advances made under this Section 2.1.3 to Borrower's
deposit account.
(c) Interest and Principal. Interest shall accrue from the
----------------------
date of each Equipment Advance under the New Equipment Facility at the rate
specified in Section 2.2(a), and shall be payable monthly on the Payment Date
for each month through the month in which the New Equipment Availability Date
falls. Bank shall, at its option, charge such interest, all Bank Expenses, and
all Periodic Payments against any of Borrower's deposit accounts or against the
Committed New Equipment Line, 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.
All Equipment Advances under the New Equipment Facility that are outstanding on
the New Equipment Availability Date will be payable in thirty-six (36) equal
monthly installments of principal, plus accrued interest, on the Payment Date
for each month through the New Equipment Facility Maturity Date.
(d) Maturity. The New Equipment Facility shall terminate on
--------
the New Equipment Facility Maturity Date, at which time all Obligations owing
under this Section 2.1.3 and all other amounts under this Agreement shall be
immediately due and payable.
<PAGE>
4. A new Section 2.1.4 is hereby added 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 (i) the lesser of the Revolving Committed Line or the Borrowing
Base, minus (ii) the face amount of all outstanding Letters of Credit (including
-----
drawn but unreimbursed Letters of Credit), minus (iii) the Foreign Exchange
-----
Reserve, minus (iv) outstanding amounts for Cash Management Services, 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.
5. Section 2.2(a) is hereby amended and replaced in its entirety as
follows:
a. Interest Rate.
-------------
(1) Revolving Advances. Except as set forth in Section
------------------
2.2(b), all Revolving Advances shall bear interest, on the average Daily Balance
thereof, at a rate equal to one-tenth of one percentage point (0.10%) above the
Prime Rate.
(2) Equipment Advance under Equipment Facility. Except as
------------------------------------------
set forth in Section 2.2(b), all Equipment Advances under the Equipment Facility
shall bear interest, on the average Daily Balance thereof, at a rate equal to
three-quarters of a percentage point (0.75%) above the Prime Rate.
(3) Equipment Advance under the New Equipment Facility.
--------------------------------------------------
Except as set forth in Section 2.2(b), all Equipment Advances under the New
Equipment Facility shall bear interest, on the average Daily Balance thereof, at
a rate equal to the Prime Rate.
6. The following new Sections 6.3(c) and 6.3 (d) are hereby added as
follows:
(c) Within twenty (20) days after the last day of each month,
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.
(d) Bank shall have a right from time to time to audit Borrower's
Accounts and Inventory at Borrower's reasonable expense; provided that, such
audits shall not occur more often than every six (6) months unless an Event of
Default has occurred and is continuing.
7. Sections 6.8 and 6.10 are hereby deleted in their entirety.
8. Section 6.9 is hereby amended and replaced in its entirety as follows:
6.9 Liquidity Coverage. Borrower shall maintain, as of the last day
------------------
of each calendar month, (a) the sum of (i) unrestricted cash and cash
equivalents plus (ii) the amount of Revolving Advances able to be borrowed but
----
not borrowed under Section 2.1.2 divided by the outstanding balance of all
----------
Obligations Borrower owes to Bank, of at least (a) one and one-half (1.50) times
the outstanding amount of Equipment Advances under Sections 2.1.1 and 2.1.3.
9. Exhibits A, B, C and the Disbursement Request and Authorization are
hereby replaced in their entirety with the attached Exhibits A, B, C and the
Disbursement Request and Authorization.
10. Exhibit E attached hereto is hereby added.
<PAGE>
11. Borrower reaffirms all the terms and conditions in the Negative Pledge
Agreement dated as of December 10, 1996.
12. As a condition to the effectiveness of this Amendment, Borrower shall
pay Bank a fee equal to Three Thousand Dollars ($3,000) plus all Bank Expenses
(including reasonable attorneys' fees) incurred through the date of this
Amendment, which fee and expenses become nonrefundable and fully earned on the
date hereof.
13. 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. Bank shall have received, in form and substance satisfactory to
Bank, results of an audit of Borrower's Accounts;
c. a certificate of secretary of the Borrower with respect to
incumbency and resolutions authorizing the execution and delivery of this
Amendment;
d. payment of the fees and Bank Expenses then due as specified in
Section 12 hereof; and
e. such other documents, and completion of such other matters, as
Bank may reasonably deem necessary or appropriate.
14. 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.
15. 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.
16. 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.
CROSSROADS SOFTWARE, INC.
By: /s/
---------------
Title: Controller/Treasurer
--------------------
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 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, accessions, 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, financial assets,
investment properties, securities accounts, securities entitlements, 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.
Notwithstanding the foregoing, the filing on the patents, copyrights and
trademarks described above is solely for the purpose of perfecting a security
interest in the accounts receivable with respect to such collateral.
Notwithstanding the foregoing, the term "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.
<PAGE>
such restriction shall be enforceable under applicable law) without the consent
of the Licensor or 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 "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 "Collateral".
<PAGE>
EXHIBIT B
LOAN PAYMENT/ADVANCE TELEPHONE REQUEST FORM
DEADLINE FOR SAME DAY PROCESSING IS 3:00 P.M., P.S.T.
TO: CENTRAL CLIENT SERVICE DIVISION DATE: ____________________
FAX#: (408) 496-2426 TIME: ____________________
_______________________________________________________________________________
FROM: Crossroads Software, Inc.
--------------------------------------------------------------
CLIENT NAME (BORROWER)
REQUESTED BY: ______________________________________________________
AUTHORIZED SIGNER'S NAME
AUTHORIZED SIGNATURE: ______________________________________________
PHONE NUMBER: ______________________________________________________
FROM ACCOUNT # ______________ TO ACCOUNT # ________________________
REQUESTED TRANSACTION TYPE REQUEST DOLLAR AMOUNT
-------------------------- ---------------------
PRINCIPAL INCREASE (REVOLVING ADVANCE) $_________________________
PRINCIPAL INCREASE (EQUIPMENT ADVANCE) $_________________________
PRINCIPAL PAYMENT (ONLY) $_________________________
INTEREST PAYMENT (ONLY) $_________________________
PRINCIPAL AND INTEREST (PAYMENT) $_________________________
OTHER INSTRUCTIONS: ________________________________________________
____________________________________________________________________
All representations and warranties of Borrower stated in the Loan and
Security Agreement are true, correct and complete in all material respects as
of the date of the telephone request for and Advance confirmed by this
Borrowing Certificate; provided, however, that those representations and
warranties expressly referring to another date shall be true, correct and
complete in all material respects as of such date.
_______________________________________________________________________________
_______________________________________________________________________________
BANK USE ONLY
TELEPHONE REQUEST:
-----------------
The following person is authorized to request the loan payment transfer/loan
advance on the advance designated account and is known to me.
_________________________________ _______________________
Authorized Requester Phone #
_________________________________ _______________________
Received By (Bank) Phone #
_________________________________________
Authorized Signature (Bank)
_______________________________________________________________________________
<PAGE>
EXHIBIT C
COMPLIANCE CERTIFICATE
TO: SILICON VALLEY BANK
FROM: CROSSROADS SOFTWARE, INC.
The undersigned authorized officer of Crossroads 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) Borrow 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 respect 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.
Reporting Covenant Required Complies
------------------ -------- --------
A/R and A/P Agings Monthly within 20 days Yes No
Monthly financial statements Monthly within 30 days Yes No
Borrowing Base Certificate Monthly within 20 days Yes No
Annual (CPA Audited) FYE within 90 days Yes No
Financial Covenant Required Actual Complies
------------------ -------- ------ --------
Maintain on a Monthly Basis:
Liquidity Coverage* 1.50:1.00 ____:1.00 Yes No
*(a) the sum of (i) unrestricted cash and cash equivalents plus (ii) the amount
----
of Revolving Advances able to be borrowed but not borrowed under Section 2.1.2.
divided by the outstanding balance of all Obligations Borrower owes to Bank, of
- ----------
at least (a) one and one-half (1.50) times the outstanding amount of Equipment
Advances under Sections 2.1.1 and 2.1.3
<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>
<PAGE>
EXHIBIT E
BORROWING BASE CERTIFICATE
_______________________________________________________________________________
Borrower: Crossroads Software, Inc. Lender: Silicon Valley Bank
Revolving Commitment Amount: $1,500,000
_______________________________________________________________________________
<TABLE>
<CAPTION>
ACCOUNTS RECEIVABLE
<S> <C> <C>
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. Balance of 50% over 90 day accounts $____________
6. Concentration Limits $____________
7. Foreign Accounts $____________
8. Governmental Accounts $____________
9. Contra Accounts $____________
10. Promotion or Demo Accounts $____________
1l. Intercompany/Employee Accounts $____________
12. Other (please explain on reverse) $____________
13. TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS $____________
14. Eligible Accounts (#3 minus #13) $____________
15. LOAN VALUE OF ACCOUNTS (80% of #14) $____________
BALANCES
16. Maximum Loan Amount $ ____________
17. Total Funds Available [Lesser of #16 or #15] $____________
18. Present balance owing on Line of Credit $____________
19. Outstanding under Sublimits ( ) $____________
20. Outstanding under Sublimits (Outstanding Letters of Credit) $____________
21. Outstanding under Sublimits (Foreign Exchange Reserve) $____________
22. Outstanding under Sublimits (Outstanding Cash Management) $____________
23. RESERVE POSITION (#17 minus #18, #19, #20, #21 and #22) $____________
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: BANK USE ONLY
---- --- ----
Rec'd By:
CROSSROADS SOFTWARE, INC.
______________
By: ______________________________ Auth.
Authorized Signer Signer
Date:
_______________
Verified:
__________________________
</TABLE>
<PAGE>
DISBURSEMENT REQUEST AND AUTHORIZATION
Borrower: Crossroads Software, Inc. Bank: Silicon Valley Bank
===============================================================================
LOAN TYPE. This is a variable rate, revolving line of credit of a principal
amount up to $1,500,000, with subfacilities of up to $850,000 for letters of
credit, foreign exchange and cash management, and a new equipment facility in a
principal amount up to $2,000,000.
PRIMARY PURPOSE OF LOAN. The primary purpose of this loan is for business.
SPECIFIC PURPOSE. The specific purpose of this loan is: Short Term Working
Capital.
DISBURSEMENT INSTRUCTIONS. Borrower understands that no loan proceeds will be
disbursed until all of Bank's conditions for making the loan have been
satisfied. Please disburse the loan proceeds as follows:
<TABLE>
<CAPTION>
Revolving Line Equipment Line
-----------------------------
<S> <C> <C>
Amount paid to Borrower directly: $___ $___
Undisbursed Funds $___ $___
Principal $___ $___
CHARGES PAID IN CASH. Borrower has paid or will pay in cash as agreed the
following charges:
Prepaid Finance Charges Paid in Cash: $___
$ 3.000 Loan Fee
------
$ TBD Accounts Receivables Audit
----
$ TBD Letter of Credit Fees
----
Other Charges Paid in Cash: $___
$ TBD UCC Search Fees
----
$ TBD UCC Filing Fees
----
$ TBD Outside Counsel Fees and Expenses (Estimate)
----
Total Charges Paid in Cash $___
AUTOMATIC PAYMENTS. Borrower hereby authorizes Bank automatically to deduct from
Borrower's account numbered ______ the amount of any loan payment. If the funds
in the account are insufficient to cover any payment, Bank shall not be
obligated to advance funds to cover the payment. At any time and for any reason,
Borrower or Bank may voluntarily terminate Automatic Payments.
FINANCIAL CONDITION. BY SIGNING THIS AUTHORIZATION, BORROWER REPRESENTS AND
WARRANTS TO BANK THAT THE INFORMATION PROVIDED ABOVE IS TRUE AND CORRECT AND
THAT THERE HAS BEEN NO ADVERSE CHANGE IN BORROWER'S FINANCIAL CONDITION AS
DISCLOSED IN BORROWER'S MOST RECENT FINANCIAL STATEMENT TO BANK. THIS
AUTHORIZATION IS DATED AS OF SEPTEMBER 29, 1997.
BORROWER:
CROSSROADS SOFTWARE, INC.
_______________________________
Authorized Officer
===============================================================================
</TABLE>
<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
<PAGE>
EXHIBIT C
---------
Trademarks
5
<PAGE>
Exhibit 10.19
LOAN MODIFICATION AGREEMENT
This Loan Modification Agreement is entered into as of September 21, 1999,
by and between Crossworlds Software, Inc. ("Borrower") and Silicon Valley Bank
("Bank").
1. DESCRIPTION OF EXISTING INDEBTEDNESS: Among other indebtedness which may
------------------------------------
be owing by Borrower to Bank, Borrower is indebted to Bank pursuant to, among
other documents, a Loan and Security Agreement, dated December 10, 1996, as may
be amended from time to time, (the "Loan Agreement"). The Loan Agreement
provided for, among other things, a Revolving Committed Line in the original
principal amount of One Million Five Hundred Thousand Dollars ($1,500,000). The
Loan Agreement was amended pursuant to, among other documents, a Second
Amendment to Loan and Security Agreement, dated October 28, 1998 pursuant to
which, among other things, the Revolving Committed Line was amended to Ten
Million Dollars ($10,000,000). Defined terms used but not otherwise defined
herein shall have the same meanings as in the Loan Agreement.
Hereinafter, all indebtedness owing by Borrower to Bank shall be referred to as
the "Indebtedness."
2. DESCRIPTION OF COLLATERAL AND GUARANTIES. Repayment of the Indebtedness is
----------------------------------------
secured by the Collateral as described in the Loan Agreement and in that certain
Intellectual Property Security Agreement, dated October 28, 1998, by and between
Borrower and Bank.
Hereinafter, the above-described security documents and guaranties, together
with all other documents securing repayment of the Indebtedness shall be
referred to as the "Security Documents". Hereinafter, the Security Documents,
together with all other documents evidencing or securing the Indebtedness shall
be referred to as the "Existing Loan Documents".
3. DESCRIPTION OF CHANGE IN TERMS.
------------------------------
A. Modification(s) to Loan Agreement.
----------------------------------
1. The term "Borrowing Base" as defined in Section 2.1.3 entitled
"Revolving Facility" is hereby amended to read as follows:
For purposes of this Agreement, "Borrowing Base" shall mean an
amount equal to sixty percent (60%) of Eligible Accounts.
2. Notwithstanding the terms and conditions contained in item "(1)"
under Section 2.2(a) entitled "Interest Rate", effective as of
August 9, 1999, all Revolving Advances shall bear interest, on
the average Daily Balance thereof, at a rate equal to one and
one-tenth percentage point (1.10) above the Prime Rate, until
such time as Bank receives evidence that Borrower is in receipt
of new equity in an amount not less than $12,000,000 at which
time all Revolving Advances shall bear interest, on the average
Daily Balance thereof, at a rate equal to one-tenth of one
percentage point (0.10) above the Prime Rate, beginning the first
day of the month following Bank's receipt of such evidence of
Borrower's receipt of new equity.
3. Effective as of month ending August 31, 1999, the financial
covenants under Section 6.8 entitled "Quick Ratio" and Section
6.10 entitled "Tangible Net Worth" shall be measured as of the
last day of each month (rather than each fiscal quarter).
4. CONSISTENT CHANGES. The Existing Loan Documents are hereby amended
------------------
wherever necessary to reflect the changes described above.
<PAGE>
5. NO DEFENSES OF BORROWER. Borrower (and each guarantor and pledgor signing
-----------------------
below) agrees that, as of the date hereof, it has no defenses against the
obligations to pay any amounts under the Indebtedness.
6. CONTINUING VALIDITY. Borrower (and each guarantor and pledgor signing
-------------------
below) understands and agrees that in modifying the existing Indebtedness, Bank
is relying upon Borrower's representations, warranties, and agreements, as set
forth in the Existing Loan Documents. Except as expressly modified pursuant to
this Loan Modification Agreement, the terms of the Existing Loan Documents
remain unchanged and in full force and effect. Bank's agreement to modifications
to the existing Indebtedness pursuant to this Loan Modification Agreement in no
way shall obligate Bank to make any future modifications to the Indebtedness.
Nothing in this Loan Modification Agreement shall constitute a satisfaction of
the Indebtedness. It is the intention of Bank and Borrower to retain as liable
parties all makers and endorsers of Existing Loan Documents, unless the party is
expressly released by Bank in writing. No maker, endorser, or guarantor will be
released by virtue of this Loan Modification Agreement. The terms of this
paragraph apply not only to this Loan Modification Agreement, but also to all
subsequent loan modification agreements.
This Loan Modification Agreement is executed as of the date first written
above.
BORROWER: BANK:
CROSSWORLDS SOFTWARE, INC. SILICON VALLEY BANK
By:________________________ By:________________________
Name:______________________ Name:______________________
Title:_____________________ Title:_____________________
2
<PAGE>
[LOGO]
SILICON VALLEY BANK
PRO FORMA INVOICE FOR LOAN CHARGES
BORROWER: Crossworlds Software, Inc.
LOAN OFFICER: Mark Schoenrock
DATE: September 21, 1999
Documentation Fee $250.00
TOTAL FEE DUE $250.00
------------- =======
Please indicate the method of payment:
{ } A check for the total amount is attached.
{ } Debit DDA # __________________ for the total amount.
{ } Loan proceeds
_______________________________________
Borrower (Date)
_______________________________________
Silicon Valley Bank (Date)
Account Officer's Signature
<PAGE>
EXHIBIT 10.20
LOAN MODIFICATION AGREEMENT
This Loan Modification Agreement is entered into as of October 18, 1999, by
and between Crossworlds Software, Inc. ("Borrower") and Silicon Valley Bank
("Bank").
1. DESCRIPTION OF EXISTING INDEBTEDNESS: Among other indebtedness which may
------------------------------------
be owing by Borrower to Bank, Borrower is indebted to Bank pursuant to, among
other documents, a Loan and Security Agreement, dated December 10, 1996, as may
be amended from time to time, (the "Loan Agreement"). The Loan Agreement
provided for, among other things, a Revolving Committed Line in the original
principal amount of One Million Five Hundred Thousand Dollars ($1,500,000). The
Loan Agreement was amended pursuant to, among other documents, a Second
Amendment to Loan and Security Agreement, dated October 28, 1998 pursuant to
which, among other things, the Revolving Committed Line was amended to Ten
Million Dollars ($10,000,000). Defined terms used but not otherwise defined
herein shall have the same meanings as in the Loan Agreement.
Hereinafter, all indebtedness owing by Borrower to Bank shall be referred to as
the "Indebtedness."
2. DESCRIPTION OF COLLATERAL AND GUARANTIES. Repayment of the Indebtedness is
----------------------------------------
secured by the Collateral as described in the Loan Agreement and in that certain
Intellectual Property Security Agreement, dated October 28, 1998, by and between
Borrower and Bank.
Hereinafter, the above-described security documents and guaranties, together
with all other documents securing repayment of the Indebtedness shall be
referred to as the "Security Documents". Hereinafter, the Security Documents,
together with all other documents evidencing or securing the Indebtedness shall
be referred to as the "Existing Loan Documents".
3. DESCRIPTION OF CHANGE IN TERMS.
------------------------------
A. Modification(s) to Loan Agreement.
---------------------------------
1. Notwithstanding the terms and conditions contained in item "(1)"
under Section 2.2(a) entitled "Interest Rate", effective as of
the date hereof, all Revolving Advances shall bear interest, on
the average Daily Balance thereof, at a rate equal to one-tenth
of one percentage point (0.10%) above the Prime Rate.
B. Waiver of Covenant Default(s).
-----------------------------
1. Bank hereby waives Borrower's existing default under the Loan
Agreement by virtue of Borrower's failure to comply with the (i)
Quick Ratio and Tangible Net Worth covenants as of the quarter
ended December 31, 1998; (ii) the Quick Ratio and Tangible Net
Worth Covenants as of the months ended August 31, 1999 and
September 30, 1999 and (iii) the Liquidity covenant as of the
months ended July 31, 1999 through September 30, 1999. Bank's
waiver of Borrower's compliance of these covenants shall apply
only to the foregoing periods. Accordingly, for the month ending
October 31, 1999, Borrower shall be in compliance with these
covenants, as amended herein.
Bank's agreement to waive the above-described default (1) in no
way shall be deemed an agreement by the Bank to waive Borrower's
compliance with the above-described covenants as of all other
dates and (2) shall not limit or impair the Bank's right to
demand strict performance of these covenants as of all other
dates and (3) shall not limit or impair the Bank's right to
demand strict performance of all other covenants as of any date.
<PAGE>
4. CONSISTENT CHANGES. The Existing Loan Documents are hereby amended
------------------
wherever necessary to reflect the changes described above.
5. NO DEFENSES OF BORROWER. Borrower (and each guarantor and pledgor signing
-----------------------
below) agrees that, as of the date hereof, to the best of its knowledge, it has
no defenses against the obligations to pay any amounts under the Indebtedness.
6. CONTINUING VALIDITY. Borrower (and each guarantor and pledgor signing
-------------------
below) understands and agrees that in modifying the existing Indebtedness, Bank
is relying upon Borrower's representations, warranties, and agreements, as set
forth in the Existing Loan Documents. Except as expressly modified pursuant to
this Loan Modification Agreement, the terms of the Existing Loan Documents
remain unchanged and in full force and effect. Bank's agreement to
modifications to the existing Indebtedness pursuant to this Loan Modification
Agreement in no way shall obligate Bank to make any future modifications to the
Indebtedness. Nothing in this Loan Modification Agreement shall constitute a
satisfaction of the Indebtedness. It is the intention of Bank and Borrower to
retain as liable parties all makers and endorsers of Existing Loan Documents,
unless the party is expressly released by Bank in writing. No maker, endorser,
or guarantor will be released by virtue of this Loan Modification Agreement.
The terms of this paragraph apply not only to this Loan Modification Agreement,
but also to all subsequent loan modification agreements.
This Loan Modification Agreement is executed as of the date first written
above.
BORROWER: BANK:
CROSSWORLDS SOFTWARE, INC. SILICON VALLEY BANK
By:__________________________ By:____________________________
Name:________________________ Name:__________________________
Title:_______________________ Title:_________________________
2
<PAGE>
[LOGO]
SILICON VALLEY BANK
PRO FORMA INVOICE FOR LOAN CHARGES
BORROWER: Crossworlds Software, Inc.
LOAN OFFICER: Mark Schoenrock
DATE: October 18, 1999
Documentation Fee $250.00
TOTAL FEE DUE $250.00
------------- =======
Please indicate the method of payment:
[ ] A check for the total amount is attached.
[ ] Debit DDA # __________________ for the total amount.
[ ] Loan proceeds
____________________________________
Borrower (Date)
____________________________________
Silicon Valley Bank (Date)
Account Officer's Signature
<PAGE>
Exhibit 10.21
LOAN MODIFICATION AGREEMENT
This Loan Modification Agreement is entered into as of October 22, 1999, by
and between Crossworlds Software, Inc. ("Borrower") and Silicon Valley Bank
("Bank").
1. DESCRIPTION OF EXISTING INDEBTEDNESS: Among other indebtedness which may
------------------------------------
be owing by Borrower to Bank, Borrower is indebted to Bank pursuant to, among
other documents, a Loan and Security Agreement, dated December 10, 1996, as may
be amended from time to time, (the "Loan Agreement"). The Loan Agreement
provided for, among other things, a Revolving Committed Line in the original
principal amount of One Million Five Hundred Thousand Dollars ($1,500,000). The
Loan Agreement was amended pursuant to, among other documents, a Second
Amendment to Loan and Security Agreement, dated October 28, 1998 pursuant to
which, among other things, the Revolving Committed Line was amended to Ten
Million Dollars ($10,000,000). Defined terms used but not otherwise defined
herein shall have the same meanings as in the Loan Agreement.
Hereinafter, all indebtedness owing by Borrower to Bank shall be referred to as
the "Indebtedness."
2. DESCRIPTION OF COLLATERAL AND GUARANTIES. Repayment of the Indebtedness is
----------------------------------------
secured by the Collateral as described in the Loan Agreement and in that certain
Intellectual Property Security Agreement, dated October 28, 1998, by and between
Borrower and Bank.
Hereinafter, the above-described security documents and guaranties, together
with all other documents securing repayment of the Indebtedness shall be
referred to as the "Security Documents". Hereinafter, the Security Documents,
together with all other documents evidencing or securing the Indebtedness shall
be referred to as the "Existing Loan Documents".
3. DESCRIPTION OF CHANGE IN TERMS.
------------------------------
A. Modification(s) to Loan Agreement.
----------------------------------
1. The following term as defined in Section 1.1. entitled
"Definitions" is hereby amended to read as follows:
"Revolving Maturity Date" means January 26, 2000.
4. CONSISTENT CHANGES. The Existing Loan Documents are hereby amended
------------------
wherever necessary to reflect the changes described above.
5. NO DEFENSES OF BORROWER. Borrower (and each guarantor and pledgor signing
-----------------------
below) agrees that, as of the date hereof, it has no defenses against the
obligations to pay any amounts under the Indebtedness.
6. CONTINUING VALIDITY. Borrower (and each guarantor and pledgor signing
-------------------
below) understands and agrees that in modifying the existing Indebtedness, Bank
is relying upon Borrower's representations, warranties, and agreements, as set
forth in the Existing Loan Documents. Except as expressly modified pursuant to
this Loan Modification Agreement, the terms of the Existing Loan Documents
remain unchanged and in full force and effect. Bank's agreement to modifications
to the existing Indebtedness pursuant to this Loan Modification Agreement in no
way shall obligate Bank to make any future modifications to the Indebtedness.
Nothing in this Loan Modification Agreement shall constitute a satisfaction of
the Indebtedness. It is the intention of Bank and Borrower to retain as liable
parties all makers and endorsers of Existing Loan Documents, unless the party is
expressly released by Bank in writing. No maker, endorser, or guarantor will be
released by virtue of this Loan Modification Agreement. The terms of this
paragraph apply not only to this Loan Modification Agreement, but also to all
subsequent loan modification agreements.
This Loan Modification Agreement is executed as of the date first written
above.
<PAGE>
BORROWER: BANK:
CROSSWORLDS SOFTWARE, INC. SILICON VALLEY BANK
By:______________________ By:____________________
Name:____________________ Name:__________________
Title:___________________ Title:_________________
2
<PAGE>
SILICON VALLEY BANK
PRO FORMA INVOICE FOR LOAN CHARGES
BORROWER: Crossworlds Software, Inc.
LOAN OFFICER: Mark Schoenrock
DATE: October 22, 1999
Documentation Fee $250.00
TOTAL FEE DUE $250.00
------------- =======
Please indicate the method of payment:
{ } A check for the total amount is attached.
{ } Debit DDA # __________________ for the total amount.
{ } Loan proceeds
________________________________________
Borrower (Date)
________________________________________
Silicon Valley Bank (Date)
Account Officer's Signature
<PAGE>
EXHIBIT 10.22
LOAN MODIFICATION AGREEMENT
This Loan Modification Agreement is entered into as of January 26, 2000, by
and between Crossworlds Software, Inc. ("Borrower") and Silicon Valley Bank
("Bank").
1. DESCRIPTION OF EXISTING INDEBTEDNESS: Among other indebtedness which may
------------------------------------
be owing by Borrower to Bank, Borrower is indebted to Bank pursuant to, among
other documents, a Loan and Security Agreement, dated December 10, 1996, as may
be amended from time to time, (the "Loan Agreement"). The Loan Agreement
provided for, among other things, a Revolving Committed Line in the original
principal amount of One Million Five Hundred Thousand Dollars ($1,500,000). The
Loan Agreement was amended pursuant to, among other documents, a Second
Amendment to Loan and Security Agreement, dated October 28, 1998 pursuant to
which, among other things, the Revolving Committed Line was amended to Ten
Million Dollars ($10,000,000). Defined terms used but not otherwise defined
herein shall have the same meanings as in the Loan Agreement.
Hereinafter, all indebtedness owing by Borrower to Bank shall be referred to as
the "Indebtedness."
2. DESCRIPTION OF COLLATERAL AND GUARANTIES. Repayment of the Indebtedness is
----------------------------------------
secured by the Collateral as described in the Loan Agreement and in that certain
Intellectual Property Security Agreement, dated October 28, 1998, by and between
Borrower and Bank.
Hereinafter, the above-described security documents and guaranties, together
with all other documents securing repayment of the Indebtedness shall be
referred to as the "Security Documents". Hereinafter, the Security Documents,
together with all other documents evidencing or securing the Indebtedness shall
be referred to as the "Existing Loan Documents".
3. DESCRIPTION OF CHANGE IN TERMS.
------------------------------
A. Modification(s) to Loan Agreement.
----------------------------------
1. The following terms as defined in Section 1.1 entitled
"Definitions" are hereby amended to read as follows:
Item "6" under "Eligible Accounts" means: Accounts for which the
account debtor does not have its principal place of business in
the United States except for Accounts pre-approved in writing by
Bank, provided such Accounts do not, in the aggregate, exceed 25%
of the Borrowing Base.
"Revolving Maturity Date" means April 30, 2000.
2. Section 2.1.2(a) entitled "Advances" is hereby amended to read as
follows:
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 (i) the lesser of (A) the
Revolving Committed Line minus the Cash Management Sublimit or
(B) the Borrowing Base, minus the sum of the following amounts:
(ii) the face amount of all outstanding Letters of Credit
(including drawn but unreimbursed Letters of Credit) and (iii)
the Foreign Exchange Reserve. For purposes of this Agreement,
"Borrowing Base" shall mean an amount equal to 75% of Eligible
Accounts (the advance rate against Eligible Accounts may be
increased or decreased at Bank's sole discretion). 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 terms and conditions stated in this Section 2.1.2, any
<PAGE>
Advances requested by Borrower pursuant to Sections 2.1.2.1
entitled "Letters of Credit" and 2.1.2.2 entitled "Foreign
Exchange Contract, Foreign Exchange Settlements" shall be subject
to the Borrowing Base.
3. Section 2.1.4 entitled "Overadvances" is hereby amended to read
as follows:
Overadvances. If Borrower's Obligations under Section 2.1.2,
2.1.2.1 and 2.1.2.2 exceed the lesser of either (i) the Revolving
Committed Line minus the Cash Management Sublimit or (ii) the
Borrowing Base, Borrower must immediately pay in cash to Bank the
excess.
4. Notwithstanding the terms and conditions contained in item "(1)"
under Section 2.2(a) entitled "Interest Rate", effective as of
the date hereof, all Revolving Advances shall bear interest, on
the average Daily Balance thereof, at a rate equal to one-half of
one percentage point (0.50%) above the Prime Rate.
5. Section 6.3 entitled "Financial Statements, Reports,
Certificates" is hereby amended to read as follows:
(a) Borrower will deliver to Bank: (i) as soon as
available, but no later than 30 days after the last day of each
month, a company prepared consolidated balance sheet and income
statement covering Borrower's consolidated operations during the
period, in a form acceptable to Bank and certified by a
Responsible Officer; (ii) as soon as available, but no later than
120 days after the end of Borrower's fiscal year, audited,
consolidated financial statements prepared under GAAP,
consistently applied, together with an unqualified opinion on the
financial statements from an independent certified public
accounting firm acceptable to Bank; (iii) within 5 days of
filing, copies of all statements, reports and notices made
available to Borrower's security holders or to any holders of
Subordinated Debt and all reports on Form 10-K, 10-Q and 8-K
filed with the Securities and Exchange Commission; (iv) a prompt
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 $100,000 or more; (v) prompt
notice of any material change in the composition of the
Intellectual Property, including any subsequent ownership right
of Borrower in or to any Copyright, Patent or Trademark not shown
in any intellectual property security agreement between Borrower
and Bank or knowledge of an event that materially adversely
affects the value of the Intellectual Property; and (vi) budgets,
sales projections, operating plans or other financial information
Bank requests.
(b) Within 30 days after the last day of each month,
Borrower will deliver to Bank a Borrowing Base Certificate signed
by a Responsible Officer in the form of Exhibit C, with aged
listings of accounts receivable and accounts payable.
(c) Within 30 days after the last day of each month,
Borrower will deliver to Bank with the monthly financial
statements a Compliance Certificate signed by a Responsible
Officer in the form of Exhibit D.
(d) Bank has the right to audit Borrower's Accounts at
Borrower's expense prior to the initial Revolving Advance under
the Revolving Committed Line and at such times as an Event of
Default has occurred and is continuing.
4. CONSISTENT CHANGES. The Existing Loan Documents are hereby amended
------------------
wherever necessary to reflect the changes described above.
2
<PAGE>
5. PAYMENT OF LOAN FEE. Borrower shall pay to Bank a fee in the amount of
-------------------
Fifty Thousand Dollars ($50,000) (the "Loan Fee"), plus all out-of-pocket
expenses.
6. NO DEFENSES OF BORROWER. Borrower (and each guarantor and pledgor signing
-----------------------
below) agrees that, as of the date hereof, to the best of its knowledge, it has
no defenses against the obligations to pay any amounts under the Indebtedness.
7. CONTINUING VALIDITY. Borrower (and each guarantor and pledgor signing
-------------------
below) understands and agrees that in modifying the existing Indebtedness, Bank
is relying upon Borrower's representations, warranties, and agreements, as set
forth in the Existing Loan Documents. Except as expressly modified pursuant to
this Loan Modification Agreement, the terms of the Existing Loan Documents
remain unchanged and in full force and effect. Bank's agreement to
modifications to the existing Indebtedness pursuant to this Loan Modification
Agreement in no way shall obligate Bank to make any future modifications to the
Indebtedness. Nothing in this Loan Modification Agreement shall constitute a
satisfaction of the Indebtedness. It is the intention of Bank and Borrower to
retain as liable parties all makers and endorsers of Existing Loan Documents,
unless the party is expressly released by Bank in writing. No maker, endorser,
or guarantor will be released by virtue of this Loan Modification Agreement.
The terms of this paragraph apply not only to this Loan Modification Agreement,
but also to all subsequent loan modification agreements.
8. CONDITION. The effectiveness of this Loan Modification Agreement is
---------
conditioned upon payment of the Loan Fee.
This Loan Modification Agreement is executed as of the date first written
above.
BORROWER: BANK:
CROSSWORLDS SOFTWARE, INC. SILICON VALLEY BANK
By:____________________________ By:____________________________
Name:__________________________ Name:__________________________
Title:_________________________ Title:_________________________
3
<PAGE>
SILICON VALLEY BANK
PRO FORMA INVOICE FOR LOAN CHARGES
BORROWER: Crossworlds Software, Inc.
LOAN OFFICER: Mark Schoenrock
DATE: January 26, 2000
Loan Fee $50,000.00
Documentation Fee 250.00
TOTAL FEE DUE $50,250.00
------------- ==========
Please indicate the method of payment:
[ ] A check for the total amount is attached.
[ ] Debit DDA # __________________ for the total amount.
[ ] Loan proceeds
_________________________________
Borrower (Date)
_________________________________
Silicon Valley Bank (Date)
Account Officer's Signature
<PAGE>
Exhibit 21.1
List of Subsidiaries
--------------------
CrossWorlds Software GmbH
CrossWorlds Software France S.A.R.L.
CrossWorlds Software Australia Pty. Limited
CrossWorlds Software Limited
CrossWorlds Software (Ireland) Limited
<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
March 15, 2000
<PAGE>
EXHIBIT 23.3
[LETTERHEAD OF NEOFORMA.COM]
January 31, 2000
Mark Kent
Chief Financial Officer
CrossWorlds Software, Inc.
577 Airport Blvd., Suite 800
Burlingame, CA 94010
Dear Mr. Kent,
You have approval to use the following paragraphs as stated below for the
CrossWorlds prospectus.
(From CrossWorlds prospectus, page 42, Customer Case Study section, paragraphs
1, 2 and 3)
Customer: Neoforma.com (Healthcare e-business network provider)
Problem: Neoforma.com is building an online healthcare marketplace over the
Internet that will serve as a global network to bring together healthcare
providers and medical suppliers to exchange information and buy and sell
medical products, supplies and equipment. To accomplish this, Neoforma.com
is integrating mySAP.com Marketplace with its internal applications and
plans to integrate its online marketplace with the exchange participants'
order management and purchasing applications. The integration solution
should manage the diversity of packaged, custom and legacy applications
from each buyers and sellers.
Solution: Neoforma.com is implementing CrossWorlds as the core integration
solution to provide healthcare providers and suppliers a conduit to connect
with the mySAP.com Marketplace. CrossWorlds eBusiness will be used to
automate the exchange by capturing order information from healthcare
providers and product information from medical suppliers and formatting it
for the mySAP.com Marketplace. CrossWorlds will standardize and maintain
the core business logic and master data definitions involved in the
transactions such as item, master customer, master vendor, master orders,
account status and inventory level. This standardization ensures
consistent, accurate exchange of information and facilitates the buying and
selling of medical products, supplies and equipment. Neoforma.com will also
use CrossWorlds to integrate mySAP.com and Neoforma.com's internal ERP
system.
Sincerely,
/s/ Fred Ruegsegger
Fred Ruegsegger
Chief Financial Officer
Neoforma.com Inc.
<PAGE>
Exhibit 23.4
FORM OF CONSENT
Dr. Mr. Kent:
You have approval to use the paragraphs attached to this letter in your
prospectus in the customer case studies sections of your prospectus.
Sincerely,
/s/ Paula M. Angelo
- --------------------------
Name
Communications Manager, ISIS
- ----------------------------
Title
Delphi Automotive Systems
- ---------------------------
Company
<PAGE>
Customer: Delphi Automotive (automotive technologies, systems and components)
Problem: Delphi needed a standardized integration solution that could tie
together numerous packaged, legacy and custom applications and support the
company's complex business processes. These applications operate within multiple
business units, and Delphi wanted a solution that would improve the efficiency
of data sharing across the company. Delphi currently has a large SAP ERP
implementation along with a myriad of custom and legacy applications that manage
production, purchasing and fulfillment.
Solution: Delphi is implementing CrossWorlds to integrate the company's complex
application environment across the enterprise. From CrossWorlds, Delphi
purchased the 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.
<PAGE>
Exhibit 23.5
FORM OF CONSENT
Dear Mr. Kent:
You have approval to use the paragraphs attached to this letter in your
prospectus in the customer case studies sections of your prospectus.
Sincerely,
/s/ Barry Hawkins
- -----------------------------
Name
Public Relations Manager
- -----------------------------
Title
US West !nterprise Networking
- -----------------------------
Company
<PAGE>
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.
