<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authorship and derivative work thereof, whether published or unpublished and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.
                                    -----------------------

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<PAGE>

                                   EXHIBIT A
                                   ---------

                                  Copyrights

                                       3
<PAGE>

                                   EXHIBIT B
                                   ---------

                                    Patents

                                       4
<PAGE>

                                   EXHIBIT C
                                   ---------

                                   Trademarks

                                       5